UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q /A


(Amendment No.
1)








x
                  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended September 30, 2008ORo
                  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
              (Address
      of principal executive offices)
            
            518057
              (Zip
      Code)





86 755 2601
2223





(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed since last
report)





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 
x          No  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                                                      o


Non-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 November 10, 2008Common
      Stock, $0.001 par value per share
            
            24,479,692
      shares












Explanation
 
 SinoHub,
Inc. (the “Company”, “our” or “we”) determined that certain of the disclosures
made in the original quarterly report on Form 10-Q for the quarter ended
September 30, 2008, did not respond fully to the items required by Form 10-Q or
did not conform completely to the requirements of Form 10-Q.  The following
material changes have been made to this amended report:
 
 ·
              Item
      4T of Part I has been amended to provide the information about the
      Company’s evaluation of disclosure controls and
      procedures;
 
 This
Amendment No. 1 continues to speak as of the date of the original Form 10-Q for
the three months ended September 30, 2008, and we have not updated or amended
the disclosures contained herein to reflect events that have occurred since the
filing of the original Form 10-Q, or modified or updated those disclosures in
any way other than as described in the preceding paragraphs.  Accordingly,
this Amendment No. 1 should be read in conjunction with our filings made with
the SEC subsequent to the filing of the original Form 10-Q on November 13,
2008.












2




SINOHUB,
INC.


FORM
10-Q /A





TABLE OF CONTENTS








PART I -
      FINANCIAL INFORMATION
            4Item 1. Financial Statements
            4Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            17Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            26Item 4T. Controls and Procedures
            26PART II - OTHER INFORMATION
            26Item 1. Legal Proceedings
            26Item 1A. Risk Factors
            26Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            32Item 3. Defaults Upon Senior Securities
            32Item 4. Submission of Matters to a Vote of Security
      Holders
            32Item 5. Other Information
            32Item 6. Exhibits
            32SIGNATURES
            33




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.







3
 Table of Contents




Item1. FinancialStatements.





SINOHUB,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


ASSETS
            
            September
      30,
              2008
            
            
            December
      31,
              2007CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            8,115,000
            
            
            $
            4,282,000Restricted
      cash
            
            
            452,000
            
            
            
            5,509,000Accounts
      receivable, net
            
            
            18,971,000
            
            
            
            9,748,000Inventories
            
            
            1,057,000
            
            
            
            853,000Prepaid
      expenses and other
            
            
            744,000
            
            
            
            426,000Due
      from related company
            
            
            -
            
            
            
            1,493,000Total
      current assets
            
            
            29,339,000
            
            
            
            22,311,000PROPERTY
      AND EQUIPMENT, NET
            
            
            583,000
            
            
            
            846,000TOTAL
      ASSETS
            
            $
            29,922,000
            
            
            $
            23,157,000LIABILITIES AND
      STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            3,372,000
            
            
            $
            6,777,000Accrued
      expenses and other
            
            
            357,000
            
            
            
            307,000Bank
      borrowings
            
            
            2,780,000
            
            
            
            6,904,000Notes
      payable to third parties
            
            
            -
            
            
            
            251,000Due
      to related company
            
            
            687,000
            
            
            
            -Income
      and other taxes payable
            
            
            2,097,000
            
            
            
            1,457,000Total
      current liabilities
            
            
            9,293,000
            
            
            
            15,696,000COMMITMENTS
      AND CONTINGENCIES
            
            
            -
            
            
            
            -STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.001 par value, 5,000,000 shares authorized;
              no
      shares issued and outstanding
            
            
            -
            
            
            
            -Common stock, $0.001 par value,
      100,000,000 shares authorized;
              24,478,000 shares
      and 18,290,000 shares issued and outstanding
            
            
            24,000
            
            
            
            18,000Additional
      paid-in capital
            
            
            11,443,000
            
            
            
            4,509,000Retained
earningsUnappropriated
            
            
            7,857,000
            
            
            
            2,309,000Appropriated
            
            
            356,000
            
            
            
            356,000Accumulated
      other comprehensive income
            
            
            949,000
            
            
            
            269,000Total
      stockholders’ equity
            
            
            20,629,000
            
            
            
            7,461,000TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            29,922,000
            
            
            $
            23,157,000




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




4
 Table of Contents




SINOHUB,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
INCOME (UNAUDITED)




Three
      months ended September 30
            
            
            Nine
      months ended September 302008
            
            
            2007
            
            
            2008
            
            
            2007NET
      SALESSupply
      chain management services
            
            $
            1,270,000
            
            
            $
            441,000
            
            
            $
            2,361,000
            
            
            $
            1,314,000Electronic
      components
            
            
            26,913,000
            
            
            
            6,696,000
            
            
            
            50,649,000
            
            
            
            17,076,000Total
      net sales
            
            
            28,183,000
            
            
            
            7,137,000
            
            
            
            53,010,000
            
            
            
            18,390,000COST
      OF SALESSupply
      chain management services
            
            
            671,000
            
            
            
            162,000
            
            
            
            953,000
            
            
            
            610,000Electronic
      components
            
            
            21,434,000
            
            
            
            5,326,000
            
            
            
            42,141,000
            
            
            
            13,199,000Total
      cost of sales
            
            
            22,105,000
            
            
            
            5,488,000
            
            
            
            43,094,000
            
            
            
            13,809,000GROSS
      PROFIT
            
            
            6,078,000
            
            
            
            1,649,000
            
            
            
            9,916,000
            
            
            
            4,581,000OPERATING
      EXPENSESSelling,
      general and administrative expenses
            
            
            954,000
            
            
            
            451,000
            
            
            
            2,037,000
            
            
            
            1,277,000Merger
      related expenses
            
            
            18,000
            
            
            
            -
            
            
            
            511,000
            
            
            
            -Depreciation
            
            
            90,000
            
            
            
            91,000
            
            
            
            288,000
            
            
            
            270,000Total
      operating expenses
            
            
            1,062,000
            
            
            
            542,000
            
            
            
            2,836,000
            
            
            
            1,547,000INCOME
      FROM OPERATIONS
            
            
            5,016,000
            
            
            
            1,107,000
            
            
            
            7,080,000
            
            
            
            3,034,000OTHER
      (INCOME) EXPENSEInterest
      expense
            
            
            53,000
            
            
            
            42,000
            
            
            
            181,000
            
            
            
            109,000Other,
      net
            
            
            (24,000
            )
            
            
            (55,000
            )
            
            
            (59,000
            )
            
            
            (87,000
            )Total
      other (income) expense
            
            
            29,000
            
            
            
            (13,000
            )
            
            
            122,000
            
            
            
            22,000INCOME
      BEFORE INCOME TAXES
            
            
            4,987,000
            
            
            
            1,120,000
            
            
            
            6,958,000
            
            
            
            3,012,000Income
      tax expense
            
            
            1,068,000
            
            
            
            140,000
            
            
            
            1,410,000
            
            
            
            368,000NET
      INCOME
            
            
            3,919,000
            
            
            
            980,000
            
            
            
            5,548,000
            
            
            
            2,644,000OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
            
            
            216,000
            
            
            
            64,000
            
            
            
            680,000
            
            
            
            121,000COMPREHENSIVE
      INCOME
            
            $
            4,135,000
            
            
            $
            1,044,000
            
            
            $
            6,228,000
            
            
            $
            2,765,000SHARE
      AND PER SHARE DATANet
      income per share-basic
            
            $
            0.19
            
            
            $
            0.06
            
            
            $
            0.28
            
            
            $
            0.17Weighted
      average number of shares-basic
            
            
            21,021,000
            
            
            
            16,046,000
            
            
            
            19,503,000
            
            
            
            15,453,000Net
      income per share-diluted
            
            $
            0.18
            
            
            $
            0.06
            
            
            $
            0.28
            
            
            $
            0.17Weighted
      average number of shares-diluted
            
            
            21,389,000
            
            
            
            16,178,000
            
            
            
            19,871,000
            
            
            
            15,585,000







See
accompanying notes to consolidated financial statements




5
 Table of Contents




SINOHUB,
INC. AND SUBSIDIAIRIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





Nine
      months ended September 302008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            5,548,000
            
            
            $
            2,644,000Adjustments
      to reconcile net income to cash provided by (used) in
      operationsDepreciation
            
            
            288,000
            
            
            
            270,000Loss
      on disposal of property and equipment
            
            
            5,000
            
            
            
            -Stock
      compensation expense
            
            
            5,000
            
            
            
            109,000Stock
      issued for services
            
            
            451,000
            
            
            
            50,000Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (8,221,000
            )
            
            
            (690,000
            )Inventories
            
            
            (138,000
            )
            
            
            (9,000
            )Prepaid
      expenses and other
            
            
            (277,000
            )
            
            
            2,630,000Accounts
      payable
            
            
            (3,764,000
            )
            
            
            (744,000
            )Accrued
      expenses and other
            
            
            27,000
            
            
            
            (3,878,000
            )Income
      and other taxes payable
            
            
            516,000
            
            
            
            363,000Net
      cash (used in) provided by operating activities
            
            
            (5,560,000
            )
            
            
            745,000CASH
      FLOWS FROM INVESTING ACTIVITIESRelease
      of restricted cash
            
            
            5,057,000
            
            
            
            -Proceeds
      from disposal of property and equipment
            
            
            10,000
            
            
            
            -Purchase
      of property and equipment
            
            
            (1,000
            )
            
            
            (17,000
            )Net
      cash provided by (used in) investment activities
            
            
            5,066,000
            
            
            
            (17,000
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
            
            
            7,498,000
            
            
            
            -Expenses
      of common stock offering
            
            
            (1,014,000
            )
            
            
            -Advances
      from investors
            
            
            -
            
            
            
            1,411,000Due
      to director repaid
            
            
            -
            
            
            
            (203,000
            )Bank
      borrowing proceeds
            
            
            2,594,000
            
            
            
            6,078,000Bank
      borrowing payments
            
            
            (7,060,000
            )
            
            
            -Notes
      payable payments
            
            
            (251,000
            )
            
            
            (305,000
            )Related
      company proceeds (payments)
            
            
            2,210,000
            
            
            
            (4,640,000
            )Net
      cash provided by financing activities
            
            
            3,977,000
            
            
            
            2,341,000EFFECT
      OF EXCHANGE RATES ON CASH
            
            
            350,000
            
            
            
            92,000NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            3,833,000
            
            
            
            3,161,000CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            4,282,000
            
            
            
            3,000,000CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            8,115,000
            
            
            $
            6,161,000SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest expense
            
            $
            181,000
            
            
            $
            109,000Cash
      paid for income tax
            
            $
            403,000
            
            
            $
            6,000




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





6
 Table of Contents




SINOHUB,
INC AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION







Overview




SinoHub,
Inc. (formerly known as Liberty Alliance, Inc.) (“the Company”)  is an
electronic components supply chain management (“SCM”) service
provider.  SinoHub provides SCM services to electronics manufacturers
and component suppliers in the People’s Republic of China (“PRC”). The Company’s
Supply Chain Management platform (“the SCM Platform”) integrates a proprietary
SCM online software system, logistics service centers located in key
distribution/manufacturing cities in the PRC, and a service team of more than
100 employees.




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, 2007 and 2006.




History
and Basis of Reporting




SinoHub,
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
dismissed 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 May
2008, Liberty Alliance, Inc., SinoHub Acquisition Corp.(“the Merger Sub”),
SinoHub, Inc.(“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 (the "Merger"). In
connection with the Merger, Liberty Alliance, Inc. issued to the stockholders of
the Acquired Sub 18,290,000 shares adjusted for the 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 adjusted for the reverse stock split
of the Company’s common stock to certain consultants for services rendered in
connection with the Merger (“Consultant Shares”).  Immediately
following the Merger, the Company had 20,000,000 shares adjusted for the reverse
stock split of common stock outstanding and options exercisable for an
additional 489,451 shares of common stock adjusted for the reverse stock
split.  The conclusion of these events was deemed to be a reverse
takeover transaction (“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 Consultant Shares) held approximately 94% of the
Company’s issued and outstanding shares of common stock.




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.




7
 Table of Contents




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.




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.




Use
of Estimates




The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those 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
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 is reported
as restricted cash and is not included with cash or 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. To date, write-offs
associated with the extension of credit have been negligible. At September 30,
2008, 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. 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.




8
 Table of Contents




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.


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. The Company believes that no impairment of
property and equipment exists at September 30, 2008.





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.




The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, bank borrowings, notes payable and other liabilities
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.




9
 Table of Contents




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 (“SCM”) services and
electronic components sales. Revenues for supply chain management services are
earned from both the SCM and VMI 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. Revenue from
electronic components sales 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, and SinoHub Hong Kong maintain
accounting records using the functional currencies, USD and Hong Kong Dollars
(“HKD”) respectively. SinoHub SCM SZ, SinoHub Electronics SZ, SinoHub SCM SH and
SinoHub Electronics SH maintain accounting records using RMB as the functional
currency.




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.




The
financial statements of the subsidiaries (whose functional currencies are HKD
and RMB) are translated into USD using the closing rate method.  The
balance sheet items are translated into USD using the exchange rates at the
respective balance sheet dates.  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 year.  All exchange differences are recorded as
a component of accumulated other comprehensive income within
equity.




10
 Table of Contents




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




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements.” The objective of SFAS 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements.  SFAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurements and does not require any new fair value measurements.
The provisions of SFAS 157 are effective for fair value measurements made in
fiscal years beginning after November 15, 2007. The adoption of this statement
is not expected to have a material effect on the Company's future reported
financial position or results of operations.





In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115.”  This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of SFAS 159 apply only to entities that elect the fair value option.
However, the amendment to SFAS No. 115 “Accounting for Certain Investments in
Debt and Equity Securities” applies to all entities with available-for-sale and
trading securities. SFAS 159 is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before November
15, 2007, provided the entity also elects to apply the provision of SFAS No.
157, “Fair Value Measurements.” The adoption of this statement is not expected
to have a material effect on the Company's financial statements.





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This statement is effective
beginning January 1, 2009. The Company does not expect the adoption of SFAS 141R
to have a material impact on its financial position and results of
operations.




11
 Table of Contents




In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the parent
and the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income, changes in a parent’s ownership interest while
the parent retains its controlling financial interest in its subsidiary be
accounted for consistently, when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value, entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners.  SFAS 160 affects those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary.  SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. Early adoption is prohibited. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
This statement is intended to improve transparency in financial reporting by
requiring enhanced disclosures of an entity’s derivative instruments and hedging
activities and their effects on the entity’s financial position, financial
performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives,
and nonderivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS 161 must provide more
robust qualitative disclosures and expanded quantitative disclosures. SFAS 161
is effective prospectively for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
permitted.  The adoption of this statement is not expected to have a
material effect on the Company’s financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that presented in conformity
with generally accepted accounting principles in the United States of America.
SFA 162 will be effective 60 days following the SEC’s approval of the PCAOB
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The Company
does not believe SFAS 162 will have a significant impact on the Company’s
financial statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
this Statement is limited to financial guarantee insurance and reinsurance
contracts, as described in the Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, this Statement does not apply to
financial guarantee contracts issued by enterprises excluded from the scope of
Statement 60 or to some insurance contracts that seem similar to financial
guarantee insurance contracts issued by insurance enterprises (such as mortgage
guaranty insurance or credit insurance on trade receivables). This Statement
also does not apply to financial guarantee contracts that are derivative
instruments included within the scope of SFAS No. 133, “Accounting for
Derivative instruments and Hedging Activities.” The Company does not believe
SFAS 163 will have a significant impact on the Company’s consolidated financial
statements.





In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, to clarify
guidance on determining the fair value of a financial asset under SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance, including
prior periods for which financial statements had not been issued. The adoption
of this statement effective September 30, 2008 did not have a material impact on
the Company’s financial statements.




12
 Table of Contents




2.            PREPAID
EXPENSES AND OTHER




Prepaid
expenses and other current assets at September 30, 2008 (unaudited) and December
31, 2007 consist of the following:




2008
            
            
            2007Prepaid
      expenses
            
            $
            328,000
            
            
            $
            200,000Other
      receivables
            
            
            416,000
            
            
            
            226,000$
            744,000
            
            
            $
            426,000




3.           PROPERTY
AND EQUIPMENT




The
following is a summary of property and equipment at September 30, 2008
(unaudited) and December 31, 2007:




2008
            
            
            2007Furniture,
      fixtures and equipment
            
            $
            1,164,000
            
            
            $
            1,084,000Plant
      and machinery
            
            
            771,000
            
            
            
            719,000Motor
      vehicles
            
            
            243,000
            
            
            
            251,0002,178,000
            
            
            
            2,054,000Less:  accumulated
      depreciation
            
            
            (1,595,000
            )
            
            
            (1,208,000
            )Property
      and equipment, net
            
            $
            583,000
            
            
            $
            846,000




4.           ACCRUED
EXPENSES AND OTHER




Accrued
expenses and other liabilities at September 30, 2008 (unaudited) and December
31, 2007 and consist of the following:




2008
            
            
            2007Accrued
      expenses
            
            $
            181,000
            
            
            $
            156,000Other
      liabilities
            
            
            176,000
            
            
            
            151,000$
            357,000
            
            
            $
            307,000





5.           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 $3,100,000 to support
      trading activity. 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 for a fee
      of $80,000. The Company also has a $1,400,000 customs duty facility
      through this bank to support short term duty collections on trading
      activity. These facilities renew each year and are available through May
      2009.





-
            Letter
      of credit facility with another bank in the amount of $3,400,000 to
      support trading activity. 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
      for a fee of $70,000. The facility renews each year and is available
      through December 2008.





-
            Revolving
      line of credit facility with a bank in the amount of $700,000 to support
      working capital requirements. Draws on the line currently bear interest at
      7.1% and are secured by a lien on the residence of the Chairman and CEO of
      the Company. The facility is available through December
    2008.





13
 Table of Contents




6.           NOTES
PAYABLE TO THIRD PARTIES




Notes
payable to third parties are due on demand or normally within one year. During
2008, the notes were repaid and as of September 30, 2008, no amounts were
outstanding.




7.           COMMITMENTS
AND CONTINGENCIES




Employee
Benefits




The full
time employees of subsidiaries based in the PRC are entitled to employee
benefits including medical care, welfare subsidies, unemployment insurance and
pension benefits through a Chinese government mandated multi-employer defined
contribution plan. The Company is required to accrue for those benefits based on
certain percentages of the employees’ salaries and make contributions to the
plans out of the amounts accrued for medical and pension benefits. The total
provision and contributions made for such employee benefits for the nine months
ended September 30, 2008 and 2007 was $65,000 and $63,000 respectively. The
Chinese government is responsible for the medical benefits and the pension
liability to be paid to these employees.





Commitments





The
Company leases warehouse and office spaces from third parties under operating
leases which expire at various dates from July 2008 through March 2011. Rent
expense for the nine months ended September 30, 2008 and 2007 was $174,000 and
$115,000.  At September 30, 2008, the Company has outstanding
commitments with respect to operating leases, which are due as
follows:




2008
            $     
      76,0002009
            290,0002010
            290,0002011
            112,000$   
      768,000





8.           EARNINGS
PER SHARE




The
elements for calculation of earnings per share for the three and nine months
ended September 30, 2008 and 2007 were as follows:










Three
      months ended
            
            
            Nine
      months endedSeptember
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income for basic and diluted earnings per share
            
            $
            3,919,000
            
            
            $
            980,000
            
            
            $
            5,548,000
            
            
            $
            2,644,000Weighted
      average shares used in basic computation
            
            
            21,021,000
            
            
            
            16,046,000
            
            
            
            19,503,000
            
            
            
            15,453,000Effect
      of dilutive stock options and warrants
            
            
            368,000
            
            
            
            132,000
            
            
            
            368,000
            
            
            
            132,000Weighted
      average shares used in diluted computation
            
            
            21,389,000
            
            
            
            16,178,000
            
            
            
            19,871,000
            
            
            
            15,585,000Earnings
      per share:Basic
            
            $
            0.19
            
            
            $
            0.06
            
            
            $
            0.28
            
            
            $
            0.17Diluted
            
            $
            0.18
            
            
            $
            0.06
            
            
            $
            0.28
            
            
            $
            0.17




14
 Table of Contents




9.           STOCKHOLDERS’
EQUITY




Merger and Reverse Stock
Split





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 of the
carrying value of the 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 share transactions of the Acquired Sub as adjusted for the
effects of the recapitalization and reverse stock split.  All costs
associated with the RTO transaction were expensed as incurred.





Appropriated
Retained Earnings




The
Company’s PRC subsidiaries are required to make appropriations to reserve funds,
comprising the statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve, based on the after-tax net income determined in
accordance with the laws and regulations of the PRC.  Prior to January
1, 2006 the appropriation to the statutory surplus reserve should be at least
10% of the after tax net income determined in accordance with the laws and
regulations of the PRC until the reserve is equal to 50% of the entities’
registered capital.  Appropriations to the statutory public welfare
fund are at 5% to 10% of the after tax net income determined by the Board of
Directors.  Effective January 1, 2006, the Company is only required to
contribute to one statutory reserve fund at 10% of net income after tax per
annum, such contributions not to exceed 50% of the respective companies’
registered capital.




The
statutory reserve funds are restricted for use to set off against prior period
losses, expansion of production and operation or for the increase in the
registered capital of the Company. The statutory public welfare fund is
restricted for use in capital expenditures for the collective welfare of
employees. These reserves are not transferable to the Company in the form of
cash dividends, loans or advances. These reserves are therefore not available
for distribution except in liquidation.




Private
Offering of Common Stock





In
September 2008, the Company entered into and closed a Securities Purchase
Agreement with certain accredited investors in a private offering for shares of
common stock and warrants to purchase common stock.  The Company issued
4,406,533 shares of common stock, three-year warrants to purchase 1,101,633
shares of common stock at an exercise price of $2.15 per share, and five-year
warrants to purchase 1,101,633 shares of common stock at $3.00 per share in
return for gross proceeds of approximately $7.5 million in cash. During the
third quarter of 2008, net offering proceeds of approximately $6.5 million were
recorded as an addition to stockholders’ equity, after deducting offering and
related closing costs of the transaction.  The Company also issued warrants
to the placement agent in connection with services for the private
offering.  These included three-year warrants to purchase 154,228
shares of common stock at an exercise price of $2.15 per share, and five-year
warrants to purchase 154,229 shares of common stock at $3.00 per
share.




10.           RELATED
PARTY TRANSACTIONS





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.  During the first nine months of 2008 and 2007, the Company
sold goods totaling approximately $700,000 and $900,000 to the related company
and purchased goods totaling approximately $3,000,000 and $400,000 from the
related company. The
Company paid service fees to the related company totaling $-0- and $148,000 in
2008 and 2007.  At December 31, 2007, the related company owed the
Company $1,493,000, which was interest free and repayable on
demand.  At September 30, 2008, the Company owes the related company
$687,000 which is interest free and payable on demand.




15
 Table of Contents





11.           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 $274,000 at December 31, 2007 which may be available
to reduce future years’ taxable income. These NOLs will expire, if not utilized,
commencing in 2027. 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 2007 and 2006. 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 2008 and 33% in 2007. However, these subsidiaries are located in
special economic regions and/or qualify as “new or high-technology enterprises”
that are allowed special tax reductions.




16
 Table of Contents


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





The following discussion and
analysis is based on, and should be read in conjunction with our condensed
consolidated financial statements, which are included elsewhere in this Form
10Q. Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains statements that are forward-looking. These statements are
based on current expectations and assumptions that are subject to risk,
uncertainties and other factors. Actual results could differ materially because
of the factors discussed in “Risks Factors”elsewhere in this Form 10Q, and other
factors that we may not know. All amounts are expressed in United States
dollars.





OVERVIEW





SinoHub,
Inc. (“the Company”) is an electronic components supply chain management (SCM)
service provider.  SinoHub provides SCM services to electronics
manufacturers and component suppliers in the People’s Republic of China (PRC).
Our professional Supply Chain Management Platform (the SCM Platform) integrates
our proprietary, world-class Supply Chain Management (SCM) online software
system (SinoHub SCM), logistics service centers located in key
distribution/manufacturing cities in the PRC, and a service team of more than
100 employees.





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 dismissed 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 May
2008, Liberty Alliance, Inc., SinoHub Acquisition Corp.(“the Merger Sub”),
SinoHub, Inc.(“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 (the "Merger"). In
connection with the Merger, Liberty Alliance, Inc. issued to the stockholders of
the Acquired Sub 18,290,000 shares (as adjusted for the 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 the reverse stock
split) of the Company’s common stock to certain consultants for services
rendered in connection with the Merger (“Consultant
Shares”).  Immediately following the Merger, the Company had
20,000,000 shares (as adjusted for the reverse stock split) of common stock
outstanding and options exercisable for an additional 489,451 shares (as
adjusted for the reverse stock split) of common stock.  The conclusion
of these events was deemed to be a reverse takeover transaction (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 Consultant Shares) held
approximately 94% of the Company’s issued and outstanding shares of common
stock.





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 of the Company 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.




17
 Table of Contents




Business
Operations





SinoHub’s
business operations are primarily dedicated toward leveraging the value of the
SCM platform to source and deliver electronic components and electronic products
for our customers.





The
Company offers customers the use of the SCM platform under a fee based program
where customers outsource the supply chain process to SinoHub, while retaining
title to inventory, receivables, and commitments on supplier payables. SinoHub
provides the customer a complete SCM solution that includes importing and
exporting services, facilitating customs clearance, performing warehouse and
distribution functions, and enabling foreign currency settlements through
SinoHub’s banking relationships and its licensed qualifications as a Client
Coordinator Enterprise at the main border crossing into China for electronic
components, Huanggang in Shenzhen.





The
Company also provides a unique Vendor Managed Inventory (VMI) program for
customers that integrates the use of the SCM platform with inventory
procurement, handling, and distribution, as well as financing, if required.
Customers may require “order fulfillment” services, where the customer
outsources its electronic component purchasing process and specifies suppliers
at pre-negotiated costs, and SinoHub receives a negotiated fee from its customer
for services related to handling the purchasing, and for managing and financing
the inventory through the supply chain. Alternatively, customers may request
“order procurement” services, where SinoHub sources and procures electronic
components from the marketplace, and then resells the components to its
customers at negotiated prices that include the component cost, supply chain
management, and financing, if necessary. In all cases, the VMI program provides
customers with a streamlined management process for navigating all importing,
customs, warehousing, and delivery challenges, while addressing key objectives
for working capital, inventory levels, order fill rates, and transaction
costs.





SinoHub
also supports customers by providing a sourcing channel for electronic
components that are not part of a specific SCM or VMI program. In these cases,
SinoHub utilizes its industry knowledge and relationships with components
suppliers and manufacturers to source products at competitive prices and within
time constraints.  SinoHub  responds to these “spot” orders from
customers, sources the product, confirms pricing, and executes delivery.
Customers are required to pay on delivery of product.





CONSOLIDATED
RESULTS OF OPERATIONS





The
Company derives revenue and gross profit primarily from fees associated with the
provision of SCM services and sales of electronic components.





The
Company reports revenue from supply chain management (SCM) services and
electronic components sales. Revenues for supply chain management services are
earned from both the SCM and VMI 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 VMI 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.





Cost of
sales for SCM services primarily represents direct costs incurred for
providing SCM services, including logistics services, import/export services,
warehouse services and a number of ancillary services such as kitting,
insurance, repackaging and re-labeling. Cost of sales for electronic components
primarily represents the cost of components and expenses directly related
to component procurement.





Selling,
general and administrative expenses include salaries paid to employees, employee
related expenses, professional fees, marketing costs, technology costs, sales
commissions, depreciation, rent, and related office and facility
expenses.




18
 Table of Contents





Three
and Nine Months Ended September 30, 2008 Compared to September 30,
2007:





Overall
Results





The
company reported net income of $3.9 million in the third quarter of 2008,
compared with net income of $980,000 in the year-earlier period. Net income for
the nine months ended September 30,2008
was $5.5 million compared to $2.6 million in the comparable year earlier
period.





Net
Sales





Net
sales increased almost three-fold to $28.2 million in the third quarter of
2008 from $7.1 million in the third quarter of 2007 due to continued strong
customer demand for the Company’s services and related electronic components in
Mainland China. Net sales for the nine months ended September 30, 2008 was $53.0
million, up 188% from $18.4 million recorded in the year earlier
period.  Growth was supported by additional access to financial
resources and bank borrowings during the 2008 periods.





Gross
Profit





The
Company recorded gross profit of $6.1 million and $9.9 million in the third
quarter and first nine months of 2008, respectively, compared with $1.6 million
and $4.6 million in the year-earlier periods. The gross profit margin for the
third quarter of 2008 decreased to 21.6% from 23.1% in the prior year. Gross
margins are under pressure as a result of growth in larger VMI projects where
the mix of components and competitive pricing configurations result in lower
margins. While positive profit trends are expected as the Company’s sales grow,
the trend toward lower gross profit margins may continue as the Company pursues
and wins new business opportunities.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses increased $503,000 or 111%, to $954,000 and
$760,000 or 60%, to $2.0 million in the third quarter and the first nine months
of 2008 to support the general growth in sales and expanded operations. These
expenses were approximately 4% of revenues in 2008 compared to 7% in the prior
year as the Company experienced favorable leverage on infrastructure while sales
increased.





Income
from Operations





The
Company recorded income from operations of $5.0 million and $7.1 million in
the third quarter and first nine months of 2008, respectively, as compared with
operating income of $1.1 million and $3.0 million in the year-earlier
periods. Operating results for the 2008 year to date period included expenses
related to the RTO totaling approximately $500,000 in the second
quarter.





Income
Taxes





The
Company’s effective tax rate was 20.2% for the first nine months of 2008
compared to 12.2% in 2007. The statutory tax rate in the PRC of 25% in 2008 and
33% in 2007 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.  Income tax estimates in
interim periods have varied as the Company has adjusted provisions and accruals
in light of actual tax filings.




19
 Table of Contents




Foreign
Currency Translation Gain and Comprehensive Net Income





The
Company reported foreign currency translation gains of $216,000 and $680,000 in
the third quarter and first nine months of 2008, respectively, compared with
foreign currency translation gains of $64,000 and $121,000 in the year-earlier
periods as the increase in value of the RMB versus the USD continued.
Comprehensive net income (net income plus foreign currency translation gains)
was $4.1 million and $6.2 million in the third quarter and first nine months of
2008 compared with $1.0 million and $2.6 million 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 the SCM
Platform and VMI programs, including electronic component shipments. 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. 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
September 30, 2008 and December 31, 2007, the Company had cash and
cash equivalents of $8.1 million and $4.3 million, respectively. During the
first nine months of 2008, the net amount of cash used in the Company’s
operating activities was $5.6 million, the net amount of cash provided by
investing activities was $5.1 million, and the net amount of cash provided by
financing activities was $4.0 million. Exchange rate changes increased cash flow
effects by $350,000 in the first nine months of 2008.





For
comparative purposes, at September 30, 2007 and December 31, 2006, the Company’s
cash balance was $6.2 million and $3.0 million, respectively. During 2007, cash
flows provided by operating activities were $745,000. Investing activities used
$17,000 in cash, and financing activities generated $2.3 million in cash.
Exchange rate changes increased cash flow effects by $92,000 in the first nine
months of 2007.





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 67% and 46% of total assets at September 30, 2008
and December 31, 2007, respectively.





The net
amount of cash used in the Company’s operating activities during the first nine
months of 2008 was $5.6 million which primarily included earnings from
operations offset by investments in accounts receivable and inventory to support
the Company’s business growth. In addition, accounts payable reductions were
made during the period to enable favorable terms with suppliers. In the prior
year period, net operating cash inflows were $745,000 as cash flow from income
was offset by investments in receivables, as well as reductions in payables and
certain deposits with customers as new service programs matured.




20
 Table of Contents





Cash
Flows from Investing Activities




The net
amount of cash generated by investing activities during the first nine months of
2008 was $5.1 million primarily the result of a release of restricted cash as
the Company settled bank notes under letters of credit that required restricted
cash balances; in the corresponding 2007 period investing cash flows were
insignificant.





Cash
Flows from Financing Activities





The net
amount of cash used by financing activities during the first nine months of 2008
was $4.0 million, which included a private placement stock offering in the third
quarter with gross proceeds of $7.5 million, proceeds from bank borrowings of
approximately $2.6 million, and payments on bank notes of $7.1
million.  In the prior year period, cash flow from financing
activities included advance payments by investors of $1.4 million in connection
with equity offerings that closed later in 2007, and bank borrowing proceeds of
$6.1 million, offset by note payments of $508,000, repayments to a related
company that advanced funds for certain subsidiaries of $1.3 million, and other
reductions in related company payables of approximately $3.3
million.  The related company, which is based in Hong Kong, assisted
the Company by facilitating certain foreign exchange transactions, and settled
obligations to certain suppliers on behalf of the Company, and collected certain
customer remittances on behalf of the Company. These activities are expected to
diminish by the end of 2008 as the Company’s recently established Hong Kong
operation has achieved required infrastructure to support foreign exchange
transactions.





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





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.





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.





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.




21
 Table of Contents





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. To date, write-offs
associated with the extension of credit have been negligible. At September 30,
2008, and at December 31, 2007, 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. 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.


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. The Company believes that no impairment of
property and equipment exists at September 30, 2008.





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.”





22
 Table of Contents





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.





The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, bank borrowings, notes payable and other liabilities
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 (“SCM”) services and
electronic components sales. Revenues for supply chain management services are
earned from both the SCM and VMI 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 VMI 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.




23
 Table of Contents





Foreign Currency
Translation





SinoHub
Inc., SinoHub International, Inc., B2B Chips, and SinoHub Hong Kong maintain
accounting records using the functional currencies, USD and Hong Kong Dollars
(“HKD”) respectively. SinoHub SCM SZ, SinoHub Electronics SZ, SinoHub SCM SH and
SinoHub Electronics SH maintain accounting records using RMB as the functional
currency.





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.





The
financial statements of the subsidiaries (whose functional currencies are HKD
and RMB) are translated into USD using the closing rate method.  The
balance sheet items are translated into USD using the exchange rates at the
respective balance sheet dates.  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 year.  All exchange differences are recorded as
a component of accumulated other comprehensive income within
equity.





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.





RECENT
ACCOUNTING PRONOUNCEMENTS





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements.” The objective of SFAS 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements.  SFAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurements and does not require any new fair value measurements.
The provisions of SFAS 157 are effective for fair value measurements made in
fiscal years beginning after November 15, 2007. The adoption of this statement
is not expected to have a material effect on the Company's future reported
financial position or results of operations.





In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115.”  This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of SFAS 159 apply only to entities that elect the fair value option.
However, the amendment to SFAS No. 115 “Accounting for Certain Investments in
Debt and Equity Securities” applies to all entities with available-for-sale and
trading securities. SFAS 159 is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before November
15, 2007, provided the entity
also elects to apply the provision of SFAS No. 157, “Fair Value Measurements.”
The adoption of this statement is not expected to have a material effect on the
Company's financial statements.




24
 Table of Contents





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This statement is effective
beginning January 1, 2009. The Company does not expect the adoption of SFAS 141R
to have a material impact on its financial position and results of
operations.




In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners.  SFAS 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary.  SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
This statement is intended to improve transparency in financial reporting by
requiring enhanced disclosures of an entity’s derivative instruments and hedging
activities and their effects on the entity’s financial position, financial
performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives,
and nonderivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS 161 must provide more
robust qualitative disclosures and expanded quantitative disclosures. SFAS 161
is effective prospectively for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
permitted.  The adoption of this statement is not expected to have a
material effect on the Company’s financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that presented in conformity
with generally accepted accounting principles in the United States of America.
SFA 162 will be effective 60 days following the SEC’s approval of the PCAOB
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The Company
does not believe SFAS 162 will have a significant impact on the Company’s
financial statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
this Statement is limited to financial guarantee insurance and reinsurance
contracts, as described in the Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, this Statement does not apply to
financial guarantee contracts issued by enterprises excluded from the scope of
Statement 60 or to some insurance contracts that seem similar to financial
guarantee insurance contracts issued by insurance enterprises (such as mortgage
guaranty insurance or credit insurance on trade receivables0. This Statement
also does not apply to financial guarantee contracts that are derivative instruments
included within the scope of SFAS No. 133, “Accounting for Derivative
instruments and Hedging Activities.” The Company does not believe SFAS 163 will
have a significant impact on the Company’s consolidated financial
statements.




25
 Table of Contents





In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, to clarify
guidance on determining the fair value of a financial asset under SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance, including
prior periods for which financial statements had not been issued. The adoption
of this statement effective September 30, 2008 did not have a material impact on
the Company’s financial statements.




Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates.  The Company does not undertake any specific
actions to limit those exposures.




Item 4T.Evaluation
ofDisclosure
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.







PART
II - OTHER INFORMATION
 Item
1.    Legal Proceedings.
  None.
 
 Item
1A.    RiskFactors.
 
 Risks
Related to SinoHub’s Business
  The
industry we have chosen to concentrate our sales efforts is fast moving and our
customers may not be successful in growing in pace with the
industry.


26
 Table of Contents






We have
chosen to concentrate our sales efforts in the fast moving mobile phone business
and we are limited in terms of the number of new customers we can handle at any
give time. We face the risk of our customers’ growth not keeping pace with this
dynamic market. Despite our requirement of non-cancelable purchase orders from
our customers, there is no guarantee that all our customers can pay for all of
the goods they order.




Changes
in governmental regulations affecting the export of electronics from China may
hurt our business.




Factors
which adversely affect export of electronic products from China may materially
and adversely affect our business, financial condition, results of operations
and business prospects, including:




·
            regulatory
      restrictions, trade disputes, industry-specific quotas, tariffs,
      non-tariff barriers and taxes that may result in limiting exports from
      China.




·
            The
      reduction or elimination of tax rebates or other forms of governmental
      subsidies and economic incentives for Chinese export
    products.




Our
business is sensitive to general economic conditions.




Our
business may be negatively affected by downturn in general economic conditions
in major importing countries and regions and the rising labor and material costs
in China.




Negative
perception or publicity of Chinese products may hurt our business.




Any
negative perception or publicity of Chinese electronic products may cause a
decline in demand for Chinese electronic products and in turn negatively affect
our sales and revenue.




SinoHub
envisions a period of rapid growth that may impose a significant burden on its
administrative and operational resources which if not effectively managed, could
impair its growth.




SinoHub’s
strategy envisions a period of rapid growth that may impose a significant burden
on its administrative and operational resources. The growth of SinoHub’s
business will require significant investments of capital and management’s close
attention. SinoHub’s ability to effectively manage its growth will require it to
substantially expand the capabilities of its administrative and operational
resources and to attract, train, manage and retain qualified management,
technicians and other personnel; SinoHub may be unable to do so. In addition,
SinoHub’s failure to successfully manage its growth could result in its sales
not increasing commensurately with capital investments. If SinoHub is unable to
successfully manage its growth, SinoHub may be unable to achieve its
goals.




SinoHub
may not be able to raise the additional capital necessary to execute its
business strategy, which could result in the curtailment of SinoHub’s
operations.




SinoHub
will need to raise substantial additional funds to fully fund its existing
operations and for development, production, trading and expansion of its
business. SinoHub has no current arrangements with respect to sources of
additional financing and the needed additional financing may not be available on
commercially reasonable terms, on a timely basis or at all. The inability to
obtain additional financing, when needed, would have a negative effect on
SinoHub, including possibly requiring it to curtail operations. If any future
financing involves the sale of the equity securities of SinoHub, the shares of
common stock held by its stockholders could be substantially diluted. If SinoHub
borrows money or issues debt securities, it will be subject to the risks
associated with indebtedness, including the risk that interest rates may
fluctuate and the possibility that it may not be able to pay principal and
interest on the indebtedness when due.




Insufficient
funds will prevent SinoHub from implementing its business plan and will require
it to delay, scale back, or eliminate certain of its operations.




SinoHub
will be required to hire and retain skilled technical and managerial
personnel.




SinoHub’s
continued success depends in large part on its ability to attract, train,
motivate and retain qualified management and highly-skilled employees,
particularly managerial, technical, sales, and marketing personnel, technicians,
and other critical personnel. Any failure to attract and retain the required
highly-trained managerial and technical personnel that are integral to
production and development and technical support teams may have a negative
impact on the operation of SinoHub’s plants, which would have a negative impact
on revenues. There can be no assurance that SinoHub will be able to attract and
retain skilled persons and the loss of skilled technical personnel would
adversely affect it.




27
 Table of Contents




SinoHub
is dependent upon its officers for management and direction and the loss of any
of these persons could adversely affect its operations and results.




SinoHub
is dependent upon its officers for implementation of its proposed expansion
strategy and execution of its business plan. The loss of any of its officers
could have a material adverse effect upon its results of operations and
financial position. SinoHub does not maintain “key person” life insurance for
any of its officers. The loss of any of its officers could delay or prevent the
achievement of its business objectives.




SinoHub
may be sued or become a party to litigation, which could require significant
management time and attention and result in significant legal expenses and may
result in an unfavorable outcome, which could have a material adverse effect on
its business, financial condition, results of operations and cash
flows.




SinoHub
may be subject to a number of lawsuits from time to time arising in the ordinary
course of its business. The expense of defending itself against such litigation
may be significant. The amount of time to resolve these lawsuits is
unpredictable and defending itself may divert management’s attention from the
day-to-day operations of its business, which could adversely affect its
business, results of operations and cash flows. In addition, an unfavorable
outcome in such litigation could have a material adverse effect on its business,
results of operations and cash flows.




Compliance
with Section 404 of the Sarbanes-Oxley Act on a timely basis may strain
SinoHub’s limited financial and management resources, negatively affect its
operating results, and cause SinoHub to fail to meet its reporting
obligations.




The SEC,
as directed by Section 404 of the Sarbanes-Oxley Act, adopted rules generally
requiring each public company to include a report of management on the company’s
internal controls over financial reporting in its annual report on Form 10-K
that contains an assessment by management of the effectiveness of the company’s
internal controls over financial reporting. This requirement will first apply to
our annual report on Form 10-K for the fiscal year ending December 31, 2008
(unless such date is extended by the SEC). In addition, commencing with our
annual report for the fiscal year ending December 31, 2009 (unless such date is
extended by the SEC) our independent registered accounting firm must attest to
and report on management’s assessment of the effectiveness of our internal
controls over financial reporting.




SinoHub
is developing and is implementing a Section 404 plan, and will retain outside
consultants to assist in this effort.  SinoHub’s auditors have
conferred with the Company and discussed their requirements.  The
officers of SinoHub are aware of the requirement for internal controls and
believe that the internal controls SinoHub has in place are
effective.   SinoHub will continue to endeavor to improve its
control environment as it adds staff and grows the company, and SinoHub is
confident of its ability to meet the requirements of Section 404 of the
Sarbanes-Oxley Act on a timely basis.




However,
SinoHub may need to hire and/or engage additional personnel and incur
incremental costs in order to complete and manage the work required by Section
404 of the Sarbanes-Oxley Act. SinoHub may not be able to completely implement
its Section 404 plan on a timely basis. Additionally, upon completion of the
implementation of its Section 404 plan, SinoHub may not be able to conclude that
its internal controls are effective, or in the event that it concludes that its
internal controls are effective, SinoHub’s independent accountants may disagree
with its assessment and may issue a report that is qualified. The financial and
management resources required to implement and comply with Section 404 of the
Sarbanes-Oxley Act, and any failure to implement required new or improved
controls or difficulties encountered in their management and implementation,
could negatively affect SinoHub’s operating results or cause it to fail to meet
its reporting obligations.




Risks
Related to the People’s Republic of China




SinoHub
is subject to certain risks inherent in conducting business operations in China,
including political instability and government regulation, which could
significantly impact its ability to operate and impact its results of
operations.




28
 Table of Contents




SinoHub
conducts substantially all of its business in China.  SinoHub’s
Chinese operations are, and will be, subject to risks generally associated with
conducting businesses in foreign countries, such as:




·
            foreign
      laws and regulations that may be materially different from those of the
      United States;·
            changes
      in applicable laws and regulations;·
            challenges
      to, or failure of, title;·
            labor
      and political unrest;


·
                    foreign
      currency fluctuations;·
                    changes
      in foreign economic and political conditions;·
                    export
      and import restrictions;·
                    tariffs,
      customs, duties and other trade barriers;·
                    difficulties
      in staffing and managing foreign operations;·
                    longer
      time periods in collecting revenues;·
                    difficulties
      in collecting accounts receivable and enforcing
  agreements;·
                    possible
      loss of properties due to nationalization or expropriation;
      and


·
            limitations
      on repatriation of income or
capital.




Specifically,
foreign governments may enact and enforce laws and regulations requiring
increased ownership by businesses and/or state agencies, which could adversely
affect SinoHub’s ownership interests in then existing ventures. The Company’s
ownership structure may not be adequate to accomplish its business objectives in
China. Foreign governments also may impose additional taxes and/or royalties on
our business, which would adversely affect SinoHub’s profitability. In certain
locations, governments have imposed restrictions, controls and taxes, and in
others, political conditions have existed that may threaten the safety of
employees and SinoHub’s continued presence in those countries. Internal unrest,
acts of violence or strained relations between a foreign government and SinoHub
or other governments may adversely affect its operations. These developments
may, at times, significantly affect SinoHub’s results of operations, and must be
carefully considered by its management when evaluating the level of current and
future activity in such countries.




China’s
economic policies could affect our business.




Substantially
all of our assets are located in China and substantially all of our revenue is
derived from our operations in China. Accordingly, our results of operations and
prospects are subject, to a significant extent, to the economic, political and
legal developments in China.





While
China’s economy has experienced a significant growth in the past twenty years,
growth has been irregular, both geographically and among various sectors of the
economy. The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of China, but may also have a negative effect on us.
For example, our operating results and financial condition may be adversely
affected by the government control over capital investments or changes in tax
regulations.




The
economy of China has been transitioning from a planned economy to a more
market-oriented economy. In recent years the Chinese government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets and the establishment of
corporate governance in business enterprises; however, a substantial portion of
productive assets in China are still owned by the Chinese government. In
addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies.




Fluctuation
of the RMB may affect our financial condition by affecting the volume of
cross-border money flow.




The value
of the RMB fluctuates and is subject to changes in the People’s Republic of
China political and economic conditions. Since July 2005, the conversion of RMB
into foreign currencies, including USD, has been based on rates set by the
People’s Bank of China which are set based upon the interbank foreign exchange
market rates and current exchange rates of a basket of currencies on the world
financial markets.




We
may face obstacles from the communist system in The People's Republic of
China.




Foreign
companies conducting operations in The People’s Republic of China face
significant political, economic and legal risks. The Communist regime in The
People's Republic of China may hinder Western investment.




29
 Table of Contents




We
may have difficulty establishing adequate management, legal and financial
controls in the People's Republic of China.




The
People's Republic of China historically has been deficient in Western style
management and financial reporting concepts and practices, as well as in modern
banking, computer and other control systems. We may have difficulty in hiring
and retaining a sufficient number of qualified employees to work in the People's
Republic of China. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards.




Because
our assets and operations are located in China, you may have difficulty
enforcing any civil liabilities against us under the securities and other laws
of the United States or any state.




We are a
holding company, and all of our assets are located in the People’s Republic of
China. In addition, our directors and officers are non-residents of the United
States, and all or a substantial portion of the assets of these non-residents
are located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon these
non-residents, or to enforce against them judgments obtained in United States
courts, including judgments based upon the civil liability provisions of the
securities laws of the United States or any state.




There is
uncertainty as to whether courts of the People’s Republic of China would
enforce:




·
            Judgments
      of United States courts obtained against us or these non-residents based
      on the civil liability provisions of the securities laws of the United
      States or any state; or




·
            In
      original actions brought in the People’s Republic of China, liabilities
      against us or non-residents predicated upon the securities laws of the
      United States or any state. Enforcement of a foreign judgment in the
      People’s Republic of China also may be limited or otherwise affected by
      applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or
      similar laws relating to or affecting creditors' rights generally and will
      be subject to a statutory limitation of time within which proceedings may
      be brought.






The
PRC legal system embodies uncertainties, which could limit law enforcement
availability.




The PRC
legal system is a civil law system based on written statutes. Unlike common law
systems, decided legal cases have little precedence. In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations governing
economic matters in general. The overall effect of legislation since 1979 has
significantly enhanced the protections afforded to various forms of foreign
investment in China. Each of our PRC operating subsidiaries and affiliates is
subject to PRC laws and regulations. However, these laws and regulations change
frequently and the interpretation and enforcement involve uncertainties. For
instance, we may have to resort to administrative and court proceedings to
enforce the legal protection that we are entitled to by law or contract.
However, since PRC administrative and court authorities have significant
discretion in interpreting statutory and contractual terms, it may be difficult
to evaluate the outcome of administrative court proceedings and the level of law
enforcement that we would receive in more developed legal systems. Such
uncertainties, including the inability to enforce our contracts, could affect
our business and operation. In addition, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the effect of future
developments in the PRC legal system, particularly with regard to the industries
in which we operate, including the promulgation of new laws. This may include
changes to existing laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These uncertainties could
limit the availability of law enforcement, including our ability to enforce our
agreements with the government entities and other foreign
investors.




Risks
Related to Our Stock




There
can be no assurance that a liquid public market for our common stock will exist
in the future.




Although
SinoHub’s shares of common stock are eligible for quotation on the OTC Bulletin
Board electronic over-the-counter trading system, very few shares trade on a
regular basis and there may not be a significant market in such stock in the
future. There can be no assurance that a regular and established market will be
developed and maintained for our common stock. There can also be no assurance as
to the strength or liquidity of any market for our common stock or the prices at
which holders may be able to sell their shares.




30
 Table of Contents




It
is likely that there will be significant volatility in the trading
price.




Market
prices for the common stock will be influenced by many factors and will be
subject to significant fluctuations in response to variations in operating
results of SinoHub and other factors. Our stock price will also be affected by
the trading price of the stock of our competitors, investor perceptions of
SinoHub, interest rates, general economic conditions and those specific to our
industry, developments with regard to SinoHub’s operations and activities, our
future financial condition, and changes in our management.




Risks
relating to low priced stock.




The
trading price of the common stock has remained below $5.00. Since our common
stock trades below $5.00 per share, trading in the common stock is subject to
the requirements of certain rules promulgated under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non- NASDAQ equity security that has a market
price share of less than $5.00 per share, subject to certain exceptions) and a
two business day “cooling off period” before broker and dealers can effect
transactions in penny stocks. For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser’s written consent to the transaction prior to the sale.
The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer’s presumed control over the market. These, and the
other burdens imposed upon broker-dealers by the penny stock requirements, could
discourage broker-dealers from effecting transactions in our common stock which
could severely limit the market liquidity of our common stock and the ability of
holders of our common stock to sell it.




We
do not intend to pay dividends.




We have
not paid any cash dividends on any of our securities since inception and we do
not anticipate paying any cash dividends on any of our securities in the
foreseeable future.




Future
sales of our securities, or the perception in the markets that these sales may
occur, could depress our stock price.




Our
issued and outstanding shares of common stock and options exercisable for shares
of common stock will be eligible for public sale only if registered under the
Securities Act or if the stockholder qualifies for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, or other
applicable exemption. The market price of our capital stock could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them. These factors also could make
it more difficult for us to raise capital or make acquisitions through the
issuance of additional shares of our common stock or other equity
securities.




The
ability of the Board of Directors of SinoHub to issue “blank check” preferred
stock and any anti-takeover provisions we adopt may depress the value of our
Common Stock.




The
authorized capital of SinoHub includes shares of “blank check” preferred
stock.  The SinoHub Board has the power to issue any or all of the
authorized but unissued shares of its preferred stock, including the authority
to establish one or more series and to fix the powers, preferences, rights and
limitations of such class or series, without seeking stockholder
approval.  They may, in the future, adopt anti-takeover
measures.  The authority of the SinoHub Board of Directors to issue
“blank check” preferred stock and any future anti-takeover measures it may
adopt, may in certain circumstances delay, deter or prevent takeover attempts
and other changes in control of SinoHub not approved by its Board of
Directors.  As a result, SinoHub stockholders may lose opportunities
to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price
of the Common Stock and the voting and other rights of its stockholders may also
be affected.





31
 Table of Contents





Item
2.    Unregistered Sales of EquitySecurities
and Use of Proceeds.




Stock
issued in reverse merger




On May
14, 2008, the Company issued to 1,200,000 shares of common stock for the
recapitalization.




Stock
issued for services




On May
14, 2008, the Company issued 510,000 shares of common stock to consultants for
services at a fair value of $433,500.





Reverse
stock split





On July
18, 2008, the Company effected a reverse stock split at the ratio of 1 share for
every 3.5 shares.





Stock
and warrants issued in private investment offering





On
September 10, 2008, the Company entered into and closed a Securities Purchase
Agreement with certain accredited investors in a private offering for shares of
common stock and warrants to purchase common stock.  The Company issued
4,406,533 shares of common stock, three-year warrants to purchase 1,101,633
shares of common stock at an exercise price of $2.15 per share, and five-year
warrants to purchase 1,101,633 shares of common stock at $3.00 per share in
return for gross proceeds of approximately $7.5 million in cash. During the
third quarter of 2008, net offering proceeds of approximately $6.5 million were
recorded as an addition to stockholders’ equity, after deducting offering and
related closing costs of the transaction.  The Company also issued warrants
to the placement agent in connection with services for the private
offering.  These included three-year warrants to purchase 154,228
shares of common stock at an exercise price of $2.15 per share, and five-year
warrants to purchase 154,229 shares of common stock at $3.00 per
share.








Item 3.    Defaults Upon SeniorSecurities.




None.







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




None.








Item
5.   Other Information.




None.







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)




32
 Table of Contents




SIGNATURES




In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.





SINOHUB,
      INC.Date:   March
      16, 2009
            By:
            /s/ Henry T.
      CochranHenry
      T. CochranChief
      Executive Officer








Date:   March
      16, 2009
            By:
            /s/
      Li
      De HaiLi
      De HaiChief
      Financial Officer
              (Principal
      Financial and Accounting Officer)














33