Trunkbow International Holdings Ltd - FORM 10-K

Attached files

file	filename
EX-32.1 - CERTIFICATION - Trunkbow International Holdings Ltd	v305279_ex32-1.htm
EX-31.2 - CERTIFICATION - Trunkbow International Holdings Ltd	v305279_ex31-2.htm
EX-31.1 - CERTIFICATION - Trunkbow International Holdings Ltd	v305279_ex31-1.htm
EX-10.22 - MAXIMUM AMOUNT GUARANTEE CONTRACT - Trunkbow International Holdings Ltd	v305279_ex10-22.htm
EX-10.24 - MAXIMUM AMOUNT PLEDGE CONTRACT - Trunkbow International Holdings Ltd	v305279_ex10-24.htm
EX-10.20 - MEDIUM-TO-SMALL SIZED ENTERPRISE FINANCING SERVICE CONTRACT - Trunkbow International Holdings Ltd	v305279_ex10-20.htm
EX-10.23 - MAXIMUM AMOUNT PLEDGE CONTRACT - Trunkbow International Holdings Ltd	v305279_ex10-23.htm
EX-32.2 - CERTIFICATION - Trunkbow International Holdings Ltd	v305279_ex32-2.htm
EX-10.21 - ACCOUNTS RECEIVABLE MAXIMUM AMOUNT PLEDGE CONTRACT - Trunkbow International Holdings Ltd	v305279_ex10-21.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

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: 001-35058

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

(Exact name of Registrant as Specified in Its Charter)

NEVADA		26-3552213
(State or Other Jurisdiction		(I.R.S. Employer Identification No.)
of Incorporation or Organization)

Unit 1217-1218, 12F of Tower B, Gemdale Plaza, No. 91 Jianguo Road Chaoyang District, Beijing, People’s Republic of China		100022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:
(86) 10-8571-2518

Securities Registered Pursuant To Section 12 (b) Of The Act:

Common Stock, Par Value $0.001 Per Share

Securities Registered Pursuant To Section 12 (g) Of The Act:

Name of each exchange on which registered: The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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. x Yes ¨ No

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 (§229.405 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company x

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

The aggregate market value of the shares of common stock, par value $0.001 per share, of the registrant held by non-affiliates on June 30, 2011 was $46,414,314.94.

There were 36,807,075 shares of common stock of the registrant outstanding as of March 22, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2012 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K

TABLE OF CONTENTS

PART I			3
	Item 1	Business	3
	Item 1A.	Risk Factors	19
	Item 1B.	Unresolved Staff Comments	34
	Item 2	Properties.	34
	Item 3	Legal Proceedings	34
	Item 4	Mine Safety Disclosures	34
PART II			35
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	35
	Item 6	Selected Financial Data	35
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 8	Financial Statements and Supplementary Financial Data	47
	Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	47
	Item 9A.	Controls and Procedures	48
	Item 9B.	Other Information	48
PART III			49
	Item 10	Directors, Executive Officers and Corporate Governance	49
	Item 11	Executive Compensation	49
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	49
	Item 13	Certain Relationships and Related Transactions and Director Independence	49
	Item 14	Principal Accounting Fees and Services.	51
PART IV			52
	Item 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	52

INTRODUCTORY NOTE

Except as otherwise indicated by the context, references in this Annual Report on Form 10-K (this “Form 10-K”) to the “Company,” “Trunkbow,” “we,” “us” or “our” are references to the combined business of Trunkbow International Holdings Limited and its consolidated subsidiaries. References to “Trunkbow BVI” are references to our wholly-owned subsidiary, Trunkbow International Holdings Ltd., a BVI company; references to “Trunkbow Hong Kong” are references to our wholly-owned subsidiary, Trunkbow (Asia Pacific) Investment Holdings Limited, a Hong Kong company; references to “Trunkbow Shandong” are to our wholly-owned subsidiary, Trunkbow Asia Pacific (Shandong) Company, Limited, a PRC wholly foreign owned enterprise; references to “Trunkbow Shenzhen” are to our wholly-owned subsidiary, Trunkbow Asia Pacific (Shenzhen) Company, Limited, a PRC wholly foreign owned enterprise; references to “Trunkbow Technologies” are to our contractually controlled entity, Trunkbow Technologies (Shenzhen) Company, Limited, and references to “Delixunda” are to Beijing Delixunda Technology Co., Ltd., our contractually controlled entity. References to “China” or “PRC” are references to the People’s Republic of China. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” and dollar are to the U.S. dollar, the legal currency of the United States.

Special Note Regarding Forward-Looking Statements

This report contains forward-looking statements and information relating to Trunkbow International Holdings Limited that are based on the beliefs of our management as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. When used in this From 10-K, forward-looking statements include, but are not limited to, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as well as statements regarding new and existing products, technologies and opportunities, statements regarding market and industry segment growth and demand and acceptance of new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China, any statements of belief or intention, and any statements or assumptions underlying any of the foregoing. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this Form 10-K as anticipated, estimated or expected, including, but not limited to: competition in the industry in which we operate and the impact of such competition on pricing, revenues and margins, volatility in the securities market due to the general economic downturn; Securities and Exchange Commission (the “SEC”) regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward- looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

PART I

Item 1. Business.

Company Background

Our History and Corporate Structure

Prior to the share exchange transaction described below (the “Share Exchange”), we were a “shell” company with nominal assets organized under the name Bay Peak 5 Acquisition Corp. (“BP5”). We were incorporated in the State of Nevada on September 3, 2004 as a wholly owned subsidiary of Visitalk Capital Corporation (“VCC”). The Company was formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”), a former provider of VOIP services. The Visitalk Plan was deemed effective by the Bankruptcy Court on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com was merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan.

On July 28, 2008, pursuant to Stock Purchase Agreements (“SPAs”), we sold 5,971,898 shares of common stock to two parties unaffiliated with us (the “Purchasing Shareholders”) for a total payment of $51,000, or approximately $.008 per share (the “Change of Control Transactions”). On August 29, 2008, the SPAs were approved by our shareholders at a special shareholders’ meeting and all the closing conditions of the SPAs were met. After the Change of Control Transactions, including the impact of a related master settlement agreement, these newly issued shares represented 85.5% ownership of us. One of the parties, Bay Peak, LLC (“Bay Peak”), had contacts with various companies and individuals in Asia, in particular the PRC. Cory Roberts, the managing member of Bay Peak, was appointed to our Board of Directors and elected President in conjunction with the Change of Control Transactions. Mr. Roberts resigned as a member of our Board of Directors on March 30, 2011. On August 28, 2008, shareholders authorized adopting the name of Bay Peak 5 Acquisition Corp. Also on August 28, 2008, shareholders ratified a one-for-seven reverse stock split, which was implemented on January 6, 2010 and in January 2010, authorized a further reverse split of 4.14 for 1, which was implemented on January 27, 2010.

Effective as of September 24, 2008, we entered into a Plan and Agreement of Merger (the “Plan and Agreement of Merger”) with VT Dutch Services, also a subsidiary of VCC, pursuant to which VT Dutch Services merged with and into us. Pursuant to the merger, holders of shares of common stock of VT Dutch Services received the identical number and class of our stock as they held in VT Dutch Services, and holders of warrants of VT Dutch Services received the identical number and class of our warrants as they held in VT Dutch Services. In connection with the Plan and Agreement of Merger, VT Dutch Services also changed its name to “Bay Peak 5 Acquisition Corp.” All shares of common stock of BP5 held prior to the consummation of the transactions contemplated by the Plan and Agreement of Merger were cancelled. The sole purpose of the merger was to change the corporate domicile of VT Dutch Services from Arizona to Nevada and to effect a name change of VT Dutch Services.

In February 2010 we entered into the Share Exchange Agreement with Trunkbow BVI and the shareholders of Trunkbow BVI (the “Shareholders”), who together owned shares constituting 100% of the issued and outstanding ordinary shares of Trunkbow BVI (the “Trunkbow BVI Shares”), and Bay Peak, our former principal shareholder. Pursuant to the terms of the Share Exchange Agreement, the Shareholders transferred to us all of the Trunkbow BVI Shares in exchange for the issuance of 19,562,888 shares of our common stock (the “Share Exchange”). As a result of the Share Exchange, Trunkbow BVI became our wholly owned subsidiary. After giving effect to the Share Exchange, the sale of common stock in the February 2010 Offering (as defined below) and the BP5 Warrant Financing (as defined below) (i) existing shareholders of Trunkbow BVI owned approximately 60.25% of our outstanding common stock, (ii) purchasers of common stock in the February 2010 Offering owned approximately 26.01% of our outstanding common stock (including 7.7% owned by VeriFone, Inc.), (iii) the holders of BP5 warrants owned approximately 8.54% of our outstanding common stock and (iv) the pre-existing shareholders of BP5 owned approximately 5.2% of our outstanding common stock.

Concurrent with the Share Exchange, (i) we entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the sale of an aggregate of 8,447,575 shares (the “Investor Shares”) and 1,689,515 warrants (the “Investor Warrants”), for aggregate gross proceeds equal to $16,895,150 (the “February 2010 Offering”) and (ii) certain holders of our outstanding warrants issued to creditors and claimants of Visitalk.com, in accordance with the Visitalk Plan, referred to herein as the “BP5 Warrant Investors” exercised the 2,774,500 warrants owned by them for an aggregate exercise price of $5.5 million and received warrants to purchase an aggregate of 554,900 shares of common stock (“BP5 Warrant Financing”).

Following the Share Exchange, we are a leading provider of technology platform solutions for mobile telecom operators in the People’s Republic of China. Our patented platforms provide a comprehensive solution for Chinese telecom operators to deliver and manage the distribution of various mobile value-added service (“MVAS”) applications to their subscribers. The Trunkbow brand is regarded by Chinese telecom operators as a well managed, trusted provider of technology solutions. Our R&D focused business model provides us with a defensible market position as a technology solutions provider to the telecom operators.

Trunkbow was founded in 2001 by former Silicon Valley engineers with extensive experience in the telecom industry. We have been able to develop first to market application platforms that enable telecom operators to generate significant new revenue streams by leveraging our extensive knowledge of the mobile network technology. Since our inception, we have invested significant time and resources to develop cutting edge technology solutions for our customers. We were the first to create and develop a Color Ring Back Tone (“CRBT”) application platform for Shandong Unicom in 2003. Since then, this innovative service solution has become the third largest revenue contributor for China Mobile after voice and Short Message Service (“SMS”).

We believe that we have a competitive advantage over our primary competitors by our proven track record of innovation. We believe Chinese telecom operators continue to utilize our technology platforms because of our superior technological solutions and unique product offerings.

On February 8, 2011, we consummated our initial public offering of 4 million shares of our common stock.

Corporate Structure

Our current corporate structure is set forth below:

(1)

Trunkbow International Holdings Limited (“Trunkbow BVI”) was established in the British Virgin Islands (“BVI”) on July 17, 2009. Trunkbow BVI itself has no significant business operations and assets other than holding of equity interests in its subsidiaries through a series of reorganization activities described below (the “Reorganization”).

(2)

Trunkbow (Asia Pacific) Investment Holdings Limited (“Trunkbow Hong Kong”) was established as an Investment Holding Company in Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”) on July 9, 2004. As part of the reorganization, on September 16, 2009, the entire issued share capital Trunkbow Hong Kong was transferred to Trunkbow BVI.

(3)

Trunkbow Asia Pacific (Shandong) Company, Limited (“Trunkbow Shandong”) was established as a wholly foreign owned enterprise on December 10, 2007 in Jinan, Shandong Province, the PRC by Trunkbow Hong Kong. It is principally engaged in research and development of application platforms for mobile operators in the PRC.

(4)

Trunkbow Asia Pacific (Shenzhen) Company, Limited (“Trunkbow Shenzhen”) was established as a wholly foreign owned enterprise on June 7, 2007 in Shenzhen, Guangdong Province, the PRC by Trunkbow Hong Kong. It is principally engaged in research and development of application platforms for mobile operators in the PRC.

(5)

(6)

We entered into a series of contractual arrangements with Delixunda and its shareholders on March 10, 2011. Delixunda is a telecom value-added service licensed company and was established as a limited liability company on December 1, 2009 in Beijing, the PRC. Delixunda had no operations prior to February 10, 2011. As a result of the contractual arrangements with Delixunda, we indirectly own the telecom value-added service license, which would enable us to offer telecom wireless value-added content service to individual clients.

Business Overview

We are an innovative mobile application enabler, offering telecom operators in China application platforms on which to offer Mobile Value Added Solutions (“MVAS”) to subscribers. We enable telecom operators to offer their subscribers access to unique mobile applications, innovative tools, value-added services and an overall superior mobile experience. In doing so, we add value to our clients by helping them increase their average revenue per user and decrease subscriber churn. We develop and implement a range of comprehensive platform solutions for our customers that enable MVAS applications for their subscribers. As a technology enabler, our solutions may be generally classified into two categories: MVAS Technology Platforms and Mobile Payment Solutions. We provide both hardware and software solutions that are integrated into our clients’ existing IT infrastructure. We also offer additional services including technical support and system maintenance for our clients.

We currently have significant market presence in the Chinese MVAS and Mobile Payment markets, as evidenced by our contracts with local branches of China Mobile, China Telecom and China Unicom, the “Big Three” Chinese cellular carriers, or resellers who themselves have such contracts. Combined, these contracts span 19 of 30 provinces, municipalities and autonomous regions and represent a significant portion of the geographic market based on the location of the mobile subscriber base in the PRC. Our patented platforms provide a comprehensive solution for Chinese telecom operators to deliver and manage the distribution of MVAS applications to their subscribers. We believe that the expansion of our platforms and services deployment to the Big Three over the past ten years shows that the Trunkbow brand is regarded by these major Chinese telecom operators as a well managed, trusted provider of technology solutions. Our R&D-focused business model provides us with a defensible market position as a technology solutions provider to the telecom operators.

Developing innovative technology solutions is at the core of our business model. We work extensively with our customers and technology partners in our R&D process to develop cutting edge technology solutions that are relevant to consumer trends and market demand. We have a team of over 100 R&D professionals led by a seasoned senior management team with extensive experience in the telecom industry. Our technology is the subject of 211 filed patent applications, of which 68 have been granted by the National Intellectual Property Administration of the People’s Republic of China. We have recently begun the process of filing for international and U.S. patents in order to protect our intellectual property globally.

Our customers are primarily telecom service providers in the PRC. We have extensive customer relationships with provincial branches of all three of the mobile service providers in China, specifically, China Telecom, China Unicom and China Mobile. The table below shows our revenues generated from direct sales to each of the Big Three, as well as resales of our products to these carriers through intermediaries (i.e., direct and indirect sales to these carriers), for the fiscal years ended December 31, 2011 and 2010.

	2011		2010
Percent of revenues from direct sales to China Telecom		18		7
Percent of revenues from direct sales to China Unicom		5		5
Percent of revenues from direct sales to China Mobile		1		-
Percent of revenues from direct and indirect sales to China Telecom through resellers		30		16
Percent of revenues from direct and indirect sales to China Unicom through resellers		24		47
Percent of revenues from direct and indirect sales to China Mobile through resellers		38		20

The resellers with whom we contract offer value-added services to the carriers, including installation support, hardware sourcing and an established presence and reputation, and they assist us by providing a known quantity aspect to the carrier when doing business with Trunkbow. In addition, once a project is completed, Trunkbow may further rely on these resellers for ongoing maintenance support. We have worked with our resellers for periods between one and five years.

The significant increase in revenues generated from sales to China Telecom for 2011 as compared to 2010 is contributed from the sale in 2010 of the deployment of our systems including Mobile Business Card and Mobile Payment. The increase in revenues generated from sales to China Mobile for 2011 as compared to 2010 is attributable to the sales of Mobile Business Card platforms. The decrease in revenues generated from sales to China Unicom for 2011 as compared to 2010 is caused by less roll out of our system platforms with China Unicom.

We have also entered into a strategic partnership with China UnionPay in order to provide clearing house functions for our Mobile Payment Solutions.

Our relationship with each of the Big Three commences upon the application for, and receipt of, a form of approved vendor certification by the central corporate authority of the relevant Big Three. Following this approval, from time to time we enter into purchase agreements, typically with resellers, who then contract directly with the provincial branches of the Big Three to sell them our equipment, system integration, software licenses and maintenance services. Under the arrangements, we supply the equipment to match the particular specifications set forth in the purchase order, install and integrate the patented software with the hardware and software purchased from third-party suppliers and offer the non-exclusive license of our software and technical support. These contracts generally follow an accepted standard form in the industry and obligate the parties to cooperate to ensure a successful implementation and technology roll-out including testing and remediation requirements, provide for the relevant sharing of revenue received from the mobile subscriber and terms of such payments, contain representations regarding the intellectual property contained in the technology involved and dispute resolution provisions, among other typical provisions for this type of agreement. Our typical form of sales contract or revenue sharing agreement with a reseller is not terminable at will by either party, while our standard mobile payment contracts with a given provincial branch of one of the Big Three allows for termination on written notice of at least two months. Our agreements with resellers typically contain mutually agreed upon sales goals for the resellers to meet that are based on the reseller’s best efforts. The mobile carriers pay us upon receipt and acceptance of the equipment or upon completion of the installation and integration of the software into their IT and networking infrastructure.

We have experienced strong revenue growth and profitability over the last two years driven by customer additions and the introduction of innovative products and services. Our revenues increased to $29.7 million in 2011 from $24.8 million in 2010 and net income to $16.94 million in 2011, from $13.54 million in 2010. Positive macro economic trends, strong consumer demand and our suite of unique platform solutions present us with the opportunity to expand sales rapidly and increase market share.

Our Strategy

Our goal is to become a leader in MVAS application platforms and mobile payment solutions for the telecom industry in China. We intend to achieve this goal by implementing the following strategies:

Continue to develop cutting edge technology solutions. We intend to continue to commit significant financial and human resources for research and development purposes. We intend to continue to improve our development and pipeline process in order to introduce first to market technology solutions to our customers. We expect to further leverage the know-how from our custom-design and implementation process to develop and introduce new applications and solutions with higher profit margins for a wider market. We expect to continue to fund research at our research center and increase our collaboration with other research facilities.

Leverage our intellectual assets and enter into new markets. We intend to focus our R&D efforts on emerging industries and new market opportunities. We plan to expand our product lines by leveraging our domestic relationships as well as through co-operations with international players.

Expand geographic coverage of current platform solutions. We intend to expand the geographic coverage of our existing product portfolio. We expect to leverage our customer relationships in our current geographic coverage in order to expand into new provinces domestically and new markets globally. We believe our solutions, know-how and successful track record should facilitate our expansion into new and commercially attractive territories.

Continue to build upon our strong relationship with key customers. Our clients include major players in the telecom industry in China. With the rollout of 3G, we expect our clients to offer their customers progressively more sophisticated and captive mobile phone experience. This will require innovative technology solutions for new applications and functions. We intend to help our clients address this demand and continue to work closely with our customers in our development process to ensure that our pipeline is in line with their technology needs.

Attract and retain quality employees. To enhance our development efforts and to support our growth objectives, we intend to continue to attract additional skilled and experienced R&D personnel. We also intend to hire and retain additional sales and service personnel with client and industry knowledge. We expect to continue to build a strong management team with in-house talent and recruit additional management talent, beginning with a CFO with extensive industry and financial background. We plan to continue to leverage our research centers and external resources to provide training programs for our employees.

Form business relationships with strategic partners to expand our presence in the mobile payment business. The MVAS application platform and mobile payment markets are immature and somewhat fragmented. This provides us with the opportunity to assert ourselves and form strategic partnerships to shape the direction of the industry. We intend to enter into synergistic business relationships with key domestic and international players in the mobile payment industry. In February 2010 we entered into an engagement agreement with VeriFone, Inc., a global provider of point of sale payment systems and solutions. We hope to leverage our relationship with VeriFone to expand our market for our mobile payment solutions. In November 2011, we formed a strategic partnership with Tianyi e-Commerce Limited, a wholly owned subsidiary of China Telecom to roll out Bestpay mobile application nationwide, enabling China Telecom’s 28 million 3G users to complete m-commerce transactions. In January 2012, we further established a strategic partnership with China UnionPay in order to provide clearing house functions for our mobile payment solutions, representing an important strategic milestone for our mobile payment business. We plan to ramp our merchant acquisition efforts through the establishment of partnerships with online and offline retailers, service providers and other merchants.

Our Competitive Strengths

We believe the following strengths differentiate us from our competitors and enable us to attain a leadership position in the MVAS application platform and mobile payment markets in China.

“Approved Vendor” to the leading telecom and payment industry participants in the PRC. We have passed a rigorous supplier approval process to become an “approved vendor” to each of the three major telecom providers in the PRC: China Mobile, China Telecom and China Unicom, the “Big Three”. We have entered into business relationships with the provincial branches of the Big Three in 10 provinces in order to better customize their specific application solution needs. Our relationships with market leaders in the PRC telecom industry provide us with reputation, industry knowledge, operational expertise and credibility that we can leverage in marketing to other market participants. As our clients generally prefer to maintain continuity and compatibility among their various systems, we believe our existing relationships favorably position us for selection to address our clients’ future technology needs. We further believe that our continued client relationships allow us to build client trust, anticipate their information technology needs and allow us to better direct our research and development efforts and effectively market to them our solutions and services. We established a strategic partnership with China UnionPay in order to provide clearing house functions for our Mobile Payment Solutions. Our relationship with UnionPay and the three telecom operators allows us to provide a comprehensive mobile payment solution that is fully back-end linked, meaning that due to its redundant hardware and communication links, it offers no single point of failure.

Integrated solutions and comprehensive service offerings. Since 2001, Trunkbow has deployed over 150 application service platforms in China. We offer an integrated and customized solution that integrates seamlessly into our clients’ existing IT and networking infrastructure. Additionally, we offer system integration, system management and maintenance services that provide us with multiple access points to our customers in order to build long term relationships.

Strong R&D capabilities. Our R&D efforts are led by Dr. Hou Wan Chun, Dr. An Chun Ming and Mr. Wang Xin. Dr. Hou is a telecom veteran with numerous telecom application patents. Dr. Hou previously worked for telecom companies like Lucent in the Silicon Valley as an engineer involved in developing new intelligent network applications. Our overall technical direction has been guided by Dr. An Chun Ming, the pioneer of Next Generation Network (“NGN”). Prior to joining Trunkbow, Dr. An led multiple development efforts as a Bell Labs Fellow during his 30 year tenure. Our experienced senior management team leads a group of over 100 R&D professionals with strong telecom and technical backgrounds.

The primary goal of our research efforts is to develop solutions that may be strategically implemented and commercialized. We developed the Bestpay mobile applet and partnered with China Telecom to roll out Bestpay nationwide to enable China Telecom’s 28 million 3G users to make online transactions through the mobile internet. We also partnered with China Unionpay to develop a UnionPay-certified plug-in applet that can be incorporated into any existing mobile application to facilitate simple, secure online payments from a user's mobile phone.

We are currently developing the next generation of mobile payment solutions and 3G applications. Our commitment to research and development and our focus on commercializing our research results will further enhance our competitive edge in the market with the ability to provide a broad range of quality solutions and the potential for sustained long-term growth.

Proven management team with successful track record. Our senior management team consists of telecom industry veterans and entrepreneurs with extensive management experience in the telecom industry. Our management team brings us complementary skills in the areas of R&D, operations, and sales and marketing. Under the leadership of our senior management team, we have substantially expanded our operations and product lines and achieved significant revenue growth.

Our Products and Services

We develop and implement MVAS Application Platforms and Mobile Payment System solutions for telecom operators. We work closely with the telecom operators to identify future application trends in order to develop new technologies to meet the changing needs and appetites of their subscribers. Once the applications have been developed, we typically work with the operators to integrate the system into their existing network. This is followed by a roll out of the service in trial service areas prior to nationwide deployment. We have a solid track record of developing popular application solutions that contribute significant new revenue streams for the telecom operators.

Mobile Value Added Service Application Platforms

We have built a sophisticated MVAS products pipeline and introduced first to market many MVAS application platforms to our customers for the past ten years. We will constantly improve our MVAS development and pipeline process to offer more innovative technology solutions for new applications and functions.

Caller Color Ring Back Tone. We provide a patented technology platform that enables the operator to offer Caller CRBT to the subscribers. Caller CRBT is an application that allows a caller to set the caller’s own personalized dialing tone when dialing out. The convention today with traditional CRBT is to hear the called party’s choice of dialing tones. The Caller CRBT application provides the subscriber with additional optionality in terms of customizing their mobile phone experience. This service has been deployed in two provinces with China Mobile, three provinces with China Telecom and two provinces with China Unicom, with a planned rollout to all major provinces with China Mobile, China Telecom and China Unicom.

Number Change Notification. Our Number Change Notification solution simplifies the process of switching between carriers for the subscriber. Since the Chinese mobile market does not offer subscribers the option of number portability, a subscriber typically has to subscribe to a new number when switching plans to a new carrier. Our solution enables the new carrier to put in place a voice notification when the old phone number is dialed, thus facilitating the process of changing carriers.

Color Numbering. Our Color Numbering solution enables mobile phone users to subscribe to multiple numbers in different regions with one SIM card and one phone without incurring roaming charges. Additional functionalities under this platform include solutions such as secretary services, fax, and SMS and call spam filtration.

New MVAS Roll-out

SMS-In / SMS-Out. Our SMS-In / SMS-Out MVAS application enables mobile phone users to send and receive short messages (SMS) from either their mobile device or via a computer based SMS client associated with the sender’s mobile phone number. Similar to email, a user is able to send a message to multiple recipients or send messages in batches and can refer/archive any message sent. Recipients have no indication that messages are sent from a computer instead of a cell phone. Senders use a full size keyboard which greatly eases the use of SMS.

Mobile Business Card. Our Mobile Business Card MVAS application enables mobile phone callers to send a predefined brief message to a called party. Examples of this brief message include personal contact information, a party invitation, event data or other personalized greeting information. The recipient receives that information much in much the same way he sees a caller name/ID.

Mobile Payment System

Mobile Payment Solutions

Trunkbow’s patented technology platform supports remote mobile payment and contactless mobile payment via various Near Field Communication (NFC) or Radio Frequency ID (RFID) enabled mobile devices. Remote mobile payments are enabled through SMS and mobile phone applets. Contacless mobile payment technology allows NFC or RFID enabled mobile phones worldwide to be utilized as payment tools and authentication devices. Specifically, Trunkbow’s solution enables the end-user to consolidate a variety of functions such as credit/debit cards, public transit cards, employee identification, facility entrance/exit and membership cards into one device and eliminates the need to carry numerous cards. Trunkbow provides users with access to real-time account information whenever they have access to mobile service. In addition, end users can utilize mobile phone or web interface to perform a variety of account maintenance functions including refilling of prepaid cards, modifying user preferences, and archiving transaction records.

Trunkbow uses proprietary technologies to seamlessly transmit secure transaction data between end users and the financial processing infrastructure. A proprietary software technology platform resides within the telecom operators’ network as well as the merchant clearing house network in order to seamlessly facilitate mobile payment transactions.

New Mobile Payment Applets

Bestpay mobile applet. Our Bestpay mobile applet allows China Telecom’s 3G subscribers to complete online transactions, including the payment of telephone and other bills, purchase of lottery, movie and event tickets and online gaming credits, as well as checking transaction records and account balances using Trunkbow’s secure, phone-based application.

China UnionPay-certified plug-in applet. Our China UnionPay applet implements our MPS technology into the inter-bank transaction clearing system. The applet can be incorporated into any existing mobile application from a user's mobile phone to facilitate simple and secure online transactions including the payment of utility and other bills, purchase of lottery, movie and event tickets, online gaming credits, e-books as well as physical goods from online and brick-and-mortar merchants utilizing the applet.

Diagram I – Mobile Payment Network

Other Products and Services

We also offer other technology solutions that enable value added functionalities on mobile devices. These solutions include missed call reminder, news flash services, roaming greeting, spam intercept and virtual PBX.

Our Revenue Model

We leverage our patented technology platforms to help telecom operators in China to increase their per subscriber revenue and reduce subscriber churn. We generate revenues through direct and indirect revenue sharing agreements with the relevant provincial branch of the telecom operators, one time service and product sales, and maintenance fees. We charge an upfront initial system licensing fee, and an annual maintenance fee of approximately 5 – 10% of the initial system purchasing amount. We also have monthly revenue sharing contracts in place with resellers and directly with the relevant provincial branch of the telecom providers for up to a 50% share in the revenue generated through our proprietary applications platforms. In addition to one-time sales and revenue sharing, we also generate revenue through transaction fees for our Mobile Payment System solution.

Our current MVAS Application Platform solutions generate revenue through one time sales and recurring revenues. For our Caller CRBT and Color Numbering solution, we have a revenue sharing agreements with telecom providers to receive 50% of the subscription revenues generated for up to 5 years and then renewable upon expiration. For our Number Change Notification solution, we receive revenues from one-time system sales and maintenance fees.

For our Mobile Payment System solution, we generate both one-time and recurring revenues. We generate non-recurring revenues in the following ways:

· System sales to telecom providers which enables the mobile payment function on their network

· System sales to telecom providers that enables various MPS compatible SIM and mobile payment functions for their corporate clients

We generate recurring revenues in the following ways:

· Up to a 50% share of the monthly function fee charged by the telecom providers;

· Monthly rental revenues on POS (Point of Sales) machines deployed by Trunkbow; and

· Transaction fees on per-transaction basis from mobile payment applets.

Table I – Summary of Our Revenue Model

Category	Product	Revenue Model

MVAS Platform	Caller Color Ring Back Tone (CRBT)	Revenue sharing at 50% for 5 years and renewable

	Number Change Notification (NCN)	One time sales and 10% annual maintenance fees

	Color Numbering	Revenue sharing at 50% for 5 years and renewable

Mobile Payment System	Mobile Payment System (MPS)	One time system sales to carriers and corporate clients, revenue sharing on function fee (up to 50%), and/or rental revenue on POS machines and transaction fees
	Bestpay mobile applet	2-4% of the gross value of each transaction, and/or individual commission payments from specific merchants for sales generated through the applet
	China UnionPay applet	0.4% to 2.4% of the gross value of each transaction

Sales and Marketing

We sell our technology platform solutions through our direct sales force and through independent third-party resellers, including telecom operators and electronic payment processors. We also provide services through cooperative efforts with telecom operator affiliated entities as service partners in order to reduce our operating costs and ensure the successful execution of the contracts. These contracts are limited to one transaction and cover a varying number of years, although typically less than 5 years, with renewal provisions. Some contracts contain exclusivity provisions. Those contracts with revenue sharing terms provide that the telecom operators pay us following receipt of funds from subscriber, while those contracts that cover only one time sales allow for only a single payment to us.

Our sales and marketing personnel are based in offices located in ten provinces with local coverage responsibilities in Shandong, Hainan, Hebei, Zhejiang, Henan, Sichuan, Inner Mongolia, Jiangxi, Guangxi, and Guangdong provinces and in Beijing and Shanghai. Our sales teams have local expertise and relationships to succeed in the fragmented Chinese market. Typically, each sales team includes a general manager, account representatives, business development personnel, sales engineers and customer service representatives with specific product expertise in mobile applications and mobile payment as well as financial transaction operations. Our sales force is supported by our R&D and client support teams in order to provide products and services that are tailored to the specific needs of our customers. We will focus our future sales and marketing efforts on providing mobile payment services platform to the telecom and financial industries.

For the domestic market, our sales team covers the major provinces around China including North China, North East China, Central China, East China, South China, South West and North West China. For the international market, we have divided the regions into US, Mexico and the Middle East, although we have made only one sale in the Middle East.

As of December 31, 2011, we had 91 sales and marketing employees, representing approximately 34% of our total workforce.

Relationship with VeriFone

Concurrently with the closing of the February 2010 Offering, we entered into a master engagement agreement (“VeriFone Agreement”) with VeriFone, Inc. (“VeriFone”) such that VeriFone is our exclusive provider of point of sale hardware, software and services that are purchased or deployed by us and our affiliates and we have agreed to use our best efforts to ensure that VeriFone will receive at least 80% of the orders for point of sale systems placed by the Company’s mobile operator partners. Pursuant to the terms of the VeriFone Agreement, we submitted a binding, non-cancellable purchase order to VeriFone covering an initial order of $5 million of VeriFone’s point of sale systems for deployment in China as part of its rollout. The full amount of the purchase order was paid upon submission to VeriFone. Additionally, the Master Engagement Agreement contains a non-binding deployment schedule covering a total of 125,000 point of sale systems to be supplied by VeriFone through the end of 2012. VeriFone invested $5 million in the February 2010 Offering. We have granted VeriFone the ability to name one of the directors on our Board of Directors so long as it beneficially owns at least 4.99% of our outstanding Common Stock.

Research and Development

Since inception, we have made substantial investments in research and development. We work with our customers to develop system solutions that address existing and anticipated end-user needs. R&D projects are evaluated by senior management and assigned to our R&D team based upon the potential value of the target markets, as well as the technology, manpower and engineering expertise requirements. Our research and development effort is based primarily in Jinan, the capital of Shandong Province. Jinan is home to several highly ranked universities, allowing us access to a wide range of talent and human resources in order to support our R&D needs.

The market for our products and services are characterized by changing technology, evolving industry standards and frequent product introductions. We believe our future success depends largely upon our ability to continue to introduce and enhance our lineup of products and services. Our research and development goals include:

developing new solutions and technologies for the next generation of application enabling platforms;

continue to improve upon existing application platforms in order to provide the best available technology solutions to our customers;

continue to seek new applications for our existing technologies and patents; and

cooperate with other technology companies in the area of chip design and user terminals for mobile payment services and other new applications.

As of December 31, 2011, we had 114 research and development employees representing approximately 42.5% of our total workforce. For the years ended December 31, 2011 and 2010, we spent $1,434,525 and $1,203,264 on research and development expenses, respectively.

Employees

Together with our subsidiaries, as of December 31, 2011, we had approximately 268 full-time employees, including 114 in R&D; 91 in sales and marketing; 7 members of management and 56 others, including accounting, administration and human resources.

We are compliant with local prevailing wage, contractor licensing and insurance regulations, and have good relations with our employees.

As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including pension, work-related injury benefits, maternity insurance, medical and unemployment benefit plans. We are required under PRC laws to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date.

Competition

The market for MVAS enabling technology platform is highly competitive and fragmented. Within the MVAS Application Platform segment, our principal competitors are: Huawei and ZTE. Within the Mobile Payment Solutions segment, our primary competitors are: UMPay, HiSun Technology, and Shanghai Huateng. Some of our competitors are larger and have greater financial resources and greater brand name recognition than we do and may, as a result, be better positioned to adapt to changes in the industry or the economy as a whole.

We compete primarily on the basis of the following factors: commercial viability of our application platforms, time to market, end-to-end system solutions, product features, degree of reliability, total cost of ownership, quality of technical and customer support, and compatibility and interoperability of the platforms. Combined with our patented technology, we believe that we compete favorably with respect to these factors.

We expect competition in our industry will be largely driven by the need to respond to the growing consumer appetite to access an increasing variety of information and solutions through their mobile device. Furthermore, increasingly complex technology combined with ever smaller form factors will also drive competition in our industry.

Our principal competitors are Huawei, ZTE, UMPay, Hi Sun Technology, Shanghai Huateng, Fujian Fujitsu, and Digital China Si Tech. These companies can be classified into three categories:

Financial service solutions companies (Hi Sun Technology and Shanghai Huateng);

Telecom value-added software and system integration companies (Trunkbow, Huawei, ZTE, Fujian Fujitsu, and Digital China Si Tech); and

Recently incorporated JV companies (UMPay is a China Mobile and China UnionPay JV).

Our largest competitors are telecom value-added software and system integration companies. These competitors already have established relationships with The Big Three. Competitors such as Huawei and ZTE are larger and have greater financial resources and greater brand name recognition than we do and may, as a result, be better positioned to adapt to changes in the industry or the economy as a whole.

Our Industry

Overview of the PRC Telecom Market

In May 2008, the Ministry of Industry and Information Technology (“MIIT”), the National Development and Reform Commission (“NDRC”) and the Ministry of Finance carved the PRC telecom industry into three service providers of comparable scale and distribution: China Mobile, China Telecom and China Unicom, or collectively, “The Big Three”.

Two Significant Mobile Revenue Streams: Mobile Value Added Services And Mobile Payment Solutions

Mobile Value Added Services (“MVAS”) is composed of all non-voice services that promote mobile phone usage, the four largest in the PRC being Short Message Service (“SMS”), Multimedia Messaging Service (“MMS”), Wireless Application Protocol (“WAP”), and Color Ring Tone.

Mobile Payment Solutions (“MPS”) allows for the purchase of items with a mobile phone, facilitating both remote mobile payment and point of sale (“POS”) mobile payment. Remote mobile purchases are enabled through SMS, WAP, and WEB interfaces and mobile applets. WAP is a commonly used web browser developed to allow a realistic browsing experience, while WEB usage refers to surfing on the WEB. A mobile app is software that runs on a handheld device (phone, tablet, e-reader, iPod, etc.) than can connect to wireless carrier networks, and has an operating system that supports standalone software. POS mobile payment allows consumers to pay for items by storing bank, credit, or prepayment card information on a mobile phone.

Key Drivers for MVAS and MPS

The development of the MVAS and MPS markets in the PRC is highly correlated with the growth of the overall mobile phone industry in the PRC. According to MIIT, 986 million people had a mobile phone account at the end of 2011 and according to iResearch, the market size of mobile internet reached $6.24 billion for 2011, increasing 97.5% year-on-year. The MIIT data also indicated that total revenue for the telecom sector in the PRC grew to approximately $143 billion for 2011. Positive mobile phone industry trends in China are largely driven by the increasing affluence of the middle class, a growing subscriber base, and 3G deployment, which officially began in 2009. Moreover, iResearch projects that the market size of mobile internet will grow 148.3% to $15.5 billion for 2012.

According to its 2010 Annual Report, China Mobile, which had 67.52% mobile phone user market share at the end of 2010, has experienced dramatic usage growth in its MVAS segment. During 2010, China Mobile’s total MVAS revenue grew 15.2%. As each product matures MVAS product offerings are becoming more affordable for consumers in the PRC.

New MVAS Applications

All of the Big Three are rolling out new MVAS product offerings. For example, China Mobile is offering “Mobile Market”, “Mobile TV”, and “Mobile Reading” MVAS applications. China Unicom is offering mobile office, mobile security, and intelligent public transportation applications. China Telecom is offering “eSurfing reader”, “189 mailbox”, “eSurfing LIVE”, and “eSurfing Video” applications.

China MPS Aggregate Demand Forecasts

Based on China Computer World research projections, Chinese mobile payment users reached 110 million at the end of 2009, and are estimated to more than triple by the end of 2013. Dramatic increases in demand are expected, as indicated in the graph below, as The Big Three continue their roll-out of MPS networks in each province, in turn, incentivizing third party platforms and vendors.

3G Rollout in China Driving Remote MPS

Although our MPS technology is not dependent on 3G capability, the roll out of 3G networks in the PRC and an increase in smartphone use will increase data speeds and thus encourage more remote MPS transactions through mobile internet. On the network front, China Telecom has the most developed 3G footprint in the PRC and further strengthened the WiFi hotspots coverage in popular areas and adopted the integrated service strategy of ”CDMA+WiFi”, offering customers with high-speed and convenient wireless access. Meanwhile China Unicom’s 2010 Annual Report stated that its 3G network coverage reached cities at county level and above throughout the country, as well as villages and towns in eastern developed area. China Mobile’s 2010 Annual Report stated that its 3G coverage was extended with good network performance to almost all the above-county-level cities in China in 2010.

2.5G and 3G enabled smartphones are also part of the remote MPS solution, and are expected to become increasingly affordable. At the high-end, China Unicom successfully offered the iPhone series and launched more than 100 customized 3G handset models . Meanwhile China Telecom, the third largest mobile network provider by market share, is offering 3G handsets around RMB 1,000. By the end of 2010, the number of China Telecom branded 3G handset models exceeded 300, representing an increase of over 200 models from the beginning of the year. Affordable smartphones with higher browser quality may increase mobile internet use and thus encourage greater use of remote MPS payments.

Emergence of POS MPS Market

The key ingredients for creation of successful POS MPS markets are promotion by the telecom carriers, merchant acceptance and ultimately consumer demand. The Big Three are beginning to popularize the concept of the mobile wallet as a convenient cashless alternative to traditional payment methods.

While the technology is already available, consumers must switch to a relatively low cost POS MPS SIM card. For example, China Telecom mobile subscribers can currently switch to a POS MPS SIM card for less than RMB100.

Merchants in China across many verticals, including restaurants, convenience stores and hotels are increasingly offering POS MPS services. Some examples are Lianhua Supermarkets, Wankelong Supermarkets, UBC Coffee, and Formet Laundry. POS MPS services require banks or other third-party vendors to invest in POS payment terminals and merchants to accept POS MPs related transaction fees. VeriFone is a manufacturer and provider of POS electronic payment devices and software.

Payment clearing institutions in the PRC are now cooperating in order to develop MPS for mobile phones. For example, on September 28, 2010, China UnionPay announced a Mobile Payment Industry Alliance with eighteen national and local commercial banks in order to establish a set of technical standards. China Unicom has also recently formed alliances with Agricultural Bank of China and Bank of Communication.

MPS Security

The Big Three are using NFC (13.56MHz), SIMPass (13.56MHz), and RF-SIM (2.4GHz) wireless communication technology, following the lead of carriers in Japan and Korea. NFC and SIMPass technology, developed by Philips and Watch Data, respectively, enables data exchange between two devices within 20 centimeters of one another while offering greater security capabilities than other current MPS mediums such as SMS and WAP. All three wireless communication technologies can generate encryption codes to authenticate MPS transactions.

Real Property

We do not own any real property. We lease our facilities in the PRC pursuant to leases with terms of generally two to three years.

Intellectual Property

Our technology is the subject of 211 filed patent applications, of which 68 have been granted by the National Intellectual Property Administration of the People’s Republic of China. All of the patents have a duration period of 20 years starting from submission date. Below is a list of some of granted patents responsible for generating majority of the current revenues.

Table I: Significant Patents Granted

Patent#	Description of use	Expiration Date
ZL 200410009495.0	System and implementation of enabling mobile user to store and search phone book list from network. Provides network phone book store and searching feature from mobile network.	August 30, 2024

ZL 200410009525.8	Equipment and method for realizing hiding calling number in telephone exchange network.	September 8, 2024

ZL 200410009612.3	Device and method for realizing transmitting information to computer network real-time communication terminal by telephone.	September 28, 2024

ZL 200410009830.7	Equipment and method for providing senior secretary service for telephone user.	November 22, 2024

ZL 200410103905.8	Apparatus and method for intelligent communication based on mobile communication network and Internet.	December 31, 2024

ZL 200510011305.3	Device and method for selecting and binding telephone number by mobile communication intelligent card.	February 4, 2025

ZL 200510011343.9	Method for implementing new service of mobile phone based on position renewing operation.	February 23, 2025

Patent	Description of use	Expiration Date
ZL 200510011525.6	System, method and implementation of providing instant communication between mobile phone and computer user. Provides forward function between Instant Message client and mobile phone.	April 4, 2025

ZL 200510011542.X	Apparatus and method for realizing main calling set ring back tone based on personalized ring back tone.	April 8, 2025

ZL 200510012089.4	Device and method for realizing to provide short news to mobile phone user and no interference service.	July 4, 2025

ZL 200510012090.7	Equipment and method for providing virtual facsimile business using mobile telephone number.	July 4, 2025

ZL 200610011449.3	Apparatus and method for automatic network storage of short message receive by mobile telephone.	March 8, 2026

ZL 200610011574.4	Device and method for realizing main call customized ring back tone service.	March 29, 2026

ZL 200610011725.6	Device and method for realizing mobile phone turn-off and short message call transfer.	April 4, 2026

ZL 200610112451.X	System and method for realizing secrecy of mobile phone number.	August 18, 2026

ZL 200710065067.3	Method for realizing caller customized ring back tone compatible with called personalized ring back tone.	April 2, 2027

ZL 200710063737.8	System and method for realizing point-to-point short message encryption and message screening.	February 8, 2027

ZL 200710177629.3	System and method for realizing personal electronic check card.	November 19, 2027

ZL 200810224979.5	System and method for adding fixed telephone number to mobile telephone number.	October 29, 2028

Table II: Significant Patents Pending

Patent#	Description of use	Expiration Date
ZL 200710121396.5	System, method and implementation of enabling communication between mobile client device and mobile client server. Enables communication between mobile client device and mobile client server.	September 5, 2027

ZL 200810089411.7	System, method and implementation of providing multiple phone numbers in one mobile phone and enabling mobile users to control their multiple mobile phone numbers' feature. Provides multiple phone numbers in one mobile phone and enables mobile users to control their multiple mobile phone numbers' features, such as call, MMS and SMS screening, backup MMS and SMS to E-mail format, and enables users to manage their mobile communication functions.	March 28, 2028

ZL 200910091555.0	Method and implementation of integrating different bank cards into one special personal payment device. Provides a method to integrate different bank cards such as gate pass, attendance pass and RFID card into one special personalized payment machine for user to easily control.	August 26, 2029

ZL 200910092196.0	System, method and implementation of providing caller CRBT service based on CRBT service. Provides caller CRBT service based on CRBT service so that callers can receive caller's CRBT when making calls to Non-CRBT users.

Table II shows patents pending for our intellectual property. Patent requests listed as “pending” have been reviewed by the Chinese Patent Office and will be granted upon the expiration of the two-year waiting period commencing on their respective dates of submission. While pending patents have not been granted, the filings are within the same families as certain patents previously granted to us and as such, we believe that they should result in grants. Trunkbow views this intellectual property as among the core elements of its overall service offerings.

Government Regulations

Each of our PRC subsidiaries, the Shandong WFOE and the Shenzhen WFOE, has obtained all necessary licenses, authorizations, approvals, registrations and permits from PRC government agencies or any other regulatory body having jurisdiction over it (“Authorizations”) for it to own, lease, license and use properties and assets and to conduct its business as described in its business license, to the extent applicable, in so far as such properties and assets and the conduct of such business is governed by PRC laws and regulations, and such Authorizations are in full force and effect. Under the PRC regulations currently in effect, we may operate our business of providing mobile phone technology services and solutions without having to obtain or maintain any Authorizations that are not generally required for all businesses operating under PRC laws.

According to the Provisions on the Administration of Foreign-funded Telecommunications Enterprises of the PRC, ultimate proportion of the foreign investments in any company engaged in telecommunication value-added services shall not exceed 50% of such company’s equity interests. The PRC Telecommunication Regulation further defined “telecommunication value-added services” as providing telecommunication and information services through public networking facilities. As the business operations of our PRC subsidiaries only include the provision of technology support and solutions to the telecom providers and our PRC subsidiaries do not provide any telecom services directly to the end-users, our PRC subsidiaries do not fall into the scope of the “telecommunication value-added service company” defined under the PRC laws. Therefore, the proportion of foreign investments in our PRC subsidiaries is not subject to the restrictions under the PRC laws.

Seasonality

Our quarterly operating results have varied significantly in the past and are likely to continue to vary significantly in the future. Historically, we have generally experienced a slowdown or decrease in generating revenues in the first quarter of the year due to the Chinese Lunar New Year as the majority of the businesses in the PRC shut down for a month-long holiday and slow down for a month prior to the New Year celebration. We believe that this fluctuation will gradually subside as we increase our recurring revenue streams.

Corporation Information

Our principal executive offices are located at Unit 1217-1218, 12F of Tower B, Gemdale Plaza, No. 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China 100022, Tel: (86) (10) 8571-2518, Fax: (86) (10) 8571-2528.

PART I

Item 1A. Risk Factors.

In addition to the other information in this Form 10-K, readers should carefully consider the following important factors. These factors, among others, in some cases have affected, and in the future could affect, our financial condition and results of operations and could cause our future results to differ materially from those expressed or implied in any forward-looking statements that appear in this on Form 10-K or that we have made or will make elsewhere.

Risks Related to Our Business

We have a limited operating history as a separate wholly owned foreign company which makes it difficult to evaluate our business and future prospects.

Our limited operating history following our separation from Trunkbow Shenzhen Technologies Limited in December 2007 and the early stage of development of the mobile payment industry in which we operate makes it difficult to evaluate our business and future prospects. Although our revenues have grown rapidly, we cannot assure you that we will maintain profitability or that we will not incur net losses in the future. Our business model includes recurring revenues from revenue sharing agreements with resellers and the Big Three. To date, less than five percent of our revenues have been derived from these revenue sharing agreements. There is no assurance that we will generate significant revenue from such agreements. We expect that our operating expenses will increase as we expand. Any significant failure to realize anticipated revenue growth could result in significant operating losses. We will continue to encounter risks and difficulties in implementing our business model, including potential failure to:

increase awareness of its products, protect its reputation and develop customer loyalty;

manage its expanding operations and service offerings, including the integration of any future acquisitions;

maintain adequate control of its expenses; and

anticipate and adapt to changing conditions in the markets in which it operates as well as the impact of any changes in government regulation, mergers and acquisitions involving its competitors, technological developments and other significant competitive and market dynamics.

If we are not successful in addressing any or all of these risks, our business may be materially and adversely affected.

Our business depends to a large extent on mobile telecommunications service providers in the PRC and any deterioration of such relationships may have a material and adverse effect on our results of operations.

We have derived, and believe we will continue to derive, a significant portion of our revenues from a limited number of large customers, such as China Mobile, China Telecom, and China Unicom which are our only major customers and who have been customers for over five years. We have passed a rigorous supplier approval process carried out by each of the three major carriers to become an “approved vendor” to each of them. Our approved vendor status allows us to be eligible to enter into individual customer contracts with the relevant provincial branch of each respective carrier in each province in which we operate. Such individual contracts are similar to purchase orders for our technology platforms, in the form of proprietary software licensing and revenue sharing arrangements with the relevant branch of China Mobile, China Telecom or China Unicom, as the case may be. Currently, China Mobile, China Telecom and China Unicom are the only mobile telecommunications service providers in China that operate mobile payment platforms. Our agreements are generally for a period of less than five years and generally do not have automatic renewal provisions. If any of the carriers is unwilling to continue to cooperate and negotiate with us upon expiration of such agreements, we will not be able to conduct our existing mobile payment business at the levels we anticipate.

Revenues from sales to the Big Three, including revenues generated through the resale of our products to mobile carriers through intermediaries (i.e., direct and indirect sales to these carriers), accounted for approximately 32%,26% and 40%, and 16%, 47% and 20% of our total revenues for the fiscal years ended December 31, 2011 and 2010. Further, five customers accounted for approximately 56.3% and three customers accounted for approximately 50.3% of our total revenue for the fiscal years ended December 31, 2011 and 2010, respectively. The loss of our status as an approved vendor to any of China Mobile, China Telecom or China Unicom, or our inability to renegotiate our revenue sharing agreements with resellers on terms as favorable as those under which we presently operate, would have a significant negative impact on our business and on our financial results.

In addition, if either China Mobile, China Telecom or China Unicom decides to change its content or transaction fees or its share of revenues, our revenues and profitability could also be materially adversely affected.

Our financial condition and results of operations may be materially affected by the changes in policies or guidelines of the mobile telecommunications service providers.

The mobile telecommunications service providers in the PRC may, from time to time, issue certain operating policies or guidelines, requesting or stating their preference for certain actions to be taken in choosing their partners in certain application service platforms. Due to our reliance on the mobile telecommunications service providers, a significant change in their policies or guidelines may have a material adverse effect on our business. Such change in policies or guidelines may result in lower revenue or additional operating costs for us, and as such, we cannot assure you that our financial condition and results of operations will not be materially adversely affected by any such policy or guideline change.

Our customers are concentrated in a limited number of industries and an economic downturn in any of these industries could have a material adverse effect on our results of operations.

Our customers are concentrated primarily in the telecommunications, media and technology industries, and to a lesser extent, the transportation, financial services, and retail industries, where we provide applications for their industries. Our ability to generate revenue depends on the demand for our services in these industries. An economic downturn, or a slowdown or reversal of the tendency in any of these industries to rely on our services could have a material adverse effect on our business, results of operations or financial condition.

The markets in which we operate are highly competitive and we may not be able to maintain market share.

We offer only one Mobile Payment model. Competing technologies from larger, better financed international companies are increasing their effort to gain a foothold in the PRC market. This may result in erosion of our market share in mobile payment services.

Increasing competition among telecommunication companies in greater China has led to a reduction in telecommunication services fees that can be charged by such companies. Within the MVAS Application Platform segment, our principal competitors are Huawei and ZTE. Within the Mobile Payment System segment, our primary competitors are UMPay, HiSun Technology, Shanghai Huateng, Huawei, ZTE, Fujian Fujisu and Digital China Si Tech. If a reduction in telecommunication services fees negatively impacts revenue generated by our customers, they may require us to reduce the price of our services, or seek competitors that charge less, which could reduce our market share. If we must significantly reduce the price of our services, the decrease in revenue could materially and adversely affect our profitability.

Our operating results may fluctuate significantly from quarter to quarter, which could lead to volatility in our stock price.

Our quarterly operating results have varied significantly in the past and are likely to continue to vary significantly in the future. Historically, we have generally experienced a slowdown or decrease in generating revenues in the first quarter of the year due to the Chinese Lunar New Year. In addition, our quarterly revenues are subject to fluctuation because they substantially depend upon the timing of orders. As a result, you may not be able to rely on period-to-period comparisons of our operating results as an indication of our future performance. Our actual quarterly results may differ from market expectations, which could adversely affect our stock price.

The loss of certain employees that are essential to our business could have a material adverse effect on our results of operations.

Li Qiang, Chief Executive Officer, Hou Wanchun, Chairman, and Ye Yuanjun, Chief Financial Officer are essential to our ability to continue to grow our business. Messrs. Li, Hou and Ms. Ye have established relationships within the industries in which we operate. If either of them were to leave us, our growth strategy might be hindered, which could limit our ability to increase revenue. We do not maintain key-person insurance coverage. In addition, we face competition for attracting skilled personnel. If we fail to attract and retain qualified personnel to meet current and future needs, this could slow our ability to grow our business, which could result in a decrease in market share.

International operations require significant management attention, which could detract from the time and attention management spends on our domestic operations and have a material adverse effect on our results of operations.

Our operations in countries outside of the PRC are subject to various unique risks, including the following, which, if not planned and managed properly, could materially adversely affect our business, financial condition and operating results:

legal uncertainties or unanticipated changes regarding regulatory requirements, political instability, liability, export and import restrictions, tariffs and other trade barriers;

longer customer payment cycles and greater difficulties in collecting accounts receivable;

uncertainties of laws and enforcement relating to the protection of intellectual property; and

potentially uncertain or adverse tax consequences.

Additionally, international operations require significant management attention, which could detract from the time and attention management spends on our domestic operations and have a material adverse effect on our results of operations.

We expect to need additional financing, which may not be available on satisfactory terms or at all.

We believe that our existing cash, including the net proceeds from the private placement in February 2010 and our IPO in February 2011, will be sufficient to support our current operating plan through 2012. Our capital requirements may be accelerated as a result of many factors, including timing of development activities, underestimates of budget items, unanticipated expenses or capital expenditures, limitation of development of new potential products, future product opportunities with collaborators, future licensing opportunities and future business combinations. Consequently, we may need to seek additional debt or equity financing, which may not be available on favorable terms, if at all, and which may be dilutive to you.

We may seek to raise additional capital through public or private equity offerings, debt financings or additional corporate collaboration and licensing arrangements. To the extent we raise additional capital by issuing equity securities, our stockholders may experience dilution. To the extent that we raise additional capital by issuing debt securities, we would likely incur substantial interest obligations, may be required to pledge assets as security for the debt and may be constrained by restrictive financial and/or operational covenants. Debt financing would also be superior to your interest in bankruptcy or liquidation. To the extent we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or product candidates, or grant licenses on unfavorable terms.

We are exposed to credit risk on our accounts receivable which is heightened during periods when economic conditions worsen.

We operate our business in the PRC, where credit periods vary substantially across industries, segments, types and size of companies. We operate in a niche of the PRC telecommunication industry, specifically in the provision of Mobile Value Added services and Mobile Payment Solutions. Our customers include the Big Three and resellers that further provide services to the Big Three. We may not collect our accounts receivable in accordance with the terms of our contracts with our customers.

Our management determines the collectability of outstanding accounts based on the following considerations:

Reputable customers: our customers or ultimate customers through the resellers are the three mobile operators, which are listed companies and have good reputations and stable cash flows.

Evaluation of resellers: in the arrangements that are through resellers to reach the mobile operators, management investigates all aspects of the resellers, including the arrangement between the mobile operators and the resellers, the particular reseller’s credit reputation and payment history, the financial status and customer lists of our resellers. Only reputable resellers with good quality of assets and cash flows can sign up with us.

Continuous collection of accounts receivable: we have been able to collect our accounts receivable on a continual basis.

In the event accounts receivable are due and the balance remains outstanding, we negotiate repayment plans with our customers. Credit periods will be extended when our customers have a continuous payment history. Constant review of the recoverability of the accounts receivable is performed by management and if there is any indication that a customer may default, allowance for doubtful debts are provided to the accounts receivable.

No defaults on historical collection of accounts receivable: we started in 2001 and during the past 10 years, we never had a bad debt on accounts receivable.

However, if our actual collection experience with our customers or other conditions change, or the other factors that we consider indicate that it is appropriate, provision for doubtful accounts may be required, which could adversely affect our financial results.

We must respond quickly and effectively to new technological developments, and the failure to do so could have a material and adverse effect on our results of operations.

Our business is highly dependent on its computer and telecommunications equipment, including mobile handsets, and software systems. Our failure to maintain our technological capabilities or to respond effectively to technological changes could adversely affect our business, results of operations or financial condition. Our future success also depends on our ability to enhance existing software and systems and to respond to changing technological developments. If we are unable to successfully develop and bring to market new software and systems in a timely manner, our competitors’ technologies or services may render our products or services noncompetitive or obsolete.

If we fail to protect adequately or enforce our intellectual property rights, or to secure rights to patents of others, the value of our intellectual property rights could diminish.

Our success, competitive position and future revenues will depend in part on our ability, and the ability of our licensors, to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing upon the proprietary rights of third parties.

To date, our technology is the subject of 211 filed patent applications with 68 patents issued by the National Intellectual Property Administration of the PRC. We anticipate filing additional patent applications both in the PRC and in other countries, as appropriate. However, we cannot predict the degree and range of protection patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents, if and when patents will be issued, whether or not others will obtain patents claiming aspects similar to our patent applications, or if we will need to initiate litigation or administrative proceedings, which may be costly whether we win or lose.

Our success also depends on the skills, knowledge and experience of our scientific and technical personnel, consultants, advisors, licensors and contractors. To help protect its proprietary know-how and inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all of our employees, consultants, advisors and contractors to enter into confidentiality and, where applicable, grant-back agreements. These agreements may not provide adequate protection in the event of unauthorized use or disclosure or the lawful development by others of such information. If any of our intellectual property is disclosed, its value would be significantly impaired, and our business and competitive position would suffer.

If we infringe on the rights of third parties, we could be prevented from selling products, forced to pay damages and compelled to defend against litigation.

If our products, methods, processes and other technologies infringe proprietary rights of other parties, we could incur substantial costs, and may have to obtain licenses (which may not be available on commercially reasonable terms, if at all), redesign our products or processes, stop using the subject matter claimed in the asserted patents, pay damages, or defend litigation or administrative proceedings, which may be costly whether we win or lose. All these efforts could result in a substantial diversion of valuable management resources.

We believe we have taken reasonable steps, including comprehensive internal and external prior patent searches, to ensure we have freedom to operate and that our development and commercialization efforts can be carried out as planned without infringing upon the proprietary rights of others. However, we cannot guarantee that no third party patent has been filed or will be filed that may contain subject matter of relevance to its development, causing a third party patent holder to claim infringement. Resolving such issues has traditionally resulted, and could in our case result, in lengthy and costly legal proceedings, the outcome of which cannot be predicted accurately.

We have never paid cash dividends and are not likely to do so in the foreseeable future.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.

Failure to manage our growth or develop appropriate internal organizational structures, internal control environment and risk monitoring and management systems in line with our rapid growth could negatively affect our business and prospects.

Our business and operations have expanded rapidly since our formation. Significant management resources must be expended to develop and implement appropriate structures for internal organization and information flow, an effective internal control environment and risk monitoring and management systems in line with our rapid growth, as well as to hire and integrate qualified employees into our organization. In addition, the disclosure and other ongoing obligations associated with becoming a public company increase the challenges to our finance and accounting team. Our general and administrative expenses for the fiscal year ending December 31, 2011 were $7,015,837 as compared to $3,075,833 for the 2010 fiscal year. It is possible that our existing internal control and risk monitoring and management systems could prove to be inadequate. If we fail to appropriately develop and implement structures for internal organization and information flow, an effective internal control environment and a risk monitoring and management system, we may not be able to identify unfavorable business trends, administrative oversights or other risks that could materially adversely affect our business, operating results and financial condition.

Risks Associated with Doing Business in Greater China

There are substantial risks associated with doing business in greater China, as set forth in the following risk factors.

Adverse changes in the political and economic policies of the PRC government could materially and adversely affect the overall economic growth of China, which could adversely affect our business.

Substantially all of our assets are located in the PRC and all of our revenues are derived from our operations there. Accordingly, economic, political and legal developments in the PRC significantly affect our business, financial condition, results of operations and prospects. The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has grown significantly in the past 30 years, the growth has been uneven across different periods, regions and economic sectors of the PRC. We cannot assure you that the PRC economy will continue to grow, or that any such growth will be steady and uniform, or that if there is a slowdown, such a slowdown will not have a negative effect on our business.

The PRC government also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. From late 2003 to mid-2008, the PRC government implemented a number of measures, such as increasing the People’s Bank of China’s statutory deposit reserve ratio and imposing commercial bank lending guidelines that had the effect of slowing the growth of credit, which in turn may have slowed the growth of the PRC economy. In response to the recent global and Chinese economic downturn, the PRC government has promulgated several measures aimed at expanding credit and stimulating economic growth. Since August 2008, the People’s Bank of China has decreased the statutory deposit reserve ratio and lowered benchmark interest rates several times. It is unclear whether the PRC government will continue such policies, or whether PRC economic policies will be effective in creating stable economic growth. Any further slowdown in the economic growth of the PRC could reduce demand for our solutions and services, which could materially and adversely affect our business, our financial condition and results of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct our business primarily through our PRC subsidiaries. Our operations in the PRC are governed by PRC laws and regulations. Our PRC subsidiaries are foreign-invested enterprises and are subject to laws and regulations applicable to foreign investment in the PRC and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is largely a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing general economic matters. The overall effect of legislation over the past two decades has significantly enhanced the protections afforded to various foreign investments in the PRC. However, the PRC has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in the PRC. Because these laws and regulations are relatively new, and published court decisions are limited and nonbinding in nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the violation occurs. Any administrative and court proceedings in the PRC may be protracted, resulting in substantial costs and diversion of resources and management attention. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts entered into by our PRC subsidiaries. As a result, these uncertainties could materially and adversely affect our business and results of operations.

The contractual arrangement with Trunkbow Technologies and its shareholders entered into in 2007 may require further approval.

On December 20, 2007, Trunkbow Shandong entered into a series of contracts with Trunkbow Technologies and its shareholders. Through these contractual arrangements, Trunkbow Technologies became a contractually controlled entity of Trunkbow Shandong.

The Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors jointly issued by six PRC regulatory agencies, including MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, China Securities Regulatory Commission (“CSRC”) and the State Administration of Foreign Exchange (“SAFE”) on August 8, 2006, or the New M&A Rule, has a particular provision which requires that MOFCOM’s approval is required if a PRC resident acquires its/his affiliated Chinese company in the name of an offshore enterprise established or controlled by it or him. The New M&A Rule further provides that the aforesaid requirement cannot be circumvented by a foreign invested enterprise’s domestic investment or “by other means” in China. At the time of entering into the contractual arrangements between Trunkbow Shandong and Trunkbow Technologies in December 2007, Trunkbow Hong Kong was an offshore enterprise indirectly controlled by Hou Wanchun and Li Qiang who are PRC residents. Trunkbow Shandong is a foreign invested enterprise 100% owned by Trunkbow Hong Kong. Hou Wanchun and Li Qiang are two shareholders of Trunkbow Technologies. According to the New M&A Rule, the approval of MOFCOM would be required if we acquired the beneficiary ownership of Trunkbow Technologies by our Company or its Trunkbow Hong Kong directly, and the adoption of the contractual arrangements might be deemed to be circumvent of such approval requirements “by other means”. As the interpretation and implementation of the New M&A Rule are unclear, if the approval of MOFCOM is required, Trunkbow Hong Kong may need to obtain further approval from MOFCOM.

Our contractual arrangements with our VIEs and their shareholders may not be as effective in providing control over our VIEs as direct ownership.

Our contractual arrangements with our VIEs and their respective shareholders provide us with effective control over our VIEs. As a result of these contractual arrangements, we are considered to be the primary beneficiary of our VIEs; we consolidate the results of operations, assets and liabilities of our VIEs in our financial statements. Although we have been advised by Han Kun, our PRC legal counsel, that each contract under these contractual arrangements is valid and binding under current PRC laws and regulations, these contractual arrangements may not be as effective in providing us with control over our VIEs as direct ownership of these companies. If our VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective.

Trunkbow Technologies no longer accounts for any of our new business and is being operationally wound down. For the fiscal years ended December 31, 2011 and 2010, Trunkbow Technologies represented 0.6% and 11.7% , respectively, of our consolidated revenue. As at December 31, 2011 and 2010, Trunkbow Technologies represented 2.8% and 7.6% respectively, of our total consolidated assets.

The shareholders of our VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

Trunkbow Technologies are jointly owned by nominee shareholders, including Mr. Hou Wanchun, our chairman, Mr. Li Qiang, our CEO, and Mr. Xie Liangyao, and Delixunda by Mr. Xin Wang and Mr. Guodong Xu. Conflict of interests between these nominee shareholders of our contractually controlled entity and their duties to our company may arise. PRC law provides that a director or member of management owes a fiduciary duty to the company he directs or manages. Mr. Hou, Mr. Li, Mr. Wang and Mr. Xu must therefore act in good faith and in the best interests of our VIEs and must not use their respective positions for personal gain. These laws do not require them to consider our best interests when making decisions as a director or member of management of the contractually controlled entity. We cannot assure you that when conflicts of interest arise, these individuals will act in the best interests of our company or that conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause our contractually controlled entity to breach or refuse to renew the existing contractual arrangements that allow us to effectively control it and receive economic benefits from it. Currently, we do not have arrangements to address potential conflicts of interest between these individuals and our company and a conflict could result in these individuals as officers of our company violating fiduciary duties to us. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our VIEs, we would have to rely on legal proceedings, which could result in disruption of our business, and there would be substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements we have entered into may be subject to scrutiny by the PRC tax authorities, and a finding that we or our affiliated entities owe additional taxes could reduce our net income and the value of your investment.

As required by applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between Trunkbow Shandong and our VIEs do not represent an arm’s-length price and adjust our VIEs’ income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our VIEs, which could in turn increase its respective tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties on our affiliated entities for underpaid taxes.

Our net income may be adversely affected if our VIEs’ tax liabilities increase or if it is found to be subject to late payment fees or other penalties.

We have not yet registered the equity pledges made by our VIE shareholders of their equity in Trunkbow Technologies or Delixunda, which means that these pledges have not been officially validated. Accordingly, the contractual arrangements among the nominee shareholders, Trunkbow Shandong and our VIEs, designed to control our VIEs’ operations and extract their profits, may be undermined.

PRC Property Law provides that all equity pledges under equity pledge agreements must be registered to be validated. Our subsidiary, Trunkbow Shandong, has entered into equity pledge agreements with the nominee shareholders of Trunkbow Technologies and Delixunda, whereby such nominee shareholders are obligated to promptly take necessary steps to register and perfect the equity pledges to secure the service fees under the relevant service agreements and the loans under the loan agreements between Trunkbow Shandong and them. Trunkbow Shandong is now coordinating with the nominee shareholders to prepare various equity pledge registration application documents (including the Chinese versions of the equity pledge agreements and other application forms) in accordance with the requirements of the local competent branch of the State Administration for Industry and Commerce. However, until the equity pledges are registered and perfected, we may not enforce these pledges in PRC courts, and accordingly the contractual arrangements among the nominee shareholders, Trunkbow Shandong and our VIEs, designed to control the VIEs’ operations and extract their profits, will be undermined. Moreover, it is possible that, in the absence of a validated pledge, the nominee shareholders may pledge or otherwise dispose of their equity interests in the relevant VIE to third parties.

We may rely on dividends and other distributions from our subsidiaries in the PRC to fund our cash and financing requirements, and any limitation on the ability of our subsidiaries to make payments to us could materially adversely affect our ability to conduct our business.

As an offshore holding company, we may rely principally on dividends from our subsidiaries in the PRC for our cash requirements, including to pay dividends or make other distributions to our shareholders or to service our debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in the PRC is subject to limitations. In particular, the PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, as determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in the PRC is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends.

If our subsidiaries in the PRC incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us could materially adversely limit our ability to grow, make investments or acquisitions, pay dividends and otherwise fund and conduct our business.

We may be subject to penalties, including restriction on our ability to inject capital into our PRC subsidiaries and our PRC subsidiaries’ ability to distribute profits to us, if our PRC resident shareholders or beneficial owners fail to comply with relevant PRC foreign exchange rules.

SAFE issued a public notice in October 2005 requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of the PRC for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an “offshore special purpose vehicle”. PRC residents that are shareholders and/or beneficial owners of offshore special purpose companies established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006. In addition, any PRC resident that is a shareholder of an offshore special purpose vehicle is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China or other material changes in share capital.

We have requested our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of the SAFE notice and urge those who are PRC residents to register with the local SAFE branch as required under the SAFE notice. However, we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents will comply with our request to make, obtain or update any applicable registrations or comply with other requirements required by the SAFE notice or other related rules. In case of any non-compliance on any of our PRC resident shareholders or beneficial owners, our PRC subsidiaries and such shareholders and beneficial owners may be subject to fines and other legal sanctions.

Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Nevada holding company primarily relies on dividend payments from our wholly-owned PRC subsidiaries in the PRC to fund any cash and financing requirements we may have.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. Therefore, our wholly owned PRC subsidiaries may pay dividends in foreign currency to us without pre-approval from SAFE. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of loans denominated in foreign currencies. With the prior approval from SAFE, cash generated from the operations of our PRC subsidiary may be used to pay off debt they owe to entities outside the PRC in a currency other than the Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi into foreign currencies and, if Chinese Renminbi were to decline in value, reducing our revenue in U.S dollar terms.

Our reporting currency is the U.S. dollar and our operations in the PRC use their local currency as their functional currencies. Substantially all of our revenue and expenses are in Chinese renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the renminbi depends to a large extent on PRC government policies and the PRC’s domestic and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of renminbi to the U.S. dollar had generally been stable and the renminbi had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the PRC government changed its policy of pegging the value of Chinese renminbi to the U.S. dollar. Under the new policy, Chinese renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. From mid-2008 to mid-2010 the Renminbi traded within a narrow range against the U.S. dollar at approximately RMB6.83 per U.S. dollar. In June 2010, the People’s Bank of China announced the removal of the de facto peg. Following this announcement, the Renminbi has appreciated modestly. It is difficult to predict when and how Renminbi exchange rates may change going forward.

The income statements of our operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions results in reduced revenue, operating expenses and net income for our operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. We have not entered into agreements or purchased instruments to hedge its exchange rate risks, although it may do so in the future. The availability and effectiveness of any hedging transaction may be limited and we may not be able to successfully hedge its exchange rate risks.

Although PRC governmental policies were introduced in 1996 to allow the convertibility of Chinese renminbi into foreign currency for current account items, conversion of Chinese renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. We cannot be sure that we will be able to obtain all required conversion approvals for our operations or that PRC regulatory authorities will not impose greater restrictions on the convertibility of Chinese renminbi in the future. Because a significant amount of our future revenue may be in the form of Chinese renminbi, our inability to obtain the requisite approvals or any future restrictions on currency exchanges could limit our ability to utilize revenue generated in Chinese renminbi to fund our business activities outside of the PRC, or to repay foreign currency obligations, including our debt obligations, which would have a material adverse effect on our financial condition and results of operations.

We may have limited legal recourse under PRC law if disputes arise under our contracts with third parties.

The PRC government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If business ventures are unsuccessful, we face the risk that the parties to these ventures may seek ways to terminate the transactions, or, may hinder or prevent us from accessing important information regarding the financial and business operations of these acquired companies. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the PRC government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

You may have difficulty enforcing judgments against us.

We are a Nevada holding company and most of our assets are located outside of the United States. Most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts (imposing monetary fines, penalties, damages or otherwise) or entertain original actions brought in the courts of the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not recognize or enforce a foreign judgment against us or our directors and officers (imposing monetary fines, penalties, damages or otherwise) or entertain original actions brought in the courts of the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. So it is uncertain whether a PRC court would recognize or enforce a judgment rendered by a court in the United States.

We must comply with the Foreign Corrupt Practices Act and PRC anti-bribery law, which may put us at a competitive disadvantage.

Following the registration of our common stock under the Securities Exchange Act of 1934, as amended, we, a former shell company, will be required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. We are also subject to PRC anti-bribery law, which strictly prohibits bribery of government officials. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we can not assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties.

Under the PRC EIT Law, we, Trunkbow BVI and/or Trunkbow Hong Kong may be classified as a “resident enterprise” of the PRC. Such classification could result in PRC tax consequences to us, our non-PRC resident investors, Trunkbow BVI and/or Trunkbow Hong Kong.

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law (the “EIT Law”), which took effect on January 1, 2008. Under the EIT Law, enterprises are classified as “resident enterprises” and “non-resident enterprises.” An enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to an enterprise organized under the laws of the PRC for PRC enterprise income tax purposes. The implementing rules of the EIT Law define “de facto management body” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise; however, it remains unclear whether the PRC tax authorities would deem our managing body or the managing body of Trunkbow BVI or Trunkbow Hong Kong as being located within the PRC. Due to the short history of the EIT Law and the lack of applicable legal precedents, the PRC tax authorities determine the PRC tax resident treatment of a foreign (non-PRC) company on a case-by-case basis.

If the PRC tax authorities determine that we, Trunkbow BVI and/or Trunkbow Hong Kong is a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, we, Trunkbow BVI and/or Trunkbow Hong Kong could be subject to PRC enterprise income tax at a rate of 25% on our, Trunkbow BVI’s and /or Trunkbow Hong Kong’s worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if we, Trunkbow BVI and Trunkbow Hong Kong are treated as “qualified resident enterprises,” all dividends from Trunkbow Shenzen and Trunkbow Shandong to us (through Trunkbow Hong Kong and Trunkbow BVI) should be exempt from the PRC enterprise income tax.

If Trunkbow Hong Kong were treated as a PRC “non-resident enterprise” under the EIT Law, then dividends that Trunkbow Hong Kong receives from Trunkbow Shenzhen and Trunkbow Shandong (assuming such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, provided that Trunkbow Hong Kong owns more than 25% of the registered capital of Trunkbow Shenzhen or Trunkbow Shandong, as applicable, continuously within 12 months immediately prior to obtaining such dividends, and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “PRC-Hong Kong Tax Treaty”) were otherwise applicable, or (ii) if such treaty does not apply (i.e., because the PRC tax authorities may deem Trunkbow Hong Kong to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if Trunkbow BVI were treated as a “non-resident enterprise” under the EIT Law and Trunkbow Hong Kong were treated as a “resident enterprise” under the EIT Law, then the dividends that Trunkbow BVI receives from Trunkbow Hong Kong (assuming such dividends were considered sourced within the PRC) may be subject to a 10% PRC withholding tax. A similar situation may arise if we were treated as a “non-resident enterprise” under the EIT Law and Trunkbow BVI were treated as a “resident enterprise” under the EIT Law. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our shareholders.

Finally, if we are determined to be a “resident enterprise” under the EIT Law, or dividends payable to (or gains realized by) our investors that are not tax residents of the PRC (“non-resident investors”) are otherwise treated as income derived from sources within the PRC, this could result in (i) a 10% PRC tax being imposed on dividends we pay to our non-resident investors and that are enterprises (but not individuals) and gains derived by them from transferring our common stock and (ii) a potential 20% PRC tax being imposed on dividends we pay to our non-resident investors who are individuals and gains derived by them from transferring our common stock. In such event, we may be required to withhold the applicable PRC tax on any dividends paid to our non-resident investors. Our non-resident investors also may be responsible for paying the applicable PRC tax on any gain realized from the sale or transfer of our common stock in these circumstances. We would not, however, have an obligation to withhold PRC tax with respect to such gain under the PRC tax laws.

On December 10, 2009, the State Administration of Taxation (“SAT”) released Circular Guoshuihan No. 698 (“Circular 698”), which reinforces the taxation of certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 is retroactively effective from January 1, 2008. Circular 698 addresses indirect equity transfers as well as other issues. According to Circular 698, where a non-resident investor that indirectly holds an equity interest in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers an equity interest in the PRC resident enterprise by selling an equity interest in the offshore holding company, and the latter is located in a country or jurisdiction where the actual tax burden is less than 12.5% or where the offshore income of its residents is not taxable, the non-resident investor is required to provide the PRC tax authorities in charge of that PRC resident enterprise with certain relevant information within 30 days of the execution of the equity transfer agreement. The tax authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the PRC tax authorities determine that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the tax authorities will have the power to re-assess the nature of the equity transfer under the doctrine of substance over form. If the SAT’s challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the non-resident investor to PRC tax on the capital gain from such transfer. Because Circular 698 has a short history, there is uncertainty as to its application. We (or a non-resident investor) may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we (or such non-resident investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations (or such non-resident investor’s investment in us).

If any PRC tax applies to a non-resident investor, the non-resident investor may be entitled to a reduced rate of PRC tax under an applicable income tax treaty and/or a deduction for such PRC tax against such investor’s domestic taxable income or a foreign tax credit in respect of such PRC tax against such investor’s domestic income tax liability (subject to applicable conditions and limitations). Investors should consult their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available deductions or foreign tax credits.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

Substantially the majority of our revenues are earned by our PRC subsidiaries, Trunkbow Shenzhen and Trunkbow Shangdong. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividend by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

SAFE regulations may limit our ability to finance our PRC subsidiaries effectively and affect the value of your investment and may make it more difficult for us to pursue growth through acquisition.

If we finance our PRC subsidiaries through additional capital contributions, MOCFOM in China or its local counterpart must approve the amount of these capital contributions. On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. The notice requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments in the PRC unless otherwise provided by laws and regulations. In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency denominated capital of a foreign-invested company. The use of such Renminbi may not be changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used for purposes within the company’s approved business scope. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to the use and conversion of the foreign currencies provided by us to our PRC subsidiaries by mean of loans or capital contributions in the future. If we fail to complete such registrations or obtain such approvals, our PRC subsidiaries’ ability to use and convert such foreign currencies into Renminbi may be negatively affected, in particular in our future equity investments in the PRC, which could adversely and materially affect our ability to fund and expand our business.

Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In the future, we may choose to adopt an employee incentive option plan. Under applicable PRC regulations, all foreign exchange matters relating to employee stock ownership plans, share option plans or similar plans in which PRC citizens participate require approval from SAFE or its authorized local branch. In addition, PRC citizens who are granted share options, shares or other equity interests by an offshore listed company are required, through a PRC agent or PRC subsidiary of the offshore listed company, to register with SAFE and complete certain other procedures. Since we are an offshore listed company and may in the future adopt an employee incentive option plan, we and our PRC employees who are granted share options or shares will be subject to, and intend to comply with, these regulations. If we or our PRC employees fail to comply with these regulations, we or our Chinese employees may face sanctions imposed by SAFE or other PRC government authorities, including restrictions on foreign currency conversions and additional capital contributions to our PRC subsidiaries.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration of Taxation on December 10, 2009 with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly via disposing of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the foreign investor shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

There is uncertainty as to the application of SAT Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions, and the process and format of the reporting of an Indirect Transfer to the competent tax authority of the relevant PRC resident enterprise. In addition, there are not any formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to avoid PRC tax. As a result, we may become at risk of being taxed under SAT Circular 698 and we may be required to expend valuable resources to comply with SAT Circular 698 or to establish that we should not be taxed under SAT Circular 698, which may have a material adverse effect on our financial condition and results of operations.

The approval of the China Securities Regulatory Commission may be required in connection with the recent listing of our common stock on NASDAQ under a regulation adopted in August 2006, and, if required, we cannot predict whether we will be able to obtain such approval.

In 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule. This rule requires that, if an overseas company established or controlled by PRC domestic companies or citizens intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC domestic companies or citizens, such acquisition must be submitted to MOFCOM for approval. In addition, this regulation requires that an overseas company controlled directly or indirectly by PRC companies or citizens and holding equity interests of PRC domestic companies needs to obtain the approval of the CSRC prior to listing its securities on an overseas stock exchange. On September 21, 2006, the CSRC, published a notice on its official website specifying the documents and materials required to be submitted by overseas special purpose companies seeking CSRC’s approval of their overseas listings.

While the application of the New M&A Rule remains unclear, based on their understanding of current PRC laws, regulations, and the notice published on September 21, 2006, our PRC counsel, Han Kun Law Offices, has advised us that, since our subsidiaries were established by means of direct investment rather than by merger or acquisition of the equity interest or assets of any “domestic company” as defined under the New M&A Rules, and no provision in the New M&A Rules classifies our contractual arrangements with Trunkbow Technologies as a type of acquisition transaction falling under the New M&A Rules, we are not required to submit an application to MOFCOM or the CSRC for its approval for our contractual control on Trunkbow Technologies and the listing and trading of our common stock on a US national securities exchange. However, MOFCOM and the CSRC may hold a different view from our PRC counsel.

If the CSRC or another PRC regulatory agency subsequently determines that the approvals from the MOFCOM and/or CSRC were required our contractual control over Trunkbow Technologies and for the listing and trading of our shares on NASDAQ, we may need to apply for a remedial approval from the CSRC and may be subject to certain administrative punishments or other sanctions from PRC regulatory agencies. The regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of our foreign currency in our offshore bank accounts into the PRC, or take other actions that could materially and adversely affect our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock.

Also, if MOFCOM or CSRC later requires that we obtain its approval, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding these approval requirements could materially and adversely affect the trading price of our common stock.

The New M&A Rule sets forth complex procedures for acquisitions conducted by foreign investors that could make it more difficult to pursue acquisitions.

The New M&A Rule sets forth complex procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Complying with the requirements of the New M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Risks Related to our Common Stock

We may face lawsuits related to statements made by us that Bernstein and Pinchuk LLP was independent with respect to our 2009 fiscal year.

In reviewing the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the SEC informed us that because its Chief Financial Officer was previously employed by Bernstein and Pinchuk LLP (“B&P”), our outside auditors, and had performed more than 10 hours on the Trunkbow audit for the year ended December 31, 2009, it did not consider B&P “independent,” with respect to our 2009 fiscal year, as defined in the SEC’s rules regarding auditor independence. We disagreed, arguing that the hiring of Ms. Alice Ye was in accordance with a statutory exemption for such situations involving emergency or unusual circumstances approved by the Company’s board of directors or audit committee, and noting the limited work performed by Ms. Ye and her status as a non-partner in B&P at the time. The SEC disagreed with our position, indicating that they believe such exemption is to be relied upon only in very rare circumstances and that our situation was not consistent with their views of the scope of the exemption. Accordingly, we have amended our Annual Report on Form 10-K for the 2010 fiscal year to indicate that the 2009 financial statements included therein are unaudited, and on March 20, 2012 the Company engaged the independent registered public accounting firm Holtz Rubenstein Reminick LLP (“HRR”) to review and issue a new audit report regarding its consolidated financial statements for the year ended December 31, 2009.

Because our initial public offering registration statement contained the 2009 audit report of B&P, there is a risk that certain of our stockholders may choose to initiate legal proceedings against us. With respect to unasserted claims regarding statements contained in our IPO registration statement, we cannot identify a population of potential claimants that have suffered damages resulting from such statements with sufficient certainty to determine the probability of a loss and to make a reasonable estimate of liability, if any. While we expect to pursue recovery for recognized and unrecognized contingent losses through insurance, indemnification arrangements or other sources, we are unable to quantify the amount, if any, that we may expect to recover because of the uncertainties associated with such unasserted claim.

Until February 2010 we were a “shell” company and as such, we may have material liabilities of which we are not aware.

We were incorporated as a “shell” company with nominal assets under the name Bay Peak 5 Acquisition Corp. (“BP5”). Immediately prior to the closing of the Share Exchange in February 2010, we conducted a due diligence review of BP5’s financial condition and legal status. Notwithstanding such review, BP5 may have material liabilities that we have not yet discovered. Further, although the Share Exchange Agreement contains customary representations and warranties from BP5 concerning its assets, liabilities, financial condition and affairs, we may have limited or no recourse against former owners or principals of BP5 in the event these prove to be untrue. We cannot insure against any loss we might incur as a result of undisclosed liabilities. See “Item 1 – Business” of this Report captioned “Company Background – Our History and Corporate Structure” for more information about the Share Exchange and our former status as a “shell” company.

Because we became public by means of a reverse takeover transaction, we may not be able to attract the attention of major brokerage firms.

Additional risks may exist since we became public through a “reverse takeover” with a shell company. Security analysts of major brokerage firms and securities institutions may not cover us since there are no broker-dealers who sold our stock in a public offering who would have an incentive to follow or recommend the purchase of our common stock. No assurance can be given that established brokerage firms will want to conduct any financings for us in the future.

If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

As a newly public company, we have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

Lack of experience as officers of publicly-traded companies of our management team may hinder our ability to comply with the Sarbanes-Oxley Act.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent auditor certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC, has required changes in the corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

As all property in China is state owned, neither we, nor any company, owns any real property. Our principal executive office is located at Unit 1217-1218, 12F of Tower B, Gemdale Plaza, No. 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China 100022. The rentable space in this office consists of approximately 340.79 square meters (approximately 3,668.23 square feet). The term of the lease expires on March 2013. The monthly rental payment is approximately $8,546 (RMB 57,934).

Item 3.

Legal Proceedings.

In the normal course of business, we are subject to claims and litigation. Neither we nor our subsidiaries are currently a party to any material legal proceedings nor are we aware of any material proceeding to which any of our directors, officers, affiliates, or any holder of more than five percent of our common stock, or any associate of any such director, officer, affiliate, or shareholder, is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

Item 4.

Mine Safety Disclosures.

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Commencing on February 3, 2011, our common stock was listed on the NASDAQ Global Market under the symbol “TBOW.” Prior to such listing, there was no public market for our common stock. The following table sets forth the high and low sale prices for our common stock for the periods indicated, as reported by NASDAQ.

	Common Stock
	Low		High
2011
Fourth Quarter		1.61		3.00
Third Quarter		2.15		4.25
Second Quarter		1.96		5.25
First Quarter (commencing February 3, 2011)	$	3.90	$	5.25

Holders

As of March 22, 2012, we had approximately 455 record owners of our common stock.

Dividend Policy

We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock for the foreseeable future.

Future cash dividends, if any, will be at the discretion of our Board of Directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our Board of Directors may deem relevant. We can pay dividends only out of our profits or other distributable reserves and dividends or distributions will only be paid or made if we are able to pay our debts as they fall due in the ordinary course of business.

Securities Authorized for Issuance Under Equity Compensation Plans

We presently do not have any equity based or other long-term incentive programs. In the future, we may adopt and establish an equity-based or other long-term incentive plan if our management believes that it is in our and our stockholders’ best interest to do so.

Recent Sales of Unregistered Securities

Item 6.

Selected Financial Data

Not applicable to smaller reporting companies.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our financial statements and the notes to those statements. This discussion contains forward-looking statements reflecting our management’s current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed on page 19 entitled “Risk Factors” and elsewhere in this Form 10-K.

We provide technology platform solutions for mobile telecom operators in the People’s Republic of China. Our patented platforms provide a comprehensive solution for Chinese telecom operators to deliver and manage the distribution of various mobile value added service (“MVAS”) applications to their subscribers. We believe that the Trunkbow brand is regarded by the telecom operators as a well managed, trusted provider of technology solutions. Our research and development focused business model provides us with a defensible market position as a technology provider to the telecom operators.

As of December 31, 2011, our technology is the subject of 211 filed patent applications, of which 68 have been granted by the National Intellectual Property Administration of the People’s Republic of China. We have recently begun the process of filing for international and U.S. patents in order to protect our intellectual properties globally.

The primary geographic focus of our operations is in the PRC, where we derive substantially all of our revenues. We conduct our business operations primarily through our wholly-owned subsidiaries Trunkbow Asia Pacific (Shenzhen) Limited and Trunkbow Asia Pacific (Shandong) Limited. Both companies are registered in PRC as Wholly-Owned Foreign Enterprises.

Overview

Our History and Corporate Structure

We were incorporated as a “shell” company with nominal assets under the name Bay Peak 5 Acquisition Corp. We were incorporated in the State of Nevada on September 3, 2004 as a wholly owned subsidiary of Visitalk Capital Corporation (“VCC”). We were formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”), a former provider of VOIP services. The Visitalk Plan was deemed effective by the Bankruptcy Court on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com was merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan.

On July 28, 2008, pursuant to Stock Purchase Agreements (“SPAs”), we sold 5,971,898 shares of common stock to two parties unaffiliated with us (the “Purchasing Shareholders”) for a total payment of $51,000, or approximately $.008 per share (the “Change of Control Transactions”). On August 29, 2008, the SPAs were approved by our shareholders at a special shareholders’ meeting and all the closing conditions of the SPAs were met. After the Change of Control Transactions, including the impact of a related master settlement agreement, these newly issued shares represented 85.5% ownership of us. One of the parties, Bay Peak, LLC (“Bay Peak”), had contacts with various companies and individuals in Asia, in particular the PRC. Cory Roberts, the managing member of Bay Peak, was appointed to our Board of Directors and elected President in conjunction with the Change of Control Transactions. Mr. Roberts resigned as a member of our Board of Directors on March 30, 2011. On August 28, 2008, shareholders authorized adopting the name of Bay Peak 5 Acquisition Corp. Also on August 28, 2008, shareholders ratified a one-for-seven reverse stock split (the “First Reverse Split”), which was implemented on January 6, 2010 and in January 2010, authorized a further reverse split of 4.14 for 1, which was implemented on January 27, 2010 (the “Second Reverse Split”).

In February 2010 we entered into the Share Exchange Agreement with Trunkbow BVI and the shareholders of Trunkbow BVI (the “Shareholders”), who together owned shares constituting 100% of the issued and outstanding ordinary shares of Trunkbow BVI (the “Trunkbow BVI Shares”), and Bay Peak, our former principal shareholder. Pursuant to the terms of the Share Exchange Agreement, the Shareholders transferred to us all of the Trunkbow BVI Shares in exchange for the issuance of 19,562,888 (the “Shares”) shares of our common stock (the “Share Exchange”). As a result of the Share Exchange, Trunkbow BVI became our wholly owned subsidiary. After giving effect to the Share Exchange, the sale of common stock in the February 2010 Offering and the BP5 Warrant Financing (as defined below) (i) existing shareholders of Trunkbow BVI owned approximately 60.25% of our outstanding common stock, (ii) purchasers of common stock in the February 2010 Offering owned approximately 26.01% of our outstanding common stock (including 7.7% owned by VeriFone, Inc.), (iii) the holders of BP5 warrants owned approximately 8.54% of our outstanding common stock and (iv) the pre-existing shareholders of BP5 owned approximately 5.2% of our outstanding common stock.

We were founded in 2001 by former Silicon Valley engineers with extensive experience in the telecom industry. We have been able to develop first to market application platforms that enable telecom operators to generate significant new revenue streams by leveraging our extensive knowledge of the mobile network technology. Since our inception, we have invested significant time and resources to develop cutting edge technology solutions for our customers. We were the first to create and develop a Color Ring Back Tone (“CRBT”) application platform for Shandong Unicom in 2003. Since then, this innovative service solution has become the third largest revenue contributor for China Mobile after voice and Short Message Service (“SMS”).

Our organizational structure is as follows:

(1)

(2)

(3)

(4)

(5)

(6)

We entered into a series of contractual arrangements with Beijing Delixunda Technology Co., Ltd. (“Delixunda”) and its shareholders on March 10, 2011. Delixunda is a telecom value-added service licensed company and was established as a limited liability company on December 1, 2009 in Beijing, the PRC. Delixunda has no operations prior to February 10th, 2011. As a result of the contractual arrangements with Delixunda, we indirectly own the telecom value-added service license, which would enble us to offer telecom wireless value-added conten service to individual clients.

How We Generate Revenue (2009 financial information is unaudited)

We develop wireless enablement platforms targeted at cellular carriers and provide them with constantly improving interactive delivery vehicles to improve cellular performance and end-user functionality. We leverage our patented technology platforms to help telecom operators in China to increase their per subscriber revenue and reduce subscriber churn. We generate revenues through direct and indirect revenue sharing agreements with the relevant provincial branch of the telecom operators, one-time service and product sales, and maintenance fees. We charge a one time licensing fee and an annual maintenance fee of approximately 5 – 10% of the initial system purchasing amount. We also have monthly revenue sharing contracts in place with resellers and directly with the relevant provincial branch of the telecom providers for up to a 50% share in the revenue generated through our proprietary applications platforms. In addition to one-time sales and revenue sharing, we also generate revenue through transaction fees for our Mobile Payment System solution.

Our current MVAS Application Platform solutions generate revenue through one time sales and recurring revenues. For our Caller Color Ring Back Tone (“Caller CRBT”) and Color Numbering solution, we have revenue sharing agreements with resellers and directly with telecom providers to receive up to 50% of the subscription revenues generated for up to 5 years and then renewable upon expiration. For our Number Change Notification (“NCN”) solution, we receive revenues from one-time system sales and maintenance fees.

For our Mobile Payment System solution, we generate both one-time and recurring revenues.

We generate non-recurring revenues in the following ways:

System sales to telecom providers which enables the mobile payment function on their network;

System sales to telecom providers that enables various MPS compatible SIM and mobile payment functions for their corporate clients.

We generate recurring revenues in the following ways:

Up to a 50% share of the monthly function fee charged by the telecom providers;

Monthly rental revenues on POS (Point of Sales) machines deployed by Trunkbow; and

Transaction fees on per-transaction basis from mobile applets

We operate under exclusive patent licensing and revenue sharing agreements for Caller CRBT in three provinces with local branches of China Telecom, two provinces with local branches of China Mobile and two provinces with local branches of China Unicom, Number Change Notification in two provinces with local branches of China Unicom and two provinces with local branches of China Telecom, and Mobile Payment System in sixteen provinces with local branches of China Telecom, ten provinces with local branches of China Unicom and one province with local branches of China Mobil. These agreements typically have a one to five year term. In addition, we have sold over 10 different other platform services to the mobile operators over the past years.

In determining development priorities, we conduct research efforts which include client input, market analysis, economic considerations, revenue potential and technical feasibility. Only when these factors each rise above a predefined threshold will a true development undertaking ensue. As an ISO 9000 certified business entity, which is a family of standards for quality management systems that is maintained by the International Organization for Standardization, as well as a Capability Maturity Model Integration (CMMI) Level 3 certified business entity, which is a process improvement approach that was developed by a group of experts from industry, government, and the Software Engineering Institute (SEI) at Carnegie Mellon University, and in keeping with this practice, all projects must adhere to a pre-defined regimen of development and only ends when acceptance by the client is gained.

Our business has grown rapidly since inception and we anticipate that our business will continue to grow at a rapid pace in the next three to five years. We expect that our growth will be driven by the broad adoption of our Caller CRBT and Mobile Payment services, geographic expansion and the introduction of new products and services.

Our customers are primarily telecom service providers in the PRC, including local branches of China’s three major cellular carriers, China Telecom, China Unicom and China Mobile. Collectively, these carriers provide services to greater than 1 billion cellular subscribers. For the fiscal years ended December 31, 2010 and 2009, revenues generated directly by sales to China Telecom, China Unicom and China Mobile accounted for approximately 7%, 5% and nil, and 3%, 6% and nil, respectively, of our total revenues, and 18%, 5% and 1%, and 7%, 5% and nil, respectively, for the year ended December 31, 2011 and 2010. When we include resales of our products to these carriers through intermediaries (i.e., direct and indirect sales to these carriers), then revenues generated from sales to these three carriers for the fiscal years ended December 31, 2010 and 2009 accounted for approximately 16%, 47% and 20%, and 42%, 15% and 42%, respectively, of our total revenues, and 30%, 24% and 38%, and, 16%, 47% and 20%, respectively, for the year ended December 31, 2011 and 2010. The decrease in revenues generated from sales to China Telecom for 2011 as compared to 2010 is caused by the shift of our revenue model from one-time sales to revenue sharing. The increase in revenues generated from sales to China Mobile is attributable to the roll-out of our mobile payment platforms and MVAS platforms including mobile business card and color ring back tone. Even though our relationship with these three carriers continues to expand, it is important to understand the complexity of these relationships.

To be accepted as an approved vendor of services to any of these carriers, a company must first gain approval at a corporate level by successfully completing a series of tests of its technology. Once completed, the next step is to gain contracted business from each operating unit. Each of the 30 provinces, municipalities and autonomous regions contains its own self sufficient cellular operating unit with separate P&L responsibility. In other words, with 30 regions, there are 30 separate operating companies per cellular carrier. This model is replicated in each of the three major carriers, resulting in a total of ninety potential clients within China.

The PRC government has mandated that these mobile payment services and MVAS functions must be available to all provinces over the next five years. With such services currently available in 19 provinces, the 11 remaining provinces will be seeking them from the market with Trunkbow being a major incumbent; fully vetted at a corporate level and with patented technology.

While we were initially focused exclusively on the PRC market, we have built a product set for the global sector. To this end, we are now actively positioning our product sets with carriers in the U.S. and Europe, and we are entering the global market with a well accepted product set and excellent credentials.

Seasonality

Our quarterly operating results have varied significantly in the past and are likely to continue to vary significantly in the future. Historically, we have generally experienced a slowdown or decrease in generating revenues in the first and fourth quarter of the year due to the Chinese Lunar New Year as a majority of the businesses in the PRC shut down for a month long holiday and slow down for a month prior to the New Year celebration. We believe that this fluctuation will gradually subside as we increase our recurring revenue streams.

Results of Operations

Fiscal Years Ended December 31, 2011 versus 2010

	Years Ended December 31,				% of
	2011		2010		change

System integration	$	12,567,498	$	9,368,839		34.1	%
Software sales		13,451,015		14,916,350		-9.8	%
Maintenance service		1,617,431		404,513		299.8	%
Shared revenue		2,079,463		154,134		1249.1	%
Total revenues		29,715,407		24,843,836		19.6	%
Less:
Business tax and surcharges		638,377		455,919		40.0	%
Net revenues	$	29,077,030	$	24,387,917		19.2	%

Net revenues were $29.08 million for the year ended December 31, 2011, compared to $24.39 million for the the year ended December 31, 2010. The increase in net revenue was $4.69 million or 19.2%, mainly contributed by the rapid growth in system integration, maintenance services and shared revenue. System integration revenues increased $3.20 million, from $9.37 million for the year ended December 31, 2010 to $12.57 million for the year ended December 31, 2011, due to new roll-out of MVAS platforms including mobile business card and on-line personalized information services, and mobile payment systems. Software sales decreased $1.47 million, or 9.8%, from $14.92 million for the year ended December 31, 2010 to $13.45 million for the year ended December 31, 2011, due to shift in sales from software sales to more system integration revenue. Maintenance service revenue increased $1.21 million, or 299.8%, from $0.40 million for the year ended December 31, 2010 to $1.62 million for the year ended December 31, 2011, mainly from the services provided to the carries on their network testing and optimization. Shared revenue increased $1.93 million, or 1249.1%, from $0.15 million for the year ended December 31, 2010 to $2.08 million for the year ended December 31, 2011, stimulated by shared revenue from mobile payment.

	Years Ended December 31,				% of
	2011		2010		change
MVAS Technology Platforms
Gross Revenues	$	17,429,377	$	12,660,109		37.7	%
Business tax and surcharges		413,491		345,628		19.6	%
Cost of Revenues		4,184,549		1,124,594		272.1	%
	$	12,831,337	$	11,189,887		14.7	%
Mobile Payment Solutions
Gross Revenues	$	12,286,030	$	12,183,727		0.8	%
Business tax and surcharges		224,886		110,291		103.9	%
Cost of Revenues		1,945,522		3,805,380		-48.9	%
	$	10,115,622	$	8,268,056		22.3	%

Revenue from MVAS increased $4.77 million or 37.7% to $17.43 million from the year ended December 31, 2011, compared with $12.66 million for the year ended December 31, 2010. The increase in MVAS revenue was primarily driven by the new roll-out of mobile business card and shared revenue from color ring back tone and music download. Revenue from our MPS offerings increased 0.8% to $12.29 million for the year ended December 31, 2011, compared with $12.18 million for the year ended December 31, 2010. The slight increase in MPS revenue was primarily related to significant increase of shared revenue and adversely affected by the decrease of software sales. For the year ended December 31, 2011, MVAS and MPS accounted for 58.7% and 41.3% of gross revenues, respectively, compared to 51.0% and 49.0% for the year ended December 31, 2010. The shift in MVAS revenue was mainly contributed from our MAVS revenue increment both from new product roll out and geographic expansion, and also our mobile payment revenue shift from one-time sales to revenue sharing.

Cost of revenues:

	Years Ended December 31,				% of
	2011		2010		change

Equipment costs	$	5,339,688	$	4,182,148		27.7	%
Labor Costs		790,383		747,826		5.7	%
Total cost of revenues	$	6,130,071	$	4,929,974		24.3	%

Cost of revenues includes equipment hardware costs and labor costs. The equipment hardware includes servers, network equipment, safety equipment and storage equipment. The increase in cost of revenue was primarily related to the rapid growth in the system integration, which consumed significant hardware costs, and also to the increase of maintenance revenue and shared revenue, which required more human time costs.

Gross Profit:

	Years Ended December 31,
	2011						2010
	MVAS			MPS			MVAS			MPS

Gross Revenues	$	17,429,377		$	12,286,030		$	12,660,109		$	12,183,727
Business tax and surcharges		413,491			224,886			345,628			110,291
Cost of Revenues		4,184,549			1,945,522			1,124,594			3,805,380
Gross profit	$	12,831,337		$	10,115,622		$	11,189,887		$	8,268,056

Gross margin		75.4	%		83.9	%		90.9	%		68.5	%

Gross profit increased $3.49 million, or 17.9%, from $19.46 million for the year ended December 31, 2010 to $22.95 million for the year ended December 31, 2011. The gross margin decreased by 0.9%, from 79.8% for the year ended December 31, 2010 to 78.9% for the year ended December 31, 2011. The slight decrease in gross margin was due to the increase of revenues from system integration, which consumed more hardware costs.

The gross profit and the gross margin for the MVAS and MPS were $12.83 million or 75.4% and $10.12 million or 83.9%, respectively, for the year ended December 31, 2011 and $11.19 million or 90.9% and $8.27 million or 68.5%, respectively, for the year ended December 31, 2010. The decrease of MVAS gross margin for 2011 when compared to 2010 was due to the reason that approximately 55.1% of MVAS revenues was system integration revenue, which consumed higher hardware costs. On the contrary, MPS gross margin increased from 68.5% for the year ended December 31, 2010 to 83.9% for the year ended December 31, 2011, attributable to the fact that 75.9% of MPS revenues was from software sales, shared and maintenance revenue, which requires significantly less hardware costs.

Operating expenses:

	Years Ended December 31,
	2011					2010
			% of					% of
			net revenues					net revenues

Selling and distribution expenses	$	2,344,993		8.1	%	$	1,412,499		5.8	%
General and administrative expenses		7,944,055		27.3	%		3,075,833		12.6	%
Research and development expenses		1,434,525		4.9	%		1,203,264		4.9	%
	$	11,723,573		40.3	%	$	5,691,596		23.3	%

Operating expenses including selling and distribution, general and administrative expenses and R&D, increased $6.03 million, or 106.0%, from $5.69 million for year ended December 31, 2010 to $11.72 million for the year ended December 31, 2011.

Selling and distribution expenses: Selling and distribution expenses increased $0.93 million or by 66.0%, to $2.34 million for the year ended December 31, 2011 from $1.41 million for the same period of 2010. The increase in selling and distribution expenses was mainly due to the recruitment of more sales staff from 68 as of December 31, 2010 to 84 as of December 31, 2011, which raised our salaries and welfare expenses from $0.41 million for the year ended December 31, 2010 to $0.89 million for the year ended December 31, 2011. Recruitment of more sales people and establishment of branch offices in more regions also resulted in higher selling and distribution expenses including travel, advertisement and entertainment.

General and administrative expenses: General and administrative expenses increased $4.87 million or by 158.3%, to $7.94 million for the year ended December 31, 2011 as compared to $3.08 million for the same period in 2010. The increase in general and administrative expenses was mainly due to the following reasons: (1) the increase in professional services charges related to being a US public company, including but not limited to legal, business development and consulting services, insurance and agency fees, for approximately of $2.19 million; (2) the increase of staff salary, travelling expenses and other general office supplies in relation to the expansion of our business, for about $0.57 million; and (3) other expenses including office supplies, rental, training, recruitment and meetings, travel expenses increased $1.18 million when compared the year ended December 31, 2011 to the same period of 2010; (4) allowance for a doubtful debt of $0.93 million, provided for a customer’s receivable that is over one year.

Research and development expenses: Research and development expenses increased $0.23 million or by 19.2%, to $1.43 million for the year ended December 31, 2011 from $1.20 million for the same period of 2010. The increase of the research and development expenses was mainly due to the expansion of our R&D function which resulted in an increase of the salary expenses and related expense.

Other income (expenses): Other income (expenses) mainly includes interest income, interest expense, government grants and VAT refund and exchange loss.

Other income (expense) increased $7.90 million from $(0.22) million during the year ended December 31, 2010 to $7.68 million during the year ended December 31, 2011 mainly from government grant of $5.65 million and the VAT rebate from the tax bureau of $2.11 million. The government grant was given for the development of mobile payment and other MVAS technologies, patents and successful completion of our initial public offering. Pursuant to the policies issued by Ministry of Finance, State Taxation Administration and General Administration of Customs for Encouraging Software Industry and Integrated Circuits Industry issued in 2000, an enterprise classified as a “software enterprise” will be entitled to a rebate of its net VAT liability to the extent that it exceeds 3% of the actual VAT burden relating to self-developed software product sales.

Interest expense decreased $0.13 million from $0.22 million during the year ended December 31, 2010 to $0.09 million during the year ended December 31, 2011 due to the reduced interest expenses with the repayment of contingently convertible notes.

Income before income tax expense: Income before income tax expense increased $5.36 million, or 39.6%, from $13.54 million for the year ended December 31, 2010 to $18.90 million for the year ended December 31, 2011, principally due to increase of gross profit and other income, net off by the increase of operating expenses.

Critical Accounting Policies and Estimates. We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of, among other things, assets and liabilities, contingent assets and liabilities and revenues and expenses. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from what we expect. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements because they involve the greatest reliance on our management’s judgment.

Revenue Recognition. We derive revenues from our MVAS Technology Platforms and Mobile Payment Solutions in the form of providing system integration, sales of software, patent licensing and maintenance services. With respect to the system integration, we sign contracts with telecommunication and mobile operators and system integrators to install and integrate the Group’s software with the hardware and software purchased from third-party suppliers. Deliverables of system integration include: software, hardware, integration, installation and training. Some of our contracts include post-contract customer support for a period of twelve months or less. We recognize post-contract customer support revenue together with the initial licensing fee on delivery of the software. Revenue is recognized when the last deliverable in the arrangement is delivered and when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the vendor’s fee is fixed or determinable; and (4) collectability is probable.

With respect to the sales of software, revenue is recognized when the last deliverable in the arrangement is delivered and when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the vendor’s fee is fixed or determinable; and (4) collectability is probable. Some of our contracts include post-contract customer support for a period of twelve months or less. We recognize post-contract customer support revenue together with the initial licensing fee on delivery of the software

With respect to patent licensing, we enter into contracts with local system integrators who further contract with telecommunication and mobile operators, and provide these system integrators with our patents which permit the system integrators to use our patents. The system integrators pay the Group a one-time license fee for obtaining the programs and technologies. Patent licensing revenues are recognized when all revenue recognition criteria according to ASC 985-605 have been met.

Revenue derived from technical support contracts primarily includes telephone consulting, on-site support, product updates, and releases of new versions of products previously purchased by the customers, as well as error reporting and correction services. Maintenance contracts are typically sold for a separate fee with initial contractual period of one year with renewal for additional periods thereafter. Technical support service revenue is recognized ratably over the term of the service agreement.

Accounts Receivable. We sell our products and services to telecommunication and mobile operators directly or through resellers. We do not require collateral from our customers.

We perform ongoing credit evaluations of our customers and review the composition of accounts receivable, analyze historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate if allowance for doubtful accounts is needed.

Recently issued accounting pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”, which is not expected to have a material impact on the consolidated financial statements upon adoption.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company intends to conform to the new presentation required in this ASU beginning with its Form 10-Q for the three months ended March 31, 2012.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (ASU 2011-08), to simplify how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments to the FASB Accounting Standards Codification (Codification) in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Coinciding with the release of ASU No. 2011-11, the IASB has issued Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). This amendment requires disclosures about the offsetting of financial assets and financial liabilities common to those in ASU No. 2011-11. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update 2011-12 (ASU 2011-12), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. ASU 2011-12 defers the requirement that companies present reclassification adjustments for each component of AOCI in both net income and OCI on the face of the financial statements. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

Foreign Currency Translation

Our functional currency is the renminbi (“RMB”) which is not freely convertible into foreign currencies. We maintain our financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, our financial statements, which are prepared using the functional currency, have been translated into U.S. dollars. Assets and liabilities are translated at the exchange rates at the balance sheet date and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign currency translation adjustment of other comprehensive income, a component of stockholders’ equity.

The exchange rates applied are as follows:

	December 31,
	2011		2010
Year end RMB exchange rate		6.3585		6.6118
Average RMB exchange rate		6.4640		6.7788

There is no significant fluctuation in exchange rate for the conversion of RMB to U.S. dollars after the balance sheet date.

Liquidity and Capital Resources

Dividends

We are a holding company and conduct our operations primarily through our subsidiaries and VIEs in the PRC. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries and VIEs. The VIEs’ earnings are transferred to our subsidiaries in the form of payments under the technology support and related consulting agreements. If our subsidiaries incur debt on their own behalf, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations applicable to such subsidiaries. As of December 31, 2011, our PRC subsidiaries and VIEs had aggregate unappropriated earnings of approximately $40.23 million (translated by 2011 year end exchange rate of 6.3585) that were available for distribution. These unappropriated earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution.

Under PRC law, each of our PRC subsidiaries must set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of our PRC subsidiaries with foreign investments must also set aside a portion of its after-tax profits to fund an employee welfare fund at the discretion of the board. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, companies may not distribute the reserve funds as cash dividends except upon a liquidation of these subsidiaries. In addition, dividend payments from our PRC subsidiaries could be delayed as we may only distribute such dividends upon completion of annual audits of the subsidiaries.

Government Control of Currency Conversion

Cash Flows

In summary, our cash flows were as follows:

	Years Ended December 31,
	2011			2010
Net cash flows used in operating activities	$	(10,370,664	)	$	(8,637,933	)
Net cash flows used in investing activities		(16,942,662	)		(999,465	)
Net cash flows provided by financing activities		22,812,597			16,333,451
Effect of foreign currency fluctuation on cash and cash equivalents		380,568			258,224
Net increase (decrease) in cash and cash equivalents	$	(4,120,161	)	$	6,954,277
Cash and cash equivalents – beginning of year	$	10,259,750		$	3,305,473
Cash and cash equivalents – end of year	$	6,139,589		$	10,259,750

Operating Activities

Net cash flows used in operating activities for the year ended December 31, 2011 was $10.37 million as compared with $8.64 million used in operating activities for the year ended December 31, 2010, for a net increase of $1.73 million. This increase was mainly due to an increase of cash used for inventory, long-term prepayment and taxes, adversely affected by the decrease of cash used in accrued and other current liabilities.

The increased use for inventory of $4.07 million was caused by the increased on-going projects under installment. The increased use in long-term prepayment was mainly on royalties of $1.86 million. The increase use in tax was also on income tax expense from Trunkbow Shandong. Started from January 1, 2011, Trunkbow Shandong applies to 12.5% of income tax rate and resulted in $1.96 million of income tax expense. During the year ended December 31, 2011, accrual expenses and other current liabilities also increased significantly, mainly caused by the expenses accrued for professional fees of $0.23 million and royalties of $0.93 million.

Investing Activities

Our main use of investing activities during the year ended December 31, 2011 was on our acquisition of a land use right for $5.88 million and construction in progress of $10.71 million. Construction in progress represented a progress payment to a contractor for the construction of the R&D center in Jinan on the land we acquired during the second quarter of 2011.

The loans that we paid out during the year ended December 31, 2011 mainly referred to the payment of $2.63 million to China Telecom Jinan Branch for the purchase of MPS hardware and software for the roll-out of MPS systems and application in Jinan City, Shandong Province. We will share 3% of monthly revenue with China Telecom on the MPS systems and application for consecutive twelve months from January 2012 to December 2012.

Financing Activities

Net cash flows provided by financing activities for the year ended December 31, 2011 was $22.81 million as compared with $16.33 million provided by financing activities for the year ended December 31, 2010.

The cash provided by financing activities for the year ended December 31, 2011 included the net proceeds from the February 2011 initial public offering of $17.33 million, exercise of warrants of $0.61 million. During the year ended December 31, 2011, we repaid the short-term bank loan of 1.86 million and borrowed a new short-term bank loan of $6.36 million from another commercial bank.

Restricted Net Assets

As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, our PRC operating entities are restricted in their ability to transfer a portion of their net assets to us. Amounts restricted include paid-in capital and statutory reserve funds of our PRC operating subsidiaries as determined pursuant to PRC generally accepted accounting principles, totaling approximately US$35.10 (translated by 2011 year end exchange rate of 6.3585) million as of December 31, 2011.

Operating lease commitment

We lease office space under a lease agreement with a term expiring in April 2014. The lease may be cancelled by either party with 30-days prior written notice.

Future minimum rental payments under this operating lease are as follows:

	Office Rental
Year ending December 31, 2012		265,078
Year ending December 31, 2013		20,030
Year ending December 31, 2014		2,139
Total	$	287,247

We do not have other commitments besides the commitment in office rental.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Inflation

Inflation has not historically been a significant factor impacting our financial results.

Subsequent Event

On March 21, 2012, the Company announced that it has engaged the independent registered public accounting firm Holtz Rubenstein Reminick LLP (“HRR”) to review and issue a new audit report regarding its consolidated financial statements for the year ending December 31, 2009 because the SEC did not consider B&P “independent” as defined in the SEC’s rules regarding auditor independence. Even thought the Company disagreed, for the interests of investor transparency and to avoid a complicated on-going regulatory process, on March 20, 2012 the Company engaged HRR to review and issue a new audit report regarding its consolidated financial statements for the year ended December 31, 2009.

With respect to unasserted claims regarding statements contained in our IPO registration statement, we cannot identify a population of potential claimants that have suffered damages resulting from such statements with sufficient certainty to determine the probability of a loss and to make a reasonable estimate of liability, if any. While we expect to pursue recovery for recognized and unrecognized contingent losses through insurance, indemnification arrangements or other sources, we are unable to quantify the amount, if any, that we may expect to recover because of the uncertainties associated with such unasserted claim.

Item 8.

Financial Statements and Supplementary Financial Data

Consolidated Financial Statements

The financial statements required by this item begin on page F-1 hereof.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2011, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Included in this evaluation was a discussion of the contingency set forth in Note 24 of our financial statements. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports 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 our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Controls Over Financial Reporting

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1)

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2)

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

(3)

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company.

Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Included in this evaluation was a discussion of the contingency set forth in Note 24 of our financial statements. Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was effective as of December 31, 2011.

As a smaller reporting company, we are not required to obtain an attestation report of our registered public accounting firm regarding internal controls over financial reporting.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a) of the Securities Act of 1934, and regarding our Audit Committee is included under the captions “Directors and Executive Officers of the Company” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and “—Role of the Audit Committee” in our Proxy Statement related to the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.

Pursuant to General Instruction G(3) of Form 10-K, the information required by this item relating to our executive officers is included under the caption “Executive Officers of the Company” in Part I of this report.

We have adopted a code of ethics that applies to our principal executive officer and all members of our finance department, including the principal financial officer and principal accounting officer. This code of ethics is posted on our website. The Internet address for our website is www.trunkbowintl.com, and the code of ethics may be found from our main web page by clicking first on “Investor Relations” and then on “Corporate Governance” under “Investor Relations,” next on “The Code of Business Ethics and Conduct” under “Corporate Governance.”

We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, on the web page found by clicking through to “Code of Business Ethics and Conduct” as specified above.

Item 11.

Executive Compensation

The information appearing under the headings “Director Compensation” and “Executive Compensation” in our Proxy Statement related to the 2012 Annual Meeting of Shareholders is incorporated herein by reference.

Changes in Control

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item relating to security ownership of certain beneficial owners and management is included under the caption “Security Ownership of Management and Certain Beneficial Owners,” and the information required by this item relating to securities authorized for issuance under equity compensation plans is included under the caption “Executive Compensation – Options and Stock Appreciation Rights,” in each case in our Proxy Statement related to the 2012 Annual Meeting of Shareholders, and is incorporated herein by reference.

Equity Compensation Plan Information

We currently do not have any equity compensation plans.

Item 13.

Certain Relationships and Related Transactions, Director Independence

Related Transactions

As of December 31, 2011, we borrowed $6,460,945 of short-term bank loan from one of the commercial banks in China. The loan was guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use right and Trunkbow Shandong’s accounts receivable. The pledge value of Mr. Li’s personal properties is RMB 3,930,000 (approximately $618,070).

On February 1, 2010, we entered into a Master Engagement Agreement with VeriFone, Inc. (“VeriFone”). Pursuant to the terms of the agreement, we submitted a binding, non-cancellable purchase order to VeriFone covering an initial order of $5 million, which was paid in full upon execution of the agreement, of VeriFone’s point of sale systems for deployment in China as part of its rollout. VeriFone beneficially owns 2,500,000 shares of our common stock and warrants to purchase up to 500,000 shares of our common stock. For the year ended December 31, 2010, we had purchased $5,035,589 worth of point of sale systems from VeriFone’s subsidiary in China.

At December 31, 2011 and 2010, amounts due from directors consisted of:

	December 31, 2011		December 31, 2010
Amount due from Mr. Qiang Li	$	573,103	$	2,931
Amount due from Mr. Wan Chun Hou		184,930		30,348
Amount due from Mr. Xin Wang		-		45,977
	$	758,033	$	79,256

The balance as of December 31, 2011 represented advances to the directors for expenses to be paid on behalf of the Company.

At December 31, 2011 and 2010, amount due to directors consisted of:

		December 31, 2011				December 31, 2010
Amount due to Mr. Xin Wang		$	11,959			$	—

Lock Up Agreement

We, our directors, officers and certain of our significant shareholders have agreed to a 180-day “lock up” with respect to their shares of common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, until August 1, 2011, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of Roth Capital Partners, LLC, the lead underwriter in our recent public offering of common stock. However, in the event that either (1) during the last 17 days of the “lock up” period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock up” period, then in either case the expiration of the “lock up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable.

Make Good Escrow Agreement

In connection with the Share Exchange, in February 2010, Chief Honor Investments Limited and Capital Melody Limited (collectively referred to as “Controlling Stockholders”) entered into an Investor Side Letter Agreement with certain investors (“Investors”). Pursuant to the side letter, (a) the Controlling Stockholders agreed to deliver to the Investors, as a group, an aggregate of 337,500 shares of common stock of the Company, if the Company fails to achieve at least $8,000,000 in consolidated net income in accordance with the U.S. generally accepted accounting principles as set forth in the final audit for Trunkbow’s consolidated group for the fiscal year ending December 31, 2009; (b) if the Company’s consolidated net income per share for the year ended December 31, 2010 (the “Actual 2010 EPS”) is not at least $0.37 on a fully diluted basis then the Controlling Stockholders shall deliver additional shares, on a pro rata basis to each Investor, with the maximum aggregate number of 8,437,500 shares; (c) if the Company fails to cause its common stock to be listed on the NASDAQ Stock market, the NYSE Amex or the New York Stock Exchange within twelve months of the effective date of the Form 10 registration statement, each of the Controlling Shareholders agreed that they shall immediately issue and deliver to the Investors, as a group, an aggregate of 675,000 shares of common stock of the Company, to be divided among each Investor on a pro rata basis as partial liquidated damages and not as a penalty.

The Company achieved the 2009 and 2010 performance threshold. On February 3, 2011, the Company began trading on the NASDAQ Global Stock Market under the ticker symbol “TBOW.”

Director Independence

Six of our directors, Regis Kwong, Dr. Tan Kok Hui, Iris Geng, Dr. Lv Ting Jie, Huang Zhaoxing, and Li Dong, have been determined to be independent as defined by Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and Section 10A(m)(3) of the Exchange Act. No transactions, relationships or arrangements were considered by the board of directors in determining that these directors were independent.

Item 14.

Principal Accountant Fees and Services

The information required by this item is included under the captions “Proposal No. 2: Ratification of Appointment of the Independent Public Accountants — Audit Fees” and “—Pre-Approval Policies and Procedures” in our Proxy Statement related to the 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit Number		Description
2.1		Share Exchange Agreement, dated as of January 27, 2010⁽¹⁾
3.1		Amended Articles of Incorporation⁽¹⁾
3.2		Bylaws⁽¹⁾
4.1		Form of Investor Warrant⁽¹⁾
4.2		Registration Rights Agreement, dated as of February 10, 2010⁽¹⁾
4.3		Specimen Common Stock Certificate⁽⁵⁾
4.4		Form of Underwriter Warrant⁽⁵⁾
10.1		Subscription Agreement, dated as of February 10, 2010⁽¹⁾
10.2		Make Good Escrow Agreement⁽¹⁾
10.3		Form of Director Repayment Agreement⁽¹⁾
10.4		Exclusive Business Cooperation Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.5		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Wanchun Hou and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.6		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Qiang Li and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.7		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Liangyao Xie and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.8		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Wanchun Hou⁽²⁾
10.9		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Qiang Li⁽²⁾
10.10		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Liangyao Xie⁽²⁾
10.11		Power of Attorney of Wanchun Hou in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.12		Power of Attorney of Qiang Li in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.13		Power of Attorney of Liangyao Xie in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.14		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Wanchun Hou and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.15		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Qiang Li and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.16		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Liangyao Xie and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.17		Nominee Letter to Wanchun Hou⁽²⁾
10.18		Nominee Letter to Qiang Li⁽²⁾
10.19		Nominee Letter to Liangyao Xie⁽²⁾
10.20		Medium-to-Small Sized Enterprise Financing Service Contract dated November 9, 2011 between Trunkbow Asia Pacific (Shandong) Company Limited and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.21		Accounts Receivable Maximum Amount Pledge Contract between Trunkbow Asia Pacific (Shandong) Company Limited and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.22		Maximum Amount Guarantee Contract among Wanchun Hou, Zhonghong Yu, Qiang Li, Xuesong Dai and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.23		Maximum Amount Pledge Contract between Qiang Li and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.24		Maximum Amount Pledge Contract between Qiang Li and China Minsheng Banking Corp., Ltd., Dalian Division.*
14.1		Code of Ethics⁽³⁾
21.1		Subsidiaries of Trunkbow Holdings International Limited⁽¹⁾
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		Interactive Data Files

	*	Filed herewith.
	**	IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.

(1)

Incorporated herein by reference to the Registration Statement on Form 10 filed by Trunkbow on June 4, 2010.

(2)

Incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form S-1/A filed by Trunkbow on December 15, 2010.

(3)

Incorporated herein by reference to Amendment No. 4 to the Registration Statement on Form S-1/A filed by Trunkbow on January 18, 2011.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

March 30, 2012	By:	/s/ Li Qiang
(Date Signed)		Li Qiang, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature	Capacity	Date

/s/ Dr. Hou WanChun	Chairman of the Board of Directors	March 30, 2012
Dr. Hou WanChun

/s/ Li Qiang	Chief Executive Officer and Director	March 30, 2012
Li Qiang	(Principal Executive Officer)

/s/ Ye Yuan Jun	Chief Financial Officer	March 30, 2012
Ye Yuan Jun	(Principal Accounting Officer)

/s/ Bao Jihong	Director	March 30, 2012
Bao Jihong

/s/ Wang Xin	Director	March 30, 2012
Wang Xin

/s/ Albert Liu	Director	March 30, 2012
Albert Liu

/s/ Regis Kwong	Director	March 30, 2012
Regis Kwong

/s/ Dr. Tan Kok Hui	Director	March 30, 2012
Dr. Tan Kok Hui

/s/ Iris Geng	Director	March 30, 2012
Iris Geng

/s/ Dr. Lv Ting Jie	Director	March 30, 2012
Dr. Lv Ting Jie

/s/ Huang Zhaoxing	Director	March 30, 2012
Huang Zhaoxing

/s/ Li Dong	Director	March 30, 2012
Li Dong

Exhibit Index

Exhibit Number		Description
2.1		Share Exchange Agreement, dated as of January 27, 2010⁽¹⁾
3.1		Amended Articles of Incorporation⁽¹⁾
3.2		Bylaws⁽¹⁾
4.1		Form of Investor Warrant⁽¹⁾
4.2		Registration Rights Agreement, dated as of February 10, 2010⁽¹⁾
4.3		Specimen Common Stock Certificate⁽⁵⁾
4.4		Form of Underwriter Warrant⁽⁵⁾
10.1		Subscription Agreement, dated as of February 10, 2010⁽¹⁾
10.2		Make Good Escrow Agreement⁽¹⁾
10.3		Form of Director Repayment Agreement⁽¹⁾
10.4		Exclusive Business Cooperation Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.5		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Wanchun Hou and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.6		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Qiang Li and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.7		Exclusive Option Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Liangyao Xie and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.8		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Wanchun Hou⁽²⁾
10.9		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Qiang Li⁽²⁾
10.10		Loan Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd. and Liangyao Xie⁽²⁾
10.11		Power of Attorney of Wanchun Hou in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.12		Power of Attorney of Qiang Li in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.13		Power of Attorney of Liangyao Xie in favor of Trunkbow Asia Pacific (Shandong) Co., Ltd.⁽²⁾
10.14		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Wanchun Hou and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.15		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Qiang Li and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.16		Share Pledge Agreement among Trunkbow Asia Pacific (Shandong) Co., Ltd., Liangyao Xie and Trunkbow Technologies (Shenzhen) Co., Ltd.⁽²⁾
10.17		Nominee Letter to Wanchun Hou⁽²⁾
10.18		Nominee Letter to Qiang Li⁽²⁾
10.19		Nominee Letter to Liangyao Xie⁽²⁾
10.20		Medium-to-Small Sized Enterprise Financing Service Contract dated November 9, 2011 between Trunkbow Asia Pacific (Shandong) Company Limited and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.21		Accounts Receivable Maximum Amount Pledge Contract between Trunkbow Asia Pacific (Shandong) Company Limited and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.22		Maximum Amount Guarantee Contract among Wanchun Hou, Zhonghong Yu, Qiang Li, Xuesong Dai and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.23		Maximum Amount Pledge Contract between Qiang Li and China Minsheng Banking Corp., Ltd., Dalian Division.*
10.24		Maximum Amount Pledge Contract between Qiang Li and China Minsheng Banking Corp., Ltd., Dalian Division.*
14.1		Code of Ethics⁽³⁾
21.1		Subsidiaries of Trunkbow Holdings International Limited⁽¹⁾
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		Interactive Data Files

	*	Filed herewith.
	**	IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.

(1)

Incorporated herein by reference to the Registration Statement on Form 10 filed by Trunkbow on June 4, 2010.

(2)

Incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form S-1/A filed by Trunkbow on December 15, 2010.

(3)

Incorporated herein by reference to Amendment No. 4 to the Registration Statement on Form S-1/A filed by Trunkbow on January 18, 2011.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

of Trunkbow International Holdings Limited

We have audited the accompanying consolidated balance sheet of Trunkbow International Holdings Limited and Subsidiaries (the “Company”) as of December 31, 2011, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of December 31, 2011, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum Bernstein & Pinchuk LLP

New York, New York

March 30, 2012

NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York 10001 • Phone 646.442.4845 • Fax 646.349.5200 • marcumbp.com

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Trunkbow International Holdings Limited

We have audited the accompanying consolidated balance sheets of Trunkbow International Holdings Limited and Subsidiaries (“the Company”) as of December 31, 2010, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Bernstein & Pinchuk LLP

March 31, 2011

New York, New York

F-2

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2011		2010
ASSETS
Current assets
Cash and cash equivalents	$	6,139,589	$	10,259,750
Restricted deposit		0		362,987
Accounts receivable, net		41,147,767		25,658,184
Advances to suppliers		13,270,125		6,881,368
Prepaid expenses		316,258		694,774
Other current assets, net		4,040,152		3,205,394
Due from directors		758,033		79,256
Inventories		11,297,513		3,681,450
Deferred tax asset		117,952		0
Total current assets		77,087,389		50,823,163
Property and equipment, net		11,561,034		483,376
Land use right, net		5,905,583		0
Intangible assets, net		33,958		1,385
Long-term prepayment		2,733,363		358,397
TOTAL ASSETS	$	97,321,327	$	51,666,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,238,179	$	853,762
Accrued expenses and other current liabilities		2,216,128		593,846
Short-term loan		6,460,945		1,814,937
Due to directors		11,959		0
Taxes payable		4,209,907		3,718,963
Total current liabilities		15,137,118		6,981,508
Other non-current liabilities		0		138,767
Total liabilities		15,137,118		7,120,275
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred Stock: par value USD0.001, authorized 10,000,000 shares, none issued and outstanding at December 31, 2011 and 2010		0		0
Common Stock: par value USD0.001, authorized 190,000,000 shares, issued and outstanding 36,807,075 shares at December 31, 2011 and 32,472,075 at December 31, 2010		36,807		32,472
Additional paid-in capital		39,671,966		21,384,050
Appropriated retained earnings		4,504,667		2,428,847
Unappropriated retained earnings		34,989,429		20,125,001
Accumulated other comprehensive income		2,981,340		575,676
Total stockholders’ equity		82,184,209		44,546,046
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	97,321,327	$	51,666,321

See notes to the consolidated financial statements.

F-3

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Years Ended December 31,
	2011			2010

Revenues	$	29,715,407		$	24,843,836
Less: Business tax and surcharges		638,377			455,919
Net revenues		29,077,030			24,387,917
Cost of revenues		6,130,071			4,929,974
Gross margin		22,946,959			19,457,943
Operating expenses
Selling and distribution expenses		2,344,993			1,412,499
General and administrative expenses		7,944,055			3,075,833
Research and development expenses		1,434,525			1,203,264
		11,723,573			5,691,596
Income from operations		11,223,386			13,766,347

Interest income		107,467			37,204
Interest expense		(87,005	)		(220,668	)
Refund of value-added tax		2,112,463			0
Government Grants		5,651,686			0
Other Income		7,890			78,176
Other expenses		(117,024	)		(120,174	)
		7,675,477			(225,462	)
Income before income tax expense		18,898,863			13,540,885
Income tax expense		1,958,615			0
Net income		16,940,248			13,540,885
Foreign currency translation fluctuation		2,405,664			1,170,811
Comprehensive income	$	19,345,912		$	14,711,696
Weighted average number of common shares outstanding
Basic		36,263,911			31,022,002
Diluted		37,163,690			31,022,002
Earnings per share
Basic	$	0.47		$	0.44
Diluted	$	0.46		$	0.44

See notes to the consolidated financial statements.

F-4

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2011			2010
Cash flows from operating activities
Net income	$	16,940,248		$	13,540,885
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		323,671			93,135
Provision for doubtful debts		928,218			0
Share-based compensation expenses		350,000			0
Deferred taxes		(116,027	)		0
Changes in operating assets and liabilities:
Accounts receivable		(15,159,545	)		(14,480,828	)
Advance to suppliers		(6,014,830	)		(6,704,245	)
Prepaid expenses		399,563			(433,865	)
Other current assets, net		(795,636	)		768,351
Due from directors		(664,592	)		0
Inventories		(7,347,497	)		(3,280,951	)
Long-term prepayment		(2,322,161	)		(784,576	)
Accounts payable		1,328,366			498,222
Accrued expenses and other current liabilities		1,572,534			118,273
Other non-current liabilities		(141,940	)		0
Amount due to directors		11,764			(24,641	)
Taxes payable		337,200			2,052,307
Net cash flows used in operating activities		(10,370,664	)		(8,637,933	)
Cash flows from investing activities
Acquisition of property and equipment		(11,124,679	)		(449,169	)
Acquisition of land use right		(5,877,870	)		0
Collection on loans to third parties		2,884,763			(2,579,165	)
Payment on loans to third parties		(2,784,653	)		0
Collection on amount due from directors		0			2,028,869
Acquisition of Delixunda Company (net of cash acquired)		(40,223	)		0
Net cash flows used in investing activities		(16,942,662	)		(999,465	)
Cash flows from financing activities
Collection (payment) on restricted deposit		371,287			(362,987	)
Proceeds from issuance of common stock (net of finance costs)		17,332,251			17,073,720
Repayment of loans from third parties		0			(147,520	)
Repayment of contingently convertible notes		0			(2,000,000	)
Proceeds from exercise of warrants		610,000			0
Repayment of short-term loan		(1,856,436	)		0
Proceeds from short-term loan		6,355,495			1,770,238
Net cash flows provided by financing activities		22,812,597			16,333,451
Effect of exchange rate fluctuation on cash and cash equivalents		380,568			258,224
Net increase (decrease) in cash and cash equivalents		(4,120,161	)		6,954,277
Cash and cash equivalents – beginning of the year		10,259,750			3,305,473
Cash and cash equivalents – end of the year	$	6,139,589		$	10,259,750
Supplemental disclosure of cash flow information
Cash paid for interest	$	74,332		$	220,668
Cash paid for income taxes	$	390,586		$	0
Supplemental disclosure of noncash financing activities
Conversion of contingently convertible notes to common stock	$	0		$	3,000,000
Issuance of 30,000 common shares to settle the lawyer's fee relating to this IPO at issuing price of $5.00	$	150,000		$	0

See notes to the consolidated financial statements

F-5

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

													Accumulated
					Additional			Appropriated		Unappropriated			other
	Common stock				paid-in			retained		retained			comprehensive
	Shares		Amount		Capital			earnings		earnings			income/(loss)			Total

Balance at January 1, 2010		19,562,888	$	19,563	$	1,323,239		$	1,010,486	$	8,002,477		$	(595,135	)	$	9,760,630
Net income		0		0		0			0		13,540,885			0			13,540,885
Stock issued in recapitalization		1,687,112		1,687		(1,687	)		0		0			0			0
Issue of shares		11,222,075		11,222		20,062,498			0		0			0			20,073,720
Appropriation of statutory surplus reserve		0		0		0			1,418,361		(1,418,361	)		0			0
Foreign currency Translation adjustment		0		0		0			0		0			1,170,811			1,170,811
Balance at December 31, 2010		32,472,075		32,472		21,384,050			2,428,847		20,125,001			575,676			44,546,046

Net income		0		0		0			0		16,940,248			0			16,940,248
Issue of shares		4,030,000		4,030		17,328,221			0		0			0			17,332,221
Exercise of warrants		305,000		305		609,695			0		0			0			610,000
Share-based compensation		0		0		350,000			0		0			0			350,000
Appropriation of statutory surplus reserve		0		0		0			2,075,820		(2,075,820	)		0			0
Foreign currency Translation adjustment		0		0		0			0		0			2,405,664			2,405,664
Balance at December 31, 2011		36,807,075	$	36,807	$	39,671,966		$	4,504,667	$	34,989,429		$	2,981,340		$	82,184,209

See notes to the consolidated financial statements.

F-6

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 — ORGANIZATION AND PRINCIPAL ACTIVITIES

Trunkbow International Holdings Limited (formerly named as Bay Peak 5 Acquisition Corp. (“BP5”)) (the “Company”), was incorporated in the State of Nevada on September 3, 2004. The Company was formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”), a former provider of VOIP services. The Visitalk Plan was deemed effective by the Bankruptcy Court on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com was merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan.

In February 2010, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Trunkbow International Holdings Limited, a company organized under the laws of the British Virgin Islands (“Trunkbow”), the shareholders of Trunkbow (the “Shareholders”), who together own shares constituting 100% of the issued and outstanding ordinary shares of Trunkbow (the “Trunkbow Shares”), and the principal shareholder of the Company (“Principal Shareholder”). Pursuant to the terms of the Exchange Agreement, the Shareholders transferred to the Company all of the Trunkbow Shares in exchange for the issuance of 19,562,888 (the “Shares”) shares of our common stock (the “Share Exchange”). As a result of the Share Exchange, Trunkbow became our wholly owned subsidiary. After giving effect to the Share Exchange, the sale of common stock in the February 2010 Offering (defined below) and the BP5 Warrant Financing referred to below (i) existing shareholders of Trunkbow owned approximately 60.25% of the Company’s outstanding Common Stock, (ii) purchasers of Common Stock in the Offering owned approximately 26.01% of the Company’s outstanding Common Stock (including 7.7% owned by VeriFone, Inc.), (iii) the holders of BP5 Warrants owned approximately 8.54% of the Company’s outstanding Common Stock and (iv) the pre-existing shareholders of BP5 owned approximately 5.2% of the Company’s outstanding Common Stock.

Concurrent with the Share Exchange, (i) we entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the sale of an aggregate of 8,447,575 shares (the “Investor Shares”) and 1,689,515 warrants (the “Investor Warrants”), for aggregate gross proceeds equal to $16,895,150 (the “February 2010 Offering”) and (ii) certain holders of outstanding warrants of the Company issued to creditors and claimants of visitalk.com., in accordance with the Visitalk Plan, referred to herein as the “BP5 Warrant Investors” exercised the 2,774,500 warrants owned by them for an aggregate exercise price of $5.5 million and received warrants to purchase an aggregate of 554,900 shares of Common Stock (“BP5 Warrant Financing”).

The Company’s wholly owned subsidiary, Trunkbow, was established in the British Virgin Islands (“BVI”) on July 17, 2009, with no significant business operations and assets other than holding of equity interests in its subsidiaries and variable interest entities (“VIEss”). Trunkbow’s wholly owned subsidiary, Trunkbow (Asia Pacific) Investment Holdings Limited (“Trunkbow Hong Kong”) was established as an Investment Holding Company in Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”) on July 9, 2004.

Trunkbow Hong Kong established two wholly foreign owned subsidiaries in the PRC, Trunkbow Asia Pacific (Shandong) Company, Limited (“Trunkbow Shandong”) which was established on December 10, 2007 in Jinan, Shandong Province and Trunkbow Asia Pacific (Shenzhen) Company, Limited (“Trunkbow Shenzhen”) which was established on June 7, 2007 in Shenzhen, Guangdong Province. Both subsidiaries are principally engaged in research and development of application platforms for mobile operators in China.

F-7

Trunkbow Technologies (Shenzhen) Company, Limited (“Trunkbow Technologies”) was established as a limited liability company on December 4, 2001 in Shenzhen, Guangdong Province, the PRC. Trunkbow Technologies was formerly engaged in research and development of application platforms for mobile operators in China as well as wireless application systems for the international market. Beijing Delixunda Technology Co., Ltd (“Delixunda”) was established as a limited liability company on December 1, 2009 in Beijing, the PRC. Delixunda is a telecom value-added service licensed company and is engaged in research and development and sales of value-added application platforms for mobile operators. In December 2007, a series of agreements were entered into amongst Trunkbow Shandong, Trunkbow Technologies and its controlling shareholders, providing Trunkbow Shandong the ability to control Trunkbow Technologies, including its financial interest. In March 2011, a series of agreements were entered into amongst Trunkbow Shandong, Delixunda and its controlling shareholders, providing Trunkbow Shandong the ability to control Delixunda, including its financial interest. As a result of these contractual arrangements, which assigned all of Trunkbow Technologies and Delixunda’s equity owners’ rights and obligations to Trunkbow Shandong resulting in the equity owners lacking the ability to make decisions that have a significant effect on Trunkbow Technologies and Delixunda’s operations and Trunkbow Shandong’s ability to extract the profits from the operation of Trunkbow Technologies and Delixunda, and assume the Trunkbow Technologies and Delixunda’s residual benefits. Because Trunkbow Shandong and its indirect parent are the sole interest holders of Trunkbow Technologies, the Company consolidates Trunkbow Technologies from its inception, and Delixunda from March 10, 2011, consistent with the provisions of FASB Accounting Standards Codification (“ASC”) 810-10.

The Company, its subsidiaries and VIEs are collectively referred to as the “Group”.

2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)	Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company, and its subsidiaries and VIEs, Trunkbow, Trunkbow Hong Kong, Trunkbow Shandong, Trunkbow Shenzhen and Trunkbow Technologies and Delixunda.

b)	Principles of Consolidation

The consolidated financial statements include the financial statements of the Company, the Company’s subsidiaries and the Company’s VIEs. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.

c)	Reclassification

The comparative figures have been reclassified to conform to current year presentation.

d)	Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Managementmakes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.

F-8

e)	Foreign currency translation

The functional currency of the Company is United States dollars (“US$”), and the functional currency of Trunkbow Hong Kong is Hong Kong dollars (“HK$”). The functional currency of the Company’s PRC subsidiaries and VIEs is the Renminbi (“RMB”), and the PRC is the primary economic environment in which the Company operates.

For financial reporting purposes, the financial statements of the Company’s PRC subsidiaries and VIES, which are prepared using the RMB, are translated into the Company’s reporting currency, the United States Dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity.

The exchange rates applied are as follows:

	December 31,
	2011		2010
Year end RMB exchange rate		6.3585		6.6118
Average RMB exchange rate		6.4640		6.7788

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the determination of net income of the consolidated financial statements for the respective periods.

f)	Cash and cash equivalents

Cash and cash equivalents represent cash on hand and deposits held at call with banks. The Group considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

g)	Accounts receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. The Group determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group did not have any off-balance-sheet credit exposure relating to its customers, suppliers or others.

Inventory

Inventories represent hardware and equipment and are stated at the lower of cost or market value, determined using the specific identification method.

F-9

i)	Property and equipment, net

Furniture and office equipment, electronic equipment and motor vehicles are recorded at cost less accumulated depreciation. Depreciation is calculated on the straight-line method after taking into account their respective estimated residual values over the following estimated useful lives:

	Years
Motor vehicles	4-8
Furniture and office equipment	5
Electronic equipment	3 – 5
Telecommunication equipment	3 – 5
Leasehold improvements	3

Depreciation expense is included in cost of revenues, selling and distribution expenses, and general and administrative expenses.

When furniture and office equipment, electronic equipment and motor vehicles are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon. Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

Impairment of long-lived assets

In accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment — Overall, long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized for the year ended December 31, 2011 and 2010, respectively.

j)	Land use right, net

Land use rights are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives which are generally 50 years and represent the shorter of the estimated usage periods or the terms of the agreements.

k)	Fair value measurement

The Group applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC Subtopic 820-10 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

F-10

ASC Subtopic 820-10 defines fair value as the price that would be received to sell 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 Group 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 Subtopic 820-10 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. ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

A discussion of the valuation technique used to measure the fair value of the warrant is provided in Note 15.

The Group did not have any nonfinancial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 and 2010, respectively.

l)	Revenue recognition

The Group derives revenues from the MVAS Technology Platform and Mobile Payment Solutions in the form of providing system integration, sales of software, patent licensing, maintenance services and revenue sharing for the two services.

System integration

For the system integration, the Group signs contracts with telecommunication and mobile operators and system integrators to install and integrate the Group’s software with the hardware and software purchased from third-party suppliers.

Deliverables of system integration include: software, hardware, integration, installation, and training. The provision of services is substantially completed, i.e., when the Group purchases the hardware and software from third-party suppliers, integrates them together with the Group’s programs and software, and provides installation and training to customers, customers sign the final acceptance confirmation.

System integration includes a significant software portion. The software is not regarded as incidental to the provision of services as a whole because the marketing of such services focuses on the internally developed technologies included in the software. Therefore, ASC 985-605, “Software Revenue Recognition”, is applicable for these services. The Group cannot establish vendor-specific objective evidence of the fair values of the deliverables; therefore, according to ASC 985-605, revenue is recognized when the last deliverable in the arrangement is delivered and when all of the following criteria have been met:

F-11

(1)	Persuasive evidence of an arrangement exists;
(2)	Delivery has occurred;
(3)	The vendor’s fee is fixed or determinable; and
(4)	Collectability is probable.

Some of our contracts include postcontract customer support for a period of twelve months or less. We recognize postcontract customer support revenue together with the initial licensing fee on delivery of the software because all of the following conditions are met:

a. The postcontract customer support fee is included with the initial licensing fee.

b. The postcontract customer support included with the initial license is for one year or less.

c. The estimated cost of providing postcontract customer support during the arrangement is insignificant.

d. Unspecified upgrades or enhancements offered during postcontract customer support arrangements historically have been and are expected to continue to be minimal and infrequent.

Sales of software

The Group enters into contracts with the mobile operators or the resellers to provide software that enables the mobile operators to provide mobile payment and value-added service to the end-users.

The Group recognize revenue in accordance with ASC 985-605, (formerly Statement of Position (“SOP”) 97-2 Software Revenue Recognition, as amended and interpreted by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to certain transactions), as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants and Staff Accounting Bulletin No. 104, Revenue Recognition, that provides further interpretive guidance for public companies on the recognition, presentation and disclosure of revenue in financial statements.

The Group generally recognizes revenue from software and system services when all of the following criteria have been met, which is symbolized by the issuance of the final acceptance:

(1)	Persuasive evidence of an arrangement exists;
(2)	Delivery has occurred;
(3)	The vendor’s fee is fixed or determinable; and
(4)	Collectability is probable.

a. The postcontract customer support fee is included with the initial licensing fee.

b. The postcontract customer support included with the initial license is for one year or less.

c. The estimated cost of providing postcontract customer support during the arrangement is insignificant.

d. Unspecified upgrades or enhancements offered during postcontract customer support arrangements historically have been and are expected to continue to be minimal and infrequent.

Patent licensing

The Group enters into contracts with local system integrators who further contract with telecommunication and mobile operators, and provides these system integrators with our patents which permit the system integrators to use the Group’s patents. The system integrators pay the Group a one-time license fee for obtaining the programs and technologies. According to the contracts, these integrators are responsible for the construction and maintenance of the system platform while the Group assists these integrators during construction in form of providing technologies and programs. No PCS is offered in the patent licensing arrangement. When the construction of system platform is completed, these integrators perform examination and sign the final acceptance.

F-12

Patent licensing revenues are recognized when all revenue recognition criteria according to ASC 985-605-25 have been met, which is symbolized by the issuance of the final acceptance. Such criteria include: (i) persuasive evidence that an arrangement exists; (ii) delivery having occurred; (iii) whether the vender’s fee is fixed or determinable; and (iv) collectability being probable. We recognize revenue under ASC 985-605-25 because:

(i) It is our customary practice to have a signed written agreement between us and our customers.

(ii) According to these contracts, the integrators are responsible for the construction and maintenance of the system platform while we assist the integrators during construction in form of providing technologies and programs. Codes and programs were delivered to the integrators during the construction of the system platform. At the same time, we are obligated to provide training and support until the whole platform, including hardware incorporated with our codes and programs, is confirmed and accepted by the integrators. Revenue is recognized upon the final acceptance being signed by the integrators.

(iii) It is our policy to not provide customers the right to any adjustments or refund of any portion of their license fees paid, acceptance provisions, cancellation privileges, or rights of return.

(iv) Collectability is assessed on a customer-by-customer basis. The Company typically sells to customers for whom there is a history of successful collection, and new customers are subject to a credit review process that evaluates the customer’s ability to pay.

Maintenance services

Revenue sharing

We have three to five year contractual agreements with mobile carriers on deploying or managing the mobile value added service platforms or mobile payment platforms. We are obligated to provide maintenance services on the platforms and consulting services to the end-users, and also provide training to the mobile carriers’ employees.

We share revenues with the mobile carriers based upon 10% to 60% of the fees billed to the end-users. The fees billed to the end-users and subject to revenue sharing include monthly functional fees and telephone bills. Revenue is recognized monthly upon the receipt of the sales and usage reports provided by the mobile carriers. Revenue is reported on a net basis since the mobile carriers act as principal when providing services to the end-users.

Royalty income

Other than the one-time license fee, the Group also receives royalties for each end-user subscribed to the services. Royalty revenue is recognized when earned and collectability is reasonably assured, based upon the receipt of reports from mobile carriers.

F-13

m)	Government grants

Government grants are recognized where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal annual amounts over the expected useful life of the related asset.

Where the Group receives non-monetary grants, the asset and that grant are recorded at nominal amounts and released to profit or loss over the expected useful life of the relevant asset by equal annual installment.

n)	Cost of revenues

Cost of revenues primarily includes cost of equipment and software purchased from third parties and labor costs.

o)	Concentration risk

Credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Group places their cash and cash equivalents with financial institutions with high-credit ratings and quality.

The Group conducts credit evaluations of customers and generally does not require collateral or other security from customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific customers. The amount of receivables ultimately not collected by the Group has generally been consistent with management’s expectations and the allowance established for doubtful accounts.

Major Customers

The Group had sales to five and three customers that accounted for approximately 56.3% and 50.3% of revenues during the years ended December 31, 2011 and 2010, respectively. These customers accounted for approximately 45.5% and 55.7% of accounts receivable balance as of December 31, 2011 and 2010, respectively.

Major Suppliers

The Group had purchases from two vendors that accounted for approximately 51.8% and 57.2 % of purchases during the years ended December 31, 2011 and 2010, respectively. These vendors accounted for approximately nil of accounts payable balance as of December 31, 2011 and 2010.

p)	Research and development expenses

Research and development costs are incurred in the development of technologies in mobile value added service platform and mobile payment system, including significant improvements and refinements to existing products and services. The Group applies ASC985-20, “Costs of Computer Software to Be Sold, Leased, or Marketed”. In particular, nearly all of the research and development expenditure incurred since the Group’s formation has been to establish the technological feasibility of the Group’s software and techniques. As a result, all research and development costs are expensed as incurred.

F-14

q)	Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lesser are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

Taxation

Income taxes

The Group follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between of the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in the income statement in the period that includes the enactment date.

Value added taxes

The Company’s PRC subsidiaries and VIEs are subject to value-added tax (“VAT”) on sales. For Trunkbow Technologies and Trunkbow Shandong, the VAT is calculated at a rate of 17% on revenues from sales of hardware and software as well as the installation and system integration services which are deemed as mixed-sale of goods and thus subject to VAT. Trunkbow Shenzhen is a small scale tax payer and the VAT is calculated at a rate of 3% on revenues.

Pursuant to the policies issued by Ministry of Finance, State Taxation Administration and General Administration of Customs for Encouraging Software Industry and Integrated Circuits Industry issued in 2000, an enterprise classified as a “software enterprise” will be entitled to a rebate of its net VAT liability to the extent that it exceeds 3% of the actual VAT burden relating to self-developed software product sales.

Business tax and surcharges

The Company’s PRC subsidiaries and VIEs are also subject to business tax at a rate of 5% on technical services revenues.

s)	Uncertain tax positions

ASC 740-10-25 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. For the year ended December 31, 2011 and 2010, the Group did not have any interest and penalties associated with tax positions and the Group did not have any significant unrecognized uncertain tax positions.

The Company’s subsidiaries and VIEs are subject to taxation in PRC and other tax jurisdictions. There is no ongoing examination by taxing authorities at this time. Various tax years during the year ended December 31, 2011 and 2010 of the Company’s subsidiaries and VIEs remain open in the relevant taxing jurisdictions.

F-15

t)	Earnings per share

Earnings per share is calculated in accordance with ASC 260, “Earnings Per Share”. Basic earnings per share is computed by dividing income attributable to holders of common stock by the weighted average number of common shares considered to be outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive effect of outstanding common stock warrants is reflected in the diluted earnings per share by application of the treasury stock method when the impact is dilutive.

u)	Appropriated Retained Earnings

The income from the Company’s subsidiaries and VIEs is distributable to its owners after transfer to statutory reserves as required by relevant PRC laws and regulations and the Company’s Articles of Association. As stipulated by the relevant laws and regulations in the PRC, the Company’s PRC subsidiaries and VIEs are required to maintain a statutory surplus reserve fund which is non-distributable to shareholders. Appropriations to such reserve are 10% of net profit after taxation determined in accordance with generally accepted accounting principles of the PRC.

Statutory surplus reserve fund is established for the purpose of offsetting accumulated losses, enlarging productions or increasing share capital. The appropriation may cease to apply if the balance of the fund is equal to 50% of the entity’s registered capital.

v)	Comprehensive income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets are the cumulative foreign currency translation adjustments.

w)	Commitments and contingencies

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, product and environmental liability, and tax matters. In accordance with ASC 450-20, “Accounting for Contingencies”, the Group records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Historically, the Group has not experienced any material service liability claims.

x)	Recently enacted accounting standards

F-16

3 — RESTRICTED DEPOSIT

	December 31,
	2011		2010

Restricted deposit	$	0	$	362,987

The restricted deposit as of December 31, 2010 was security deposit for the short-term loan with balance of $ 1,814,937. The restricted deposit was released with the repayment of the short-term loan during the year ended December 31, 2011.

4 — ACCOUNTS RECEIVABLE, NET

At December 31, 2011 and 2010, accounts receivable consisted of:

	December 31,
	2011			2010

Accounts receivable	$	42,091,386		$	25,658,184
Less: Allowance for doubtful debt		(943,619	)		0
	$	41,147,767		$	25,658,184

F-17

The Group has recognized an allowance of $943,619 for a doubtful receivable that is over one year. The Group has not had any write-off of trade receivables during the years presented. $5,692,257 was subsequently collected by March 30, 2012. The accounts receivable of Trunkbow Shandong arising from all sales contracts or in kind from April 1, 2010 to December 30, 2013 have been pledged for the short-term bank loan of $6,460,945 due on December 28, 2012.

5 — ADVANCE TO SUPPLIERS

At December 31, 2011 and 2010, advance to suppliers consisted of:

	December 31,
	2011		2010

Advances to suppliers	$	13,270,125	$	6,881,368

Advance to suppliers represents prepayment to the Group's distributors for the purchase of third party software and hardware to be used in our MVAS/MPS platforms.

6 — PREPAID EXPENSES

Prepayments at December 31, 2011 and 2010 are summarized as follows:

	December 31,
	2011		2010

Prepaid advertisement	$	267,359	$	483,983
Other prepaid expenses		48,899		210,791
	$	316,258	$	694,774

Prepaid advertisement is amortized as the expense incurred. Advertising expense for the years ended December 31, 2011 and 2010 were $232,054 and $118,016, respectively.

7 — OTHER CURRENT ASSETS, NET

Other current assets at December 31, 2011 and 2010 are summarized as follows:

	December 31,
	2011		2010

Deposits	$	150,234	$	49,199
Loans to third parties		2,830,856		3,187,190
Staff advances		259,008		257,974
Advance for cloud APP agreement		800,054		0
Others		0		77,943
	$	4,040,152	$	3,572,306
Less: Allowance for doubtful debt		0		366,912
	$	4,040,152	$	3,205,394

F-18

Loans to third parties as of December 31, 2010 represented loans to the Company’s distributors. As part of the support for our MVAS/MPS deployment, the Company advanced funds in the form of loan to the distributors for the purchase of third party software and hardware. Once the hardware and software is delivered to the carriers, the distributors will get paid and repay the loan to us. Balance of loans to third parties as of December 31, 2010 was subsequently collected in full in 2011.

Loans to third parties as of December 31, 2011 represented payment to China Telecom Jinan Branch for the purchase of MPS hardware and software for the roll-out of MPS systems and application in Jinan City, Shandong Province. According to the agreement with China Telecom, Trunkbow will share monthly function fees based on 3% of total principal with China Telecom on the MPS systems and application for consecutive twelve months from January 2012 to December 2012. The principal will be repaid in December 2012.

Advance for cloud APP agreement represents a contribution per a cooperative agreement the Company entered into with a marketing company to start a music applet development project in December 2011. The contract calls for 50% revenue sharing with a minimum guarantee of a 10% return. In addition, the Company is guaranteed to receive its initial contribution of $800,000 at the end of the contract term. The term of this agreement is six months starting on January 1, 2012.

8 — AMOUNT DUE FROM (TO) DIRECTORS

a) As of December 31, 2011 and 2010, amount due from directors consisted of:

	December 31,
	2011		2010

Amount due from Directors	$	758,033	$	79,256

Amount due from directors represented advances to the directors for expenses to be paid on behalf of the Company.

b) At December 31, 2011 and 2010, amount due to directors consisted of:

	December 31,
	2011		2010

Amount due to Directors	$	11,959	$	0

Amount due to directors represented prepayment by the directors for expenses on behalf of the Company.

9 — INVENTORIES

At December 31, 2011 and 2010, inventories consisted of:

	December 31,
	2011		2010

Hardware
-System integration hardware	$	95,354	$	63,078
-Point of sale systems		2,856,892		2,855,632
Projects in progress		8,345,267		762,740
	$	11,297,513	$	3,681,450

The point of sale systems were purchased from Verifone, a related party of the Company.

F-19

10 — PROPERTY AND EQUIPMENT, NET

Property and equipment of the Group mainly consists of furniture and office equipment and electronic equipment located in the PRC.

Property and equipment as of December 31, 2011 and 2010 are summarized as follows:

	December 31,
	2011		2010

Motor vehicles	$	454,309	$	51,386
Furniture and office equipment		109,140		103,242
Electronic equipment		426,580		285,288
Telecommunication equipment		189,659		115,165
Leasehold improvement		60,572		58,250
		1,240,260		613,331
Less: Accumulated depreciation		385,242		129,955

Construction in progress		10,706,016		0
	$	11,561,034	$	483,376

Depreciation expense for the years ended December 31, 2011 and 2010 was $ 246,028 and $93,135, respectively.

11 — LAND USE RIGHT, NET

	December 31,
	2011		2010

Land use right	$	5,975,395	$	0

Less: Accumulated amortization		69,812		0
	$	5,905,583	$	0

Trunkbow Shandong acquired the land use right for the construction of the R&D center in Jinan. The land use right expires in June 2061. The amortization of land use right for the years ended December 31, 2011 and 2010 was $68,673 and nil, respectively. The estimated amortization expense will be RMB761,160 (approximately $117,754) for each of the five succeeding fiscal years. The land use right has been pledged for the short-term bank loan of $6,460,945, due on December 28, 2012.

F-20

12 — INTANGIBLE ASSETS, NET

At December 31, 2011and 2010, intangible assets consisted of:

	December 31,
	2011		2010
Software	$	3,216	$	1,943
License		40,890		0
		44,106		1,943
Less: Accumulated amortization		10,148		558
	$	33,958	$	1,385

Amortization expense for the years ended December, 2011 and 2010 was $9,411 and $545, respectively.

13 — LONG-TERM PREPAYMENT

	December 31,
	2011		2010

Office rental	$	8,191	$	45,689
Prepaid membership fee		250,758		268,711
Deposits		158,456		0
Prepaid royalties		1,857,011		0
Other prepaid expenses		458,947		43,997
	$	2,733,363	$	358,397

The prepaid royalties represented prepayment to Sony Music Entertainment China Holdings Limited for music license used in MPS and MVAS.

14 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The breakdowns of accrued expenses and other current liabilities as of December 31, 2011 and 2010 are as follows:

	December 31,
	2011		2010

Accrued payroll	$	477,091	$	177,290
Advance from customers		25,717		75,622
Loans from third parties		39,317		37,811
Payables to staff		160,006		143,341
Accrued expenses		357,481		94,060
Professional fees payable		231,454		0
Royalties payable		925,062		0
Others		0		65,722
	$	2,216,128	$	593,846

F-21

15 — SHORT-TERM LOAN

	December 31,
	2011		2010

Short-term loan	$	6,460,945	$	1,814,937

The short-term loan of $1,814,937 was repaid on May 5, 2011. The interest expense related to the short term loan for the years ended December 31, 2011 and 2010 was $51,230 and $93,118, respectively.

The short-term loan of $6,460,945 was borrowed from one of the commercial banks in the PRC. Total loan facility is RMB50,000,000 (approximately $7,863,490). The loan is due on December 28, 2012 with 8.856% of annual interest rate. The loan was guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use rights and Trunkbow Shandong’s accounts receivable as disclosed in note 4 and 11. The interest expense related to the short term loan for the years ended December 31, 2011 was $35,775.

16 — TAXES PAYABLE

	December 31,
	2011		2010

Value Added Tax Payable	$	968,363	$	2,152,999
Income Tax Payable		3,056,321		1,290,066
Others		185,223		275,898
	$	4,209,907	$	3,718,963

17 — OTHER NON-CURRENT LIABILITIES

	December 31,
	2011		2010

Other non-current liabilities	$	0	$	138,767

Other non-current liabilities represented government subsidy. Such subsidy is not treated as taxable income and must be used for funding its software research and development. Balance of other non-current liabilities as at December 31, 2010 was fully recognized in other income in 2011.

18 — INCOME TAXES

Corporation Income Tax (“CIT”)

(i) The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporation income tax. The Company became a holding company and does not conduct any substantial operations of its own after the Share Exchange. No provision for federal corporate income tax has been made in the financial statements as the Company has no taxable income for the year ended December 31, 2011. And earnings in the PRC are intended to be permanently reinvested in the PRC operation.

F-22

Trunkbow was established in the British Virgin Islands on July 17, 2009. Under the current laws of the British Virgin Islands, Trunkbow is not subject to tax on income or capital gains. In addition, upon payments of dividends by Trunkbow, no British Virgin Islands withholding tax is imposed.

Trunkbow Hong Kong was incorporated in Hong Kong on July 9, 2004. Taxable profits are subject to Hong Kong profits tax on corporations at the rate of 16.5%. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

(ii) PRC subsidiaries and VIEs

The subsidiaries and VIEs incorporated in the PRC are generally subject to a corporate income tax rate of 25% commencing January 1, 2008 except for those subsidiaries and VIEs that enjoy tax holidays or preferential tax treatment, as discussed below.

Trunkbow Shandong

Trunkbow Shandong, a PRC company, is a wholly foreign-owned entity under PRC law and is governed by the income tax law of the PRC and is subject to PRC enterprise income tax. The statutory income tax rate commencing January 1, 2008 was 25%.

On October 16, 2009, Trunkbow Shandong was certified as a software enterprise by Shandong Economic and Information Technology Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. The first profit making year for Trunkbow Shandong was 2009. On January 7, 2010, Trunkbow Shandong obtained the official approval from the tax bureau of Shandong Province Jinan City High-tech Industry Development Zone on the preferential tax exemption.

Pursuant to the aforementioned taxation laws, Trunkbow Shandong was exempt from income tax for the years ended December 31, 2009 and 2010, and thereafter, a half tax rate of 12.5% will be enacted for the years ended December 31, 2011, 2012 and 2013.

Trunkbow Shenzhen

Trunkbow Shenzhen, a PRC company, is a wholly foreign-owned entity under PRC law. Because it was incorporated in Shenzhen, a special economic zone in the PRC, is entitled to preferential income tax rate of 15% in 2007. According to the pronouncement of tax bureau, for companies established after March 16, 2007, the income tax rate will be immediately raised to the unified tax rate of 25% started from January 1, 2008. As Trunkbow Shenzhen was established on September 7, 2007, the income tax rate from year 2008 on was 25%.

On June 8, 2011, Trunkbow Shenzhen was certified as a software enterprise by Shenzhen Technology, Industry, Commerce and Information Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. Trunkbow Shenzhen was in net operation loss for the year ended December 31, 2011 and no income tax provision was recorded.

F-23

Trunkbow Technologies

Trunkbow Technologies was registered in Shenzhen, a special economic zone in the PRC, which is entitled to preferential income tax rates of 18% and 15% in 2008 and 2007 respectively. According to the pronouncement of tax bureau, for companies established before March 16, 2007, the income rate will gradually increase to 25% within 4 years, 20% in 2009, 22% in 2010, 24% in 2011 and 25% from 2012.

The current and deferred portions of income tax expense included in the consolidated statements of income and comprehensive income are as follows:

	Years ended December 31,
	2011			2010

Current income tax expense
China	$	1,955,921		$	123,895
Other jurisdiction		118,721			0
Deferred tax asset
China		(116,027	)		(123,895	)
Other jurisdiction		0			0
Income tax expense	$	1,958,615		$	0

Deferred tax asset

	December 31,
	2011		2010

Deferred tax asset	$	117,952	$	0

Deferred tax asset as of December 31, 2011 represented the deferred income tax asset arisen from the allowance for doubtful debt of $943,619.

The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for years ended December 31, 2011 and 2010 respectively:

	Years Ended December 31,
	2011			2010

PRC statutory tax rate		25	%		25	%
Accounting income before tax	$	21,064,652		$	14,256,065
Computed expected income tax expenses		5,266,163			3,564,016
Loss from subsidiaries and VIEs		95,612			18,452
Non-deductible expenses		121,713			0
Less: non taxable income		1,803,700			0
Less: tax exemption		1,839,894			3,458,573
Less: net operation loss carry-forward		0			123,895
Income tax expenses	$	1,839,894		$	0

19 — STOCKHOLDERS’ EQUITY

Preferred stock

The Company authorized 10,000,000 shares of preferred stock, with a par value of $.001 per share, but no preferred shares were issued and outstanding as of December 31, 2011.

Common stock

Pursuant to the terms of the Share Exchange Agreement, Trunkbow shareholders transferred to the Company all of the Trunkbow shares in exchange for the issuance of 19,562,888 shares of the Company’s common stock. Accordingly, the Company reclassified its common stock and additional paid-in-capital accounts for the year ended December 31, 2009.

Pursuant to the Purchase Agreement entered into concurrently with the Share Exchange Agreement, an aggregate of 8,447,575 shares and 1,689,515 warrants were sold for aggregate gross proceeds equal to $16,895,150. Certain holders of outstanding warrants of the Company issued to creditors and claimants of visitalk.com, Inc. in accordance with such company’s Chapter 11 reorganization plan exercised the 2,774,500 warrants owned by them for an aggregate exercise price of $5.5 million and received warrants to purchase an aggregate of 554,900 shares of Common Stock.

On February 3, 2011, the Company announced its initial public offering of 4,000,000 shares of Common Stock priced at $5.00 per share. The shares began trading on February 3, 2011, on the NASDAQ Global Market under the ticker symbol “TBOW”. The net proceeds were $18,109,988 after deduction of $1,400,000 of underwriter’s commission, and $490,012 of legal and professional fees.

F-24

Warrants

In connection with the February 2010 offering, we issued warrants to purchase 2,805,519 shares of common stock at an exercise price of $2.00. The warrants have a five year term and are excisable immediately. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

No fractional shares will be issued upon exercise of the warrants. If, upon exercise of a warrant, a holder would be entitled to receive a fractional interest in a share, we will pay to the holder cash equal to such fraction multiplied by the then fair market value of one full share.

The estimated fair values of the warrants issued to investors were determined at February 10, 2010 using Binominal Option Pricing Model. The fair values of the warrants are summarized as follows:

Fair value of warrant per share (US$) at date of issuance: $1.18

Key assumptions adopted in Binomial Option Pricing Model for the estimation of the fair value of the warrants outstanding were summarized as follows:

Expected volatility		73	%
Expected dividends yield		0	%
Time to maturity		5 years
Risk-free interest rate per annum		2.218	%
Fair value of underlying common shares (per share)	$	1.95

As of December 31, 2011, 305,000 warrants had been exercised at $2.00 per share.

In connection with our IPO in February 2011, the Company granted Roth Capital Partners, LLC warrants (the “Roth Capital Warrants”) to purchase up to a total of 200,000 shares of our common stock as partial underwriting compensation. The warrants have a term of three years and an exercise price of $6, provide for cashless exercise at all times and, in accordance with FINRA Rule 5110(g)(1), may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such warrant by any person until August 7, 2011, except as provided in FINRA Rule 5110(g)(2). The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

The estimated fair values of the warrants issued to Roth were determined at February 8, 2011 using Binominal Option Pricing Model. The fair values of the warrants are summarized as follows:

Fair value of warrant per share (US$) at date of issuance: $1.68.

Key assumptions adopted in Binomial Option Pricing Model for the estimation of the fair value of the warrants outstanding were summarized as follows:

Expected volatility		59.5	%
Expected dividends yield		0	%
Time to maturity		3 years
Risk-free interest rate per annum		1.745	%
Fair value of underlying common shares (per share)	$	4.85

F-25

In accordance with ASC Topic 340 subtopic 10 section S99-1, specific incremental costs directly attributable to a proposed or actual offering of securities may properly be deferred and charged against the gross proceeds of the offering. In accordance with the SEC accounting and reporting manual “cost of issuing equity securities are charged directly to equity as deduction of the fair value assigned to share issued.” Accordingly, we concluded that the Roth Capital Warrants are directly attributable to the February 2011 financing. If we had not issued the Roth Capital Warrants, we would have had to pay the same amount of cash as the fair value. Therefore, we deducted the total fair value of the Roth Capital Warrants of $336,000 as from the fair value assigned to the common stock. The Roth Capital Warrants met the scope exceptions of ASC Topic 815 as they were deemed to be indexed to the Company’s own stock, and were eligible to be classified as equity.

On July 11, 2011, the Company issued China High Growth Capital LTD warrants to purchase up to a total of 250,000 shares of our common stock as compensation for business development and consulting services. The warrant, which was exercisable at issuance, has a term of five years and an exercise price of $2 per share. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

The estimated fair value of the warrant issued to China High Growth Capital LTD was determined at July 11, 2011 using Binominal Option Pricing Model. The fair values of the warrants are summarized as follows:

Fair value of warrant per share (US$) at date of issuance: $1.40.

Key assumptions adopted in Binomial Option Pricing Model for the estimation of the fair value of the warrants outstanding were summarized as follows:

Expected volatility		59.5	%
Expected dividends yield		0	%
Time to maturity		5 years
Risk-free interest rate per annum		2.294	%
Fair value of underlying common shares (per share)	$	2.44

The China High Growth Capital LTD Warrants are directly attributable to compensation for business development and consulting services for a period from July 1, 2011 to October 31, 2011. If we had not issued the China High Growth Capital LTD Warrants, we would have had to pay the same amount of cash as the fair value. Total fair value of the China High Growth Capital LTD Warrants is $350,000. Therefore, we recorded $350,000 as general and administration expenses during the year ended December 31, 2011.

Escrow shares

In connection with the Share Exchange Agreement, Chief Honor Investments Limited and Capital Melody Limited (collectively referred to as “Controlling Stockholders”) entered into an Investor Side Letter Agreement with certain investors (“Investors”). Pursuant to the side letter, a) the Controlling Stockholders agree to deliver to the Investors, as a group, an aggregate of 337,500 shares of Common Stock of the Company, if the Company fails to achieve at least $8,000,000 in consolidated net income in accordance with the U.S. generally accepted accounting principles as set forth in the final audit for Trunkbow’s consolidated group for the fiscal year ending December 31, 2009; b) If the Company’s consolidated net income per share for the year ended December 31, 2011 (the “Actual 2010 EPS”) is not at least $0.37 on a fully diluted basis then theControlling Stockholders shall deliver additional shares, on a pro rata basis to each Investor, with the maximum aggregate number of 8,437,500 shares; c) if the Company fails to cause its Common Stock to be listed on the NASDAQ Stock market, the NYSE Amex or the New York Stock Exchange within twelve months of the effective date of the Form 10 registration statement, each of the Controlling Shareholders agrees that they shall immediately issue and deliver to the Investors, as a group, an aggregate of 675,000 shares of Common Stock of the Company, to be divided among each Investor on a pro rata basis as partial liquidated damages and not as a penalty.

F-26

The purpose of the Investor Side Letter Agreement was an inducement made to facilitate the respective offerings, and not part of a compensatory arrangement to management. The escrow shares will not be released or cancelled due to the discontinued employment of any management of the Company.

Because the above conditions have been met, the escrow shares were released to the Controlling Stockholders in the third quarter of 2011.

20 — REVENUES AND COST OF REVENUES

The following consolidated result of operations includes the results of operations of the Company, all the subsidiaries and our contractually controlled entity, Trunkbow Technologies (Shenzhen) Company, Limited.

For the years ended December 31, 2011 and 2010, revenues and cost of revenues consisted of:

	Years Ended December 31,
	2011		2010

Gross Revenues
System integration	$	12,567,498	$	9,368,839
Software sales		13,451,015		14,916,350
Maintenance service		1,617,431		404,513
Shared revenue		2,079,463		154,134
		29,715,407		24,843,836
Less:
Business tax and surcharges		638,377		455,919
Cost of Revenues
Equipment costs		5,339,688		4,182,148
Labor Costs		790,383		747,826
		6,130,071		4,929,974
Gross margin	$	22,946,959	$	19,457,943

21 — GOVERNMENT GRANTS

	Years Ended December 31,
	2011		2010

Government Grants	$	5,651,686	$	0

The Group’s grant income mainly includes $4,795,792 of special development funds for mobile payment solutions and other subsidies of $855,894 on patents, other software development and successful completion of our initial public offering from the local government. Such grants were recorded in the statements of income and comprehensive income immediately.

F-27

22 — SEGMENT INFORMATION

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate 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 Group’s chief operating decision maker is the Chief Executive Officer, who reviews consolidated results of operations prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Group; hence, the Group has only one operating segment.

The Group operates in the PRC and all of the Group’s long-lived assets are located in the PRC. As of December 31, 2011, the Company provides two products and services: MVAS Technology Platforms and Mobile Payment Solutions. MVAS Technology Platforms enable the operators to offer mobile value added services to end-users through our major products including Caller Color Ring Back Tone, Number Change Notification and Color Numbering. Mobile Payment Solutions allows RF-SIM (radio frequency SIM) enabled mobile phones worldwide to be utilized as payment tools and authentication devices, and also enables the end-user to consolidate a variety of functions and services into one phone.

We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segments results.

The gross revenues and cost of revenues consist of the following products and services:

	Years Ended December 31,
	2011		2010

MVAS Technology Platforms
Gross Revenues	$	17,429,377	$	12,660,109
Business tax and surcharges		413,491		345,628
Cost of Revenues		4,184,549		1,124,594
	$	12,831,337	$	11,189,887
Mobile Payment Solutions
Gross Revenues	$	12,286,030	$	12,183,727
Business tax and surcharges		224,886		110,291
Cost of Revenues		1,945,522		3,805,380
	$	10,115,622	$	8,268,056

23 — EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $514,865 and $255,909 for years ended December 31, 2011 and 2010, respectively.

F-28

24 — COMMITMENTS AND CONTINGENCIES

Commitments

Leasing Arrangements

The Group has entered into commercial leases for offices with a term expiring in April 2014. The lease may be cancelled by either party with 30-days prior written notice. Future minimum rental payments under this operating lease are as follows:

	Office Rental
Year ending December 31, 2012	$	265,078
Year ending December 31, 2013		20,030
Year ending December 31, 2014		2,139
Total	$	287,247

Contingencies

25 — EARNINGS PER SHARE

	Years Ended December 31,
	2011		2010

Numerator:
Net income	$	16,940,248	$	13,540,885
Denominator:

Weighted average number of common shares outstanding - Basic		36,263,911		31,022,002
Effect of dilutive securities - Warrant		899,779		0
Weighted average number of common shares outstanding - Diluted		37,163,690		31,022,002
Earnings per share
-Basic	$	0.47	$	0.44
-Diluted	$	0.46	$	0.44

All share and per share data have been retroactively adjusted to reflect the recapitalization of the Company after the share exchange agreement on February 2010.

For the year ended December 31, 2011, the Roth Capital Warrants (200,000 shares) were not included in the calculation of diluted earnings per share because the effect was anti-dilutive, as the exercise price of $6 was higher than the average stock price of $3.24 for the year ended December 31, 2011.

As of December 31, 2010, the Company has not traded in the public market, the Company considered the fair value of the warrants per share at date of issuance by using Binominal Option Pricing Model as the market price per share of the common stock which was $1.18, and because this market price is lower than the exercise price per share of the warrants which is $2, there is no dilutive effective on the earnings per share for the year ended December 31, 2010.

F-29

26 — RELATED PARTY TRANSACTIONS

1) Purchase from related parties

During the year ended December 31, 2010, we purchased from Verifone $5,035,589 of point of sales systems. VeriFone invested $5 million in the February 2010 Offering and owns 7.7% of our common stock as of December 31, 2010. We have granted VeriFone the ability to name one of the directors on our Board of Directors so long as it beneficially owns at least 4.99% of our outstanding Common Stock.

On March 10, 2011, we entered into a series of contractual arrangements with Delixunda and its shareholders, Mr. Xin Wang, our Chief Technology Officer and Director and another employee of the Company. Through these arrangements, we contractually control Delixunda.

2) Guarantee and pledge of assets by related parties

27 — VARIABLE INTEREST ENTITIES

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its variable interest entity.

In December 2007, a series of agreements were entered into amongst Trunkbow Shandong, Trunkbow Technologies and its controlling shareholders, providing Trunkbow Shandong the ability to control Trunkbow Technologies, including its financial interest.

Resulting from the contractual arrangements between Trunkbow Shandong, Trunkbow Technologies and its controlling shareholders, the Company includes the assets, liabilities, revenues and expenses of Trunkbow Technologies in its consolidated financial statements. The contractual arrangements with Trunkbow Technologies are summarized below:

Exclusive Business Cooperation Agreements. Pursuant to Exclusive Business Cooperation Agreements entered into amongst Trunkbow Shandong, Trunkbow Technologies and its controlling shareholders in December 2007, Trunkbow Shandong has the exclusive right to provide to our PRC operating subsidiaries complete technical support, business support and related consulting services, which include, among other things, technical services, business consultations, equipment or property leasing, marketing consultancy and product research. Each of our PRC operating subsidiaries has agreed to pay an annual service fee to Trunkbow Shandong equal to 100% of its audited total amount of operational income each year. Each of our PRC operating subsidiary has also agreed to pay a monthly service fee to Trunkbow Shandong equal to 100% of the net income generated on a monthly basis. The payment and terms of payment are fixed to ensure that Trunkbow Shandong obtains 100% of the net income for that month, although adjustments may be made upon approval by Trunkbow Shandong to provide for operational needs. If at year end, after an audit of the financial statements of any of our PRC operating subsidiaries, there is determined to be any shortfall in the payment of 100% of the annual net income, such PRC operating subsidiary must pay such shortfall to Trunkbow Shandong. Each agreement has a ten-year term, subject to renewal and early termination in accordance with the terms therein.

F-30

Exclusive Option Agreements. Under Exclusive Option Agreements entered into amongst Trunkbow Shandong, Trunkbow Technologies and its controlling shareholders in December 2007, each of the PRC Shareholders irrevocably granted to Trunkbow Shandong or its designated person an exclusive option to purchase, to the extent permitted by PRC law, a portion or all of their respective equity interest in any PRC Operating Subsidiary for a purchase price of RMB10 or a purchase price to be adjusted to be in compliance with applicable PRC laws and regulations. Trunkbow Shandong or its designated person has the sole discretion to decide when to exercise the option, whether in part or in full. Each of these agreements has a ten-year term, subject to renewal at the election of Trunkbow Shandong.

Share Pledge Agreements. Under the Share Pledge Agreements entered into by and among Trunkbow Shandong, our PRC operating subsidiaries and each of Mr. Wanchun Hou, Mr. Qiang Li and Mr. Liangyao Xie, (the “PRC Shareholders”) in December 2007, the PRC Shareholders pledged, all of their equity interests in PRC Operating Subsidiaries to guarantee our PRC operating subsidiaries’ performance of its obligations under the Exclusive Business Cooperation Agreement. If the PRC operating subsidiaries or any of the PRC Shareholders breaches its/his/her respective contractual obligations under this agreement, or upon the occurrence of one of the events regarded as an event of default under each such agreement, Trunkbow Shandong, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interests. The PRC Shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Trunkbow Shandong's interest, and to notify Trunkbow Shandong of any events or upon receipt of any notices which may affect Trunkbow Shandong's interest in the pledge. Each of the equity pledge agreements will be valid until all the payments due under the Exclusive Business Cooperation Agreement have been fulfilled.

Powers of Attorney. The PRC Shareholders each executed a power of attorney in December 2007, to appoint Trunkbow Shandong as their exclusive attorneys-in-fact to vote on their behalf on all matters with respect to our PRC operating subsidiaries that require shareholder approval. The term of each power of attorney is valid so long as such shareholder is a shareholder of the respective PRC operating subsidiary.

We entered into a series of contractual arrangements with Beijing Delixunda Technology Co., Ltd. (“Delixunda”) and its shareholders on March 10, 2011. Delixunda is a telecom value-added service licensed company and was established as a limited liability company on December 1, 2009 in Beijing, the PRC. Delixunda has no operations prior to February 10, 2011. As a result of the contractual arrangements with Delixunda, we indirectly own the telecom value-added service license, which would enable us to offer telecom wireless value-added service to individual clients. In addition, the pledges supporting these contractual arrangements have not been registered as required by PRC law, which could also result in the invalidation of these arrangements under PRC law.

As a result of these contractual arrangements, we are considered to be the primary beneficiary of Trunkbow Technologies and Delixunda; we consolidate the results of operations, assets and liabilities of Trunkbow Technologies and Delixunda in our financial statements. Although we have been advised by our PRC legal counsel that each contract under these contractual arrangements is valid and binding under current PRC laws and regulations, our contractual arrangements with Trunkbow Technologies and Delixunda may not be as effective in providing us with control over the Trunkbow Technologies and Delixunda as direct ownership. We rely on these contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of Trunkbow Technologies and Delixunda for a number of reasons. For example, their interests as shareholders of Trunkbow Technologies and Delixunda and our interests may conflict and we may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, we may have to rely on legal or arbitral proceedings to enforce our contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in disruption of our business, and we cannot assure that the outcome will be in our favor. Apart from the above risks, there are no significant judgments or assumptions regarding enforceability of the contractual agreements with Trunkbow Technologies or Delixunda.

F-31

In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in the PRC if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. At present, the equity interest pledge agreement has not been registered with the relevant PRC authorities, which will affect our ability to enforce its provisions prior to such registration. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our VIEs, and our ability to conduct our business may be materially and adversely affected. If the applicable PRC authorities invalidate our contractual arrangements for violation of PRC laws, rules and regulations, in such an event, we would lose control of the VIEs resulting in its deconsolidation in financial reporting and loss in our market valuation.

In addition, if our VIEs or all or part of its assets become subject to court injunctions or asset freezes or liens or rights of third-party creditors, we may be unable to continue some of our businesses, which could adversely affect our business, financial condition and results of operations. If our VIEs undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of its assets. The occurrence of any of these events may hinder our ability to operate business, which could in turn materially harm our business and ability to generate revenues and cause the market price of our ordinary shares to decline significantly.

Most of our operations are conducted through our affiliated companies, including our VIEs which we control through contractual agreements in the form of a variable interest entity. Current regulations in the PRC permit our PRC subsidiaries to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of these PRC affiliates to make dividends and other payments to us may be restricted by factors that include changes in applicable foreign exchange and other laws and regulations.

Under PRC law, our subsidiary may only pay dividends after 10% of its after-tax profits have been set aside as reserve funds, unless such reserves have reached at least 50% of its registered capital. Such cash reserve may not be distributed as cash dividends.

The PRC Income Tax Law also imposes a 10% withholding income tax on dividends generated on or after January 1, 2008 and distributed by a resident enterprise to its foreign investors, if such foreign investors are considered as non-resident enterprise without any establishment or place within China or if the received dividends have no connection with such foreign investors’ establishment or place within China, unless such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

F-32

Summary information regarding consolidated VIEs is as follows:

	December 31,
	2011		2010
Assets:
Cash and cash equivalents	$	206,492	$	904,614
Accounts receivable		2,719,991		2,740,005
Other current assets, net		9,431		243,449
Inventories		134,126		67,202
Due from directors		3,103		4,611
Property and equipment, net		108,740		24,980
Long-term prepayment		7,431		0
Total Assets	$	3,189,314	$	3,984,861

Liabilities:
Accounts payable	$	180,338	$	5,276
Accrued expenses and other current liabilities		1,235,494		215,064
Due to directors		55,319		15,970
Short-term loan		0		1,814,937
Taxes payable		1,721,633		1,758,905
Total Liabilities	$	3,192,784	$	3,810,152

The assets of the VIEs can be used only to settle the obligations of the VIEs. Conversely, liabilities recognized as of consolidating VIEs do not represent additional claims on the Company’s assets.

For the fiscal year ended December 31, 2011, the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $411,798, cost of revenues of $204,175, operating expenses of $331,130 and net loss of $177,935.

For the fiscal year ended December 31, 2010, the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $2,879,686, cost of revenues of $1,781,515, operating expenses of $480,184 and net income of $495,580.

28 — SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements are issued and material subsequent event is as follows:

Subsequent collection

Up to March 30, 2012, $5,692,257 has been subsequently collected on the accounts receivable.

F-33

Bank facility

On March 2, 2012, Trunkbow Shandong factored its accounts receivables to one of the commercial banks in China and obtained RMB 70,000,000 (approximately $11,008,886) of total bank facility. RMB17,800,000 (approximately $2,799,402) has been received for factoring $3,142,187 of accounts receivables. The interest of the bank facility is floating lending rate, 25% up PBOC benchmark rate. The bank facility is restricted to be used on projects directly signed with China Mobile, China Telecom, China Unicom, China Communications Services Corporation Limited and their subsidiaries.

F-34

Attached files

Trunkbow International Holdings Ltd Reports

Also read