UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2009ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from ________________ to ________________





Commission file number:  000- 52746


SINOHUB, INC.


(Exact name of registrant as specified in its charter)





Delaware

87-0438200(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)6/F, Bldg 51, Rd 5, Qiongyu Blvd.
Technology Park, Nanshan District
Shenzhen, People’s Republic of China

518057(Address of principal executive offices)

(Zip Code)





86 755 2661 2106


(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  xNo  o




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  oNo  o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o

Accelerated filer
oNon-accelerated filer
o

Smaller Reporting Company
x




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o            No  x





Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.




Class

Outstanding at June 30, 2009Common Stock, $0.001 par value per share

24,580,798 shares








1





SINOHUB, INC.


FORM 10-Q





TABLE OF CONTENTS





PART I - FINANCIAL INFORMATION
3Item 1. Financial Statements
3Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
21Item 3. Quantitative and Qualitative Disclosures About Market Risk
25Item 4T. Controls and Procedures
25PART II - OTHER INFORMATION
26Item 1. Legal Proceedings
26Item 1A. Risk Factors
26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
26Item 3. Defaults Upon Senior Securities
26Item 4. Submission of Matters to a Vote of Security Holders
26Item 5. Other Information
27Item 6. Exhibits
28SIGNATURES
29





Except as otherwise required by the context, all references in this report to "we", "us”, "our", “SinoHub” or "Company" refer to the consolidated operations of SinoHub, Inc., a Delaware corporation, and its wholly owned subsidiaries.





2
 Table of Contents


PART I - FINANCIAL INFORMATION





Item 1.  Financial Statements





SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS




ASSETS

June 30, 2009


December 31, 2008(Unaudited)


(Audited)CURRENT ASSETSCash and cash equivalents

$
4,989,000


$
5,860,000Restricted cash


2,674,000



374,000Accounts receivable, net of allowance


30,506,000



22,282,000Inventories, net


4,321,000



435,000Prepaid expenses and other


294,000



370,000Total current assets


42,784,000



29,321,000PROPERTY AND EQUIPMENT, NET


1,991,000



703,000TOTAL ASSETS

$
44,775,000


$
30,024,000LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIESAccounts payable

$
5,523,000


$
764,000Accrued expenses and other


1,225,000



234,000Bank borrowings


6,964,000



2,123,000Income and other taxes payable


2,308,000



3,391,000Total current liabilities


16,020,000



6,512,000STOCKHOLDERS’ EQUITYPreferred stock, $0.001 par value, 5,000,000 shares authorized;no shares issued


-



-Common stock, $0.001 par value, 100,000,000 shares authorized;24,580,798 shares and 24,501,989 shares issued and outstandingas of June 30, 2009 and December 31, 2008, respectively


25,000



25,000Additional paid-in capital


11,568,000



11,529,000Retained earningsUnappropriated


15,595,000



10,424,000Appropriated


724,000



724,000Accumulated other comprehensive income


843,000



810,000Total stockholders’ equity


28,755,000



23,512,000TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
44,775,000


$
30,024,000




The accompanying notes are an integral part of these condensed consolidated financial statements.


3
 Table of Contents


SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE INCOME (UNAUDITED)





Three months ended June 30,


Six months ended June 30,2009


2008


2009


2008NET SALESSupply chain management services

$
2,255,000


$
569,000


$
4,033,000


$
1,091,000Electronic components


29,105,000



12,640,000



45,419,000



23,736,000Total net sales


31,360,000



13,209,000



49,452,000



24,827,000COST OF SALESSupply chain management services


128,000



134,000



210,000



282,000Electronic components


25,531,000



11,075,000



39,706,000



20,707,000Total cost of sales


25,659,000



11,209,000



39,916,000



20,989,000GROSS PROFIT


5,701,000



2,000,000



9,536,000



3,838,000OPERATING EXPENSESSelling, general and administrative


1,289,000



580,000



2,212,000



1,077,000Professional services


132,000



493,000



361,000



493,000Depreciation


133,000



100,000



237,000



198,000Stock compensation expense


14,000



6,000



26,000



6,000Total operating expenses


1,568,000



1,179,000



2,836,000



1,774,000INCOME FROM OPERATIONS


4,133,000



821,000



6,700,000



2,064,000OTHER INCOME (EXPENSE)Interest expense


(38,000
)


(51,000
)


(63,000
)


(128,000
)Interest income


4,000



13,000



11,000



18,000Other, net


2,000



9,000



5,000



16,000Total other income (expense)


(32,000
)


(29,000
)


(47,000
)


(94,000
)INCOME BEFORE INCOME TAXES


4,101,000



792,000



6,653,000



1,970,000Income tax expense


920,000



252,000



1,482,000



342,000NET INCOME


3,181,000



540,000



5,171,000



1,628,000OTHER COMPREHENSIVE INCOMEForeign currency translation gain


2,000



179,000



33,000



465,000COMPREHENSIVE INCOME

$
3,183,000


$
719,000


$
5,204,000


$
2,093,000SHARE AND PER SHARE DATANet income per share-basic

$
0.13


$
0.03


$
0.21


$
0.09Weighted average number of shares-basic


24,581,000



19,191,000



24,581,000



18,741,000Net income per share-diluted

$
0.13


$
0.03


$
0.21


$
0.08Weighted average number of shares-diluted


25,187,000



19,641,000



25,186,000



19,191,000




The accompanying notes are an integral part of these condensed consolidated financial statements.


4
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SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)





Six months ended June 30,2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
5,171,000


$
1,628,000Adjustments to reconcile net income to cash provided by (used in) operation:Depreciation


237,000



198,000Stock compensation expense


26,000



6,000Stock issued for professional services


-



434,000Loss on disposal of property and equipment


-



5,000Changes in operating assets and liabilities:Accounts receivable


(8,195,000
)


(3,903,000
)Inventories


(3,886,000
)


(1,014,000
)Prepaid expenses and other


77,000



(40,000
)Accounts payable


4,759,000



(160,000
)Accrued expenses and other


991,000



224,000Income and other taxes payable


(1,088,000
)


(1,249,000
)Net cash used in operating activities


(1,908,000
)


(3,871,000
)CASH FLOWS FROM INVESTING ACTIVITIES(Increase) Release of restricted cash


(2,301,000
)


3,226,000Purchase of property and equipment


(1,545,000
)


(1,000
)Proceed from disposal of property and equipment


-



10,000Net cash (used in) provided by investment activities


(3,846,000
)


3,235,000CASH FLOWS FROM FINANCING ACTIVITIESProceeds from exercise of options, net of costs


13,000



-Bank borrowing proceeds


6,964,000



2,594,000Bank borrowing repayments


(2,123,000
)


(4,922,000
)Payments from a related company


-



868,000Net cash (used in) provided by financing activities


4,854,000



(1,460,000
)EFFECT OF EXCHANGE RATES ON CASH


29,000



383,000NET DECREASE IN CASH AND CASH EQUIVALENTS


(871,000
)


(1,713,000
)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


5,860,000



4,282,000CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
4,989,000


$
2,569,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest

$
63,000


$
128,000Cash paid for income tax

$
2,189,000


$
403,000




The accompanying notes are an integral part of thesecondensedconsolidated financial statements.




5
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SINOHUB, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
  Overview
  SinoHub, Inc. (the “Company”) provides products and services to suppliers and purchasers of electronic components in connection with the manufacture and assembly of electronic products in the People’s Republic of China (the “PRC” or “China”).  Approximately 92% of the Company’s revenues
are derived from the sale of electronic components and assemblies to contract manufacturers and design houses which are engaged in the manufacture of mobile phones, network equipment and other electronics products in the PRC.  These sales occur either as procurement-fulfillment projects or as one-off electronic component sales.
  In connection with the supply of such components and products, the Company also provides supply chain management services from which we derive approximately 8% of our revenues.
 The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position
and results of operations for the periods presented. The consolidated financial results of operations for the interim periods are not necessarily indicative of results for the full year.
 
 These consolidated financial statements do not include all the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the years ended December 31, 2008 and 2007.
  History and Basis of Reporting
  SinoHub, Inc. (formerly known as Liberty Alliance, Inc.) is a Delaware corporation, originally organized in Utah in 1986, and subsequently merged and reorganized as Liberty Alliance, Inc. in Delaware in 1991.  Liberty Alliance, Inc. filed for bankruptcy in 1994 and the filing was closed in 1995.  Liberty Alliance, Inc.
remained dormant until 2006 when it began preparing to become a public shell company and seek new business opportunities.  In August 2006 the Company changed its name to Vestige, Inc., and in September 2006 the Company changed its name back to Liberty Alliance, Inc.
  In May 2008, Liberty Alliance, Inc., SinoHub Acquisition Corp., known as the Merger Sub, SinoHub, Inc., known as the Acquired Sub, and Steven L. White, the principal stockholder of Liberty Alliance, entered into an Agreement and Plan of Merger pursuant to which the Merger Sub agreed to merge with and into the Acquired Sub, with the Acquired
Sub being the surviving corporation.  In connection with the merger, Liberty Alliance, Inc. issued to the stockholders of the Acquired Sub 18,290,000 shares (as adjusted for reverse stock split) of the Company’s common stock in exchange for all the outstanding shares of the Acquired Sub’s preferred and common stock and the Company assumed options exercisable for additional shares of common stock.  At the closing, Liberty Alliance, Inc. also issued 510,000 shares (as adjusted for
reverse stock split) of the Company’s common stock to certain consultants for services rendered in connection with the Merger.  The vast majority of these shares were issued to a consultant, JCGlobal, who provided consulting services to help the company engage SEC counsel and investment bankers in the process of the Company’s Chinese operations becoming part of a public entity through a reverse merger and raising a private investment in public equity.  In particular, JCGlobal advised
the Company directly in consummating a reverse merger involving a NASD over-the-counter bulletin board shell company.  Immediately following the merger, the Company had 20,000,000 shares of common stock outstanding and options exercisable for an additional 489,451 shares (as adjusted for reverse stock split) of common stock.  The conclusion of these events was deemed to be a reverse takeover transaction, or RTO, after which the original stockholders of the Company held approximately 6% of
the issued and outstanding shares of the Company’s common stock on a fully diluted basis and the Acquired Sub’s stockholders, including the shares issued to consultants, held approximately 94% of the Company’s issued and outstanding shares of common stock.
  6
 Table of Contents
  In June 2008, the Company approved a reverse stock split of 1 share for every 3.5 common stock shares outstanding; outstanding common stock shares and stock options were adjusted to account for the effects of the reverse stock split.
  In July 2008, the Company changed its name from Liberty Alliance, Inc. to SinoHub, Inc. and the Acquired Sub changed its name from SinoHub, Inc. to SinoHub International, Inc.
  For financial reporting purposes, the RTO has been accounted for as a recapitalization of the Company whereby the historical financial statements and operations of the Acquired Sub become the historical financial statements of the Company, with no adjustment to the carrying value of assets and liabilities. Share and per share amounts reflect
the effects of the recapitalization and reverse stock split for all periods presented.  In addition, the presentation for all periods includes equity transactions of the Acquired Sub as adjusted for the effects of the recapitalization and reverse stock split.
  Organization Structure
 
 The current operations of the Company include the following subsidiaries:
 
 SinoHub International, Inc. was incorporated in March 1999 as a Delaware C corporation in the United States of America.  This company is the holding company for the Chinese and Hong Kong subsidiaries listed below. SinoHub International, Inc. is wholly owned by SinoHub, Inc.
 
 SinoHub Electronics Shenzhen, Ltd. was incorporated in September 2000 in the People’s Republic of China to provide one-stop SCM services for electronic manufacturers and distributors in southern China.  SinoHub Electronics Shenzhen, Ltd. is wholly owned by SinoHub International, Inc.
 
 SinoHub SCM Shenzhen, Ltd. was incorporated in December 2001 in the PRC to hold an import and export license in the PRC. SinoHub SCM Shenzhen, Ltd. purchases and sells electronic component parts and provides Customs clearance services to our customers. 100% of the equity interest in SinoHub SCM Shenzhen, Ltd. is held on behalf of SinoHub by
SinoHub Electronics Shenzhen, Ltd. through a Declaration of Trust with SinoHub Electronics Shenzhen, Ltd. dated January 30, 2008. Through this trust agreement, SinoHub Electronics Shenzhen, Ltd. owns 100% of the beneficial interest in SinoHub SCM Shenzhen, Ltd. and accordingly, SinoHub SCM Shenzhen, Ltd. is treated as a wholly owned subsidiary of the Company for accounting purpose.
 
 SinoHub SCM Shanghai, Ltd. was incorporated in March 2005 in the PRC to provide one-stop SCM services for electronic manufacturers and distributors in northern China. SinoHub SCM Shanghai, Ltd. is wholly owned by SinoHub Electronics Shenzhen, Ltd.
 
 SinoHub Electronics Shanghai, Ltd. was incorporated in July 2005 in the PRC to provide one-stop SCM services for electronic manufacturers and distributors in the PRC. SinoHub Electronics Shanghai, Ltd. is wholly owned by SinoHub International, Inc.
 
 B2B Chips, Limited was incorporated in June 2006 in Hong Kong to purchase and sell electronic components, to manage mobile phone motherboard production and to engage in mobile phone sales. B2B Chips is wholly owned by SinoHub Electronics Shenzhen, Ltd.
 
 SinoHub Technology (Hong Kong) Limited was incorporated in May 2007 in Hong Kong and has not yet commenced business.  SinoHub Technology (Hong Kong) Limited is wholly owned subsidiary of B2B Chips.
 
 Principles of Consolidation
  The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.
  7
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 Critical Accounting Policies
 
 We believe the following critical accounting policies are important to the portrayal of our financial condition and results and require our management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.
  Use of Estimates
  The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates, including but not limited to those related to income
taxes and impairment of long-lived assets.  We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust to our judgments and estimates where facts and circumstances dictate.  Actual results could
differ from our estimates.
 
 Concentrations and Risks
  Substantially all of Company's assets are located in the PRC and Hong Kong and substantially all of the Company's revenues were derived from customers located in the PRC.  In addition, financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of accounts receivable.  The
Company mitigates credit risk through procedures that include determination of credit limits, credit approvals, and related monitoring procedures to ensure delinquent receivables are collected.
 
 Cash and Cash Equivalents
  For the purpose of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits with a bank with a maturity of less than three months.  Cash amounts held as security for the Company’s bank loans are reported as restricted cash and are not included with cash and cash equivalents on the balance
sheet until the security for such funds has been released.
 
 Accounts Receivable
  The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.  An allowance for doubtful accounts is established and recorded based on managements’ assessment of customer credit history, overall
trends in collections and write-offs, and expected exposures based on facts and prior experience.  On June 30, 2009, the Company maintained its bad debt provision at 4.5% of accounts receivable.  In the year-earlier period, the Company considered all outstanding accounts receivable to be collectible and no provision for doubtful accounts was made in the financial statements.
 
 Inventories
  Inventories are stated at cost, cost being determined on a first in first out method.  We evaluated our inventory on hand and noted that there were no slow-moving or obsolete items. Moreover, we have contracts in place with the customers before we procured the inventory. Therefore, no allowance is made for excess or obsolete inventories
as inventories are held for a short period of time and are substantially related to specific customer order commitments.  Inventory consists of electronic components purchased from suppliers.
 
 Property and Equipment
  Property and equipment are stated at cost, less accumulated depreciation.  Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred.
  8
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 Depreciation is provided on a straight-line basis, less estimated residual values over the assets’ estimated useful lives.  The estimated useful lives are as follows:
 
 Plant and machinery
5 YearsMotor vehicles
5 YearsFurniture, fixtures and equipment
2 to 5 Years
 Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstances or events indicate that the carrying amount of an asset may not be recoverable.  For purposes of evaluating the recoverability of long-lived assets, the Company considers various factors, including future cash flows, to determine
whether the carrying amount exceeds fair value, and in that case, the asset is written down to fair value. No impairment of long-lived assets was determined to exist as of June 30, 2009.
  Accrued Expense and Other
  Accrued expenses and other primarily consists of payroll related accruals and deposits from customers for the procurement of materials.  Deposits on materials are typically utilized within a six month period.
 
 Financial Instruments
 
 The Company analyzes all financial instruments that may have features of both liabilities and equity under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”  At present, there are no such instruments in the financial statements.  The Company also analyzes registration rights agreements associated with any equity instruments issued to determine if penalties triggered for late filing should be accrued under FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements.”
 
 Fair Value of Financial Instruments
  SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. Fair value of financial instruments is made at a specific point in time, based on relevant information about financial markets and specific financial instruments.  As these estimates
are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
 
 SFAS No. 157 “Fair Value Measurements” defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements
for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
 
 SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. SFAS 157 establishes three levels of inputs that may be used to measure fair value:
 
 Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
 Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets
or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
 Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
  9
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 The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, bank borrowings approximate their fair values because of the short-term nature of these instruments.  Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.
 
 The Company’s operations are primarily based in the PRC, which may give rise to significant foreign currency risks and opportunities from fluctuations and the degree of volatility of foreign exchange rates between the United States dollar (“USD”) and the Chinese Renminbi (“RMB”).In
July 2005, the PRC allowed the RMB to fluctuate within a narrow range ending its decade-old valuation peg to the USD.  Since this change in 2005, the RMB has experienced positive trends in valuation against the USD; such trends are reflected in part by the foreign currency translation gains reported in the Company’s financial statements.
 
 Derivative Instruments
  The Company does not utilize derivative or hedge instruments in its financing activities.
 
 Stock-Based Compensation
  The Company adopted SFAS No. 123R, “Share-Based Payments.”  This Statement requires a public entity to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost will be recognized over the period during which services
are received.  Stock compensation for stock granted to non-employees has been determined in accordance with SFAS 123R and the Emerging Issues Task Force consensus Issue No. 96-18, "Accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services" ("EITF 96-18"), as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
 
 Revenue Recognition
  The Company reports revenue from supply chain management, or SCM, services and electronic components sales. Revenues for supply chain management services are earned from both the SCM and procurement-fulfillment programs and are primarily based on a percentage of inventory value handled for a customer.  The Company recognizes revenue
from SCM services when the services are provided.  Revenues from electronic components sales including procurement-fulfillment procurement are based on quoted prices and are recognized at the time of shipment to customers.  Sales are recorded net of discounts and allowances.  In all cases, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services rendered, the sales price is determinable, and collectability is reasonably assured.
 
 Income Taxes
  The Company accounts for income taxes under the SFAS No. 109, “Accounting for Income Taxes.”  Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.
 
 Foreign Currency Translation
  SinoHub, Inc., SinoHub International, Inc., B2B Chips, Ltd., and SinoHub Technology Hong Kong, Ltd. maintain accounting records using the functional currencies, USD and Hong Kong Dollars (“HKD”) respectively.  SinoHub SCM Shenzhen, Ltd., SinoHub Electronics Shenzhen, Ltd., SinoHub SCM Shanghai, Ltd. and SinoHub Electronics
Shanghai, Ltd. maintain accounting records using RMB as the functional currency.
 
 The Company uses United State Dollar (“USD”) as its reporting currency.  The Company accounts for foreign currency translation pursuant to SFAS No. 52, “Foreign Currency Translation” (“SFAS No. 52”).  The subsidiaries of the Company’s functional currencies are the Hong Kong Dollar
(“HKD”) and Chinese Renminbi (“RMB”).  Under SFAS No. 52, all assets and liabilities are translated into United States dollars using the current exchange rate at the balance sheet date.  The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period.  Translation adjustments are included in other comprehensive
income (loss) for the period.
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 Foreign currency transactions during the year are translated to their functional currencies at the approximate rates of exchange on the dates of transactions.  Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the approximate rates of exchange at that date.  Non-monetary
assets and liabilities are translated at the rates of exchange prevailing at the time the asset or liability was acquired.  Exchange gains or losses are recorded in the statement of operations.
 
 Comprehensive Income
 
 The foreign currency translation gain or loss resulting from the translation of the financial statements expressed in HKD and RMB to USD is reported as other comprehensive income in the statements of operations and stockholders’ equity.
 
 Earnings Per Share
 
 Earnings per share in accordance with the provisions of SFAS No. 128, "Earnings Per Share."  SFAS 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.  Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.
 
 Segments
 
 The Company operates in one business segment.
 
 Recent Accounting Pronouncements
 
 On April 9, 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. FAS 107-1 and APB 28-1 amend FASB Statement No. 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  FAS 107-1 and APB 28-1 also amend APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. FAS 107-1 and APB 28-1 are effective for periods ending after June 15, 2009, with early adoption of all three permitted
for periods ending after March 15, 2009.  FAS 107-1 and APB 28-1 do not require disclosures for earlier periods presented for comparative purposes at initial adoption.  In periods after initial adoption, FAS 107-1 and APB 28-1 require comparative disclosures only for periods ending after initial adoption.  As this pronouncement is only disclosure-related, it does not have an impact on the financial position and results of operations.
  On April 9, 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance in US GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  FAS 115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FAS 115-2 and FAS 124-2 are effective for periods ending after June 15, 2009, with early adoption of all three permitted for periods ending after March 15, 2009   FAS 115-2 and FAS 124-2 do not require disclosures for earlier
periods presented for comparative purposes at initial adoption.  In periods after initial adoption, FAS 115-2 and FAS 124-2 require comparative disclosures only for periods ending after initial adoption. The Company adopted this FSP for the quarter ended June 30, 2009 and there was no material impact on the Consolidated Financial Settlements.
  11
 Table of Contents
 
 On April 9, 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement
No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased.  FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly.  FAS 157-4 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the
same.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  FAS 157-4 is effective for periods ending after June 15, 2009, with early adoption of all three permitted for periods ending after March 15, 2009 and will be applied prospectively.  FAS 157-4 does not require
disclosures for earlier periods presented for comparative purposes at initial adoption.  In periods after initial adoption, FAS 157-4 requires comparative disclosures only for periods ending after initial adoption.  The adoption of FAS 157-4 did not have a material impact on the financial statements.
 In December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 requires more detailed disclosures about employers’ plan assets in a defined benefit pension or other postretirement plan, including employers’ investment strategies, major categories of plan assets, concentrations of
risk within plan assets, and inputs and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 also requires, for fair value measurements using significant unobservable inputs (Level 3), disclosure of the effect of the measurements on changes in plan assets for the period. The disclosures about plan assets required by FSP FAS 132(R)-1 must be provided for fiscal years ending after December 15, 2009. As this pronouncement is only disclosure-related, it will not have an impact on the
financial position and results of operations.
 
 In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for the interim report
and annual periods that end after June 15, 2009. The adoption of SFAS 165 had no impact on the Financial Statements as management already followed a similar approach prior to the adoption of this standard.
 
 In June 2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends various provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a
replacement of FASB Statement No. 125” by removing the concept of a qualifying special-purpose entity and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer
accounted for as a sale; and requires enhanced disclosure; among others. SFAS 166 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company does not expect the standard to have any impact on the Company’s financial position.
 
 In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003) “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51” (FIN 46(R)) to require an enterprise
to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 will be effective
as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company does not expect the standard to have any impact on the Company’s financial position.
  12
 Table of Contents
 
 In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 replaces SFAS No. 162 and establishes the FASB Accounting Standards Codification
(“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or EITF Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. SFAS 168 will be effective for interim and annual periods that end after September 15, 2009. The Company does not expect the standard to have any impact on the Company’s financial position.
 
 
 2.           BANK BORROWINGS AND FINANCING ARRANGEMENTS
 
 The Company has secured financing facilities (RMB based) with certain PRC banks to support its business operations.  The facilities with each bank include:
 
 -
Letter of credit facility with one bank in the amount of $3,200,000 to support its component sales business.  Restricted cash balances are required as security for draws against the facility and an annual commitment fee of 0.1% is assessed.  In addition, the bank requires a third party guarantor.  The third-party guarantor
required the Company to pay it a fee of $80,000 for providing its guaranty.  The facility renews each year and is available through August 2009.  The Company also has a $1,460,000 Customs duty import facility and a $2,200,000 Customs export refund facility through this bank to support short term duty collections for its component sales business.  These facilities renew each year and are available through February 2010.
 
 -
Letter of credit facility with another bank in the amount of $4,400,000 to support its component sales business.  Restricted cash balances are required as security for draws against the facility and the bank requires guarantors from a subsidiary and shareholders and lien on a PRC property owned by a director and his spouse.  In addition,
the bank requires a third party guarantor.  The third-party guarantor required the Company to pay it a fee of $72,000 for providing its guaranty.  The facility is available through September, 2009.
 
 -
Letter of credit facility with another bank in the amount of $6,400,000 to support its component sales business.  Restricted cash balances are required as security for draws against the facility and the bank requires guarantees from a customer, certain subsidiaries and certain of our shareholders, none of whom is receiving any consideration for
such guarantees.  The facility is available through April, 2010.
 
 Borrowings against these facilities at June 30, 2009 and December 31, 2008 were as follows:
 
 2009


2008Note payable to a bank, annual interest rate 5.54%, due January 2009

$
-


$
121,000Note payable to a bank, annual interest rate 5.54%, due January 2009


-



156,000Note payable to a bank, annual interest rate 6.19%, due February 2009


-



954,000Note payable to a bank, annual interest rate 6.83%, due March 2009


-



730,000Note payable to a bank, annual interest rate 5.54%, due March 2009


-



162,000Note payable to a bank, annual interest rate 3.6%, due October 2009


298,000



-Note payable to a bank, annual interest rate 3.6%, due July 2009


111,000



-Note payable to a bank, annual interest rate 3.6%, due November 2009


445,000



-Note payable to a bank, annual interest rate 3.6%, due November 2009


1,380,000



-Note payable to a bank, annual interest rate 3.6%, due November 2009


230,000



-Note payable to a bank, annual interest rate 5.31%, due May 2010


1,461,000



-Note payable to a bank, annual interest rate 5.54%, due December 2009


730,000



-Note payable to a bank, annual interest rate 3.6%, due October 2009


1,204,000



-Note payable to a bank, annual interest rate 3.6%, due August 2009


1,105,000



-$
6,964,000


$
2,123,000Current maturities

$
6,964,000


$
2,123,000
 
 13
 Table of Contents
 
 We are expecting to repay the borrowings in full on their respective maturity dates. Interest expense for the three months ended June 30, 2009 and for the year 2008 was $38,000 and $51,000, respectively. Interest expense for the six months ended June 30, 2009 decreased to $63,000 from $128,000 for the six months ended June 30, 2008.
 
 3.           COMMITMENTS AND CONTINGENCIES
  Commitments
 
 The Company leases warehouse and office spaces from third parties under operating leases which expire at various dates from May 2010 through July 2013.  Rent expense for three months ended June 30, 2009 and 2008 was $98,000 and $52,000, respectively. Rent expense for the six months ended June 30, 2009 and 2008 was $210,000 and $90,000,
respectively.  At June 30, 2009, the Company has outstanding commitments with respect to operating leases, which are due as follows:
 
 2009

$
195,0002010


400,0002011


266,0002012


153,0002013


89,000$
1,103,000
 
 Contingencies
 
 The Company accounts for loss contingencies in accordance with SFAS 5,“Accounting for Loss Contingencies” and other related guidelines.  As of June 30, 2009, the Company does not have loss contingencies.
 
 14
 Table of Contents
 
 4.           EARNINGS PER SHARE
 
 The elements for calculation of earnings per share for three and six months ended June 30, 2009 and 2008 were as follows:
  Three months ended June,2009


2008Net income for basic and diluted earnings per share

$
3,181,000


$
540,000Weighted average shares used in basic computation


24,581,000



19,191,000Effect of dilutive stock options and warrants


606,000



450,000Weighted average shares used in diluted computation


25,187,000



19,641,000Earnings per share:Basic

$
0.13


$
0.03Diluted

$
0.13


$
0.03
  Six months ended June,2009


2008Net income for basic and diluted earnings per share

$
5,171,000


$
1,628,000Weighted average shares used in basic computation


24,581,000



18,741,000Effect of dilutive stock options and warrants


605,000



450,000Weighted average shares used in diluted computation


25,186,000



19,191,000Earnings per share:Basic

$
0.21


$
0.09Diluted

$
0.21


$
0.08





5.           STOCKHOLDERS’ EQUITY





Merger and Reverse Stock Split





The company’s reverse merger transaction has been accounted for as a recapitalization of the Company whereby the historical financial statements and operations of the Acquired Sub become the historical financial statements of the Company, with no adjustment of the carrying value of the assets and liabilities.  In connection
with the reverse merger, the principal stockholder of Liberty Alliance, Inc. contributed 5,203,907 shares of common stock (adjusted for reverse stock split) held by him back to the Company for nil consideration.  Following the reverse merger, Liberty Alliance, Inc. issued to the stockholders of the Acquired Sub 18,290,000 shares (as adjusted for one for 3.5 reverse stock split) of the Company’s common stock in exchange for all the outstanding shares of the Acquired Sub’s common stock comprising
10,282,288 shares of common stock and 6,933,334 shares of Acquired Sub’s preferred stock, of which 3,000,000 were designated Series A Convertible Preferred Stock (convertible into 3,000,000 shares of Acquired Sub’s common stock), 2,333,334 shares were designated Series B Convertible Preferred Stock (convertible into 2,333,334 shares of Acquired Sub’s common stock), and 1,600,000 shares are designated Series C Convertible Preferred Stock (convertible into 1,600,000 shares of Acquired Sub’s
common stock).  The Company also assumed options outstanding exercisable for additional 489,451 shares (as adjusted for reverse stock split) shares of common stock.  At the closing, Liberty Alliance, Inc. also issued 510,000 shares (as adjusted for reverse stock split) of the Company’s common stock to certain consultants for services rendered in connection with the Merger. Immediately following the merger, the Company had 20,000,000 shares of common stock outstanding and options exercisable
for an additional 489,451 shares (as adjusted for reverse stock split) of common stock.





The financial statements have been prepared as if the reverse merger transaction had occurred retroactively at the beginning of the periods presented.  Share and per share amounts reflect the effects of the recapitalization and reverse stock split for all periods presented.  Accordingly, all of the outstanding shares of
the Acquired Sub’s common stock and preferred stock at the completion date of the reverse merger transaction have been exchanged and converted to 18,290,000 shares (as adjusted for reverse stock split) of the Company’s common stock for all periods presented.  In addition, the presentation for all periods includes equity share transactions of the Acquired Sub as adjusted for the effects of the recapitalization and reverse stock split.  All costs associated with the transaction were
expensed as incurred.




15
 Table of Contents





Equity Share Transactions





In January 2009 certain employees exercised their stock options to purchase an aggregate of 78,809 shares of common stock for an aggregate price of $13,000.








6. STOCK OPTIONS





The Company has granted qualified stock options under the Company’s 2000 Incentive Stock Option Plan (the “2000 ISOP”) and 2008 Incentive Stock Option Plan (the “2008 ISOP”). At June 30, 2009, stock options to purchase 546,784 shares of common stock at an exercise price ranging from $0.09 to $2.48 per share were
outstanding.  The exercise prices were determined by the Board at the time of grant.  In each case the exercise price was not less than the fair market value of the common stock as determined by the Board in good faith taking into account such factors as recent issuances of preferred stock with an appropriate discount factored in relative to the common shares.  The exercise prices for options issued under the 2000 ISOP following the sale of preferred stock by the Company during November
and December of 2007 represent a discount to the issuance price of $0.78 for such preferred stock taking into account the added value of the conditions in the preferred stock (for example, it was redeemable with 10% appreciation).  The exercise prices for options issued in 2008 under the 2008 ISOP represent the closing price of the Company’s common stock on the business day preceding the grant date.  The exercise prices for options issued in 2009 under the 2008 ISOP represent the average
of the closing price of the Company’s common stock for the five business days preceding the grant date.  The stock options granted become exercisable (“vested”) as to 25% of the original number of shares on the first anniversary of the grant date and as to an additional 6.25% of the original number of shares at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.  Unless earlier terminated,
these stock options granted shall expire ten years after the grant date.  Following the reverse merger, all preferred shares which were convertible on the basis of one share of preferred stock for one share of common stock issued were exchanged for common stocks of Liberty Alliance, Inc. retroactively adjusted for all periods presented.





The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Expected
Expected
Dividend
Risk Free
Grant DateLife
Volatility
Yield
Interest Rate
Fair ValueThe 2000 ISOP5 years
175%
0%
2.5%
$0.09 - $0.19The 2008 ISOP1 year
89.59% - 121%
0%
2.5%
$0.47 - $0.93





Expected Volatility: Expected volatility is computed based on the standard deviation of the continuously compounded rate of return of days when the stock price changed over the past five years.





Dividend Yield: The expected dividend yield is zero.  The Company has not paid a dividend and does not anticipate paying dividends in the foreseeable future.





Risk Free Rate: Risk-free interest rate of 2.5% was used.  The risk-free interest rate was based on U.S. Treasury yields with a remaining term that corresponded to the expected term of the option calculated on the granted date.





Expected Life:  The expected life was determined based on the option’s contractual term and employees’ expected early exercise and post-vesting employment termination behavior.




16
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Stock compensation expense was recognized based on awards expected to vest.  There was no estimated forfeiture as the Company has a short history of issuing options.  SFAS No. 123R requires forfeiture to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from
those estimates.





The Company did not grant any stock options during the second quarter of 2009.  The Company recognized $14,000 and $6,000 in stock compensation expense for the three months ended June 30, 2009 and 2008, respectively. The Company recognized $26,000 and $6,000 in stock compensation expense for the six months ended June 30, 2009 and
2008, respectively. At June 30, 2009, unamortized compensation cost related to stock options was $192,000.


The following is a summary of the stock options activity:





Number of
Options
Outstanding


Weighted-
Average
Exercise
PriceBalance at December 31, 2007


502,199


$
0.17Granted


252,524


$
1.03Forfeited


(23,382
)


-Exercised


(71,166
)

$
0.11Balance at December 31, 2008


660,175


$
0.50Granted


41,500


$
2.42Forfeited


(76,082
)


-Exercised


(78,809
)

$
0.17Balance at June 30, 2009


546,784


$
0.74





The following is a summary of the status of options outstanding at June 30, 2009:





Outstanding Options
Exercisable OptionsExercise Price
Number

Average
Remaining
Contractual
Life
Average
Exercise
Price
Number
Weighted
Average
Exercise Price$0.09
16,202

6.1 years
$0.09
14,691
$0.09$0.12
54,255

7.8 years
$0.12
27,128
$0.12$0.19
183,803

8.5 years
$0.19
68,926
$0.19$1.02
250,000

9.3 years
$1.02
0
$1.02$2.48
2,524

9.5 years
$2.48
0
$2.48$2.42
40,000

9.8 years
$2.42
0
$2.48Total
546,784



110,745
$0.16








7.           RELATED PARTY TRANSACTIONS





On January 17, 2008, SinoHub’s subsidiary SinoHub Electronics Shenzhen, Ltd. acquired beneficial ownership of SinoHub SCM Shanghai, Ltd. from Sai Lin Xu with the shares of SinoHub SCM Shanghai, Ltd. being held for the benefit of SinoHub Electronics Shenzhen, Ltd. by a trustee pursuant to a Declaration of Trust.  In accordance with
the terms of the Declaration of Trust, no material monetary payment was associated with this acquisition because through the Declaration of Trust, SinoHub Electronics Shenzhen had borne all costs.  The trustee was the mother-in-law of a director of the Company.





The Company distributed electronic components to and resold electronic products purchased from a company owned jointly by the Chairman and the President of the Company.  In addition, the related company provided certain warehousing and logistics services to the Company during the development of its Hong Kong operation in 2008.  During
the three months ended June 30, 2009 and 2008, the Company sold goods totaling approximately $Nil and $0.1 million respectively to the related company and purchased goods totaling approximately $Nil and $1.0 million respectively from the related company.  During the six months ended June 30, 2009 and 2008, the Company sold goods totaling approximately $Nil and $0.7 million respectively to the related company and purchased goods totaling approximately $Nil and $1.8 million respectively from the related company.  At
June 30, 2009 and December 31, 2008, there was no amount outstanding between the Company and the related company.




17
 Table of Contents





A PRC property owned by a director and his spouse is pledged to a bank to secure banking facilities for the Company.





A director and his spouse provided guarantees to banks for banking facilities extended to the Company.





The Company’s Chief Financial Officer  provided a guarantee to a bank for banking facilities extended to the Company.





On April 13, 2009, the Company entered into a registration rights agreement with the holders of an aggregate of 7,352,750 shares of the Company’s common stock issued in respect of SinoHub International's Series A, B and C Convertible Preferred Stock in connection with the reverse merger (the "Former Preferred Holders") providing them
with demand and piggyback registration rights with respect to such shares on the conditions that such rights will not be exercisable for a period of 180 days following May 12, 2009, the date on which the Company’s first S-1 (the “Initial S-1”) became effective and that the Former Preferred Holders agreed not to include their shares in the Initial S-1. The Former Preferred Holders include the Company's CEO, Henry T. Cochran, and Jan Rejbo, who owned approximately 18% of the Company's outstanding
stock as of the date of the agreement.  Prior to the reverse merger, the Former Preferred Holders were entitled to piggy back and demand registration rights with respect to the shares of SinoHub International common stock into which the shares of SinoHub International's Series A, B and C Convertible Preferred Stock was convertible pursuant to the terms of certain Stock Purchase Agreements entered into among SinoHub International and such holders.  Prior to the execution of such registration rights agreement,
on March 6, 2009, the Company entered a waiver agreement with the respect to the registration rights agreement between the Company and the holders of common stock purchased in the Company's September 2008 private placement pursuant to which such holders consented to the inclusion in the Initial S-1 of the shares held by the Former Preferred Holders, and by certain other stockholders (the "Additional Stockholders"), including Lorikeet, Inc., a company beneficially owned by the Company’s former CEO Steven
White.  The Additional Stockholders were entitled to piggyback registration rights under the terms of the Merger Agreement entered into in connection with SinoHub's reverse merger.





8.           INCOME TAXES





The Company and its subsidiaries are subject to income taxes on an “entity” basis that is, on income arising in or derived from the tax jurisdiction in which each entity is domiciled.  It is management's intention to reinvest all the income earned by the Company’s subsidiaries outside of the US.  Accordingly,
no US federal income taxes have been provided on earnings of foreign based subsidiaries.





The Company and its wholly owned subsidiary, SinoHub International, Inc. are incorporated in the United States and have incurred operating losses since inception.  The Company has operating loss carry forwards (NOLs) for income taxes purposes of approximately $1,427,000 at June 30, 2009 which may be available to reduce future years’
taxable income.  These NOLs will expire, if not utilized, commencing in 2028.  Management believes the realization of tax benefits from these NOLs is uncertain due to the Company’s current operating history and continuing losses in the US for tax purposes.  Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax benefit has been recorded.





The Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax at a statutory rate of 17.5%.  No provision for Hong Kong profits tax was required as these entities incurred losses during three months ended June 30, 2009 and 2008.  There are no tax loss carry forward provisions in Hong Kong.





The Company’s subsidiaries in China were subject to China income tax at a statutory rate of 25% in 2009 and 2008.  However, these subsidiaries are located in special economic regions and/or qualify as “new or high-technology enterprises” that are allowed special tax reductions until 2012.  The Company’s
subsidiaries in China was subject to special tax rate was 19% in 2009 and 18% in 2008.




18
 Table of Contents





Income tax expense for three months ended June 30, 2009 and 2008 is summarized as follows:


2009

2008Current

$
920,000


$
252,000Deferred


-



-$
920,000


$
252,000
Income tax expense for six months ended June 30, 2009 and 2008 is summarized as follows:

2009

2008Current

$
1,482,000


$
342,000Deferred


-



-$
1,482,000


$
342,000





9.           CONCENTRATIONS AND RISKS





99% of the Company’s assets were located in China.





During three months ended June 30, 2009 and 2008, 10% and 0% of revenues were derived from sales made outside of PR China, respectively. During six months ended June 30, 2009 and 2008, 11% and 0% of revenues were derived from sales made outside of PR China, respectively.








Major customers and sales to those customers as a percentage of total sales were as follows:





Customer A


Customer BFor three months endedJune 30, 2009


9%



7%June 30, 2008


12%



10%





Customer A


Customer BFor six months endedJune 30, 2009


10%



7%June 30, 2008


12%



10%








As of June 30, 2009, accounts receivable to those customers were approximately $2.2 million.





Major suppliers and purchases from those suppliers as a percentage of total purchases were as follows:





Vendor A


Vendor B


Vendor CFor three months endedJune 30, 2009


8%



6%



3%June 30, 2008


11%



9%



9%





Vendor A


Vendor B


Vendor CFor six months endedJune 30, 2009


8%



7%



5%June 30, 2008


11%



9%



9%





As of June 30, 2009, accounts payable from those suppliers were approximately $560,000.





19
 Table of Contents








10.           SUBSEQUENT EVENTS





On July 31, 2009, the NYSE Amex authorized the listing of the common stock of SinoHub, Inc. and on August 7, 2009 SinoHub common stock began trading on the NYSE Amex exchange under the ticker symbol SIHI. On August 6, 2009, SinoHub closed a private investment of its common stock, selling an aggregate of 342,862 shares at $3.50 per share for
an aggregate investment of $1.2 million.













20
 Table of Contents





Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations





The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in the Company’s second amended Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on May 12, 2009  (the “2008 10-K”). This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of the 2008 10-K.   The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments
will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report on Form 10-Q.   All amounts are expressed in United States Dollars.





The following discussion should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2008, and the unaudited financial statements and the related notes that appear elsewhere in this report.





OVERVIEW





RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED


JUNE 30, 2009 COMPARED TO JUNE 30, 2008





Overall Results





The Company reported net income for three months ended June 30, 2009 of $3.2 million compared to $0.5 million in the year-earlier period, a gain of 489%, despite the fact that net income in Q2 2008 was burdened by the costs of the Company’s reverse triangular merger transaction. For the six months ended June 30, 2009, the Company reported
net income of $5.2 million, a 218% increase over the $1.6 million reported in the same period in 2008.





Net Sales





Net sales for three months and six months ended June 30, 2009 were $31.4 million and $49.5 million respectively, up 137% and 99% from $13.2 million and $24.8 million recorded respectively in the year-earlier periods.  The capital infusion from private financing that was closed in September, 2008 gave the Company funds to expand its
business.  The Company reports net sales on the basis of two business categories, supply chain management services and electronic component sales.  In three and six months ended June 30, 2009, net sales of supply chain management services increased 296% and 270% to $2.3 million and $4.0 million from $0.6 million and $1.1 million respectively in the year-earlier periods.  These increases were primarily based on the addition of several large mobile phone design house customers. In
three and six months ended June 30, 2009, net sales of electronic components increased 131% and 91% to $29.1 million and $45.4 million from $12.6 million and $23.7 million respectively in the year-earlier periods. We believe a driving force behind these increases was the Company’s ability to obtain from its supplier customers better pricing for its manufacturer customers than they were able to achieve on their own, and new functionality in SinoHub SCM, such as bill of material management and bar code handling,
that made it easier for manufacturer customers to operate their supply chains thereby increasing our level of customers.





Gross Profit





The Company recorded gross profit of $5.7 million and $9.5 million in three and six months ended June 30, 2009, compared with $2.0 million and $3.8 million respectively in the year-earlier periods.  The gross profit margin for three and six months ended June 30, 2009 increased to 18.2% and 19.3% from 15.1% and 15.5% respectively
in the year-earlier period.  This was mainly attributable to growth in higher margin supply chain management services.




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Selling, General and Administrative Expenses





Selling, general and administrative expenses increased 122% and 105% to $1.3 million and $2.2 million in three and six months ended June 30, 2009 from $0.6 million and $1.1 million in the year-earlier periods respectively to support the general growth in sales and expanded operations. Primary contributors were increased staff and startup costs
associated with new customers. These expenses were 4.1% and 4.5% of revenues in three and six months ended June 30, 2009 compared to 4.4% and 4.3% in the year-earlier periods.





Income from Operations





The Company recorded income from operations of $4.1 million and $6.7 million in three and six months ended June 30, 2009, as compared with income from operations of $0.8 million and $2.1 million respectively in the year-earlier periods.





Income Taxes





The Company’s effective tax rate was estimated at 22% in three and six months ended June 30, 2009 compared to 32% and 17% respectively in the year-earlier periods. The statutory tax rate in the PRC of 25% in 2009 and 2008 was reduced in both periods by favorable tax preferences experienced by the Company’s operations in special
economic zones as designated by the Chinese government.  The trend toward a higher effective tax rate is expected to continue as preferences lapse over time.  The Chinese government recently lowered the corporate income tax rate from 33% to 25%.  In Shenzhen, where the Company does most of its business, the special economic zone status means the corporate income tax rate for 2008 was 18% and, barring further changes, it is 19% in 2009.  The stated intention of the Chinese
government is to gradually increase the corporate tax rate in special economic zones such as in Shenzhen to the national level, which is 25% at present.  Income tax estimates in interim periods have varied as the Company has adjusted provisions and accruals in light of actual tax filings.





Foreign Currency Translation Gain and Comprehensive Net Income





The Company reported foreign currency translation gains of $2,000 and $33,000 in three and six months ended June 30, 2009, compared with foreign currency translation gains of $179,000 and $465,000 respectively in the year-earlier periods. The reason for the large difference between the gains in 2009 and those in 2008 was that the government
of PR China chose to maintain a very stable exchange rate between Renminbi and US Dollars in the first half of 2009, unlike the same period in 2008.  Comprehensive net income (net income plus foreign currency translation gains) was $3.2 million and $5.2 million in three and six months ended June 30, 2009, compared with $0.7 million and $2.1 million respectively in the year-earlier periods.








CONSOLIDATED FINANCIAL CONDITION AND LIQUIDITY





Liquidity and Capital Resources





The Company’s strategic plans include continued expansion and support of our SCM Platform and electronic component sales, including procurement-fulfillment programs.  As a result of the working capital investments necessary to support these plans, the Company will continue to require cash and financing resources to meet and
exceed its objectives. The Company’s cost of capital increased with the private financing we closed on September 10, 2008 for net proceeds of approximately $6.5 million. Since gross proceeds were approximately $7.5 million, the cost burden of $1 million represented 13.3%.  Our cost of capital with China Construction Bank, Industrial and Commercial Bank of China, and Hongzhou Bank was approximately 4% at June 30, 2009.  Since our September 10, 2008 equity financing, most of the working
capital the Company has raised has come from Chinese banks, which, to date, have not been affected by the global credit crisis nearly as much as the US and European banks.  While there can be no assurance that we will not experience a problem in the future, to date we have not had any collection problems with any procurement-fulfillment project funded.




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We believe the SinoHub’s procurement-fulfillment and electronic component sales business can be expanded with additional funds depending, in part, on how quickly we can build out new infrastructure and hire additional staff.  This is because the electronics business in China is very large relative to the size of the Company’s
business.  Additional working capital would enable us to purchase more electronic components from our suppliers, which should lower our costs, and thus enhance our profitability.  Increased volume would also likely enable the Company to get more favorable terms from suppliers which would lower our need for additional financing from third parties.  Moreover, the addition of warehouse space to support the Company’s growth will require capital investment.  Accordingly,
if SinoHub is unsuccessful in raising additional working capital, the Company’s growth will be adversely affected.





We intend to raise these funds through the sale of additional equity or debt, long-term debt financings, and operating cash flows.  Due to the risk factors discussed in this document there can be no assurance that we will be successful in raising the additional funds necessary to carry out management’s plans for the future
on acceptable terms or at all.  Our ability to obtain additional capital will also depend on market conditions, national and global economies and other factors beyond our control.  We cannot be sure that we will be able to implement or capitalize on various financing alternatives.  The terms of any debt or equity funding that we may obtain in the future may be unfavorable to us and to our stockholders.





At June 30, 2009 and December 31, 2008, the Company had cash and cash equivalents of $5.0 million and $5.9 million, respectively.  During the six months ended June 30, 2009, the net amount of cash used in the Company’s operating activities was $1.9 million, the net amount of cash used in investing activities was $3.8 million,
and the net amount of cash provided by financing activities was $4.9 million.  Exchange rate changes decreased cash flow effects by $29,000 in the six months ended June 30, 2009.





The Company advances money to procurement-fulfillment customers to purchase electronic components.  We only purchase standard components which are readily saleable.  When a manufacturer customer give us a procurement-fulfillment project, the customer inputs a bill of materials with their supplier and inputs price information
into SinoHub SCM.  Our job is to purchase these electronic components, substituting our suppliers if we can get a better price and, when we have the entire bill of materials assembled, import the components into China and deliver the components to the customer’s factory floor.  Our typical procurement-fulfillment sale to a customer requires the customer to post a deposit of 15% to 20% of the cost of the components and we generally provide 60-day payment terms.  The terms begins
when the project is approved, but SinoHub does not actually pay for the components until we receive them and in some cases we receive terms from the suppliers, with our cost of borrowing of approximately 0.4% per month in the six months ended June 30, 2009.





Cash Flows from Operating Activities





The Company maintains a significant investment in working capital, primarily accounts receivable and inventories. Accounts receivable and inventories represented approximately 78% and 76% of total assets at June 30, 2009 and December 31, 2008, respectively.





The net amount of cash used in the Company’s operating activities during six months ended June 30, 2009 was $1.9 million, which primarily included earnings from operations that were more than offset by investments in accounts receivable and inventory to support the Company’s business growth.  For six months ended June
30, 2008, net cash used in operating activities was $3.9 million for the same reason.





Cash Flows from Investing Activities





The net amount of cash used in investing activities during six months ended June 30, 2009 was $3.8 million primarily the result of restricted cash buildup.  For six months ended June 30, 2008, investing activities generated $3.2 million primarily the result of releasing restricted cash.





Cash Flows from Financing Activities





The net amount of cash provided by financing activities during six months ended June 30, 2009 was $4.8 million primarily as the result of bank borrowings.  For six months ended June 30, 2008, the net amount of cash used by financing activities was $1.5 million primarily as the result of repayments of bank borrowings.




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OFF-BALANCE SHEET ARRANGEMENTS





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.








CRITICAL ACCOUNTING POLICIES





See Note 1, Summary of Significant Accounting Policies and Organization, of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein for a discussion of critical accounting policies.
















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Item 3.  Quantitative and Qualitative Disclosures About Market Risk





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by this item, as provided by Regulation S-K Item 305(e).





Item 4T.  Controls and Procedures





Disclosure Controls and Procedures





Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal
financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.  The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions to be made regarding required disclosure.  Although
the Company's disclosure controls and procedures were designed by management, with the participation of our CEO and CFO, to provide reasonable assurance of achieving these objectives, it should be noted that any system of controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met and that management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based
upon the Company’s evaluation as of the end of the period covered by this report, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective.





Changes in Internal Control over Financial Reporting





There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.





The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.






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PART II - OTHER INFORMATION





Item 1.  Legal Proceedings





None.








Item 1A.  Risk Factors





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by this item.





Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds





None.





Item 3.  Defaults Upon Senior Securities





None.








Item 4.  Submission of Matters to a Vote of Security Holders





The Company held its Annual Meeting of the Stockholders on June 18, 2009 in New York. The stockholders elected seven directors for terms of one year each, approved the Company’s Amended and Restated 2008 Stock Plan and ratified the appointment of the firm Jimmy C.H. Chung & Co. as the independent auditors for the Company for the
fiscal year ending December 31, 2009.





The votes cast for or withheld for the election of the directors were as follows:







NAME

FOR

WITHHELDHenry T. Cochran


17,156,409

16,122Lei Xia


16,093,801

1,078,730Charles T. Kimball


17,156,407

16,124Will Wang Graylin


16,093,705

1,078,766Richard L. King


17,155,891

16,640Robert S. Torino


17,155,791

16,740Afshin Yazdian


16,093,765

1,078,766








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The votes cast for, against or abstaining for the ratification of the Company’s Amended and Restated 2008 Stock Plan were as follows:





FOR
AGAINST
ABSTAIN17,145,475
200
26,856





The votes cast for, against or abstaining for the ratification of the appointment of the firm Jimmy C.H. Chung & Co. as the independent auditors for the Company for the fiscal year ending December 31, 2009 were as follows:





FOR
AGAINST
ABSTAIN16,933,313
166
239,052





There were no other matters presented to the Company’s stockholders during the quarter ended June 30, 2009.





Item 5.  Other Information





None.




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Item 6.  Exhibits





Exhibit No.

Title of Document31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended32.1*

Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive Officer)32.2*

Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial Officer)





*These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.










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SIGNATURES





In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.








SINOHUB, INC.Date:  August 13, 2009
By:
/s/ Henry T. CochranHenry T. CochranChief Executive Officer











Date:  August 13, 2009
By:
/s/ Li De HaiLi De HaiChief Financial Officer
(Principal Financial and Accounting Officer)