SINOHUB, INC. - FORM 10-Q/A - February 28, 2012

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - SINOHUB, INC.	ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - SINOHUB, INC.	ex32_1.htm
EX-31.1 - EXHIBIT 31.1 - SINOHUB, INC.	ex31_1.htm
EX-32.2 - EXHIBIT 32.2 - SINOHUB, INC.	ex32_2.htm

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 THE
	SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2011

	OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 001- 34430

SINOHUB, INC.

(Exact name of registrant as specified in its charter)

Delaware		87-0438200
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

6/F, Bldg 51, Rd 5, Qiongyu Blvd. Technology Park, Nanshan District Shenzhen, People’s Republic of China		518057
(Address of principal executive offices)		(Zip Code)

86 755 2661 2106

(Registrant’s telephone number, including area code)

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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

(Do not check if a smaller reporting company)

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 October 31, 2011
Common Stock, $0.001 par value per share		33,454,903 shares

SINOHUB, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	4

Item 1. Financial Statements	4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3. Quantitative and Qualitative Disclosures About Market Risk	34

Item 4T. Controls and Procedures	34

PART II - OTHER INFORMATION	36

Item 1. Legal Proceedings	36

Item 1A. Risk Factors	36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3. Defaults Upon Senior Securities	36

Item 4. (Removed and Reserved)	36

Item 5. Other Information	36

Item 6. Exhibits	37

SIGNATURES	38

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.

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EXPLANATORY NOTE

This Amendment No. 1 (“Amendment No. 1”) on Form 10-Q/A amends our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which we previously filed with the Securities and Exchange Commission (the “SEC”) on November 14, 2011 (the “Original Filing”). We are filing this Amendment No. 1 for the purpose of revising Item 4T of the Original Filing, Controls and Procedures, in response to comments received from the SEC staff by a letter dated December 28, 2011.

In accordance with applicable SEC rules, this Amendment No. 1 includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.

Except for the items noted above, no other information included in the Original Filing is being amended by this Amendment No. 1. This Amendment No. 1 continues to speak as of the date of the Original Filing, and we have not updated the filing to reflect events occurring subsequently to the filing date of the Original Filing other than the changes described above. Accordingly, this Amendment No. 1 should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SINOHUB, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2011		December 31, 2010
	(Unaudited)		(As Restated)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	6,956,000	$	4,524,000
Restricted cash		94,749,000		32,059,000
Accounts receivable, net		60,207,000		45,686,000
Note receivable		1,523,000		-
Inventories, net		37,129,000		14,631,000
Prepaid expenses and other current assets		1,017,000		704,000
Deposit with suppliers		959,000		1,308,000
Total current assets		202,540,000		98,913,000

PROPERTY AND EQUIPMENT, NET		12,061,000		11,190,000

TOTAL ASSETS	$	214,601,000	$	110,103,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	8,553,000	$	865,000
Customer deposits		1,172,000		107,000
Accrued expenses and other current liabilities		954,000		709,000
Bank borrowings		103,054,000		37,299,000
Collateralized bank advances		10,110,000		-
Capital lease obligations – current portion		793,000		756,000
Income and other taxes payable		2,437,000		1,712,000
Total current liabilities		127,073,000		41,449,000

LONG-TERM LIABILITIES
Capital lease obligations, net of current portion		679,000		845,000
Warrant Derivatives		358,000		1,692,000
Total long-term liabilities		1,037,000		2,537,000

TOTAL LIABILITIES		128,110,000		43,987,000

STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
no shares issued		-		-
Common stock, $0.001 par value, 100,000,000 shares authorized;
33,454,903 shares and 28,570,859 shares issued and outstanding
as of September 30, 2011 and December 31, 2010, respectively		33,000		29,000
Additional paid-in capital		30,791,000		20,122,000
Retained earnings
Unappropriated		49,464,000		42,303,000
Appropriated		934,000		934,000
Accumulated other comprehensive income		5,269,000		2,730,000
Total stockholders’ equity		86,491,000		66,116,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	214,601,000	$	110,103,000

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

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SINOHUB, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
				(As Restated)						(As Restated)
NET SALES
ECSS	$	35,112,000		$	36,727,000		$	88,326,000		$	99,512,000
ICM		16,854,000			19,024,000			42,531,000			38,723,000
Total net sales		51,966,000			55,751,000			130,857,000			138,235,000
COST OF SALES
ECSS		31,528,000			29,816,000			76,637,000			81,540,000
ICM		14,120,000			15,755,000			35,779,000			31,843,000
Total cost of sales		45,648,000			45,571,000			112,416,000			113,383,000

GROSS PROFIT		6,318,000			10,180,000			18,441,000			24,852,000

OPERATING EXPENSES
Selling, general and administrative		2,028,000			2,123,000			6,494,000			6,261,000
Professional services		101,000			193,000			595,000			694,000
Depreciation		502,000			479,000			1,510,000			1,051,000
Stock compensation expense		-			57,000			-			207,000
Stock option compensation amortization		76,000			110,000			265,000			328,000
Provision for bad debts (write back of allowance for doubtful accounts)		33,000			(236,000	)		128,000			(45,000	)
Total operating expenses		2,740,000			2,726,000			8,992,000			8,496,000

INCOME FROM OPERATIONS		3,578,000			7,454,000			9,449,000			16,356,000

OTHER INCOME (EXPENSE)
Interest expense		(708,000	)		(109,000	)		(1,813,000	)		(352,000	)
Interest income		595,000			41,000			1,379,000			145,000
Changes in fair values of warrant derivatives		536,000			539,000			1,334,000			1,011,000
Other, net		(344,000	)		9,000			396,000			16,000
Total other income, net		79,000			480,000			1,296,000			820,000

INCOME BEFORE INCOME TAXES		3,657,000			7,934,000			10,745,000			17,176,000
Income tax expense		(1,075,000	)		(1,898,000	)		(3,583,000	)		(4,287,000	)

NET INCOME		2,582,000			6,036,000			7,162,000			12,889,000

OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		891,000			909,000			2,539,000			1,017,000

COMPREHENSIVE INCOME	$	3,473,000		$	6,945,000		$	9,701,000		$	13,906,000

SHARE AND PER SHARE DATA
Net income per share-basic	$	0.08		$	0.21		$	0.22		$	0.46
Weighted average number of shares-basic		33,455,000			28,558,000			32,363,000			28,126,000
Net income per share-diluted	$	0.08		$	0.21		$	0.22		$	0.45
Weighted average number of shares-diluted		33,478,000			28,721,000			32,416,000			28,362,000

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

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SINOHUB, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

CASH FLOWS (UNAUDITED)

	Nine months ended September 30,
	2011			2010
				(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,162,000		$	12,889,000
Adjustments to reconcile net income to cash used in operations:
Depreciation - operating expenses		1,510,000			1,051,000
Depreciation - cost of sales		1,252,000			-
Stock compensation expense		-			207,000
Stock option compensation amortization		265,000			328,000
Provision for bad debts (write back of allowance for doubtful accounts)		128,000			(45,000	)
Loss on disposal of property and equipment		18,000			-
Changes in fair values of warrant derivatives		(1,334,000	)		(1,011,000	)
Changes in operating assets and liabilities:
Accounts receivable		(13,021,000	)		(16,578,000	)
Note receivable		(1,499,000	)		-
Inventories		(21,692,000	)		3,187,000
Prepaid expenses and other current assets		(291,000	)		56,000
Deposit with suppliers		367,000			(4,628,000	)
Accounts payable		7,542,000			(608,000	)
Customer deposits		1,065,000			(1,313,000	)
Accrued expenses and other current liabilities		226,000			87,000
Income and other taxes payable		657,000			1,696,000
Net cash used in operating activities		(17,645,000	)		(4,682,000	)

CASH FLOWS FROM INVESTING ACTIVITIES
Increase of restricted cash		(60,650,000	)		(3,129,000	)
Purchase of property and equipment		(3,335,000	)		(3,385,000	)
Proceed from disposal of property and equipment		9,000			-
Net cash used in investing activities		(63,976,000	)		(6,514,000	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of cost		10,395,000			4,470,000
Proceeds from exercise of options, net of costs		15,000			22,000
Bank borrowings - proceeds		141,967,000			24,609,000
Bank borrowings - repayments		(78,470,000	)		(20,382,000	)
Collateralized bank advances – proceeds		20,102,000			-
Collateralized bank advances – repayments		(10,154,000	)		-
Repayments of capital lease obligations		(129,000	)		(647,000	)
Net cash provided by financing activities		83,726,000			8,072,000

EFFECT OF EXCHANGE RATE CHANGES		327,000			190,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,432,000			(2,934,000	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		4,524,000			8,347,000

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	6,956,000		$	5,413,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	1,813,000		$	352,000
Cash paid for income tax	$	2,540,000		$	2,444,000
Equipment acquired under capital leases	$	-		$	2,436,000

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

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SINOHUB, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2011

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

Overview

SinoHub, Inc. (the “Company”) is an electronics company based in Shenzhen, PR China which services clients worldwide. The Company is currently engaged in two business segments: electronics product manufacturing and sales (ICM, Integrated Contract Manufacturing), and electronic component sales and services (ECSS) which is comprised of electronic component sales (known as ECP) and electronic component supply chain management services (known as SCM). We now report on each of ICM and ECSS as separate business segments.

History and Basis of Reporting

SinoHub, Inc. was originally organized in Utah in 1986 under the name Liberty Alliance, Inc. The Company subsequently merged and reorganized in Delaware in 1991 and is now headquartered in Shenzhen, the People’s Republic of China (“PRC”). The Company was operated by different management teams in the past, pursuing a variety of business ventures. In May 2008, Liberty Alliance, Inc., SinoHub Acquisition Corp., known as the Merger Sub, SinoHub, Inc., known as the Acquired Sub, and Steven L. White, the principal stockholder of Liberty Alliance, Inc., entered into an Agreement and Plan of Merger pursuant to which the Merger Sub agreed to merge with and into the Acquired Sub, with the Acquired Sub being the surviving corporation. In July 2008, following the merger, the Company changed its name to SinoHub, Inc. and focused on the electronic components sales and services business, and the Acquired Sub changed its name from SinoHub, Inc. to SinoHub International, Inc.

The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission for interim financial information 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 condensed 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 audited consolidated financial statements and accompanying notes included in the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2010, previously filed with the Securities and Exchange Commission on May 24, 2011.

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Organization Structure

The current operations of the Company include the following subsidiaries:

SinoHub International, Inc. was incorporated in March 1999 as a Delaware C corporation in the United States of America. This company is the holding company for the Chinese and Hong Kong subsidiaries listed below. SinoHub International, Inc. is wholly owned by SinoHub, Inc.

SinoHub Electronics Shenzhen, Ltd. was incorporated in September 2000 in the People’s Republic of China to provide one-stop SCM services for electronic manufacturers and distributors in southern China. SinoHub Electronics Shenzhen, Ltd. is wholly owned by SinoHub International, Inc.

SinoHub SCM Shenzhen, Ltd. was incorporated in December 2001 in the PRC to hold an import and export license in the PRC. SinoHub SCM Shenzhen, Ltd. purchases and sells electronic component parts and also provides customs clearance services to our customers. 100% of the equity interest in SinoHub SCM Shenzhen, Ltd. was held on behalf of SinoHub by SinoHub Electronics Shenzhen, Ltd. through a Declaration of Trust with SinoHub Electronics Shenzhen, Ltd. dated January 30, 2008. On August 21, 2009 our wholly-owned subsidiary SinoHub Electronics Shenzhen, Ltd. exercised its rights under a declaration of trust with Ms. Hantao Cui, a citizen of the PRC, a shareholder of the Company and the spouse of our President Lei Xia, as trustee (the "Trustee") to cause the shares of SinoHub SCM Shenzhen, Ltd. previously registered in the name of the Trustee to be registered in the name of SinoHub Electronics Shenzhen, Ltd. SinoHub SCM Shenzhen, Ltd. is now directly and solely owned by SinoHub Electronics Shenzhen, Ltd.

SinoHub SCM Shanghai, Ltd. was incorporated in March 2005 in the PRC to provide one-stop SCM services for electronic manufacturers and distributors in northern China. SinoHub SCM Shanghai, Ltd. is wholly owned by SinoHub Electronics Shenzhen, Ltd.

SinoHub Electronics Shanghai, Ltd. was incorporated in July 2005 in the PRC to provide one-stop SCM services for electronic manufacturers and distributors in the PRC. SinoHub Electronics Shanghai, Ltd. is wholly owned by SinoHub International, Inc.

B2B Chips, Limited was incorporated in June 2006 in Hong Kong to purchase and sell electronic components. B2B Chips, Limited is wholly owned by SinoHub Electronics Shenzhen, Ltd.

SinoHub Technology (Hong Kong) Limited was incorporated in May 2007 in Hong Kong and has not yet commenced business. SinoHub Technology (Hong Kong) Limited is wholly owned by B2B Chips, Limited.

Topology Communication Technology (Shenzhen), Ltd. was incorporated in April 2010 in Shenzhen to manufacture mobile phones and other electronic devices. Topology Communication Technology (Shenzhen), Ltd. is wholly owned by B2B Chips, Limited.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

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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 the majority 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 purposes 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 or cash equivalents on the balance sheet until the lien against 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.

Inventories

Inventories are stated at lower of cost or market, 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 and parts used in the assembly of electronic devices purchased from suppliers, and electronics products the Company manufactured.

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.

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Depreciation is provided on a straight-line basis, less estimated residual values over the assets’ estimated useful lives. The estimated useful lives are as follows:

Plant and machinery	2 to 5 Years
Motor vehicles	5 Years
Furniture, fixtures and equipment	2 to 5 Years
Leasehold improvements	1 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.

Financial Instruments

The Company analyzes all financial instruments that may have features of both liabilities and equity under ASC Topic 480-10 and ASC Topic 815. 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 ASC Topic 825. At present, there are no registration rights as to which late filing penalties may apply.

Fair Value of Financial Instruments

ASC Topic 825 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.

ASC Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

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Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The following table sets forth our estimate of fair value of our financial instruments that are liabilities as of September 30, 2011:

		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
2010 Warrants		$	—			$	—			$	358,000			$	358,000

The following table sets forth a summary of changes in fair value of our derivative liability for the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30, 2011			Nine months ended September 30, 2011

Beginning Balance	$	894,000		$	1,692,000
Net gain included in earnings		(536,000	)		(1,334,000	)
Balance at September 30, 2011	$	358,000		$	358,000


	Three months ended September 30, 2010			Nine months ended September 30, 2010
	(As Restated)			(As Restated)

Beginning Balance	$	1,832,000		$	-
Fair value of 2010 warrants at issue date		-			2,304,000
Net gain included in earnings		(539,000	)		(1,011,000	)
Balance at September 30, 2010	$	1,293,000		$	1,293,000

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

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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 Warrants issued in connection with the private placement the Company consummated on September 10, 2008 (the “2008 Warrants”) and on March 2, 2010 (the “2010 Warrants”) include a reset provision (to adjust the exercise price of the warrants) which is triggered if the Company issues common shares below the exercise price as defined in the respective warrants. Effective January 1, 2009 the reset provision of these warrants precludes equity accounting treatment under ASC 815 (formerly EITF 07-05). Accordingly, effective January 1, 2009, the Company was required to reclassify these warrants at their fair value to liabilities each reporting period under ASC 815-40. The reset provision in the 2008 Warrants expired on September 10, 2009.

At September 30, 2011, the fair value of the Company’s derivative warrants liability for the 2010 Warrants was $358,000. The Company used the Black-Scholes valuation model to estimate the fair value of the 2010 Warrants. Significant assumptions used at September 30, 2011 and 2010 were as follows:

	2011		2010

Closing price of stock on reporting date	$	0.55	$	1.98
Risk-free interest rate (1)		0.98%		1.17%
Dividend yield (2)		0.00%		0.00%
Volatility factor		172.16%		131.65%
Expected life (3)	3.43 years		4.4 years

(1)

The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the option on date of grant.

(2)

Management determined the dividend yield to be 0% based upon its expectation that the Company will not make any near term change to its policy of retaining all earnings available to pay dividends for the foreseeable future.

(3)

Expected life is remaining contractual life of the warrants.

Changes in fair value of the 2010 Warrants are recognized in earnings each reporting period.

Stock-Based Compensation

The Company adopted ASC Topic 718. 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 ASC Topic 718 and ASC Topic 505-50, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

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Revenue and Cost Recognition

The Company reports revenue from electronics product manufacturing and sales (ICM, Integrated Contract Manufacturing), and electronic component sales and services (ECSS), which is comprised of electronic component sales (known as ECP) and electronic component supply chain management services (known as SCM).

Revenues for SCM services are earned from both the SCM and procurement-fulfillment programs and are primarily based on a percentage of inventory value handled for a customer. The Company recognizes revenue from SCM services when the services are provided. Revenues from ECP and ICM businesses are based on quoted prices and are recognized at the time of shipment to customers. Revenues are recognized on the gross amount billed 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 goods sold in ICM business includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment, rent, shipping and handling costs, and local transportation charges consistent with the revenue earned.

Income Taxes

The Company accounts for income taxes under ASC Topic 740. Under ASC Topic 740, 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income taxes in the period that included the enactment date.

Foreign Currency Translation

SinoHub, Inc., SinoHub International, Inc., B2B Chips, Ltd., and SinoHub Technology Hong Kong, Ltd. maintain accounting records using the functional currencies, USD and Hong Kong Dollars (“HKD”) respectively. SinoHub SCM Shenzhen, Ltd., SinoHub Electronics Shenzhen, Ltd., SinoHub SCM Shanghai, Ltd., SinoHub Electronics Shanghai, Ltd. and Topology Communication Technology (Shenzhen), Ltd. maintain accounting records using Renminbi (“RMB”) as the functional currency.

The Company uses USD as its reporting currency. The Company accounts for foreign currency translation pursuant to ASC Topic 830. The functional currencies of the Company’s subsidiaries are HKD and RMB. Under ASC Topic 830, all assets and liabilities are translated into United States dollars using the current exchange rate at the balance sheet date. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. Translation adjustments are included in other comprehensive income (loss) for the period.

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 to the reporting currency 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.

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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 ASC Topic 260 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 two segments: electronics product manufacturing and sales (ICM) and electronic component sales and services (ECSS). Segment disclosure is presented in Note 16, “Segment information.”

Rounding

The accompanying consolidated financial statements herein contain rounding to the nearest thousands.

Recent Accounting Pronouncements

In September 2011, FASB issued ASU 2011-09 Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80) – Disclosures about an Employer’s Participation in a Multiemployer Plan. The amendments in this update require additional disclosures about an employer’s participation in a multiemployer plan. The amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. Management is currently evaluating the potential impact of ASU 2011-09 on the Company’s consolidated financial statements.

In September 2011, FASB issued ASU 2011-08 Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Management is currently evaluating the potential impact of ASU 2011-08 on the Company’s consolidated financial statements.

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In July 2011, FASB issued ASU 2011-06 Other Expenses (Topic 720) – Fees Paid to the Federal Government by Health Insurers. The objective of this Update is to address questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts). The Acts impose an annual fee on health insurers for each calendar year beginning on or after January 1, 2014. For reporting entities that are subject to the fee imposed on health insurers mandated by the Acts, the amendments in this Update specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The amendments in this Update are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. Management is currently evaluating the potential impact of ASU 2011-06 on the Company’s consolidated financial statements.

In June 2011, FASB issued ASU 2011-05 Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. Under the amendments to Topic 220, Comprehensive Income, in this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Management is currently evaluating the potential impact of ASU 2011-05 on the Company’s consolidated financial statements.

In May 2011, FASB issued ASU 2011-04 Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this Update are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. Management is currently evaluating the potential impact of ASU 2011-04 on the Company’s consolidated financial statements.

In April 2011, FASB issued ASU 2011-03 Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this Update are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. Management is currently evaluating the potential impact of ASU 2011-03 on the Company’s consolidated financial statements.

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2. RESTATEMENT OF PREVIOUSLY REPORTED CONDEDSED CONSOLIDATED FINANCIAL STATEMENTS

On May 16, 2011, the Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K, to report management’s determination that the Company’s financial statements for the fiscal quarter ended September 30, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, filed with the SEC on November 12, 2010 (the “September 2010 Form 10-Q”), should no longer be relied upon due to an error in such financial statements with respect to the accounting for 816,670 common stock purchase warrants in connection with its March 2, 2010 private placement (the “2010 Warrants”). The Company determined that the historical financial statements for the fiscal quarter ended September 30, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, filed with the SEC on November 12, 2010 require restatement to properly record the 2010 Warrants as a derivative liability.

The Company has performed a complete assessment of its outstanding 2010 Warrants and has concluded that its outstanding 2010 Warrants are within the scope of Accounting Standards Codification 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”), formerly Emerging Issues Task Force Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-05”), due to the inclusion in the Warrants of a provision requiring an adjustment to the exercise price of the 2010 Warrants in the event the Company issues common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such exercise price. Accordingly, ASC 815-40, formerly EITF 07-05, which was effective as of January 1, 2009, should have been applied resulting in a reclassification of the warrants as a liability, measured at fair value, with changes in fair value recognized as part of other income or expense for each reporting period thereafter. Because the reset provision contained in the Company’s warrants issued in 2008 (the “2008 Warrants”) expired on September 10, 2009, no change in the Company’s historical financial statements is required with respect to the 2008 Warrants.

On June 3, 2011, the Company filed an amended Quarterly Report on Form 10-Q/A reflecting the restatement of the financial statements for the fiscal quarter ended September 30, 2010.

The following tables show the effects of the restatement on the Company's condensed consolidated balance sheet as of September 30, 2010 as well as consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2010 and consolidated statements of cash flows for the nine months ended September 30, 2010:

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SinoHub, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

	As of September 30, 2010
	As Previously Recorded		As Restated

TOTAL ASSETS	$	83,611,000	$	83,611,000

Total current liabilities	$	22,891,000	$	22,891,000

LONG-TERM LIABILITIES
Capital lease obligations, net of current portion		1,144,000		1,144,000
Warrant Derivatives		-		1,293,000

TOTAL LIABILITIES	$	24,035,000	$	25,329,000

STOCKHOLDERS’ EQUITY
Additional paid-in capital	$	22,321,000	$	20,017,000
Retained earnings
Unappropriated	$	34,603,000	$	35,614,000

Total stockholders’ equity	$	59,576,000	$	58,282,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	83,611,000	$	83,611,000

SinoHub, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

	Three months ended September 30, 2010
	As Previously Recorded				As Restated

Changes in fair values of warrant derivatives		$	-			$	539,000

Total other (expense) income, net		$	(59,000	)		$	480,000

INCOME BEFORE INCOME TAXES		$	7,395,000			$	7,934,000

NET INCOME		$	5,497,000			$	6,036,000

COMPREHENSIVE INCOME		$	6,406,000			$	6,945,000

Net income per share-basic		$	0.19			$	0.21

Net income per share-diluted		$	0.19			$	0.21


	Nine months ended September 30, 2010
	As Previously Recorded				As Restated

Changes in fair values of warrant derivatives		$	-			$	1,011,000

Total other (expense) income, net		$	(191,000	)		$	820,000

INCOME BEFORE INCOME TAXES		$	16,165,000			$	17,176,000

NET INCOME		$	11,878,000			$	12,889,000

COMPREHENSIVE INCOME		$	12,895,000			$	13,906,000

Net income per share-basic		$	0.42			$	0.46

Net income per share-diluted		$	0.42			$	0.45

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The gain resulting from the change in fair value of derivative warrant liability for the three and nine months ended September 30, 2010, was incurred at the corporate level (a Delaware corporation). The Company did not recognize any income tax benefits (expense) associated with the change in fair value in the three and nine months ended September 30, 2010. Therefore, the restatement did not have an effect on the Company’s taxable income for the three and nine months ended September 30, 2010.

SinoHub, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

	Nine months ended September 30, 2010
	As Previously Recorded			As Restated

NET INCOME	$	11,878,000		$	12,889,000

Changes in fair values of warrant derivatives		-			(1,011,000	)

	$	11,878,000		$	11,878,000

Net cash used in operating activities	$	(4,682,000	)	$	(4,682,000	)

3. ACCOUNTS RECEIVABLE, NET

Accounts receivable at September 30, 2011 and December 31, 2010 consisted of the following:

	September 30, 2011		December 31, 2010
	(Unaudited)

Accounts receivable	$	61,011,000	$	46,362,000
Less: allowance for doubtful accounts		804,000		676,000
Accounts receivable, net	$	60,207,000	$	45,686,000

For the three months ended September 30, 2011 and 2010, the Company recorded provision for bad debts of $33,000 and write back of allowance for doubtful accounts of $236,000 respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded provision for bad debts of $128,000 and write back of allowance for doubtful accounts of $45,000 respectively.

4. NOTE RECEIVABLE

A note receivable was issued by a bank in the PRC on August 9, 2011 to settle a trade receivable and matures four months from the date of issue. The fair value of the note receivable approximated its carrying value.

5. INVENTORIES, NET

Inventories at September 30, 2011 and December 31, 2010 consisted of the following:

	September 30, 2011		December 31, 2010
	(Unaudited)

Raw materials and goods for resale	$	26,455,000	$	14,335,000
Work-in-progress		314,000		-
Finished goods		10,360,000		296,000
	$	37,129,000	$	14,631,000
Less: allowance for obsolete inventories		-		-
Inventories, net	$	37,129,000	$	14,631,000

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6. BANK BORROWINGS AND FINANCING ARRANGEMENTS

The Company has secured the following financing facilities with certain PRC banks to support its business operations:

Letter of credit facility with China Construction Bank in the amount of $13,278,000 to support our component sales and services business. Restricted cash balances are required as security for draws against the facility. The facility renews each year and is available through January 2012.

Letter of credit facility with Industrial Bank in the amount of $50,000,000 to support our business. Restricted cash balances are required as security for draws against the facility. The facility is available through March, 2012.

Letter of credit facility with Bank of Ningbo in the amount of $7,000,000 to support our electronics product manufacturing and sales business. Restricted cash balances are required as security for draws against the facility. The facility renews each year and is available through July 2012.

Letter of credit facility with Bank of Shanghai in the amount of $4,704,000 to support our electronics product manufacturing and sales business. Restricted cash balances are required as security for draws against the facility. In addition, the bank requires third party guarantees from a subsidiary, SinoHub Electronics Shenzhen, Ltd. and the unlimited personal guaranty of an executive officer and his spouse. The facility renews each year and is available through October 2012.

Letter of credit facility with Bank of Jiangsu in the amount of $15,329,000 to support our electronics product manufacturing and sales business. Restricted cash balances are required as security for draws against the facility. In addition, the bank requires third party guarantees from two subsidiaries, SinoHub Electronics Shenzhen, Ltd. and Topology Communication Technology (Shenzhen) Ltd. and an executive officer. The facility renews each year and is available through July 2012.

Borrowings including NDF (please see Note 17) against these facilities at September 30, 2011 and December 31, 2010 were as follows:

			Interest rate		September 30,		December 31,
	From date	Maturity date	(per year)		$	2011	$	2010
Notes payable to a bank	June-10	May-11		5.65%		-		1,512,000
Notes payable to a bank	July-10	June-11		5.38%		-		634,000
Notes payable to a bank	July-10	June-11		5.38%		-		536,000
Notes payable to a bank	July-10	June-11		5.38%		-		1,140,000
Notes payable to a bank	July-10	June-11		5.38%		-		505,000
Notes payable to a bank	July-10	June-11		5.38%		-		484,000
Notes payable to a bank	July-10	June-11		5.38%		-		1,800,000
Notes payable to a bank	July-10	June-11		5.38%		-		847,000
Notes payable to a bank	July-10	June-11		5.38%		-		1,805,000
Notes payable to a bank	July-10	June-11		5.38%		-		352,000
Notes payable to a bank	July-10	June-11		5.38%		-		342,000
Notes payable to a bank	July-10	June-11		5.38%		-		5,022,000
Notes payable to a bank	July-10	June-11		5.38%		-		362,000

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Notes payable to a bank	July-10	June-11	5.38%		-		993,000
Notes payable to a bank	July-10	June-11	5.38%		-		480,000
Notes payable to a bank	July-10	June-11	5.38%		-		736,000
Notes payable to a bank	July-10	June-11	5.38%		-		1,001,000
Notes payable to a bank	July-10	June-11	5.38%		-		1,443,000
Notes payable to a bank	July-10	June-11	5.38%		-		702,000
Notes payable to a bank	November-10	October-11	5.84%		-		756,000
Notes payable to a bank	December-10	November-11	6.12%		-		756,000
Notes payable to a bank	December-10	November-11	5.38%		-		5,815,000
Notes payable to a bank	December-10	December-11	5.38%		-		4,044,000
Notes payable to a bank	December-10	December-11	5.50%		-		5,232,000

Notes payable to a bank	April-11	October-11	4.06%		6,579,000		-
Notes payable to a bank	July-11	October-11	3.00%		2,955,000		-
Notes payable to a bank	July-11	October-11	2.48%		2,050,000		-
Notes payable to a bank	October-10	October-11	5.84%		781,000		-
Notes payable to a bank	April-11	October-11	3.73%		373,000		-
Notes payable to a bank	July-11	October-11	2.30%		3,316,000		-
Notes payable to a bank	April-11	October-11	4.43%		364,000		-
Notes payable to a bank	April-11	October-11	4.43%		330,000		-
Notes payable to a bank	November-10	November-11	6.12%		781,000		-
Notes payable to a bank	May-11	November-11	4.43%		394,000		-
Notes payable to a bank	May-11	November-11	6.44%		1,562,000		-
Notes payable to a bank	May-11	November-11	4.34%		586,000		-
Notes payable to a bank	August-11	November-11	2.50%		2,027,000		-
Notes payable to a bank	August-11	November-11	2.80%		504,000		-
Notes payable to a bank	November-10	November-11	3.00%		6,006,000		-
Notes payable to a bank	August-11	December-11	3.00%		797,000		-
Notes payable to a bank	September-11	December-11	3.00%		1,475,000		-
Notes payable to a bank	August-11	December-11	7.63%		1,336,000		-
Notes payable to a bank	December-10	December-11	3.00%		4,177,000		-
Notes payable to a bank	September-11	December-11	3.00%		2,988,000		-
Notes payable to a bank	September-11	December-11	2.90%		967,000		-
Notes payable to a bank	September-11	December-11	3.03%		3,737,000		-
Notes payable to a bank	September-11	December-11	3.60%		3,395,000		-
Notes payable to a bank	September-11	December-11	3.00%		3,388,000		-
Notes payable to a bank	September-11	December-11	3.00%		2,374,000		-
Notes payable to a bank	January-11	January-12	3.00%		3,556,000		-
Notes payable to a bank	July-11	January-12	2.80%		1,029,000		-
Notes payable to a bank	July-11	January-12	2.80%		1,984,000		-
Notes payable to a bank	September-11	March-12	7.02%		2,343,000		-
Notes payable to a bank	April-11	April-12	3.00%		2,672,000		-
Notes payable to a bank	April-11	April-12	3.00%		5,072,000		-
Notes payable to a bank	May-11	May-12	3.00%		1,583,000		-
Notes payable to a bank	May-11	May-12	3.00%		10,185,000		-
Notes payable to a bank	May-11	May-12	3.00%		1,573,000		-
Notes payable to a bank	June-11	June-12	3.00%		3,198,000		-
Notes payable to a bank	June-11	June-12	3.00%		1,608,000		-
Notes payable to a bank	June-11	June-12	3.00%		3,534,000		-
Notes payable to a bank	June-11	June-12	3.00%		2,332,000		-
Notes payable to a bank	June-11	June-12	3.00%		1,152,000		-
Notes payable to a bank	January-11	June-12	3.00%		2,514,000		-
Notes payable to a bank	August-11	August-12	3.00%		1,368,000		-
Notes payable to a bank	August-11	August-12	3.00%		1,227,000		-
Notes payable to a bank	September-11	September-12	4.31%		2,017,000		-
Notes payable to a bank	April-11	October-11	3.55%		504,000		-
Notes payable to a bank	April-11	October-11	4.05%		361,000		-

				$	103,054,000	$	37,299,000
	Less : current portion				103,054,000		37,299,000
	Long -term portion			$	-	$	-

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Interest expense for the three months ended September 30, 2011 and 2010 was $686,000 and $109,000, respectively. Interest expense for the nine months ended September 30, 2011 and 2010 was $1,741,000 and $352,000, respectively.

A note payable of $1,336,000 was secured by a note receivable of $1,523,000 (Note 4).

7. COLLATERALIZED BANK ADVANCES

Collateralized bank advances at September 30, 2011 consisted of purchases financed by two banks for which bank charges of 0.05% on the invoice amount is incurred and guaranteed by the Company’s restricted cash, a subsidiary of the Company and a director of the Company. Collateralized bank advances are due at various dates from October 12, 2011 through December 1, 2011 and bank advance charges due will be settled on the date of acceptance.

8. CAPITAL LEASE OBLIGATIONS

Certain items of our equipment have been acquired under a capital lease. The capital lease obligations are as follows:

	September 30, 2011		December 31, 2010
	(Unaudited)

Gross capital lease obligations	$	1,472,000	$	1,601,000
Less: current portion		793,000		756,000
Long-term capital lease obligations	$	679,000	$	845,000

The lease is guaranteed by equipment with a total cost of $2,703,000. Depreciation expenses associated with capital leases were $128,000 and $81,145 for the three months ended September 30, 2011 and 2010 respectively. Interest expenses associated with capital leases were $22,000 and $23,000 for the three months ended September 30, 2011 and 2010 respectively.

Depreciation expenses associated with capital leases were $379,000 and $81,145 for the nine months ended September 30, 2011 and 2010 respectively. Interest expenses associated with capital leases were $72,000 and $23,000 for the nine months ended September 30, 2011 and 2010 respectively.

9. COMMITMENTS AND CONTINGENCIES

Commitments

(1)	Rental Lease Commitment

The Company leases factory, warehouse, office spaces and equipment from third parties under operating leases which expire at various dates from October 2011 through March 2015. Rent expense for the three months ended September 30, 2011 and 2010 was $187,000 and $232,000, respectively. Rent expense for the nine months ended September 30, 2011 and 2010 was $626,000 and $632,000, respectively. At September 30, 2011, the Company has outstanding commitments with respect to operating leases, which are due as follows:

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Fiscal year ending December 31,
2011	$	351,000
2012		1,214,000
2013		331,000
2014		50,000
2015		12,000
	$	1,958,000

(2)	Capital Leases Commitment

The Company leases equipment under a non-cancelable capital lease agreement. Future minimum lease payments under the capital leases are as follows:

Fiscal year ending December 31,

2011	$	154,000
2012		925,000
2013		463,000
		1,542,000
Less: Interest		70,000
		1,472,000
Less: Current portion		793,000
Capital lease obligation – Non-current	$	679,000

(3)	Capital Commitment

As of September 30, 2011, the Company has a capital commitment in respect of capital injection to a PRC subsidiary of $2,051,000 by April 2012.

Contingencies

The Company accounts for loss contingencies in accordance with ASC Topic 450. As of September 30, 2011, there was no known loss contingency.

10. EARNINGS PER SHARE

The elements for calculation of earnings per share for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three months ended September 30,
	2011		2010
			(As Restated)

Net income for basic and diluted earnings per share	$	2,582,000	$	6,036,000

Weighted average shares used in basic computation		33,455,000		28,558,000
Effect of dilutive stock options and warrants		23,000		163,000
Weighted average shares used in diluted computation		33,478,000		28,721,000

Earnings per share:
Basic	$	0.08	$	0.21
Diluted	$	0.08	$	0.21

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	Nine months ended September 30,
	2011		2010
			(As Restated)

Net income for basic and diluted earnings per share	$	7,162,000	$	12,889,000

Weighted average shares used in basic computation		32,363,000		28,126,000
Effect of dilutive stock options and warrants		53,000		236,000
Weighted average shares used in diluted computation		32,416,000		28,362,000

Earnings per share:
Basic	$	0.22	$	0.46
Diluted	$	0.22	$	0.45

For the three and nine months ended September 30, 2011, options to purchase 647,104 shares and 400,537 shares of common stock, respectively and warrants to purchase 3,577,502 shares of common stock, with exercise prices greater than the average fair market value of the Company’s stock were not included in the calculation because the effect is anti-dilutive.

For the three and nine months ended September 30, 2010, options to purchase 911,522 shares and 337,100 shares of common stock, respectively and warrants to purchase 2,103,410 shares of common stock with exercise prices greater than the average fair market value of the Company’s stock were not included in the calculation because the effect is anti-dilutive.

11. STOCKHOLDERS’ EQUITY

Equity Share Transactions

On March 21, 2011, the Company completed the sale of the common stock and warrants under a Securities Purchase Agreement. For each share of common stock purchased by an investor under the Securities Purchase Agreement, such investor received a warrant to purchase 0.3 shares of common stock at an initial exercise price of $3.00 per whole share of common stock. The warrants cannot be exercised until six months after the date of issuance and have a term of exercise of thirty months from the date of issuance. Each share of common stock, together with the related warrant, was sold at a negotiated price of $2.30 per share of common stock. The Company received gross proceeds from the offering of approximately $11 million, before deducting placement agents' fees and estimated offering expenses. During the first quarter of 2011, net offering proceeds of approximately $10.4 million were recorded as an addition to stockholders’ equity, after deducting offering and related closing costs of the transaction.

During the first and second quarters of 2011, certain employees and a former director exercised their stock options to purchase an aggregate of 17,464 shares and 75,483 shares of common stock for $1,337 and $13,418 respectively.

Warrants

Following is a summary of the status of warrants outstanding and exercisable at September 30, 2011 and December 31, 2010:

September 30, 2011							December 31, 2010
						Average							Average
						Remaining							Remaining
		Number		Number		Contractual			Number		Number		Contractual
Exercise Price		Outstanding		Exercisable		Life	Exercise Price		Outstanding		Exercisable		Life
$	3.00		2,649,069		1,211,740	1.95years	$	3.00		1,211,740		1,211,740	2.69 years
$	3.11		853,433		853,433	3.93years	$	3.25		891,670		816,670	4.66 years
$	3.25		75,000		75,000	1.34years
Total			3,577,502		2,140,173		Total			2,103,410		2,028,410

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12. STOCK OPTIONS

The Company has granted qualified stock options under the Company’s 2000 Incentive Stock Option Plan (the “2000 ISOP”) and 2008 Incentive Stock Option Plan (the “2008 ISOP”). At September 30, 2011, stock options to purchase 677,527 shares of common stock at an exercise price ranging from $0.20 to $4.36 per share were outstanding. During the three months ended September 30, 2011, no stock options were exercised and options to purchase 50,900 shares were forfeited. Prior to becoming publically traded, the exercise prices were determined by the Board at the time of grant. In each such case the exercise price was not less than the fair market value of the common stock as determined by the Board in good faith taking into account such factors as recent issuances of preferred stock with an appropriate discount factored in relative to the preferred shares. The exercise prices for options issued under the 2000 ISOP following the sale of preferred stock by the Company during November and December of 2007 represent a discount to the issuance price of $0.78 for such preferred stock taking into account the added value of the conditions in the preferred stock (for example, it was redeemable with 10% appreciation). The exercise prices for options issued under the 2008 ISOP represent the closing price of the Company’s common stock on the business day preceding the grant date. The stock options granted become exercisable (“vested”) as to 25% of the original number of shares on the first anniversary of the grant date and as to an additional 6.25% of the original number of shares at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date. Unless earlier terminated, these stock options granted shall expire ten years after the grant date. Following the reverse merger, all shares of preferred stock which were convertible on the basis of one share of preferred stock for one share of common stock issued were exchanged for common stock of Liberty Alliance, Inc. retroactively adjusted for all periods presented.

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

Expected	Expected	Dividend	Risk Free	Grant Date
Life	Volatility	Yield	Interest Rate	Fair Value

The 2000 ISOP 5 years	175%	0%	2.5%	$0.09 - $0.19

The 2008 ISOP 1-5 years	83% - 121%	0%	0.3% - 2.5%	$0.47 - $2.79

Expected Volatility: Expected volatility is computed based on the standard deviation of the continuously compounded rate of return of days when the stock price changed over the historical period of the expected life of the options.

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

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Risk Free Rate: The risk-free interest rate was based on U.S. Treasury interest rates at the time of the grant whose term is consistent with expected life of the stock options.

Expected Life: Because the Company has no historical share option exercise experience to estimate future exercise patterns, the expected life was determined using the simplified method as these awards meet the definition of "plain-vanilla" options under the rules prescribed by ASC Topic 718.

Stock compensation expense was recognized based on awards expected to vest. There was no estimated forfeiture as the Company has a short history of issuing options. ASC Topic 718 requires forfeiture to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The following is a summary of the stock options activity:

	Number of			Weighted-
	Options			Average
	Outstanding			Exercise
				Price

Balance at December 31, 2009		1,263,978		$	2.01
Granted		563,496			2.73
Forfeited		(571,687	)		-
Exercised		(194,589	)		0.47
Balance at December 31, 2010		1,061,198			2.50
Granted		98,361			2.71
Forfeited		(75,796	)		-
Exercised		(17,464	)		1.13
Balance at March 31, 2011		1,066,299			2.56
Granted		-			-
Forfeited		(262,389	)		-
Exercised		(75,483	)		0.21
Balance at June 30, 2011		728,427			2.74
Granted		-			-
Forfeited		(50,900	)		-
Exercised		-			-
Balance at September 30, 2011		677,527		$	2.81
Options exercisable on September 30, 2011		196,185		$	2.93

Of the total options granted, 196,185 are fully vested exercisable and non-forfeitable at September 30, 2011.

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The following is a summary of the status of options outstanding at September 30, 2011 and December 31, 2010:

Outstanding Options at September 30, 2011				Exercisable Options

Range of	Number	Weighted	Weighted	Number	Weighted
Exercise Price		Average	Average		Average
		Remaining	Exercise		Exercise
		Contractual	Price		Price
		Life
$0.20 - $1.02	30,423	6.18years	$0.20	20,266	$0.20
$2.21 - $2.48	207,553	4.01years	$2.32	47,795	$2.46
$2.62 - $3.00	267,651	5.01years	$2.74	46,072	$2.77
$3.92 - $4.36	171,900	8.01years	$3.97	82,052	$3.97
Total	677,527			196,185	$2.93


Outstanding Options at December 31, 2010				Exercisable Options

Range of	Number	Weighted	Weighted	Number	Weighted
Exercise Price		Average	Average		Average
		Remaining	Exercise		Exercise
		Contractual	Price		Price
		Life
$0.10 - $1.02	167,114	7.1 years	$0.44	92,708	$0.39
$2.21 - $3.00	700,684	5.9 years	$2.58	145,453	$2.40
$3.92 - $4.36	193,400	8.8 years	$3.97	61,467	$3.93
Total	1,061,198			299,628	$2.09

13. RELATED PARTY TRANSACTIONS

There were no related party transactions during the three and nine months ended September 30, 2011 and 2010 respectively except for the ongoing transaction set forth below.

As of September 30, 2011, an executive officer and his spouse have provided guarantees to a bank for banking facilities in the amount of $4,704,000 extended to the Company.

As of September 30, 2011, an executive officer has provided guarantees to a bank for banking facilities in the amount of $15,329,000 extended to the Company.

14. 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 current intention to reinvest all the income earned by the Company’s subsidiaries based 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. 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, 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 16.5%. No provision for Hong Kong profits tax was required as these entities incurred losses during the three and nine months ended September 30, 2011 and 2010. Management believes the realization of tax benefits from the net operating losses is uncertain due to the Company’s current operating history and continuing losses in Hong Kong for tax purposes. Accordingly, no deferred tax benefit has been recorded.

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The Company’s subsidiaries in China were subject to China income tax at a statutory rate of 25% in 2011 and 2010. However, these subsidiaries are located in special economic regions and/or qualify as “new or high-technology enterprises” that are allowed special tax reductions until 2012. The Company’s subsidiaries in China were subject to special tax rates of 24% and 22% in 2011 and 2010 respectively.

Income tax expense for the three months ended September 30, 2011 and 2010 is summarized as follows:

	2011		2010
			(As Restated)

Current	$	1,075,000	$	1,898,000
Deferred		-		-
	$	1,075,000	$	1,898,000

The reconciliation of income taxes computed at the statutory income tax rates to total income taxes for the three months ended September 30, 2011 and 2010 is as follows:

	2011				2010
					(As Restated)

Income before income taxes	$	3,658,000		100%	$	7,934,000		100%

China income taxes at statutory rate	$	914,500		25%	$	1,983,500		25%
Operating loss carried forward		197,080		5%		152,520		2%
China qualified income tax exemptions		(36,580	)	(1%)		(238,020	)	(3%	)
Income tax expense	$	1,075,000		29%	$	1,898,000		24%

Income tax expense for the nine months ended September 30, 2011 and 2010 is summarized as follows:

	2011		2010
			(As Restated)

Current	$	3,583,000	$	4,287,000
Deferred		-		-
	$	3,583,000	$	4,287,000

The reconciliation of income taxes computed at the statutory income tax rates to total income taxes for the nine months ended September 30, 2011 and 2010 is as follows:

	2011				2010
					(As Restated)

Income before income taxes	$	10,745,000		100%	$	17,176,000		100%

China income taxes at statutory rate	$	2,686,250		25%	$	4,294,000		25%
Operating loss carried forward		1,004,200		9%		508,280		3%
China qualified income tax exemptions		(107,450	)	(1%)		(515,280	)	(3%)
Income tax expense	$	3,583,000		33%	$	4,287,000		25%

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15. CONCENTRATIONS AND RISKS

Substantially all of Company's assets are located in the PRC and Hong Kong.

During the three months ended September 30, 2011 and 2010, 70% and 30% of revenues were derived from overseas sales, respectively. During the nine months ended September 30, 2011 and 2010, 53% and 30% of revenues were derived from overseas sales, respectively.

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

	Customer A		Customer B		Customer C

For nine months ended September 30, 2011		29%		22%		12%

As of September 30, 2011, accounts receivable from those customers were 4 million.

16. SEGMENT INFORMATION

Since the Company began engaging in electronic products manufacturing and sales (ICM) in 2010, the Company has been organized as two business segments, electronics product manufacturing and sales (ICM) and electronic component sales and services (ECSS). The Company follows the provision of authoritative pronouncement issued by the FASB regarding disclosures about segments of an enterprise and related information, which establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company's chief operating decision maker is the Chief Executive Officer. The following were details of the Company's reportable segments:

	For three months ended September 30,
	2011		2010
Revenues from external customers:
ECSS	$	35,112,000	$	36,727,000
ICM		16,855,000		19,024,000
	$	51,967,000	$	55,751,000
Depreciation:
ECSS	$	235,000	$	401,000
ICM		267,000		78,000
	$	502,000	$	479,000
Stock compensation expense:
ECSS	$	-	$	48,000
ICM		-		9,000
	$	-	$	57,000
Stock option compensation amortization:
ECSS	$	72,000	$	92,000
ICM		4,000		18,000
	$	76,000	$	110,000
Provision for bad debts: (write back of allowance for doubtful accounts)
ECSS	$	15,000	$	(197,000	)
ICM		18,000		(39,000	)
	$	33,000	$	(236,000	)
Interest income:
ECSS	$	317,000	$	33,000
ICM		278,000		8,000
	$	595,000	$	41,000
Interest expense:
ECSS	$	312,000	$	89,000
ICM		396,000		20,000
	$	708,000	$	109,000

Income taxes expenses:
ECSS	$	542,000	$	1,393,000
ICM		533,000		505,000
	$	1,075,000	$	1,898,000
Income from operations:
ECSS	$	2,811,000	$	5,197,000
ICM		767,000		2,257,000
	$	3,578,000	$	7,454,000

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	For nine months ended September 30,
		2011		2010
Revenues from external customers:
ECSS	$	88,326,000	$	99,512,000
ICM		42,531,000		38,723,000
	$	130,857,000	$	138,235,000
Depreciation:
ECSS	$	951,000	$	879,000
ICM		559,000		172,000
	$	1,510,000	$	1,051,000
Stock compensation expense:
ECSS	$	-	$	173,000
ICM		-		34,000
	$	-	$	207,000
Stock option compensation amortization:
ECSS	$	162,000	$	274,000
ICM		103,000		54,000
	$	265,000	$	328,000
Provision for bad debts: (write back of allowance for doubtful accounts)
ECSS	$	60,000	$	(38,000	)
ICM		68,000		(7,000	)
	$	128,000	$	(45,000	)
Interest income:
ECSS	$	846,000	$	118,000
ICM		533,000		27,000
	$	1,379,000	$	145,000
Interest expense:
ECSS	$	1,057,000	$	287,000
ICM		756,000		65,000
	$	1,813,000	$	352,000
Income taxes expenses:
ECSS	$	2,197,000	$	3,149,000
ICM		1,386,000		1,138,000
	$	3,583,000	$	4,287,000
Income from operations:
ECSS	$	5,286,000	$	11,403,000
ICM		4,163,000		4,953,000
	$	9,449,000	$	16,356,000

Total amount of income from operations is consistent with the condensed consolidated statements of operations.

Addition to property and equipment:
ECSS	$	2,514,000	$	2,271,000
ICM		821,000		1,114,000
	$	3,335,000	$	3,385,000

	As of September 30, 2011		As of December 31, 2010
Total segment assets:
ECSS	$	83,596,000	$	64,887,000
ICM		131,005,000		45,216,000
	$	214,601,000	$	110,103,000

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17. RESTRICTED CASH AND BANK BORROWINGS

Restricted cash and bank borrowings at September 30, 2011 and December 31, 2010 consisted of the following:

	September 30, 2011		December 31, 2010
	(Unaudited)

Restricted cash - loan	$	9,604,000	$	3,016,000
Restricted cash - NDF		85,145,000		29,043,000
Total Restricted cash	$	94,749,000	$	32,059,000

Bank borrowings - loan	$	17,909,000	$	8,256,000
Bank borrowings - NDF		85,145,000		29,043,000
Total Bank borrowings	$	103,054,000	$	37,299,000

Non-Deliverable Forward (NDF) contracts are instruments whereby a company can presently pay a supplier in a currency, principally US dollars (USD), using a predetermined rate of exchange against the Renminbi (RMB) that is lower than the current exchange rate on a riskless basis. The reason this opportunity was available during the three months ended September 30, 2011 was because Chinese banks anticipated that there would be further appreciation of the RMB.

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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 the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission on May 24, 2011. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report on Form 10-Q. All amounts are expressed in United States dollars.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2011 COMPARED TO SEPTEMBER 30, 2010

Overview

Overall Results

The Company reported net income for the three months ended September 30, 2011 of $2.6 million compared to $6.0 million in the year-earlier period, a decrease of 57%. For the nine months ended September 30, 2011, the company reported net income of $7.2 million compared to $12.9 million in the year-earlier period, a decrease of 44%.

Net Sales

Net sales for three months ended September 30, 2011 were $51.97 million, down 6.8% from $55.75 million in the year-earlier period. Net sales for nine months ended September 30, 2011 were $130.86 million, down 5.3% from $138.24 million in the year-earlier period. The Company reports net sales on the basis of two business segments: electronic component sales and services (ECSS) and electronic products manufacturing and sales (ICM).

In the three months ended September 30, 2011, net sales in the ECSS business segment decreased 4.4% to $35.11 million from $36.73 million in the year earlier period, and net sales in the ICM business segment decreased 11.4% to $16.86 million from $19.02 million in the year-earlier period. The primary reason for the decrease in the ECSS business segment was the increasing maturity of the 2G handset market and the lack of clear leadership in the 3G handset market which resulted in fewer arbitrage opportunities as potential customers are better able to match demand and supply in the 2G market and the lack of a leader in the 3G market has limited demand and arbitrage opportunities in that market. ICM net sales declined because the Company was not successful in replacing all of the revenue that was lost when a major customer had to drastically cut back on orders with SinoHub starting in the second quarter of 2011.

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In the nine months ended September 30, 2011, net sales of ECSS business segment decreased 11.2% to $88.32 million from $99.51 million for the reasons given above but net sales of ICM business segment increased 9.8% to $42.53 million from $38.72 million in the year-earlier period thanks largely to the large increase in the first quarter of 2011.

The Company has begun the process of shifting the electronic component procurement (ECP) portion of our ECSS segment, which constitutes most of this segment, to a brokerage model from our current model where we take ownership of components. This will result in much lower revenue (the Company will only be able to record commissions as revenue instead of the full value of the components), but much higher gross margins.

Gross Profit

The Company recorded gross profit of $6.3 million and $18.4 million in the three and nine months ended September 30, 2011, compared with $10.2 million and $24.9 million respectively in the year-earlier periods. The gross profit margin for the three and nine months ended September 30, 2011 decreased to 12.2% and 14.1% from 18.3% and 18.0% respectively in the year-earlier period. However, in the three months ended September 30, 2011, gross margins in ICM recovered to 16.2% from the low level in the three months ended June 30, 2011 as the Company’s sales initiatives to broaden our base of ICM customers and to attract more customers making higher margin purchases started to pay off.

Operating Expenses

For three months ended September 30, 2011, total operating expenses were $2.7 million or 5.3% of revenues compared to $2.7 million or 4.9% of revenues in the year-earlier period. For nine months ended September 30, 2011, total operating expenses were $9.0 million or 6.9% of revenues compared to $8.5 million or 6.1% of revenues in the year-earlier period. Selling, general and administrative expenses decreased to $2.0 million in the three months ended September 30, 2011 from $2.1 million in the year-earlier period, representing approximately 3.9% and 3.8% of revenues respectively. Selling, general and administrative expenses increased to $6.5 million in the nine months ended September 30, 2011 from $6.3 million in the year-earlier period, representing approximately 5.0% and 4.5% of revenues respectively.

Income from Operations

The Company recorded income from operations of $3.6 million and $9.4 million in the three and nine months ended September 30, 2011 as compared with income from operations of $7.5 million and $16.4 million in the year-earlier periods, respectively.

Income Taxes

The Company recorded income tax expense of $1.1 million and $3.6 million in the three and nine months ended September 30, 2011 as compared with $1.9 million and $4.3 million in the year-earlier period, respectively. Income tax estimates in interim periods have varied as the Company has adjusted provisions and accruals in light of actual tax filings.

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Foreign Currency Translation Gain and Comprehensive Net Income

The Company recorded foreign currency translation gains of $891,000 and $2.5 million in the three and nine months ended September 30, 2011 as compared with $909,000 and $1.0 million in the year-earlier period, respectively. The increase in foreign currency translation gains was due to the increase in the value of the RMB against the USD and HKD in the third quarter. Comprehensive net income (net income plus foreign currency translation gains) was $3.5 million and $9.7 million in the three and nine months ended September 30, 2011, compared with $6.9 million and $13.9 million in the year-earlier period.

CONSOLIDATED FINANCIAL CONDITION AND LIQUIDITY

Liquidity and Capital Resources

At September 30, 2011, the Company’s working capital (including restricted cash) was $75.5 million, an increase from $57.5 million at December 31, 2010. The Company does not expect it will require further equity financing for working capital purposes for the foreseeable future. As of September 30, 2011, the Company had approximately $7 million available to borrow under its credit facilities.

At September 30, 2011 and December 31, 2010, the Company had cash and cash equivalents of $7.0 million and $4.5 million, respectively. During the nine months ended September 30, 2011, the net amount of cash used in the Company’s operating activities was $17.6 million, the net amount of cash used in investing activities was $64.0 million, and the net amount of cash provided by financing activities was $83.7 million.

The company used a substantial amount of Non-Deliverable Forward (NDF) contracts to reduce its costs and at September 30, 2011 had $85.1 million in NDF deposits balanced by $85.1 million in borrowings related to these NDF contracts. This amount represents an increase of $400,000 over the $84.7 million in NDF contracts outstanding at June 30, 2011. In the quarter ended September 30, 2011, Chinese banks continued to make it an attractive proposition for the company to use NDF’s to lower its costs of purchasing US dollars to pay suppliers in Hong Kong because of their belief that the Renminbi will continue to appreciate against the US dollar. At the end of all NDF contracts the net of these deposits and borrowings will exactly offset each other. There is no risk for the Company in these transactions. We do not expect to continue using a substantial amount of NDF’s to reduce costs in the future.

Cash Flows from Operating Activities

The net amount of cash used in the Company’s operating activities during the nine months ended September 30, 2011 was $17.6 million resulting from increases in inventories and accounts receivable. For the nine months ended September 30, 2010, the net amount of cash used in the Company’s operating activities was $4.7 million resulting from increases in accounts receivable and deposits with supplies.

Cash Flows from Investing Activities

The net amount of cash used in investing activities during the nine months ended September 30, 2011 was $64.0 million, compared with $6.5 million in the year-earlier period. Both were the results of restricted cash buildup and purchase of equipment.

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Cash Flows from Financing Activities

The net amount of cash provided by financing activities during the nine months ended September 30, 2011 was $83.7 million which was mainly the result of the bank borrowings and the sale of equity. For the nine months ended September 30, 2010, the net amount of cash generated by financing activities was $8.1 million, which was the result of the bank borrowings and a private placement stock offering.

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

On May 11, 2011, we became aware that we had failed to recognize warrant derivative liability with respect to our outstanding warrants issued in private placements in September 2008 and March 2010 and the subsequent re-measurement of fair value of the warrants derivative, as required by Accounting Standards Codification 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”), formerly Emerging Issues Task Force Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-05”). We determined that this error was caused in part by a lack of personnel with sufficient knowledge of US GAAP. The error had a significant effect on our previously issued consolidated financial statements for the year ended December 31, 2010 and for each of the quarters for the year ended December 31, 2010 requiring us to restate the financial statements for such periods. Because ASC 815-40 only applies to fiscal years beginning after December 15, 2008 and the provision of the warrants issued in the 2008 private placement requiring the recognition of warrant derivative liability terminated on September 10, 2009 we have determined that we are not required to restate our financial statements for the year ended December 31, 2009 or any of the quarters for the year ended December 31, 2009. While the Company has begun to develop and implement a remediation plan to address the deficiencies in the Company’s accounting for equity-linked financial instruments, specifically for stock purchase warrants, that caused the misstatements, such remediation efforts are not yet complete.

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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. Based upon that evaluation, and taking the matters described above into account, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2011 to ensure that information required to be disclosed by the Company in the reports that the Company 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, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Remediation Plan

Management has been actively engaged in developing a remediation plan to address the material weakness that was identified. Implementation of the remediation plan is in process and consists of redesigning quarterly procedures to enhance management's identification, capture, review, approval and recording of contractual terms included in equity arrangements. Management is also considering additional steps, which may ultimately include greater use of the consultant currently engaged by the Company to advise on US GAAP and other matters, additional US GAAP training for the Company’s existing staff and/or hiring additional staff with a more expansive background in US GAAP. Management believes the foregoing efforts will effectively remediate the material weakness. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of the Company's internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting.

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. In light of the matters described above with respect to recognizing warrant liability, the Company intends to re-evaluate its internal control over financial reporting and to implement such changes as it may deem appropriate in light of such re-evaluation.

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have not been any material changes from the risk factors previously disclosed under Item 1A of our amended Annual Report on Form 10-K/A for the year ended December 31, 2010.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

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Item6.Exhibit No.		Title of Document


31.1		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 amended*

31.2		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 amended*

32.1		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)**


101		The following financial statements from the Quarterly Report on Form 10-Q of SinoHub, Inc. for the quarter ended September 30, 2011 formatted in XBRL: (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited), (iii) Condensed Consolidated Statements of Cash Flows (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text.***

*Filed as an exhibit hereto.

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

***Previously furnished on November 14, 2011 as Exhibit 101 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.

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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: February 28, 2012	By:	/s/ Henry T. Cochran
		Henry T. Cochran
		Chief Executive Officer

Date: February 28, 2012	By:	/s/ Li De Hai
		Li De Hai
		Chief Financial Officer (Principal Financial and Accounting Officer)

SINOHUB, INC. - FORM 10-Q/A - February 28, 2012

Attached files

SINOHUB, INC. Reports