U.S.
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



(MARK ONE)



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



For the Fiscal Year Ended December 31, 2011



OR



| |  ̈ | 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



i







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.



2







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”).



3







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:







4







| | (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) | 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. Trunkbow Technologies no longer accounts for any of our new business, currently represents less than 10% of our current
revenues and is being operationally wound down.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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.



5







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 |  |      | 
|Percent of revenues from direct sales to China Unicom                                 |  |      | 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 |  |      | 
|Percent of revenues from direct and indirect sales to China Unicom through resellers  |  |      | 24 |  |      | 
|Percent of revenues from direct and indirect sales to China Mobile through resellers  |  |      | 38 |  |      | 



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.



6







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.



7







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.



8







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.





9







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.



10







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.



11







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.



12







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.

13















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.



14











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.



15







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 



16







|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.                                                                                                                                                                                                                                     |  |                        



17







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.



18







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.



19









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.



20







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.





21







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



| | 1. | 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Continuous collection of accounts receivable: we have been able to collect our accounts receivable on a continual basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------



| | 4. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | 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.



22







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.



23







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.



24







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.



25







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.



26







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.



27







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.



28







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.





29









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.



30







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.



31







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.



32







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.



33







| | 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.



34







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          |     
|2011                                        |  |              |     
|Fourth Quarter                              |  |              | 1.61
|Third Quarter                               |  |              | 2.15
|Second Quarter                              |  |              | 1.96
|First Quarter (commencing February 3, 2011) |  | $            | 3.90



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.



35







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”).



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 (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.



36







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”).



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”).



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.



Our organizational structure is as follows:







37







| | (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) | 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. Trunkbow Technologies no longer accounts for any of our new business, currently represents less than 10% of our current
revenues and is being operationally wound down.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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;
| | - | ---------------------------------------------------------------------------------------------





38







| | · | 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.



39







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 |  
|                            |  |                          |            |  |      |  
|System integration          |  | $                        | 12,567,498 |  |      | $
|Software sales              |  |                          | 13,451,015 |  |      |  
|Maintenance service         |  |                          | 1,617,431  |  |      |  
|Shared revenue              |  |                          | 2,079,463  |  |      |  
|Total revenues              |  |                          | 29,715,407 |  |      |  
|Less:                       |  |                          |            |  |      |  
|Business tax and surcharges |  |                          | 638,377    |  |      |  
|Net revenues                |  | $                        | 29,077,030 |  |      | $



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 |  
|MVAS Technology Platforms   |  |                          |            |  |      |  
|Gross Revenues              |  | $                        | 17,429,377 |  |      | $
|Business tax and surcharges |  |                          | 413,491    |  |      |  
|Cost of Revenues            |  |                          | 4,184,549  |  |      |  
|                            |  | $                        | 12,831,337 |  |      | $
|Mobile Payment Solutions    |  |                          |            |  |      |  
|Gross Revenues              |  | $                        | 12,286,030 |  |      | $
|Business tax and surcharges |  |                          | 224,886    |  |      |  
|Cost of Revenues            |  |                          | 1,945,522  |  |      |  
|                            |  | $                        | 10,115,622 |  |      | $



40







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 |  
|                       |  |                          |           |  |      |  
|Equipment costs        |  | $                        | 5,339,688 |  |      | $
|Labor Costs            |  |                          | 790,383   |  |      |  
|Total cost of revenues |  | $                        | 6,130,071 |  |      | $



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                     |           
|                            |  | MVAS                     |           
|                            |  |                          |           
|Gross Revenues              |  | $                        | 17,429,377
|Business tax and surcharges |  |                          | 413,491   
|Cost of Revenues            |  |                          | 4,184,549 
|Gross profit                |  | $                        | 12,831,337
|                            |  |                          |           
|Gross margin                |  |                          | 75.4      



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.



41







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                     |           
|                                    |  |                          |           
|                                    |  |                          |           
|                                    |  |                          |           
|Selling and distribution expenses   |  | $                        | 2,344,993 
|General and administrative expenses |  |                          | 7,944,055 
|Research and development expenses   |  |                          | 1,434,525 
|                                    |  | $                        | 11,723,573



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.



42







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.



43







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.



44







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         |       
|Year end RMB exchange rate |  |              | 6.3585
|Average RMB exchange rate  |  |              | 6.4640



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.



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.



Government Control of Currency Conversion



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.



45







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.



Cash Flows



In summary, our cash flows were as follows:



|                                                                    |  | Years Ended December 31, |            
|------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                    |  | 2011                     |            
|Net cash flows used in operating activities                         |  | $                        | (10,370,664
|Net cash flows used in investing activities                         |  |                          | (16,942,662
|Net cash flows provided by financing activities                     |  |                          | 22,812,597 
|Effect of foreign currency fluctuation on cash and cash equivalents |  |                          | 380,568    
|Net increase (decrease) in cash and cash equivalents                |  | $                        | (4,120,161 
|Cash and cash equivalents – beginning of year                       |  | $                        | 10,259,750 
|Cash and cash equivalents – end of year                             |  | $                        | 6,139,589  



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.



46







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.



47







| | 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.



48







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.



49







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 |  |                   | $
|Amount due from Mr. Wan Chun Hou |  |                   | 184,930 |  |                   |  
|Amount due from Mr. Xin Wang     |  |                   | -       |  |                   |  
|                                 |  | $                 | 758,033 |  |                   | $



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.”



50







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.



51







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.                                                                                              



52







|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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



53







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:                                            
|(Date Signed)  |                                                



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             |  |                                      |  |               



54







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.                                                                                              





55







|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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



56















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.



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, 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         |           
|ASSETS                                                                                                                                                             |  |              |           
|Current assets                                                                                                                                                     |  |              |           
|Cash and cash equivalents                                                                                                                                          |  | $            | 6,139,589 
|Restricted deposit                                                                                                                                                 |  |              | 0         
|Accounts receivable, net                                                                                                                                           |  |              | 41,147,767
|Advances to suppliers                                                                                                                                              |  |              | 13,270,125
|Prepaid expenses                                                                                                                                                   |  |              | 316,258   
|Other current assets, net                                                                                                                                          |  |              | 4,040,152 
|Due from directors                                                                                                                                                 |  |              | 758,033   
|Inventories                                                                                                                                                        |  |              | 11,297,513
|Deferred tax asset                                                                                                                                                 |  |              | 117,952   
|Total current assets                                                                                                                                               |  |              | 77,087,389
|Property and equipment, net                                                                                                                                        |  |              | 11,561,034
|Land use right, net                                                                                                                                                |  |              | 5,905,583 
|Intangible assets, net                                                                                                                                             |  |              | 33,958    
|Long-term prepayment                                                                                                                                               |  |              | 2,733,363 
|TOTAL ASSETS                                                                                                                                                       |  | $            | 97,321,327
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                               |  |              |           
|Current liabilities                                                                                                                                                |  |              |           
|Accounts payable                                                                                                                                                   |  | $            | 2,238,179 
|Accrued expenses and other current liabilities                                                                                                                     |  |              | 2,216,128 
|Short-term loan                                                                                                                                                    |  |              | 6,460,945 
|Due to directors                                                                                                                                                   |  |              | 11,959    
|Taxes payable                                                                                                                                                      |  |              | 4,209,907 
|Total current liabilities                                                                                                                                          |  |              | 15,137,118
|Other non-current liabilities                                                                                                                                      |  |              | 0         
|Total liabilities                                                                                                                                                  |  |              | 15,137,118
|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         
|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    
|Additional paid-in capital                                                                                                                                         |  |              | 39,671,966
|Appropriated retained earnings                                                                                                                                     |  |              | 4,504,667 
|Unappropriated retained earnings                                                                                                                                   |  |              | 34,989,429
|Accumulated other comprehensive income                                                                                                                             |  |              | 2,981,340 
|Total stockholders’ equity                                                                                                                                         |  |              | 82,184,209
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                         |  | $            | 97,321,327



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                     |           
|                                                     |  |                          |           
|Revenues                                             |  | $                        | 29,715,407
|Less: Business tax and surcharges                    |  |                          | 638,377   
|Net revenues                                         |  |                          | 29,077,030
|Cost of revenues                                     |  |                          | 6,130,071 
|Gross margin                                         |  |                          | 22,946,959
|Operating expenses                                   |  |                          |           
|Selling and distribution expenses                    |  |                          | 2,344,993 
|General and administrative expenses                  |  |                          | 7,944,055 
|Research and development expenses                    |  |                          | 1,434,525 
|                                                     |  |                          | 11,723,573
|Income from operations                               |  |                          | 11,223,386
|                                                     |  |                          |           
|Interest income                                      |  |                          | 107,467   
|Interest expense                                     |  |                          | (87,005   
|Refund of value-added tax                            |  |                          | 2,112,463 
|Government Grants                                    |  |                          | 5,651,686 
|Other Income                                         |  |                          | 7,890     
|Other expenses                                       |  |                          | (117,024  
|                                                     |  |                          | 7,675,477 
|Income before income tax expense                     |  |                          | 18,898,863
|Income tax expense                                   |  |                          | 1,958,615 
|Net income                                           |  |                          | 16,940,248
|Foreign currency translation fluctuation             |  |                          | 2,405,664 
|Comprehensive income                                 |  | $                        | 19,345,912
|Weighted average number of common shares outstanding |  |                          |           
|Basic                                                |  |                          | 36,263,911
|Diluted                                              |  |                          | 37,163,690
|Earnings per share                                   |  |                          |           
|Basic                                                |  | $                        | 0.47      
|Diluted                                              |  | $                        | 0.46      



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                     |            
|Cash flows from operating activities                                                                       |  |                          |            
|Net income                                                                                                 |  | $                        | 16,940,248 
|Adjustments to reconcile net income to net cash used in operating activities:                              |  |                          |            
|Depreciation and amortization                                                                              |  |                          | 323,671    
|Provision for doubtful debts                                                                               |  |                          | 928,218    
|Share-based compensation expenses                                                                          |  |                          | 350,000    
|Deferred taxes                                                                                             |  |                          | (116,027   
|Changes in operating assets and liabilities:                                                               |  |                          |            
|Accounts receivable                                                                                        |  |                          | (15,159,545
|Advance to suppliers                                                                                       |  |                          | (6,014,830 
|Prepaid expenses                                                                                           |  |                          | 399,563    
|Other current assets, net                                                                                  |  |                          | (795,636   
|Due from directors                                                                                         |  |                          | (664,592   
|Inventories                                                                                                |  |                          | (7,347,497 
|Long-term prepayment                                                                                       |  |                          | (2,322,161 
|Accounts payable                                                                                           |  |                          | 1,328,366  
|Accrued expenses and other current liabilities                                                             |  |                          | 1,572,534  
|Other non-current liabilities                                                                              |  |                          | (141,940   
|Amount due to directors                                                                                    |  |                          | 11,764     
|Taxes payable                                                                                              |  |                          | 337,200    
|Net cash flows used in operating activities                                                                |  |                          | (10,370,664
|Cash flows from investing activities                                                                       |  |                          |            
|Acquisition of property and equipment                                                                      |  |                          | (11,124,679
|Acquisition of land use right                                                                              |  |                          | (5,877,870 
|Collection on loans to third parties                                                                       |  |                          | 2,884,763  
|Payment on loans to third parties                                                                          |  |                          | (2,784,653 
|Collection on amount due from directors                                                                    |  |                          | 0          
|Acquisition of Delixunda Company (net of cash acquired)                                                    |  |                          | (40,223    
|Net cash flows used in investing activities                                                                |  |                          | (16,942,662
|Cash flows from financing activities                                                                       |  |                          |            
|Collection (payment) on restricted deposit                                                                 |  |                          | 371,287    
|Proceeds from issuance of common stock (net of finance costs)                                              |  |                          | 17,332,251 
|Repayment of loans from third parties                                                                      |  |                          | 0          
|Repayment of contingently convertible notes                                                                |  |                          | 0          
|Proceeds from exercise of warrants                                                                         |  |                          | 610,000    
|Repayment of short-term loan                                                                               |  |                          | (1,856,436 
|Proceeds from short-term loan                                                                              |  |                          | 6,355,495  
|Net cash flows provided by financing activities                                                            |  |                          | 22,812,597 
|Effect of exchange rate fluctuation on cash and cash equivalents                                           |  |                          | 380,568    
|Net increase (decrease) in cash and cash equivalents                                                       |  |                          | (4,120,161 
|Cash and cash equivalents – beginning of the year                                                          |  |                          | 10,259,750 
|Cash and cash equivalents – end of the year                                                                |  | $                        | 6,139,589  
|Supplemental disclosure of cash flow information                                                           |  |                          |            
|Cash paid for interest                                                                                     |  | $                        | 74,332     
|Cash paid for income taxes                                                                                 |  | $                        | 390,586    
|Supplemental disclosure of noncash financing activities                                                    |  |                          |            
|Conversion of contingently convertible notes to common stock                                               |  | $                        | 0          
|Issuance of 30,000 common shares to settle the lawyer's fee relating to this IPO at issuing price of $5.00 |  | $                        | 150,000    



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) |  
|                                           |  |              |            |  |            |   |        |              |  |   |                |   |  |               |           |  |               |  
|Balance at January 1, 2010                 |  |              | 19,562,888 |  |            | $ | 19,563 |              |  | $ | 1,323,239      |   |  | $             | 1,010,486 |  |               | $
|Net income                                 |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 0         |  |               |  
|Stock issued in recapitalization           |  |              | 1,687,112  |  |            |   | 1,687  |              |  |   | (1,687         | ) |  |               | 0         |  |               |  
|Issue of shares                            |  |              | 11,222,075 |  |            |   | 11,222 |              |  |   | 20,062,498     |   |  |               | 0         |  |               |  
|Appropriation of statutory surplus reserve |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 1,418,361 |  |               |  
|Foreign currency Translation adjustment    |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 0         |  |               |  
|Balance at December 31, 2010               |  |              | 32,472,075 |  |            |   | 32,472 |              |  |   | 21,384,050     |   |  |               | 2,428,847 |  |               |  
|                                           |  |              |            |  |            |   |        |              |  |   |                |   |  |               |           |  |               |  
|Net income                                 |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 0         |  |               |  
|Issue of shares                            |  |              | 4,030,000  |  |            |   | 4,030  |              |  |   | 17,328,221     |   |  |               | 0         |  |               |  
|Exercise of warrants                       |  |              | 305,000    |  |            |   | 305    |              |  |   | 609,695        |   |  |               | 0         |  |               |  
|Share-based compensation                   |  |              | 0          |  |            |   | 0      |              |  |   | 350,000        |   |  |               | 0         |  |               |  
|Appropriation of statutory surplus reserve |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 2,075,820 |  |               |  
|Foreign currency Translation adjustment    |  |              | 0          |  |            |   | 0      |              |  |   | 0              |   |  |               | 0         |  |               |  
|Balance at December 31, 2011               |  |              | 36,807,075 |  |            | $ | 36,807 |              |  | $ | 39,671,966     |   |  | $             | 4,504,667 |  |               | $



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         |       
|Year end RMB exchange rate |  |              | 6.3585
|Average RMB exchange rate  |  |              | 6.4640



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.



|h) | 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.                   



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.



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 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.



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.



|r) | 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
|-- | -------------------------------------



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.



F-16







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.



3 — RESTRICTED DEPOSIT



|                   |  | December 31, |  
|------------------ |  | ------------ | -
|                   |  | 2011         |  
|                   |  |              |  
|Restricted deposit |  | $            | 0



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         |           
|                                  |  |              |           
|Accounts receivable               |  | $            | 42,091,386
|Less: Allowance for doubtful debt |  |              | (943,619  
|                                  |  | $            | 41,147,767





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         |           
|                      |  |              |           
|Advances to suppliers |  | $            | 13,270,125



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         |        
|                       |  |              |        
|Prepaid advertisement  |  | $            | 267,359
|Other prepaid expenses |  |              | 48,899 
|                       |  | $            | 316,258



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         |          
|                                  |  |              |          
|Deposits                          |  | $            | 150,234  
|Loans to third parties            |  |              | 2,830,856
|Staff advances                    |  |              | 259,008  
|Advance for cloud APP agreement   |  |              | 800,054  
|Others                            |  |              | 0        
|                                  |  | $            | 4,040,152
|Less: Allowance for doubtful debt |  |              | 0        
|                                  |  | $            | 4,040,152



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         |        
|                          |  |              |        
|Amount due from Directors |  | $            | 758,033



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         |       
|                        |  |              |       
|Amount due to Directors |  | $            | 11,959



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         |           
|                             |  |              |           
|Hardware                     |  |              |           
|-System integration hardware |  | $            | 95,354    
|-Point of sale systems       |  |              | 2,856,892 
|Projects in progress         |  |              | 8,345,267 
|                             |  | $            | 11,297,513



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         |           
|                               |  |              |           
|Motor vehicles                 |  | $            | 454,309   
|Furniture and office equipment |  |              | 109,140   
|Electronic equipment           |  |              | 426,580   
|Telecommunication equipment    |  |              | 189,659   
|Leasehold improvement          |  |              | 60,572    
|                               |  |              | 1,240,260 
|Less: Accumulated depreciation |  |              | 385,242   
|                               |  |              |           
|Construction in progress       |  |              | 10,706,016
|                               |  | $            | 11,561,034



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         |          
|                               |  |              |          
|Land use right                 |  | $            | 5,975,395
|                               |  |              |          
|Less: Accumulated amortization |  |              | 69,812   
|                               |  | $            | 5,905,583



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         |       
|Software                       |  | $            | 3,216 
|License                        |  |              | 40,890
|                               |  |              | 44,106
|Less: Accumulated amortization |  |              | 10,148
|                               |  | $            | 33,958



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



13 — LONG-TERM PREPAYMENT



|                       |  | December 31, |          
|---------------------- |  | ------------ | ---------
|                       |  | 2011         |          
|                       |  |              |          
|Office rental          |  | $            | 8,191    
|Prepaid membership fee |  |              | 250,758  
|Deposits               |  |              | 158,456  
|Prepaid royalties      |  |              | 1,857,011
|Other prepaid expenses |  |              | 458,947  
|                       |  | $            | 2,733,363



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         |          
|                          |  |              |          
|Accrued payroll           |  | $            | 477,091  
|Advance from customers    |  |              | 25,717   
|Loans from third parties  |  |              | 39,317   
|Payables to staff         |  |              | 160,006  
|Accrued expenses          |  |              | 357,481  
|Professional fees payable |  |              | 231,454  
|Royalties payable         |  |              | 925,062  
|Others                    |  |              | 0        
|                          |  | $            | 2,216,128



F-21







15 — SHORT-TERM LOAN



|                |  | December 31, |          
|--------------- |  | ------------ | ---------
|                |  | 2011         |          
|                |  |              |          
|Short-term loan |  | $            | 6,460,945



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         |          
|                        |  |              |          
|Value Added Tax Payable |  | $            | 968,363  
|Income Tax Payable      |  |              | 3,056,321
|Others                  |  |              | 185,223  
|                        |  | $            | 4,209,907



17 — OTHER NON-CURRENT
LIABILITIES



|                              |  | December 31, |  
|----------------------------- |  | ------------ | -
|                              |  | 2011         |  
|                              |  |              |  
|Other non-current liabilities |  | $            | 0



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.



| | 1) | 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                    
|                           |  |                         
|Current income tax expense |  |                         
|China                      |  | $                       
|Other jurisdiction         |  |                         
|Deferred tax asset         |  |                         
|China                      |  |                         
|Other
    jurisdiction     |  |                         
|Income tax expense         |  | $                       



| | 2) | Deferred tax asset
| | -- | ------------------



|                   |  | December 31,
|------------------ |  | ------------
|                   |  | 2011        
|                   |  |             
|Deferred tax asset |  | $           



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



| | 3) | 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                    
|                                       |  |                         
|PRC statutory tax rate                 |  |                         
|Accounting income before tax           |  | $                       
|Computed expected income tax expenses  |  |                         
|Loss from subsidiaries and VIEs        |  |                         
|Non-deductible expenses                |  |                         
|Less: non taxable income               |  |                         
|Less: tax exemption                    |  |                         
|Less: net operation loss carry-forward |  |                         
|Income tax expenses                    |  | $                       







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                     |           
|                            |  |                          |           
|Gross Revenues              |  |                          |           
|System integration          |  | $                        | 12,567,498
|Software sales              |  |                          | 13,451,015
|Maintenance service         |  |                          | 1,617,431 
|Shared revenue              |  |                          | 2,079,463 
|                            |  |                          | 29,715,407
|Less:                       |  |                          |           
|Business tax and surcharges |  |                          | 638,377   
|Cost of Revenues            |  |                          |           
|Equipment costs             |  |                          | 5,339,688 
|Labor Costs                 |  |                          | 790,383   
|                            |  |                          | 6,130,071 
|Gross margin                |  | $                        | 22,946,959



21 — GOVERNMENT GRANTS



|                  |  | Years Ended December 31, |          
|----------------- |  | ------------------------ | ---------
|                  |  | 2011                     |          
|                  |  |                          |          
|Government Grants |  | $                        | 5,651,686



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                     |           
|                            |  |                          |           
|MVAS Technology Platforms   |  |                          |           
|Gross Revenues              |  | $                        | 17,429,377
|Business tax and surcharges |  |                          | 413,491   
|Cost of Revenues            |  |                          | 4,184,549 
|                            |  | $                        | 12,831,337
|Mobile Payment Solutions    |  |                          |           
|Gross Revenues              |  | $                        | 12,286,030
|Business tax and surcharges |  |                          | 224,886   
|Cost of Revenues            |  |                          | 1,945,522 
|                            |  | $                        | 10,115,622



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



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.





25 — EARNINGS PER SHARE



|                                                               |  | Years Ended December 31, |           
|-------------------------------------------------------------- |  | ------------------------ | ----------
|                                                               |  | 2011                     |           
|                                                               |  |                          |           
|Numerator:                                                     |  |                          |           
|Net income                                                     |  | $                        | 16,940,248
|Denominator:                                                   |  |                          |           
|                                                               |  |                          |           
|Weighted average number of common shares outstanding - Basic   |  |                          | 36,263,911
|Effect of dilutive securities - Warrant                        |  |                          | 899,779   
|Weighted average number of common shares outstanding - Diluted |  |                          | 37,163,690
|Earnings per share                                             |  |                          |           
|-Basic                                                         |  | $                        | 0.47      
|-Diluted                                                       |  | $                        | 0.46      



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



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).



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         |          
|Assets:                                        |  |              |          
|Cash and cash equivalents                      |  | $            | 206,492  
|Accounts receivable                            |  |              | 2,719,991
|Other current assets, net                      |  |              | 9,431    
|Inventories                                    |  |              | 134,126  
|Due from directors                             |  |              | 3,103    
|Property and equipment, net                    |  |              | 108,740  
|Long-term prepayment                           |  |              | 7,431    
|Total Assets                                   |  | $            | 3,189,314
|                                               |  |              |          
|Liabilities:                                   |  |              |          
|Accounts payable                               |  | $            | 180,338  
|Accrued expenses and other current liabilities |  |              | 1,235,494
|Due to directors                               |  |              | 55,319   
|Short-term loan                                |  |              | 0        
|Taxes payable                                  |  |              | 1,721,633
|Total Liabilities                              |  | $            | 3,192,784



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:



| | 1) | Subsequent collection
| | -- | ---------------------



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



F-33







| | 2) | 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