Sinohub (NYSE AMEX:SIHI)

In light of the strong growth opportunities in SinoHub's ICM business segment and its strengthened working capital position as a result of its recently reported $11 million equity raise and existing bank facilities, SinoHub remains confident in the Company's fundamentals, strategy, and prospects. At March 31, 2011, the Company’s working capital was $64.3 million, increased from $52.1 million at December 31, 2010. The Company does not expect it will require further equity financing for the foreseeable future. As of March 31, 2011, the Company had approximately $5 million available to borrow under its credit facilities.

SinoHub’s strategic plan is focused on the growth of our ICM business segment.  In 2011 the Company will focus on mobile phone sales in Indonesia and India. This will require investment in inventory for ICM orders, and, depending on our growth, additional investment in our manufacturing and assembling facilities.  As a result of the working capital investments necessary to support these plans, the Company will continue to require cash and financing resources to meet and exceed its objectives. The Company’s cost of capital from equity sales increased to 8.8% with the private financings we closed in March 2010 due to market conditions and the participation of an investment bank as placement agent.  Our cost of capital with China Construction Bank, Industrial Bank, Hangzhou Bank and Bank of Ningbo was approximately 5.4% at December 31, 2010. Some of the working capital the Company intends to raise in the near to medium term is expected to come from Chinese banks, which, to date, have not been affected by the global credit crisis nearly as much as the US and European banks although the credit available through banks in China could be affected by Chinese monetary policies.  We will also seek to raise additional capital from multinational banks and in public or private equity offerings.
 
We believe SinoHub’s new integrated contract manufacturing business can grow rapidly with the expansion of our manufacturing facility and with additional inventory.  Additional working capital would enable us to purchase more electronic components from our suppliers, which should lower our costs, and thus enhance our profitability.  We believe increased volume would also likely enable the Company to receive payment terms from suppliers (we are currently mainly buying from suppliers on a C.O.D. basis) which would lessen our need for additional financing from third parties.  Accordingly, if SinoHub is unsuccessful in raising additional working capital and does not obtain payment terms from suppliers, the Company’s growth may be adversely affected.
 
We intend to raise additional funds through the sale of additional equity or debt, long-term debt financings, and operating cash flows.

The Company’s strategic plans include continued expansion and support of our SCM Platform (consisting of SinoHub SCM, key service centers in Hong Kong, Shenzhen, and Shanghai, and a supply chain management service team providing real time support), growth in our electronic component and mobile device sales businesses, including growth of our VCM business, investment in inventory for both procurement-fulfillment and VCM orders, and investment in the manufacturing facility for our VCM business. As a result of the working capital investments necessary to support these plans, the Company will continue to require cash and financing resources to meet and exceed its objectives. The Company’s cost of capital with China Construction Bank, Industrial Bank, Hangzhou Bank, Jiangsu Bank and the Shenzhen branch of the Ningbo Bank was approximately 3.67% at September 30, 2010. Chinese banks to date have not been affected by the global credit crisis nearly as much as the US and European banks although the credit available through banks in China could be affected by Chinese monetary policies.

Although there can be no assurance, we believe SinoHub’s new VCM business can grow rapidly with the addition of more Surface-mount technology (SMT) lines and assembly lines in our manufacturing facility and with additional inventory. Additional working capital would enable us to purchase more electronic components from our suppliers, which we expect would lower our costs, and thus enhance our profitability. We believe increased volume would also likely better position the Company to negotiate payment terms from suppliers (in lieu of the C.O.D. basis on which we currently pay most of our suppliers) which would further reduce our need for additional financing from third parties. Accordingly, if SinoHub is successful in raising additional working capital, management believes that such capital can be utilized to generate positive revenue growth in the near term.

We believe that SinoHub’s procurement-fulfillment and electronic component sales business can be expanded with additional funds depending on how quickly we can build out new infrastructure and hire additional staff. This is because the electronics business in China is very large relative to the size of the Company’s business.

 Additional working capital would enable us to purchase more electronic components from our suppliers, which should lower our costs, and thus enhance our profitability. Increased volume would also likely enable the Company to get favorable terms from suppliers which would lower our need for additional financing from third parties. Moreover, the addition of warehouse space to support the Company’s growth will require capital investment.

 Accordingly, if SinoHub is unsuccessful in raising additional working capital, the Company’s growth will be adversely affected.

Source: SEC Form 10K (For the fiscal year ended December 31, 2008. Page 42)