S-1/A 1 v209551_s1a.htm

As filed with the Securities and Exchange Commission on February 2, 2011

Registration No. 333-169942

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM S-1

Amendment No. 5

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933



 

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

   
Nevada   7370   26-3552213
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Unit 1217-1218, 12F of Tower B, Gemdale Plaza,
No. 91 Jianguo Road, Chaoyang District, Beijing,
People’s Republic of China 100022
Tel. No: +86 10 85712518

(Address, including zip code, and telephone number
including area code, of Registrant’s principal executive offices)



 

L and R Service Company of Nevada, LLC
3993 Howard Hughes Pkwy
Suite 600
Las Vegas, NV 89169
Tel. No: (702) 949-8200

(Name, address, including zip code, and telephone number
including area code, of agent for service)



 

Copies to:

 
Mitchell S. Nussbaum, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154
Tel. No.: 212-407-4159 Fax No.: 212-407-4990
  Scott Kline, Esq.
Pillsbury Winthrop Shaw Pittman LLP
Suite 4201, Bund Center
222 Yan An Road East, Huangpu District
Shanghai, 200002, China
Tel. No. +1 415 983-1523 Fax No. +86 21 6137 7900


 

Approximate date of commencement of proposed sale to the public:  From time to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     
Large Accelerated Filer o   Accelerated Filer o   Non-Accelerated Filer o   Smaller Reporting Company x
 

 


 
 

TABLE OF CONTENTS

CALCULATION OF REGISTRATION FEE

       
Title of each class of securities to be registered   Amount to be Registered(1)   Proposed Maximum
Offering Price
Per Share
  Proposed Maximum
Aggregate
Offering Price
  Amount of Registration Fee
Common stock, par value $0.001 per share
    5,750,000 (2)    $ 7.00     $ 40,250,000 (2)    $ 4,673.03  
Common stock, par value $0.001 per share
    13,223,162 (3)    $ 7.00     $ 92,562,134 (4)    $ 10,746.46  
Common stock, par value $0.001 per share, issuable upon the exercise of warrants
    2,905,419 (3)(4)    $ 7.00     $ 20,337,933 (5)    $ 2,361.24  
Common stock, par value $0.001 per share, issuable upon the exercise of warrants     287,500 (6)    $ 8.40     $ 2,415,000 (5)    $ 280.38  
TOTAL
                    $ 155,565,067     $ 18,061.11(7)  

(1) In accordance with Rule 416(a), promulgated under the Securities Act of 1933, as amended (the “Securities Act”), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or similar transactions.
(2) Includes shares which the underwriters have the option to purchase to cover over-allotments, if any.
(3) This Registration Statement also covers the resale under a separate resale prospectus (the “Resale Prospectus”) by selling stockholders of the Registrant of up to 16,128,581 shares of common stock previously issued to the selling stockholders as named in the Resale Prospectus.
(4) Represents shares of the Registrant’s common stock being registered for resale that have been or may be acquired upon the exercise of warrants that have been previously issued to selling stockholders named in the Resale Prospectus.
(5) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act.
(6) We have agreed to issue warrants to Roth Capital Partners, LLC (the “Underwriter Warrants”) for nominal consideration. The resale of the Underwriter’s Warrants is registered hereunder. The Underwriter’s Warrants are exercisable within three years after the effective date of this registration statement. The shares of common stock underlying the Underwriter’s Warrants are deemed to have the same issuance date as the warrants and are being registered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended. See “Underwriting.”
(7) Previously paid.


 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.


 
 

TABLE OF CONTENTS

EXPLANATORY NOTE

This Registration Statement contains two prospectuses, as set forth below.

Public Offering Prospectus. A prospectus to be used for the public offering of 5,000,000 shares of common stock of the Registrant (in addition, 750,000 shares of common stock of the Registrant may be sold upon exercise of the underwriters’ over-allotment option) (the “Public Offering Prospectus”) through the underwriter named on the cover page of the Public Offering Prospectus.
Resale Prospectus. A prospectus to be used for the resale by the selling stockholders set forth therein of 16,128,581 shares of common stock of the Registrant (the “Resale Prospectus”).

The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:

they contain different outside and inside front covers and back covers;
they contain different Offering sections in the Prospectus Summary section beginning on page SS-1;
they contain different risk factor discussions pertaining to shares eligible for future sale;
they contain different Use of Proceeds sections on page SS-3;
a Determination of Offering Price section is deleted from the Resale Prospectus;
a Selling Stockholder section is included in the Resale Prospectus;
the Underwriting section from the Public Offering Prospectus on page SS-2 is deleted from the Resale Prospectus and a Plan of Distribution is inserted in its place; and
the Legal Matters section in the Resale Prospectus on page SS-2 deletes the reference to counsel for the underwriters.

The Registrant has included in this Registration Statement a set of alternate pages after the back cover page of the Public Offering Prospectus (the “Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the selling stockholders.


 
 

TABLE OF CONTENTS

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 
Preliminary Prospectus   Subject to Completion, Dated February 2, 2011

5,000,000 Shares

[GRAPHIC MISSING]

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

Common Stock

$       per share

Trunkbow International Holdings Limited, a Nevada corporation, is offering 5,000,000 shares of common stock, par value $0.001 per share. We are a reporting company under the Securities Exchange Act of 1934, as amended.

By means of a separate resale prospectus, certain selling stockholders may offer and sell up to 13,223,162 outstanding shares of our common stock and up to 2,905,419 shares of common stock underlying warrants currently held by such selling stockholders from time to time, which offering may take place in whole or in part during the time shares offered by us hereunder are being delivered to the purchasers thereof.

Our common stock is presently not traded on any market or securities exchange. We have been approved for listing on the NASDAQ Global Market under the symbol “TBOW.” It is currently estimated that the initial public offering price per share will be between $5.00 and $7.00. For factors considered in determining the initial public offering price, see “Determination of Offering Price.”

Investing in our common stock involves significant risks. See “Risk Factors” beginning on page 7.

   
  Per Share   Total
Public offering price   $            $         
Underwriting discounts and commissions(1)   $            $         
Proceeds, before expenses, to Trunkbow International Holdings Limited   $            $         

(1) See “Underwriting.”

We have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of 750,000 additional shares of common stock from us within 45 days following the date of this prospectus to cover over-allotments. If the underwriters exercise this over-allotment option in full, the total underwriting discounts and commissions will be $      , and our total proceeds, before expenses, will be $      .

The underwriters are offering the shares of common stock on a “firm commitment basis.” We expect to deliver the shares of our common stock to purchasers on or about       , 2011.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Roth Capital Partners

Merriman Capital

The date of this prospectus is       , 2011


 
 

TABLE OF CONTENTS

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

 
PROSPECTUS SUMMARY     1  
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA     5  
RISK FACTORS     7  
RISKS RELATED TO OUR BUSINESS     7  
RISKS ASSOCIATED WITH DOING BUSINESS IN GREATER CHINA     12  
RISKS RELATED TO THE SECURITIES     20  
FORWARD-LOOKING STATEMENTS     23  
USE OF PROCEEDS     23  
DETERMINATION OF OFFERING PRICE     24  
MARKET FOR OUR SECURITIES AND RELATED STOCKHOLDER MATTERS     24  
DILUTION     25  
SELECTED FINANCIAL INFORMATION     26  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     32  
BUSINESS     43  
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES     56  
EXECUTIVE COMPENSATION     60  
DESCRIPTION OF SECURITIES     61  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     64  
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS, AND CERTAIN CONTROL PERSONS     66  
UNDERWRITING     67  
SHARES ELIGIBLE FOR FUTURE SALE     71  
TAXATION     72  
TRANSFER AGENT AND REGISTRAR     81  
LEGAL MATTERS     81  
EXPERTS     81  
WHERE YOU CAN FIND MORE INFORMATION     81  

You should rely only on information contained in this prospectus that we may provide to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are not making an offer of these securities in any state or other jurisdiction where the offer is not permitted. The information in this prospectus may only be accurate as of the date on the front of this prospectus regardless of time of delivery of this prospectus or any sale of our securities.

i


 
 

TABLE OF CONTENTS

PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our securities, especially the risks of investing in our securities, which we discuss later in “Risk Factors,” and our consolidated financial statements and related notes beginning on page F-1. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our” and “Trunkbow” refer to Trunkbow International Holdings Limited, a Nevada corporation, and our wholly owned subsidiaries. References to “China” and the “PRC” refer to the People’s Republic of China. This prospectus assumes the over-allotment option of the underwriters has not been exercised, unless otherwise indicated.

Corporate Overview

We are an innovative mobile application enabler, offering telecom operators in the PRC application platforms on which to offer Mobile Value Added Solutions (“MVAS”) to their subscribers. We sell our technology products primarily to companies who resell them to the three large telecom operators in the PRC, enabling the telecom operators to offer their subscribers access to unique mobile applications, innovative tools, value-added services and an overall superior mobile experience. 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: (i) MVAS Technology Platforms, which create a portfolio of unique mobile phone applications to enhance the mobile subscriber’s experience, and (ii) Mobile Payment Solutions, which facilitate commerce between mobile users, merchants and payment clearing systems. 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. For a description of our corporate structure, please see the organizational chart on page 34.

Our Strategy

Our goal is to become a leader in MVAS application platforms and mobile payment systems 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 cellular networks capable of supporting higher bandwidth applications, 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

1


 
 

TABLE OF CONTENTS

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 an 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.

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”. 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. We have entered into business relationships with the provincial branches of the Big Three in ten provinces in order to better customize their specific application solution needs. Our relationships with these market leaders in the Chinese telecom industry provides us with a favorable 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. Beginning in 2007, we established a business and indirect contractual relationship with China UnionPay in order to develop and commercialize mobile payment solutions. Our relationship with UnionPay and the three telecom operators allows us to provide a comprehensive mobile payment solution that offers system redundancy, such that there is no single point of system failure.

Integrated solutions and comprehensive service offerings.  We offer an integrated and customized solution that integrates seamlessly into our clients’ existing IT and networking infrastructure. Since 2001, Trunkbow has deployed numerous application service platforms in the PRC. 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 Technologies (currently known as Alcatel-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”), which anticipated how data networks will evolve in the coming years. 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 are currently developing the next generation of mobile payment solutions and higher bandwidth 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.

2


 
 

TABLE OF CONTENTS

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 Executive Offices

Our 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. Our telephone number is +86 10 85712518.

3


 
 

TABLE OF CONTENTS

The Offering

Common stock offered by us:    
    5,000,000 shares
Common stock outstanding before the offering:    
    32,472,075 shares as of January 31, 2011
Common stock to be outstanding after the offering:    
    37,472,075 shares(1)
Estimated offering price:    
    $6.00 per share
Use of proceeds:    
    We intend to use the net proceeds from the offering for the following purposes:
   

•  

approximately $15 million to build out our mobile payment service platforms in Zhejiang Province, Xinjiang Province, Shandong Province, Shanxi Province and Henan Province in the PRC, pursuant to terms presently under negotiation between certain of our resellers and China Unicom; and

   

•  

the remaining balance for working capital and general corporate purposes.

    Each mobile payment service platform will consist of hardware, software and outsourcing of labor.
    See “Use of Proceeds” section on page 23.
Risk factors:    
    Investing in these securities involves a high degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 7.
Proposed NASDAQ Symbol:    
    TBOW
Over-allotment Option:    
    The underwriters have a 45-day option to purchase up to 750,000 additional shares of common stock from us solely to cover over-allotments, if any.
Lock-up:    
    We, certain of our directors, officers and significant shareholders have agreed with the underwriters to a lock-up of shares for a period of 180 days after the date of this prospectus. See “Underwriting” section on page 67.
Concurrent Secondary Offering    
    Concurrently with the offering pursuant to this prospectus, certain selling stockholders are registering an aggregate of 16,128,581 shares of our common stock for resale from time to time, which offering may take place in whole or in part during the time shares offered by us hereunder are being delivered to the purchasers thereof.

(1) The number of shares of our common stock to be outstanding immediately after this offering is based on 32,472,075 shares of our common stock outstanding as of January 31, 2011.

4


 
 

TABLE OF CONTENTS

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary of our consolidated statement of income data for the years ended December 31, 2009 and 2008 and our consolidated balance sheet data as of December 31, 2009 and 2008 presented below is derived from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The audited consolidated financial statements have been prepared in accordance with the standards of the Public Company Accounting Oversight Board (United States), and have been audited by Bernstein & Pinchuk LLP, an independent registered public accounting firm. The following summary of our consolidated statement of income data for the nine months ended September 30, 2010 and 2009 and our consolidated balance sheet data as of September 30, 2010 is derived from our unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus.

The consolidated financial statements are reported in U.S. dollar amounts and are prepared in accordance with the standards of the Public Company Accounting Oversight Board (United States). This data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes thereto, and our unaudited consolidated financial statements and related notes thereto, included elsewhere in this prospectus.

The as adjusted balance sheet data reflects the balance sheet data as of September 30, 2010, as adjusted to reflect our receipt of the estimated net proceeds from our sale of 5,000,000 shares in this offering at an assumed public offering price of $6.00 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Summary Balance Sheet Data:

     
  As of
September 30,
2010
  As of
December 31,
     2009   2008
     (Unaudited)
Cash and cash equivalents   $ 10,143,453     $ 3,305,473     $ 490,959  
Accounts receivable     12,247,866       10,455,284       656,536  
Total current assets     39,335,622       17,241,762       3,606,167  
Accounts payable     193,104       331,654       415,884  
Total current liabilities     4,837,198       7,520,949       2,310,481  
Total stockholders’ equity   $ 35,602,391     $ 9,760,630     $ 1,460,478  

     
  As of September 30, 2010   As of
December 31,
2009
     Actual   As
Adjusted(1)
     (Unaudited)     
Cash and cash equivalents   $ 10,143,453     $ 37,493,453     $ 3,305,473  
Total assets     40,439,589       67,789,589       17,281,579  
Total liabilities     4,837,198       4,837,198       7,520,949  
Total stockholders’ equity     35,602,391       62,952,391       9,760,630  
Total liabilities and stockholders’ equity   $ 40,439,589     $ 67,789,589     $ 17,281,579  

(1) Reflects the sale of 5,000,000 shares of common stock offered by us at an assumed public offering price of $6.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses to be paid by us. Each $1.00 increase or decrease in the assumed public offering price of $6.00 per share would increase or decrease, respectively, each of cash and cash equivalents, total assets and total stockholders’ equity by approximately $4.7 million, assuming no change in the number of shares offered by us as set forth on the cover page of this prospectus.

5


 
 

TABLE OF CONTENTS

Summary Operating Data:

       
  For the Nine Months Ended
September 30,
  For the Years Ended
December 31,
     2010   2009   2009   2008
     (Unaudited)          
Revenue   $ 10,899,121     $ 8,908,346     $ 13,468,581     $ 12,924,255  
Gross margin     9,402,327       6,795,217       11,209,380       8,766,902  
Income from operations     5,562,133       5,070,124       8,362,303       6,128,307  
Net income     5,348,654       5,069,010       8,292,982       5,071,514  
Comprehensive income   $ 5,768,041     $ 4,908,685     $ 8,200,152     $ 4,912,585  
Weighted average number of common shares outstanding Basic and Diluted     32,472,075       19,562,888       10,000       10,000  
Earnings (loss) per share Basic and Diluted   $ 0.16     $ 0.26     $ 829.30     $ 507.15  

6


 
 

TABLE OF CONTENTS

RISK FACTORS

Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our securities. You should pay particular attention to the fact that we conduct all of our operations in the PRC and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in the U.S. and other countries. Our business, financial condition or results of operations could be affected materially and adversely by any or all of these risks.

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 prospectus.

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

increase awareness of its products, protect its reputation and develop customer loyalty;
manage its expanding operations and service offerings, including the integration of any future acquisitions;
maintain adequate control of its expenses; and
anticipate and adapt to changing conditions in the markets in which it operates as well as the impact of any changes in government regulation, mergers and acquisitions involving its competitors, technological developments and other significant competitive and market dynamics.

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

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

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

Revenues from sales to the Big Three, including revenues generated through the resale of our products to mobile carriers through intermediaries (i.e., direct and indirect sales to these carriers), accounted for approximately 42%, 15% and 42%, and 4%, 95% and 0% of our total revenues for the fiscal years ended December 31, 2009 and 2008, and 24%, 29% and 45% and 29%, 6% and 63% for the nine months ended

7


 
 

TABLE OF CONTENTS

September 30, 2010 and 2009. Further, four resellers accounted for approximately 81% and two provincial branches of China Unicom accounted for approximately 81% of our total revenue for the fiscal years ended December 31, 2009 and 2008, respectively. The loss of our status as a 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 and fourth 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.

8


 
 

TABLE OF CONTENTS

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 February 2010 Offering, will be sufficient to support our current operating plan through June 2011. As of September 30, 2010, we had approximately $10.1 million in cash. We need additional capital to support our future development programs. We expect that our ongoing capital requirements for both working capital and capital expenditures (including R&D) for the remainder of 2010 and for 2011 will be approximately $2 million and $20 – $25 million, respectively. 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

9


 
 

TABLE OF CONTENTS

provision of Mobile Value Added services and Mobile Payment systems. Our customers include the Big Three and resellers that further provide services to the Big Three. We may not collect our accounts receivable in accordance with the terms of our contracts with our customers.

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

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 164 filed patent applications with 50 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.

10


 
 

TABLE OF CONTENTS

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

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

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

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

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

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

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

Our business and operations have expanded rapidly since our formation. Significant management resources must be expended to develop and implement appropriate structures for internal organization and information flow, an effective internal control environment and risk monitoring and management systems in line with our rapid growth, as well as to hire and integrate qualified employees into our organization. In addition, the disclosure and other ongoing obligations associated with becoming a public company increase the challenges to our finance and accounting team. We estimate that our general and administrative expenses for the fiscal year ending December 31, 2010 will be approximately $3.5 million, as compared to $1,877,732 for the 2009 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.

11


 
 

TABLE OF CONTENTS

RISKS ASSOCIATED WITH DOING BUSINESS IN GREATER CHINA

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

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

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

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

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

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

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

12


 
 

TABLE OF CONTENTS

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 variable interest entity (“VIE”) of Trunkbow Shandong.

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

Our contractual arrangements with Trunkbow Technologies and its shareholders may not be as effective in providing control over Trunkbow Technology as direct ownership of it.

Our contractual arrangements with Trunkbow Technologies and its respective shareholders provide us with effective control over this company. As a result of these contractual arrangements, we are considered to be the primary beneficiary of Trunkbow Technologies; we consolidate the results of operations, assets and liabilities of Trunkbow Technologies 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 and we expect such advice to be contained in a written legal opinion at the closing of the offering, these contractual arrangements may not be as effective in providing us with control over Trunkbow Technologies as direct ownership of these companies. If Trunkbow Technologies or its 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 year ended December 31, 2009 and 2008 and the nine months ended September 30, 2010, Trunkbow Technologies represented 9%, 100% and 7%, respectively, of our consolidated revenue. As at December 31, 2009 and 2008 and as at September 30, 2010, Trunkbow Technologies represented 9%, 67% and 4%, respectively, of our total consolidated assets.

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

Trunkbow Technologies is jointly owned by Mr. Hou Wanchun, our chairman, Mr. Li Qiang, our CEO, and Mr. Xie Liangyao. Conflict of interests between Mr. Hou and Mr. Li’s role as shareholders of our VIE 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 and Mr. Li must therefore act in good faith and in the best interests of the Trunkbow Technologies 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

13


 
 

TABLE OF CONTENTS

member of management of the VIE. 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 VIEs to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our VIEs and receive economic benefits from them. 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 Trunkbow Technologies do not represent an arm’s-length price and adjust Trunkbow Technologies’ 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 Trunkbow Technologies, 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 Trunkbow Technologies’ tax liabilities increase or if it is found to be subject to late payment fees or other penalties.

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.

The PRC State Administration of Foreign Exchange, or 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 China 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.

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

14


 
 

TABLE OF CONTENTS

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

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

Although PRC governmental policies were introduced in 1996 to allow the convertibility of Chinese renminbi into foreign currency for current account items, conversion of Chinese renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange (“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.

15


 
 

TABLE OF CONTENTS

You may have difficulty enforcing judgments against us.

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

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

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

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

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

16


 
 

TABLE OF CONTENTS

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

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

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

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

17


 
 

TABLE OF CONTENTS

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.

For a further discussion of these issues, see the section of this prospectus captioned “Material PRC Income Tax Considerations” below.

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 all 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, the Ministry of Commerce 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.

18


 
 

TABLE OF CONTENTS

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. We will become an offshore listed company upon the completion of this offering and may in the future adopt an employee incentive option plan. In such case, 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 after we become an offshore listed company, 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 this offering 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 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 the Ministry of Commerce 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 China Securities Regulatory Commission, or

19


 
 

TABLE OF CONTENTS

CSRC, prior to listing its securities on an overseas stock exchange. On September 21, 2006, the CSRC, published a notice on its official website specifying the documents and materials required to be submitted by overseas special purpose companies seeking CSRC’s approval of their overseas listings.

While the application of the 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 M&A Rules, and no provision in the M&A Rules classifies our contractual arrangements with Trunkbow Technologies as a type of acquisition transaction falling under the M&A Rules, we are not required to submit an application to the Ministry of Commerce 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, the Ministry of Commerce 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 Ministry of Commerce and/or CSRC were required our contractual control over Trunkbow Technologies and for this offering, 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 the Ministry of Commerce 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 M&A Rule sets forth complex procedures for acquisitions conducted by foreign investors that could make it more difficult to pursue acquisitions.

The 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 the Ministry of Commerce 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 M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, 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 THE SECURITIES

A large number of shares may be sold in the market immediately prior to or following this offering pursuant to the concurrent offering of up to 16,128,581 shares by our selling stockholders by means of a separate resale prospectus, which may depress the market price of our common stock, and could have an adverse effect on our ability to raise capital in future transactions or the terms of which we may be able to use our shares of common stock for corporate purposes. In addition, the sale of shares by the selling stockholders prior to the sale of shares in this offering might offer potential investors an opportunity to purchase shares from the selling stockholders at a lower price than the price per share in this offering, which may make it more difficult for us to complete this offering.

A large number of shares may be sold in the market immediately prior to or following this offering pursuant to the concurrent offering of up to 16,128,581 shares by our selling stockholders by means of a separate resale prospectus, which may depress the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market immediately prior to or following this offering could cause the market price of our common stock to decline. If there are more shares of common stock offered for sale than buyers are willing to purchase, then the market price of our common stock may decline to a market price at which buyers are willing to purchase the offered shares of common stock and sellers remain willing to sell the shares. The large number of shares being offered in the concurrent offering by our

20


 
 

TABLE OF CONTENTS

selling stockholders could also have an adverse effect on our ability to raise capital in future transactions or the terms of which we may be able to use our shares of common stock for corporate purposes due to the “overhang” effect such shares would have. Although our current intention is to permit the commencement of the secondary offering by our selling stockholders only after the marketing period regarding our offering has been completed and we believe that the execution of a firm commitment underwriting agreement with the representative of the underwriters is imminent (and the lockups described herein regarding approximately 6.6 million shares of our outstanding shares have been delivered by the holders thereof), depending upon market conditions and our obligations to the selling stockholders, it may become necessary to postpone the primary offering and commence the offering by our selling stockholders notwithstanding that we have not secured a firm commitment underwriting or obtained the relevant lockup agreements to permit the orderly marketing of our offering. The sale of shares by the selling stockholders prior to the sale of shares in this offering (including pursuant to any such postponement) might offer potential investors an opportunity to purchase shares from the selling stockholders at a lower price than the price per share in this offering, which may make it more difficult for us to complete this offering. All of the shares sold by us in this offering and in the concurrent offering of up to 16,128,581 shares by our selling stockholders (including the shares of common stock underlying warrants currently held by such selling stockholders), will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, although approximately 6.6 million of such shares may be subject to the lockup agreements in favor of the representative of the underwriters.

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 the section entitled “Overview — Our History and Corporate Structure” on page 32 for more information about the Share Exchange and our former status as a “shell” company.

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

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

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

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

As a newly public company, we have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to

21


 
 

TABLE OF CONTENTS

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.

22


 
 

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “management believes” and similar words or phrases. The forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions. Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the 5,000,000 shares of common stock in the offering will be approximately $27.4 million, after deducting the underwriting discounts and commissions and estimated offering expenses. Our net proceeds will be approximately $31.5 million if the underwriters exercise their option in full to purchase 750,000 additional shares of common stock from us. This calculation is based upon an assumed public offering price of $6.00 per share.

We intend to use the net proceeds from the offering for the following purposes:

approximately $15 million to build out our mobile payment service platforms in Zhejiang Province, Xinjiang Province, Shandong Province, Shanxi Province and Henan Province in the PRC, pursuant to terms presently under negotiation between certain of our resellers and China Unicom; and
the remaining balance for working capital and general corporate purposes.

Each mobile payment service platform will consist of hardware, software and outsourcing of labor.

The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Additionally, we may choose to expand our current business through the acquisition of other complementary businesses, products or technologies, using cash or shares of our common stock. However, we have not entered into any negotiations, agreements or commitments with respect to any such acquisitions at this time. Pending these uses, the proceeds will be invested in short-term bank deposits.

23


 
 

TABLE OF CONTENTS

DETERMINATION OF OFFERING PRICE

The public offering price of the shares offered by this prospectus has been determined by negotiation between us and the underwriters. Among the factors considered in determining the public offering price of the shares were:

our history and our prospects;
the industry in which we operate;
the status and development prospects for our products and proposed products;
the previous experience of our executive officers; and
the general condition of the securities markets at the time of this offering.

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the shares. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that the shares can be resold at or above the public offering price.

MARKET FOR OUR SECURITIES AND RELATED STOCKHOLDER MATTERS

There has never been a public trading market for our common stock and our common stock is not currently listed or quoted for trading on any national securities exchange or national quotation system. We intend to apply for the listing of our common stock on the NASDAQ Global Market under the symbol “TBOW.”

Holders

As of January 10, 2011, we had approximately 489 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.

24


 
 

TABLE OF CONTENTS

DILUTION

Our net tangible book value on September 30, 2010 was approximately $35.6 million, or $1.10 per share of common stock. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares of common stock outstanding on September 30, 2010.

After giving effect to the sale by us of 5,000,000 shares of common stock in this offering at the assumed public offering price of $6.00 per share, and after deducting the underwriting discounts and commissions and estimated expenses related to this offering payable by us, our adjusted net tangible book value as of September 30, 2010 would have been $63.0 million, or $1.68 per share of our common stock. This represents an immediate increase in net tangible book value of $0.58 per share to our existing stockholders and an immediate decrease in the net tangible book value of $4.32 per share to new investors. Dilution in the net tangible book value per share to new investors represents the difference between the offering price per share and the net tangible book value per share of our common stock immediately after this offering. The following table illustrates this per share dilution:

 
Assumed public offering price per share   $ 6.00  
Net tangible book value per share as of September 30, 2010   $ 1.10  
Increase in net tangible book value per share attributable to this offering   $ 0.58  
As adjusted net tangible book value per share as of September 30, 2010 after giving effect to this offering   $ 1.68  
Dilution per share to new investors in this offering   $ 4.32  

A $1.00 increase in the assumed public offering price of $6.00 per share would increase our adjusted net tangible book value per share after this offering by $0.12 per share and would increase the dilution per share to new investors in this offering by $0.88 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated expenses related to this offering payable by us.

If the underwriters exercise their over-allotment option to purchase up to 750,000 additional shares of common stock from us in full in this offering at the assumed public offering price of $6.00 per share, the adjusted net tangible book value as of September 30, 2010 after giving effect to this offering would increase to $1.76 per share, and dilution per share to new investors in this offering would be $4.24 per share.

25


 
 

TABLE OF CONTENTS

SELECTED FINANCIAL INFORMATION

The following table summarizes our historical financial results for the years ended December 31, 2009 and 2008, which is derived from our audited financial statements attached hereto as Exhibit F, as well as for the nine months ended September 30, 2010 and 2009, which are unaudited. Our auditor is Bernstein & Pinchuk LLP.

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

   
  Years Ended December 31,
     2009   2008
Revenue   $ 13,468,581     $ 12,924,255  
Less: Business tax and surcharges     38,624       511,924  
Net revenue     13,429,957       12,412,331  
Cost of revenue     2,220,577       3,645,429  
Gross Margin     11,209,380       8,766,902  
Operating expenses
                 
Selling and distribution expenses     533,633       429,067  
General and administrative expenses     1,877,732       1,677,055  
Research and development expenses     435,712       532,473  
       2,847,077       2,638,595  
Income from operations     8,362,303       6,128,307  
Other income (expense)
                 
Interest income     350       2,591  
Interest expense     (66,016 )      (4,482 ) 
Other income           122,003  
Other expenses     (3,655 )      (16,768 ) 
       (69,321)       103,344  
Income before income tax expense     8,292,982       6,231,651  
Income tax expense           1,160,137  
Net income     8,292,982       5,071,514  
Other comprehensive loss
                 
Foreign currency translation adjustment     (92,830 )      (158,929 ) 
Comprehensive income   $ 8,200,152     $ 4,912,585  
Weighted average number of common shares outstanding
Basic and diluted
    10,000       10,000  
Earnings per share Basic and diluted   $ 829.30     $ 507.15  

26


 
 

TABLE OF CONTENTS

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

         
  Nine Months ended
September 30,
  Three Months ended
September 30,
     2010   2009   2010   2009
     Unaudited   Unaudited   Unaudited   Unaudited
Revenues   $ 10,899,121     $ 8,908,346     $ 2,910,778     $ 2,550,715  
Less: Business tax and surcharges     170,440       27,103       2,389       9,410  
Net revenues     10,728,681       8,881,243       2,908,389       2,541,305  
Cost of revenues     1,326,354       2,086,026       787,827       794,919  
Gross margin     9,402,327       6,795,217       2,120,562       1,746,386  
Operating expenses
                                   
Selling and distribution expenses     869,163       405,774       400,147       70,712  
General and administrative expenses     2,238,440       1,018,108       921,534       450,734  
Research and development expenses     732,591       301,211       226,662       108,848  
       3,840,194       1,725,093       1,548,343       630,294  
Income from operations     5,562,133       5,070,124       572,219       1,116,092  
Other expenses
                                   
Interest expense     189,927             33,379        
Other expenses     21,276       1,114       9,379       11  
       211,203       1,114       42,758       11  
Income before income tax expense     5,350,930       5,069,010       529,461       1,116,081  
Income tax expense     2,276             2,276        
Net income     5,348,654       5,069,010       527,185       1,116,081  
Other comprehensive income
                                   
Foreign currency translation fluctuation     419,387       (160,325 )      229,848       (161,271 ) 
Comprehensive income   $ 5,768,041     $ 4,908,685     $ 757,033     $ 954,810  
Weighted average number of common shares outstanding
                                   
Basic and diluted     32,472,075       19,562,888       32,472,075       19,562,888  
Earnings per share
                                   
Basic and diluted   $ 0.16     $ 0.26     $ 0.02     $ 0.06  

27


 
 

TABLE OF CONTENTS

Historical Balance Sheets

The following table summarizes the audited consolidated balance sheets for Trunkbow International Holdings Limited as of December 31, 2009 and 2008.

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
  As at December 31,
     2009   2008
ASSETS
                 
Current assets
                 
Cash and cash equivalents   $ 3,305,473     $ 490,959  
Accounts receivable     10,455,284       656,536  
Loans receivable and other current assets, net     1,085,655       1,251,853  
Due from directors     2,088,168       1,206,819  
Inventories     307,182        
Total current assets     17,241,762       3,606,167  
Property and equipment, net     39,817       56,600  
Long-term receivables           108,192  
     $ 17,281,579     $ 3,770,959  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current liabilities
                 
Accounts payable   $ 331,654     $ 415,884  
Accrued expenses and other current liabilities     603,266       272,170  
Due to directors     24,430        
Contingently convertible notes     5,000,000        
Taxes payable     1,561,599       1,622,427  
     $ 7,520,949     $ 2,310,481  
Commitments and contingencies
                 
STOCKHOLDERS’ EQUITY
                 
Common Stock: par value USD1.00, authorized 50,000 shares, issued and outstanding 10,000 shares at December 31, 2009     10,000        
Additional paid-in capital     1,332,802       1,242,802  
Appropriated retained earnings     1,010,486       27,518  
Unappropriated retained earnings     8,002,477       692,463  
Accumulated other comprehensive income     (595,135 )      (502,305 ) 
Total stockholders’ equity     9,760,630       1,460,478  
     $ 17,281,579     $ 3,770,959  

28


 
 

TABLE OF CONTENTS

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

The following table summarizes the consolidated balance sheets for Trunkbow International Holdings Limited as of September 30, 2010 (unaudited) and December 31, 2009.

   
  September 30,
2010
  December 31,
2009
     unaudited     
ASSETS
                 
Current assets
                 
Cash and cash equivalents   $ 10,143,453     $ 3,305,473  
Restricted deposit     358,311        
Accounts receivable     12,247,866       10,455,284  
Loans receivable and other current assets, net     11,546,167       1,085,655  
Due from directors     140,114       2,088,168  
Inventories     4,899,711       307,182  
Total current assets     39,335,622       17,241,762  
Property and equipment, net     413,852       39,817  
Long-term prepayment     690,115        
     $ 40,439,589     $ 17,281,579  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current liabilities
                 
Accounts payable   $ 193,104     $ 331,654  
Accrued expenses and other current liabilities     471,399       603,266  
Short-term loan     1,791,553        
Due to directors           24,430  
Contingently convertible notes           5,000,000  
Taxes payable     2,381,142       1,561,599  
       4,837,198       7,520,949  
Commitments and contingencies
                 
STOCKHOLDERS’ EQUITY
                 
Preferred Stock: par value USD0.001, authorized 10,000,000 shares, issued and outstanding nil at June 30, 2010 and December 31, 2009
                 
Common Stock: par value USD0.001, authorized 190,000,000 shares, issued and outstanding 32,472,075 shares at June 30, 2010 and 19,562,888 at December 31, 2009     32,472       19,563  
Additional paid-in capital     21,384,050       1,323,239  
Appropriated retained earnings     1,010,486       1,010,486  
Unappropriated retained earnings     13,351,131       8,002,477  
Accumulated other comprehensive income     (175,748 )      (595,135 ) 
Total stockholders’ equity     35,602,391       9,760,630  
     $ 40,439,589     $ 17,281,579  

29


 
 

TABLE OF CONTENTS

Historical Cash Flow Statements

The following table summarizes the audited consolidated cash flow statements for Trunkbow International Holdings Limited for the years ended December 31, 2009 and 2008.

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
  Years Ended December 31,
     2009   2008
Cash flows from operating activities
                 
Net income   $ 8,292,982     $ 5,071,514  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                 
Depreciation and amortization     20,362       148,934  
Loss on disposal of property and equipment     1,281       2,078  
Reclassification of fixed assets to inventory sold           524,417  
Provision for doubtful debts     366,912        
Changes in operating assets and liabilities:
                 
Accounts receivable     (9,791,845 )      (259,894 ) 
Other receivables and current assets     (146,360 )      1,764,452  
Inventories     (307,017 )       
Accounts payable     (85,218 )      (694,554 ) 
Accrued expenses and other current liabilities     383,859       (6,636,312 ) 
Amount due to directors     24,417        
Taxes payable     (64,827 )      1,182,275  
Net cash flows (used in) provided by operating activities     (1,305,454 )      1,102,910  
Cash flows from investing activities
                 
Acquisition of property and equipment     (4,729 )       
Collection from loans to third parties     57,070       81,890  
Increase in amount due from directors     (877,876 )      (526,824 ) 
Decrease in long term receivables           22,566  
Net cash flows used in investing activities     (825,535 )      (422,368 ) 
Cash flows from financing activities
                 
Proceeds from issuance of common stock     100,000        
Repayment of loans from third parties     (53,618 )      (789,278 ) 
Repayment of long-term payables           (143,632 ) 
Proceeds from issuance of contingently convertible notes     5,000,000        
Net cash flows provided by (used in) financing activities     5,046,382       (932,910 ) 
Effect of exchange rate fluctuation on cash and cash equivalents     (100,879 )      36,220  
Net increase (decrease) in cash and cash equivalents     2,814,514       (216,148 ) 
Cash and cash equivalents – beginning of year     490,959       707,107  
Cash and cash equivalents – end of year     3,305,473       490,959  
Supplemental disclosure of cash flow information
                 
Cash paid for interest   $     $ 4,482  
Cash paid for income taxes   $ 263     $  

30


 
 

TABLE OF CONTENTS

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
  Nine Months Ended September 30,
     2010   2009
     Unaudited   Unaudited
Cash flows from operating activities
                 
Net income   $ 5,348,654     $ 5,069,010  
Adjustments to reconcile net income to net cash used in operating activities:
                 
Depreciation and amortization     56,387       16,307  
Loss on disposal of property and equipment           1,286  
Changes in operating assets and liabilities:  
Accounts receivable     (1,548,114 )      (7,813,840 ) 
Loans receivable and other current assets     (6,298,196 )      600,563  
Inventories     (4,506,556 )      (214,306 ) 
Long-term prepayment     (678,138 )       
Accounts payable     (142,914 )      1,415,481  
Accrued expenses and other current liabilities     4,816       413,274  
Amount due to directors     (24,504 )       
Taxes payable     773,453       389,199  
Net cash flows used in operating activities     (7,015,112 )      (123,026 ) 
Cash flows from investing activities
                 
Acquisition of property and equipment     (409,398 )      (526 ) 
Payment on loans to third parties     (3,958,616 )      (218,636 ) 
Collection in amount due from directors     1,956,858       356,039  
Collection in long-term receivables           108,377  
Net cash flows provided by (used in) investing activities     (2,411,156 )      245,254  
Cash flows from financing activities
                 
Increase in restricted deposit     (358,311 )       
Proceeds from issuance of common stock (net of finance costs)     17,073,720        
Repayment of loans from third parties     (146,705 )      (200,218 ) 
Repayment of contingently convertible notes     (2,000,000 )       
Proceeds from short-term loan     1,760,460        
Net cash flows provided by (used in) financing activities     16,329,164       (200,218 ) 
Effect of exchange rate fluctuation on cash and cash equivalents     (64,916 )      (166,643 ) 
Net increase (decrease) in cash and cash equivalents     6,837,980       (244,633 ) 
Cash and cash equivalents – beginning of period     3,305,473       490,959  
Cash and cash equivalents – end of period   $ 10,143,453     $ 246,326  
Supplemental disclosure of cash flow information
                 
Cash paid for interest   $ 189,927     $  
Cash paid for income taxes   $     $  
Supplemental disclosure of noncash financing activities
                 
Conversion of contingently convertible notes to common stock   $ 3,000,000     $  

31


 
 

TABLE OF CONTENTS

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 7 entitled “Risk Factors” and elsewhere in this Prospectus.

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.

Currently our technology is the subject of 164 filed patent applications, of which 50 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 China, 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. 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

32


 
 

TABLE OF CONTENTS

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.

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.

33


 
 

TABLE OF CONTENTS

Our organizational structure is as follows:

[GRAPHIC MISSING]

(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 and VIE 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.

34


 
 

TABLE OF CONTENTS

How We Generate Revenue

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

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

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

We generate non-recurring revenues in the following ways:

System sales to telecom providers which enables the mobile payment function on their network;
System sales to telecom providers that enables various MPS compatible SIM and mobile payment functions for their corporate clients; and
Revenue share on the MPS compatible SIM cards that are sold to the telecom providers.

We generate recurring revenues in the following ways:

Up to a 50% share of the monthly function fee charged by the telecom providers;
0.1 – 0.5% of total transaction cost on purchases made through the mobile payment application; and
Monthly rental revenues on POS (Point of Sales) machines deployed by Trunkbow.

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 four provinces with local branches of China Telecom. 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, 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.

35


 
 

TABLE OF CONTENTS

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 700 million cellular subscribers. For the fiscal years ended December 31, 2009 and 2008, revenues generated directly by sales to China Telecom, China Unicom and China Mobile accounted for approximately 3%, 6% and nil, and 4%, 95% and nil, respectively, of our total revenues, and 6%, 6% and nil, and 5%, 6% and nil, respectively, for the nine months ended September 30, 2010 and 2009. 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, 2009 and 2008 accounted for approximately 42%, 15% and 42%, and 4%, 95% and nil, respectively, of our total revenues, and 24%, 29% and 45%, and 29%, 6% and 63%, respectively, for the nine months ended September 30, 2010 and 2009. The significant increase in revenues generated from sales to China Mobile for 2009 as compared to 2008 is attributable to the sale in 2009 of two platforms to two resellers that provided an air-charge system to China Mobile in two provinces. The large variations in revenues attributable to China Unicom and China Mobile during 2008 and 2009 are mainly attributable to a reorganization of China Unicom which resulted in that company’s CDMA segment being spun-off into China Telecom and the remaining company being merged with China Netcom. Even though our relationship with these three 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 13 provinces, the 17 remaining provinces will be seeking them from the market with Trunkbow being a major incumbent; fully vetted at a corporate level and with patented technology.

While we were initially focused exclusively on the PRC market, we have built a product set for the global sector. To this end, we are now actively positioning our product sets with carriers in the US 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.

Opportunities, Risks and Challenges

As the Big Three telecom carriers compete fiercely for subscriber growth, they are looking for differentiation to attract and retain end users while trying to grow revenue from each subscriber. With over 150 patented mobile applications, we believe Trunkbow is in a perfect position to help these telecom carriers achieve this objective. We have been implementing our Caller CRBT, NCN and Mobile Payment for all three carriers in many provinces across China based on a revenue sharing model as described above. A summary of our current product roll-out, by province, is shown in the table below.

   
APPLICATIONS   2010 PROVINCES   2011 PROVINCES
Caller CRBT   13   16
Mobile Payment   12   16
NCN   10   15

36


 
 

TABLE OF CONTENTS

Management believes it is critical that we roll-out the products with the carriers within the next 12 months and to secure at least 16 provinces for both Caller CRBT and Mobile Payment applications. Although these deployments are capital intensive, the February 2010 Offering provided us with adequate funds to implement these application services across the PRC.

Once the applications are in service, we will expect to see recurring revenue streams and create visible revenue and profits for the next two to three years.

In addition to our current product offerings, we recognize that we must continue to innovate with new applications to build our product pipelines to extend our revenue and profit growth beyond three years. Therefore, we have invested heavily in R&D for new applications, which we believe will result in at least 10 patent applications filed each year for the next five years.

Finally, we also understand that it is imperative for us to manage our cash flow, since we have experienced a significant increase in our accounts receivable balance at December 31, 2009 as compared to December 31, 2008, with increased average periods to collect on such accounts receivable. In order to support the product deployment objective, our long term intention is to shorten the days’ sales outstanding from the current 151 days to between 90 and 120 days.

Results of Operations

Three and Nine Months Ended September 30, 2010 and 2009

Net Revenues:  Net revenues increased $0.37 million, or 14.4%, from $2.54 million for the three months ended September 30, 2009 to $2.91 million for the three months ended September 30, 2010. Net revenues increased $1.8 million, or 20.8%, from $8.88 million for the nine months ended September 30, 2009 to $10.73 million for the nine months ended September 30, 2010. Software sales increased $2.45 million, or 100%, from $0.01 million for the three months ended September 30, 2009 to $2.46 million for the three months ended September 30, 2010, due to the deployment of our mobile payment platform with China Mobile through our reseller, which accounted for $2.4 million of such increase. Software sales increased $9.70 million, or 100%, from $0.01 million for the nine months ended September 30, 2009 to $9.72 million for the nine months ended September 30, 2010, mainly due to increased sales in Mobile Payment by $4.3 million and MVAS software of Caller CRBT and NCN by $4.7 million in additional provinces. Our net revenues shifted to more software sales and less system integration sales during this period. System integration revenues decreased $1.94 million, or 82.1%, from $2.36 million for the three months ended September 30, 2009 to $0.42 million for the three months ended September 30, 2010, and decreased $7.44 million, or 88.79%, from $8.38 million for the nine months ended September 30, 2009 to $0.94 million for the nine months ended September 30, 2010, due to seasonal fluctuations and the change in demand of our customers for the various components of our services.

We started to deploy Mobile Payment System platforms with our customers from the third quarter of 2009. We generated revenues of $0.29 million and $2.62 million, $0.42 million and $2.13 million, from MVAS technology platforms and Mobile Payment System solutions for the three months ended September 30, 2010 and 2009, and $5.76 million and $5.14 million, $6.78 million and $2.13 million for the nine months ended September 30, 2001 and 2009, respectively. Mobile Payment System solutions have become a significant revenue segment, representing 90% and 83.5% for the three months ended September 30, 2010 and 2009, and 47% and 24% for the nine months ended September 30, 2010 and 2009.

Gross Margin:  Gross margin increased $0.37 million, or 21.4%, from $1.75 million for the three months ended September 30, 2009 to $2.12 million for the three months ended September 30, 2010. The gross margin rate increased by 4.2% from 68.7% to 72.9% due to significantly less hardware costs being allocated during this period. Gross margin increased $2.61 million, or 38.4%, from $6.80 million for the nine months ended September 30, 2009 to $9.40 million for the nine months ended September 30, 2010. The increase in gross margin was due to revenue growth associated with the software sales in which significantly less fixed costs and hardware costs were allocated. Gross margin rate increased from 76.5% for the nine months ended September 30, 2009 to 87.6% for the nine months ended September 30, 2010, which was also due to a lower allocation of hardware costs. The gross margin or the gross margin rate for the MVAS technology and Mobile Payment System solutions was $0.02 million or 6% and $2.1 million or 80.3%, respectively, for the three months ended September 30, 2010, and $0.3 million or 74.2% and $1.4 million or 67.6%, respectively, for the

37


 
 

TABLE OF CONTENTS

three months ended September 30, 2009. The gross margin or the gross margin rate for the MVAS technology platforms and Mobile Payment System solutions was $5 million or 89.3% and $4.4 million or 85.8%, respectively, for the nine months ended September 30, 2010, and $5.35 million or 79.3% and $1.44 million or 67.7%, respectively, for the nine months ended September 30, 2009.

Operating expenses:  Operating expenses, including selling, general and administrative expenses and R&D increased $0.92 million, or 145.7%, from $0.63 million for the three months ended September 30, 2009 to $1.55 million for the three months ended September 30, 2010. Operating expenses increased $2.12 million, or 122.6%, from $1.73 million for the nine months ended September 30, 2009 to $3.84 million for the nine months ended September 30, 2010. The increase in operating expenses was related to the expansion of administrative and R&D departments with recruitment of more employees, related office expenses, as well as the addition of public company related expenses.

Interest expenses:  Interest expenses increased $0.03 million, or 100%, from nil for the three months ended September 30, 2009 to $0.03 million for the three months ended September 30, 2010 due to an increase in short-term loans with an annual interest rate of 6.6375%. Interest expenses increased $0.19 million, or 100%, from nil for the nine months ended September 30, 2009 to $0.19 million for the nine months ended September 30, 2010 due to an increase in interest expenses from the contingently convertible notes with an annual interest rate of 12% and short-term loans with an annual interest rate of 6.6375%.

Research and Development:  For the three months ended September 30, 2010 and 2009, we spent $0.23 million and $0.11 million on research and development expenses, of which $0.12 million and $0.08 million was attributable to MVAS and $0.11 million and $0.03 million was attributable to mobile payment systems. For the nine months ended September 30, 2010 and 2009, we spent $0.73 million and $0.3 million on research and development expenses, of which $0.37 million and $0.23 million was attributable to MVAS and $0.36 million and $0.07 million was attributable to mobile payment systems.

EBIT:  EBIT decreased $0.55 million, or 49.6%, from $1.12 million for the three months ended September 30, 2009 to $0.56 million for the three months ended September 30, 2010. EBIT margin rate decreased 24.5% from 43.9% for the three months ended September 30, 2009 to 19.4% for the three months ended September 30, 2010, principally due to seasonal fluctuation and the change in demand of customers in terms of ways of providing software or systems with hardware. EBIT increased $0.47 million, or 9.3%, from $5.07 million for the nine months ended September 30, 2009 to $5.54 million for the nine months ended September 30, 2010. EBIT margin rate decreased 5.4% from 57.1% for the nine months ended September 30, 2009 to 51.6% for the nine months ended September 30, 2010, principally due to revenue growth associated with our geographic expansion into additional provinces and improved fixed cost allocations associated with the increase in revenues and gross margin, netted against the effect of the increase in interest expenses.

Fiscal Years Ended December 31, 2009 versus 2008

Revenues:  Revenues increased $0.6 million, or 4%, from $12.9 million in 2008 to $13.5 million in 2009. Software sales increased $1.36 million, or 155% from $0.88 million in 2008 to $2.2 million in 2009, due to increased sales in mobile newspaper services, geographic expansion and the introduction of new products and services. System integration decreased $2.5 million, or 22%, from $10.95 million to $8.5 million and patent licensing revenues increased $2 million, or 100%, from nil in 2008 to $2 million in 2009, due to change of customers’ demand. We licensed our mobile payment caller CRBT patent to our customers instead of providing the system integration in 2009. Maintenance revenues decreased $0.4 million, or 32%, from $1.1 million 2008 to $0.74 million in 2009 due to reduced demand for technical support.

We generated revenues of $10.21 million and $3.26 million from MVAS technology platforms and Mobile Payment System solutions, respectively, for the year ended December 31, 2009, and $12.92 million and nil, respectively, for the year ended December 31, 2008. The gross margin for the two system platforms was $8.71 million and $2.5 million, respectively, for the year ended December 31, 2009, and $8.77 million and nil, respectively, for the year ended December 31, 2008.

Gross Margin:  Gross margin increased $2.4 million, or 28%, from $8.8 million in 2008 to $11.2 million in 2009. The increase in gross margin was due to revenue growth and improved fixed cost

38


 
 

TABLE OF CONTENTS

allocations attributable to economies of scale from the increased use of our technologies. Gross margin rate increased from 71% in 2008 to 83% in 2009.

Operating Expenses:  Selling, general and administrative expenses and R&D increased $0.21 million, or 8%, from $2.6 million in 2008 to $2.8 million in 2009. Selling, general and administrative expenses and R&D represented 20% of revenue in 2008 and 21% of revenue in 2009. The increase in selling, general and administrative expenses and R&D were related to the expansion of business activities including travel and meetings.

Research and Development:   For the years ended December 31, 2008 and 2009, we spent $0.44 million and $0.53 million on research and development expenses, respectively, of which $0.41 million was attributable to MVAS and $0.03 million was attributable to mobile payment systems for the year ended December 31, 2008, and of which $0.4 million to MVAS and $0.13 million to mobile payment systems for the year ended December 31, 2009.

EBIT:  EBIT increased $2 million, or 33%, from $6.2 million in 2008 to $8.3 million in 2009. EBIT margin rate increased from 50% in 2008 to 62% in 2009. The improvement in EBIT was principally due to revenue growth and improved fixed cost allocations associated with the increase in revenues and gross margin, as well as increased sales of our mobile payment solutions.

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. No PCS arrangement is included in system integration. 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.

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.

39


 
 

TABLE OF CONTENTS

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

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

Recently issued accounting pronouncements

The FASB issued ASU 2010-13, Compensation — Stock Compensation (ACS Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The ASU codifies the consensus reached in Emerging Issues Task Force (EITF) Issue No. 09-J. The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity.

The amendments in the ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. The amendments are to be applied by recording a cumulative-effect adjustment to beginning retained earnings. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. We do not expect the provisions of ASU 2010-19 to have a material effect on our financial position, results of operations or cash flows.

Foreign Currency Translation

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

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

The exchange rates applied are as follows:

   
  As of December 31,
     2009   2008
Year end RMB exchange rate     6.8372       6.8542  
Average RMB exchange rate     6.8409       6.9623  

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

40


 
 

TABLE OF CONTENTS

Liquidity and Capital Resources

In summary, our cash flows were as follows:

Trunkbow International Holdings Limited Summary Cash Flows

       
  Nine Months Ended
September 30,
  Year Ended
December 31,
     2010   2009   2009   2008
Net cash flows provided by (used in) operating
activities
  $ (7,015,112 )    $ (123,026 )    $ (1,305,454 )    $ 1,102,910  
Net cash flows provided by (used in) investing activities     (2,411,156 )      245,254       (825,535 )      (422,368 ) 
Net cash flows provided by (used in) financing
activities
    16,329,164       (200,218 )      5,046,382       (932,910 ) 
Effect of foreign currency fluctuation on cash and cash equivalents     (64,916 )      (166,643 )      (100,879 )      36,220  
Net increase (decrease) in cash and cash equivalents   $ 6,837,980     $ (244,633 )    $ 2,814,514     $ (216,148 ) 
Cash and cash equivalents – beginning of
year/period
  $ 3,305,473     $ 490,959     $ 490,959     $ 707,107  
Cash and cash equivalents – end of year/period   $ 10,143,453     $ 246,326     $ 3,305,473     $ 490,959  

Our cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months. Our principal sources of liquidity are cash, short-term investments and cash generated from operations. We believe that our existing cash, short-term investments and cash generated from operations will be sufficient to satisfy our current level of operations through June 2011. Our liquidity could be negatively affected by a decrease in demand for our products and services. In addition, we may need to raise additional capital through future debt or equity financings to fund our growth. We expect that our ongoing capital requirements for both working capital and capital expenditures (including R&D) for the remainder of 2010 and 2011 will be approximately $2 million and $20 – $25 million, respectively.

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
Three months ending December 31, 2010   $ 62,160  
Year ending December 31, 2011     207,930  
Year ending December 31, 2012     153,888  
Year ending December 31, 2013     27,664  
Year ending December 31, 2014     6,091  
Total   $ 457,733  

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

41


 
 

TABLE OF CONTENTS

Operating Activities

Net cash flows used in operating activities for the nine months ended September 30, 2010 was $7.02 million as compared with $0.12 million used in operating activities for the nine months ended September 30, 2009, for a net increase of $6.9 million. This increase was mainly due to the significant increase in the change of loans receivable and other current assets and inventory, offset by the effect of a decrease in changes of accounts receivable during the nine months ended September 30, 2010. The change in accounts receivable decreased significantly, from $7.81 million for the nine months ended September 30, 2009 to $1.55 million for the nine months ended September 30, 2010, due to the significant increase in revenues from two resellers that provided an air-charge system to China Mobile during the nine months ended September 30, 2009. Subsequent to the balance sheet date, $1.31 million has been collected on the accounts receivable as of September 30, 2010.

The decrease in operating cash flows was also attributable to a substantial increase in cash out flows from advances to suppliers of $6.87 million as of September 30, 2010 when compared to December 31, 2009, due to different demands by the suppliers and our commitment with VeriFone for the purchase of point of sale systems. While there was no material change in advance to suppliers as of September 30, 2009 when compared to December 31, 2008, there was no material effect on the cash flow by advance to suppliers for the nine months ended September 30, 2009.

The inventory balance increased significantly by $4.59 million from $0.31 million as of December 31, 2009 to $4.90 million as of September 30, 2010, due to the purchase of point of sale systems from Verifone, related to the deployment of our mobile payment platforms.

Investing Activities

Our main use of funds on investing activities during the nine months ended September 30, 2010 and 2009 was on advances to directors and loans to third parties. The amounts due from directors as of September 30, 2010 represented an advance to the directors for business expenses to be paid on behalf of the Company.

For the nine months ended September 30, 2010, our main use of investing activities was for loans to third parties. The cash payments used in investing activities was netted against the collections from amounts due from directors.

Financing Activities

Net cash flows provided by financing activities for the nine months ended September 30, 2010 was $16.33 million as compared with $0.2 million used in financing activities for the nine months ended September 30, 2009.

Of the $5 million contingently convertible notes as of December 31, 2009, $2 million was repaid in cash to the convertible note holders in February and March 2010, and $3 million was converted to 1,500,000 shares of common stock at $2.00 per share as a result of the February 2010 Offering.

The cash provided by financing activities for the nine months ended September 30, 2010 included the net proceeds from the February 2010 Offering of $17.07 million and the short-term loan of $1.76 million, offset by the repayment of $2 million contingently convertible notes.

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.

42


 
 

TABLE OF CONTENTS

BUSINESS

Company 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 10 of 30 provinces, municipalities and autonomous regions and represent a significant portion of the geographic market based on the location of the mobile subscriber base in the PRC. Our patented platforms provide a comprehensive solution for Chinese telecom operators to deliver and manage the distribution of MVAS applications to their subscribers. We believe that the expansion of our platforms and services deployment to the Big Three over the past ten years shows that the Trunkbow brand is regarded by these major Chinese telecom operators as a well managed, trusted provider of technology solutions. Our R&D-focused business model provides us with a defensible market position as a technology solutions provider to the telecom operators.

Developing innovative technology solutions is at the core of our business model. We work extensively with our customers and technology partners in our R&D process to develop cutting edge technology solutions that are relevant to consumer trends and market demand. We have a team of over 100 R&D professionals led by a seasoned senior management team with extensive experience in the telecom industry. Our technology is the subject of 164 filed patent applications, of which 50 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, 2009 and 2008 and the nine months ended September 30, 2010.

       
  September 30,   December 31,
     2010   2009   2009   2008
Percent of revenues from direct sales to China Telecom     6       5       3       4  
Percent of revenues from direct sales to China Unicom     6       6       6       95  
Percent of revenues from direct sales to China Mobile                        
Percent of revenues from direct and indirect sales to China Telecom through resellers     24       29       42       4  
Percent of revenues from direct and indirect sales to China Unicom through resellers     29       6       15       95  
Percent of revenues from direct and indirect sales to China Mobile through resellers     45       63       42        

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

43


 
 

TABLE OF CONTENTS

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 Mobile for 2009 as compared to 2008 is attributable to the sale in 2009 of two platforms to two resellers that provided an air-charge system to China Mobile in two provinces. The large variations in revenues attributable to China Unicom and China Mobile during 2008 and 2009 are mainly attributable to a reorganization of China Unicom which resulted in that company’s CDMA segment being spun-off into China Telecom and the remaining company being merged with China Netcom.

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

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

We have experienced strong revenue growth and profitability over the last two years driven by customer additions and the introduction of innovative products and services. Our revenues increased to $13.5 million in 2009 from $12.9 million in 2008 and net income to $8.3 million in 2009, from $5.1 million in 2008. 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 systems 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.

44


 
 

TABLE OF CONTENTS

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.

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. Beginning in 2007, we established a business and indirect contractual relationship with China UnionPay in order to develop and commercialize 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.

45


 
 

TABLE OF CONTENTS

The primary goal of our research efforts is to develop solutions that may be strategically implemented and commercialized. We are currently developing the next generation of mobile payment solutions and 3G applications. Our commitment to research and development and our focus on commercializing our research results will further enhance our competitive edge in the market with the ability to provide a broad range of quality solutions and the potential for sustained long-term growth.

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

Our Products and Services

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

Mobile Value Added Service Application Platforms

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.

Mobile Payment System

Our patented technology platform supports mobile phone payment via various NFC or RFID enabled mobile devices, typically using RF-SIM (radio frequency SIM), SIMPass and iSIM. This technology allows NFC or RFID enabled mobile phones worldwide to be utilized as payment tools and authentication devices. Specifically, our solution enables the end-user to consolidate a variety of functions such as credit/debit cards, public transit cards, employee IDs, membership cards into one device and eliminates the need to carry around numerous cards. We provide users with access to real-time account information available to them whenever they have access to mobile service. In addition, the end user can perform a variety of account maintenance functions remotely including refilling prepaid cards and archiving transaction records.

Our technology is based upon the Chinese standard of 2.4Ghz and 13.56MHz frequency for near field communication. We use proprietary technologies to seamlessly transmit secure transaction data between end users and the financial processing infrastructure. Our proprietary software technology platform resides within the telecom operators’ network and as well as the clearing house network in order to seamlessly facilitate mobile payment transactions.

46


 
 

TABLE OF CONTENTS

Diagram I — Mobile Payment Network

[GRAPHIC MISSING]

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.

Recent Developments

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.

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.

47


 
 

TABLE OF CONTENTS

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 revenue sharing agreements with resellers and directly with the relevant provincial branch of the 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 solution, we receive revenues from one-time system sales and maintenance fees.

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

System sales to telecom providers which enables the mobile payment function on their network;
System sales to telecom providers that enables various MPS compatible SIM and mobile payment functions for their corporate clients; and
Revenue share on the MPS compatible SIM cards that are sold to the telecom providers.

We generate recurring revenues in the following ways:

Up to a 50% share of the monthly function fee charged by the telecom providers;
A share of the transaction fee on purchases made through the mobile payment application; and
Monthly rental revenues on POS (Point of Sales) machines deployed by Trunkbow.

Table I — Summary of Our Revenue Model

   
Category   Product   Revenue Model
MVAS Platform   Caller Color Ring Back Tone (CRBT)   One-time sales and/or revenue sharing at up to 50% for up to 5 years and renewable
     Number Change Notification (NCN)   One time sales and potentially up to a 10% maintenance fee
     Color Numbering   One-time sales and/or revenue sharing at up to 50% for up to 5 years and renewable
Mobile Payment System   Mobile Payment System   One time system sales to carriers or resellers and potentially a combination of the following: RMB 20 per MPS compatible SIM card, revenue sharing on function fee up to (50%), and/or rental revenue on POS machines and transaction fees

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 six provinces with local coverage responsibilities in Shandong, Hebei, Zhejiang, Henan, Sichuan, Jilin, Xinjiang provinces and in Beijing. 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.

48


 
 

TABLE OF CONTENTS

For the domestic market, our sales team covers the following regions: Shandong, Hebei, Henan, Beijing, Tianjin, Zhejiang, North East China, Inner Mongolia, Xingjiang, Sichun, Yunnan, Anhui, Shanghai, Hunan, Jiangxi, Fujian, Guangdong, and Guangxi. 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, 2009, we had 50 sales and marketing employees, representing approximately 25% of our total workforce.

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, 2009, we had 115 research and development employees representing approximately 55% of our total workforce. At such date we had a total of 200 employees, all of which were full-time employees. For the nine months ended September 30, 2010, we spent $732,591 on research and development expenses, and for the years ended December 31, 2008 and 2009, we spent $435,712 and $532,473 on research and development expenses, respectively.

Employees

Together with our subsidiaries, as of September 30, 2010 we had approximately 208 employees, all of which are full-time employees.

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 System segment, our primary competitors are: UMPay, HiSun Technology, and Guangzhou SmartChina. 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.

49


 
 

TABLE OF CONTENTS

Our Industry

Overview Of The China 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. WAP is a commonly used web browser developed to allow a realistic browsing experience, while WEB usage refers to surfing on the WEB. 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 China is highly correlated with the growth of the overall mobile phone industry in China. According to MIIT, 747 million people had a mobile phone account at the end of 2009 and according to iResearch, 233 million of the subscribers had used their mobile phone’s browser at least once. Based on figures released by MIIT for January to April 2010, the wireless subscriber base in China could reach an estimated 864 million subscribers by the end of 2010, representing a six year CAGR of 14%. The MIIT data also indicates that total revenue for the telecom sector in the PRC could grow to approximately $425 billion for 2010. 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 mobile phone browser users could grow 125% to 524 million users by the end of 2012.

[GRAPHIC MISSING]

50


 
 

TABLE OF CONTENTS

According to its 2009 Annual Report, China Mobile, which had 70.6% mobile phone user market share at the end of 2009, has experienced dramatic usage growth in its MVAS segment. During 2009, China Mobile’s SMS and MMS volumes, WAP megabyte usage and Color Ring Tone subscriptions have increased by 12.2%, 37.2% 163% and 24.7%, respectively. Total MVAS revenue grew 16.0% in the same time period. 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 (“CCW”) 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 The Big Three continue their roll-out of MPS networks in each province, in turn, incentivizing third party platforms and vendors.

[GRAPHIC MISSING]

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 WEB. On the network front, China Telecom has the most developed 3G footprint in the PRC, while China Unicom has recently announced it will raise $1.8 billion to accelerate its 3G development. China Mobile’s 2009 Annual Report stated that it already operated in 238 cities, providing service to 70% of urban populations in the PRC, and that it would approach urban population coverage of 100% by the end of 2011. China Telecom’s 2009 Annual Report also signaled that it was almost at full coverage, with 98% of urban populations and 93% of rural populations covered at the close of 2009. China Unicom’s 2009 Annual Report pronounced less ambitious service goals with 282 cities by end of 2009 and 75% of the total population by the end of 2011.

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 is offering the iPhone for RMB 3,899. Meanwhile China Telecom, the third largest mobile network provider by market share, is offering 3G handsets around RMB 1,000. Affordable smartphones with higher browser quality may increase WAP and WEB use and thus encourage greater use of remote MPS payments.

51


 
 

TABLE OF CONTENTS

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 and the cost is relatively low. For example, China Telecom mobile subscribers can currently switch to a POS MPS SIM card for less than RMB100.

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

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

MPS Security

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

Competition Among Third-Party Vendors

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.

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 164 filed patent applications, of which 50 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.

52


 
 

TABLE OF CONTENTS

Table I: Significant Patents Granted

   
Patent#   Description of use   Expiration Date
ZL 200410009495.0   System and implementation of enabling mobile user to store and search phone book list from network. Provides network phone book store and searching feature from mobile network.   August 30, 2024
ZL 200410009525.8   Equipment and method for realizing hiding calling number in telephone exchange network.   September 8, 2024
ZL 200410009612.3   Device and method for realizing transmitting information to computer network real-time communication terminal by telephone.   September 28, 2024
ZL 200410009830.7   Equipment and method for providing senior secretary service for telephone user.   November 22, 2024
ZL 200410103905.8   Apparatus and method for intelligent communication based on mobile communication network and Internet.   December 31, 2024
ZL 200510011305.3   Device and method for selecting and binding telephone number by mobile communication intelligent card.   February 4, 2025
ZL 200510011343.9   Method for implementing new service of mobile phone based on position renewing operation.   February 23, 2025

   
Patent#   Description of use   Expiration Date
ZL 200510011525.6   System, method and implementation of providing instant communication between mobile phone and computer user. Provides forward function between Instant Message client and mobile phone.   April 4, 2025
ZL 200510011542.X   Apparatus and method for realizing main calling set ring back tone based on personalized ring back tone.   April 8, 2025
ZL 200510012089.4   Device and method for realizing to provide short news to mobile phone user and no interference service.   July 4, 2025
ZL 200510012090.7   Equipment and method for providing virtual facsimile business using mobile telephone number.   July 4, 2025
ZL 200610011449.3   Apparatus and method for automatic network storage of short message receive by mobile telephone.   March 8, 2026
ZL 200610011574.4   Device and method for realizing main call customized ring back tone service.   March 29, 2026
ZL 200610011725.6   Device and method for realizing mobile phone turn-off and short message call transfer.   April 4, 2026
ZL 200610112451.X   System and method for realizing secrecy of mobile phone number.   August 18, 2026
ZL 200710065067.3   Method for realizing caller customized ring back tone compatible with called personalized ring back tone.   April 2, 2027
ZL 200710063737.8   System and method for realizing point-to-point short message encryption and message screening.   February 8, 2027
ZL 200710177629.3   System and method for realizing personal electronic check card.   November 19, 2027
ZL 200810224979.5   System and method for adding fixed telephone number to mobile telephone number.   October 29, 2028

53


 
 

TABLE OF CONTENTS

Table II: Significant Patents Pending

   
Patent#   Description of use   Expiration Date
ZL 200710121396.5   System, method and implementation of enabling communication between mobile client device and mobile client server. Enables communication between mobile client device and mobile client server.   September 5, 2027
ZL 200810089411.7   System, method and implementation of providing multiple phone numbers in one mobile phone and enabling mobile users to control their multiple mobile phone numbers' feature. Provides multiple phone numbers in one mobile phone and enables mobile users to control their multiple mobile phone numbers' features, such as call, MMS and SMS screening, backup MMS and SMS to E-mail format, and enables users to manage their mobile communication functions.   March 28, 2028
ZL 200910091555.0   Method and implementation of integrating different bank cards into one special personal payment device. Provides a method to integrate different bank cards such as gate pass, attendance pass and RFID card into one special personalized payment machine for user to easily control.   August 26, 2029
ZL 200910092196.0   System, method and implementation of providing caller CRBT service based on CRBT service. Provides caller CRBT service based on CRBT service so that callers can receive caller's CRBT when making calls to Non-CRBT users.

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

Government Regulations

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

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

54


 
 

TABLE OF CONTENTS

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 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.

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.

55


 
 

TABLE OF CONTENTS

DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN SIGNIFICANT EMPLOYEES

As of the date of this prospectus, our directors, executive officers and significant employees are as follows:

   
Name   Age   Title
Dr. Hou WanChun     44       Chairman of the Board of Directors  
Li Qiang     41       Chief Executive Officer and Director  
Ye Yuan Jun     30       Chief Financial Officer  
Dr. An ChungMing     68       Chief Strategist  
Bao Jihong     45       Chief Marketing Officer and Director  
Wang Xin     31       Chief Technology Officer and Director  
Cory Roberts     45       Director (1) 
Albert Liu     37       Director  
Regis Kwong     47       Independent Director  
Dr. Tan Kok Hui     48       Independent Director  
Iris Geng     46       Independent Director  
Dr. Lv Ting Jie     54       Independent Director  
Huang Zhaoxing     64       Independent Director  
Li Dong     42       Independent Director  
Larry Gilmore     47       Independent Director  

(1) Mr. Roberts has advised us that he intends to resign from the Board of Directors following the consummation of this offering.

Hou WanChun, Chairman and Co-Founder.  Dr. Hou has been our Chairman of the Board since February 10, 2010. Dr. Hou founded Trunkbow in 2001 and holds numerous patents for telecom applications. From September 1991 to July 1994 he was a visiting scholar at Beijing Telecommunications University. Dr. Hou was also a research fellow at Shandong University from October 2000 to November 2001. He obtained his BS, MS and PhD in mathematics from Shandong University. Dr. Hou is one of our co-founders and has a vast telecommunications, engineering and research experience. We believe that he provides the Board of Directors with unique insight into the technical aspects of our business and that is intimately familiar with our day-to-day operations.

Li Qiang, Chief Executive Officer, Director and Co-Founder.  Mr. Li has been our Chief Executive Officer since March 1, 2010 and has been a director since his appointment. Mr. Li founded Trunkbow in 2001 and is an entrepreneur with extensive business knowledge of the telecom market. Prior founding Trunkbow with Dr. Hou, Mr. Li was a director at the National Tax Bureau from July 1991 to November 2001, overseeing technology companies in Jinan, Shandong. He currently holds three patents for telecom applications. Mr. Li graduated from Shandong Tax University and obtained his MBA from Nanyang University in Singapore. Mr. Li is one of our co-founders and we believe that he possesses a thorough understanding of our business from top to bottom. We believe that Mr. Li provides the Board of Directors with valuable insight into our entire business operations.

Ye Yuan Jun, Chief Financial Officer.  Ms. Ye has been our Chief Financial Officer since January 1, 2010. Prior to joining us, Ms. Ye was a senior audit manager in Bernstein & Pinchuk LLP from July 2008 to December 2009. Ms. Ye was with Deloitte Touche Tohmatsu from July 2002 to July 2008 where she worked in the auditing department. Ms. Ye obtained her BA in accounting from Guangdong University of Foreign Studies. Ms. Ye has completed all sections of the Uniform Certified Public Accountants Examination.

Dr. An ChungMing, Chief Strategist.  Dr. An has over 30 years of experience in the telecom industry. From February 2006 to April 2009 he was a VP at CDMA Development Group supporting its operations in the Southeast Asia and the Greater China region. From September 2002 to January 2006, Dr. An was the CEO at Asia Pacific Broadband Wireless where he lead the management team. He was the President at Mobitai Communications, a GSM operator in Taiwan, from April 1998 to September 2002. Dr. An started his

56


 
 

TABLE OF CONTENTS

professional career with Bell Labs in 1978 and would go on to hold various technical and managerial positions until 1998. He was an Associate Professor at Seton Hall from June 1969 to June 1972 and Johns Hopkins University from June 1972 to June 1978. Dr. An obtained his PhD in Mathematics from University of Pennsylvania.

Bao Jihong, Chief Marketing Officer and Director.  Mr. Bao has been a member of the Board of Directors since March 1, 2010. He has over 20 years of telecom marketing experience. From October 1998 to April 2005 he worked at China Electronic Corporation, a provider of software and hardware systems to China’s telecom operators, where he left as the head of telecom application marketing. Mr. Bao obtained his BS and MS from Peking University in Information Management. Mr. Bao joined us in May 2005 and has a rich experience with Chinese telecom market. We believe that Mr. Bao provides the Board of Directors with unique insight into the marketing of our business.

Wang Xin, Chief Technology Officer and Director.  Mr. Wang has been a member of the Board of Directors since March 1, 2010. He joined us in July 2001, helping us to develop mobile applications with intelligent networks. He was part of the development team for the original Color Ring Back Tone application and led the successful development of mobile applications in logistic industry for Rapid ID in the US. Mr. Wang obtained his BS in applied mathematics from Shandong University. As leader of our R&D team, we believe that Mr. Wang provides the Board of Directors with unique insight into the research and development of new technology in the telecom field.

Cory Roberts, Director.  Mr. Roberts has been a member of our Board of Directors since August 28, 2008 and President since August 28, 2008, and resigned as president on February 10, 2010. Mr. Roberts has an 18 year career in finance that spans investment management and investment banking. In 2004, he established Bay Peak LLC, a privately held investment firm. From August 2004 until now, he has acted as managing director of Bay Peak LLC, responsible for evaluating, negotiating, structuring and executing complex investment transactions. He holds a B.A. in Business Finance from the University of Oklahoma. We believe that Mr. Roberts’s vast experience in finance and investment banking provides him a unique and valuable expertise from which he can draw to help advise the Board of Directors. Mr. Roberts has advised us that he intends to resign from the Board of Directors following the consummation of this offering.

Albert Liu, Director.  Mr. Liu has been a member of the Board of Directors since March 1, 2010. Mr. Liu joined VeriFone in October 2008, as Senior Vice President, General Counsel and Corporate Secretary where he is responsible for overseeing all of VeriFone’s legal matters. In this capacity he also serves as Chief Compliance Officer. Prior to joining VeriFone, he was Vice President, Legal and Corporate Development, and Company Secretary for NETGEAR, Inc., a provider of networking solutions, commencing in October 2004. Mr. Liu also previously served as General Counsel, Director of Human Resources and Secretary of Turnstone Systems, Inc., a supplier of digital subscriber line testing equipment and General Counsel and Secretary for Yipes Enterprise Services, a provider of Ethernet connectivity services. Mr. Liu began practicing law with the firm of Sullivan & Cromwell in New York, advising clients on all aspects of corporate and securities law, leading public and private securities offerings, and negotiating and finalizing venture capital investments and contracts. Before entering the legal field, he was a software engineer at Tandem Computers. He holds dual degrees in Computer Science and Political Science from Stanford University and a J.D (magna cum laude) from the University of California, Hastings College of the Law. He is a member of the State Bar of California. We believe that Mr. Liu’s professional background as an attorney in the U.S. and his experience as General Counsel and CCO of VeriFone will enable him to provide the Board of Directors with valuable advice on our corporate governance matters and our SEC compliance.

Regis Kwong, Director and Compensation, Nomination Committee Chair.  Mr. Kwong has been a member of the Board of Directors since March 1, 2010. He has over 25 years experience with leading global telecom services providers. In June 1985 he started his career with GTE (now Verizon) where he became the Head of Operations in China. From May 1997 to May 2000 Mr. Kwong served as Vice President and General Manager for GTS China, managing China operations for GTS. After GTS, in June 2000, Mr. Kwong founded Terremark Asia, a subsidiary of Terremark Worldwide (NASDAQ: TMRK). Mr. Kwong became Chief Executive Officer of Jingwei International, a US public company in February 2005 where he oversaw all of its business operations until June 2009. Mr. Kwong received his B.S. and Masters Degree in Computer

57


 
 

TABLE OF CONTENTS

Engineering from California Polytechnic University in 1985 and 1987, respectively, and an M.B.A. from Rutgers University in 1999. We believe that Mr. Kwong’s vast experience in the telecom industry and his experience with public companies will enable him to provide the Board of Director with valuable advice on industry matters and with our SEC compliance. From April 2007 through July 2009 Mr. Kwong served on the board of directors of Jingwei International Limited. From March 2006 through April 2007 served on the board of directors of CGI Group Inc. Since July 2009, Mr. Kwong has served as managing director of Centric Capital Limited, where he is responsible for the company’s investments in China.

Dr. Tan Kok Hui, Director and Audit Committee Chair.  Dr. Tan Kok Hui has been a member of the Board of Directors since March 1, 2010. Dr. Tan has worked at Nanyang Business School, Nanyang Technological University, Singapore, since 1991, and he is currently an Associate Professor of Banking and Finance and Associate Dean. Dr. Tan graduated from Arizona State University with a PhD in International Finance. His research areas include risk management, derivatives, market microstructure, merger and acquisition, international finance, and fixed income. From 2001 to 2005 he was a sole consultant to Singapore’s DBS Bank DBS Family of Bond Indices. From January 2004 to December 2006, he was appointed as a member of the Singapore Commercial Affairs Department Panel of Experts on Securities Offences. Since 2000, he has been a senior advisor to a consulting firm in China dealing in the capital market. Dr. Tan qualifies as an “audit committee financial expert,” defined in the rules and regulations of the Securities Exchange Act of 1934, as amended. We believe that Dr. Tan’s expertise in international finance makes him uniquely qualified to serve as a member of the Board of Directors and as Chair of the Audit Committee.

Iris Geng, Director and Member of Audit Committee.  Ms. Geng has been a member of the Board of Directors since March 1, 2010. Ms. Geng is currently an international independent investor in Hong Kong since November 2006. She was the Managing Director of CRE Beverage Company Ltd in Hong Kong from August 1995 to November 2006 and served as a member of local industry (mainly Tea and Canned Food) chamber of commerce from January 1991 to October 1994. She has over 25 years experience in supply chain management and procurement operation. Ms. Geng has an MBA degree from the University of San Francisco, USA. We believe that Ms. Geng’s experience working in and managing large international companies provides her a unique perspective from which she can offer her advice to the Board.

Dr. Lv Ting Jie, Director and Member of Nomination Committee.  Dr. Lv has been a member of the Board of Directors since March 1, 2010. Dr. Lv has been with Beijing University of Posts and Telecommunication since May 1985, where currently he is a Professor of Business, and he is a Visiting Professor at Tsinghua University. Dr. Lv was also the Chairman and CEO of NuoTai Consulting Company, from March 2001 to December 2002. We consider Dr. Lv to be an expert on China’s telecom business and we believe that his scholarly research on business and economics will be valuable to the Board of Directors.

Huang Zhaoxing, Director and Member of Compensation Committee.  Mr. Huang has been a member of the Board of Directors since February 10, 2010. Mr. Huang has extensive experience in the telecom equipment industry. Since 2005 he has been a general engineer at Hangzhou Telisheng Technology Co., Ltd., where he is responsible for strategic oversight of their R&D team. He was the General Manager of Zhejiang Telecom Equipments Factory from April 1989 to June 2005, the Chairman of Zhejiang Telecom Equipments Factory from February 1991 to July 1997 and UTStarcom Hangzhou Telecom Co., Ltd. from February 1991 to July 1997 and the Deputy Chairman of UTStarcom Hangzhou Telecom Co., Ltd. from August 1997 to December 2002. He also served as the workshop manager and technology officer from 1972 to 1988 and the Vice General Manager of Zhejiang Telecom Equipments Factory from 1988 to 1989. Mr. Huang obtained his BS in radio engineering from Zhejiang University in July of 1970. We believe that Mr. Huang’s telecom hardware engineering background provides him with valuable expertise from which he can draw to help advise the Board of Directors.

Li Dong, Director and Member of Audit Committee.  Mr. Li has been a member of the Board of Directors since February 10, 2010. He has over ten years of finance and security investment experience. Mr. Li has been with Beijing Qinchuangxin Tech-trading Co., Ltd. since December 2003. He currently acts as Vice General Manager, where he is responsible for overseeing corporate finance and investing activities. Mr. Li obtained his BS in Industrial and Civil Architecture from Beijing University of Technology in 1993. We

58


 
 

TABLE OF CONTENTS

believe that Mr. Li’s experience with finance and capital markets provides him with valuable expertise from which he can draw to help advise the Board of Directors.

Larry Gilmore, Director and Member of Compensation Committee and Nomination Committee.  Larry Gilmore has been a member of the Board of Directors since February 10, 2010. Mr. Gilmore is currently VP Corporate Strategy of Yongye International, Inc., where he has served since August 2008, and he is responsible for SEC compliance and investor relations. Prior to joining Yongye, Gilmore was SVP of operations for Asia Standard Energy from June 2005 to November 2007, where he was responsible for raising investment and corporate oversight of finance and accounting activities. Mr. Gilmore served as Managing Director of GC Global from October 2001 to June 2005, assisting large organizations undertake large scale change initiatives. Previously, he was the Manager of Human Resources at Alcatel and a Senior Consultant at Deloitte and Touche. We believe that Mr. Gilmore’s experience as an investor in the US public markets and as a director of Yongye International, a US publicly-traded company, make Mr. Gilmore uniquely qualified to advise the Board on matters related to SEC compliance, listing and continued listing on a national securities exchange, internal controls over financial reporting and other corporate governance matters.

All directors hold office until the next annual stockholders’ meeting or until their death, resignation, retirement, removal, disqualification, or until their successors have been elected and are qualified.

No director or executive officer is related to any other director or executive officer.

Certain Legal Proceedings

To the best of our knowledge, there have been no events under any bankruptcy act, criminal proceedings, judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors, executive officers, promoters or control persons during the past ten years.

Director Independence

Our board of directors has determined that each of Regis Kwong, Dr. Tan Kok Hui, Iris Geng, Dr. Lv Ting Jie, Huang Zhaoxing, Li Dong, and Larry Gilmore are independent directors as defined by Rule 5605(a)(2) of the Listing Rules of The Nasdaq Stock Market, Inc.

59


 
 

TABLE OF CONTENTS

EXECUTIVE COMPENSATION

Compensation of Officers

The following table sets forth all cash compensation paid by Trunkbow, as well as certain other compensation paid or accrued, in 2010 and 2009, to each of the following named executive officers.

Summary Compensation of Named Executive Officers

           
Name and Principal Position   Fiscal
Year
  Salary
($)
  Bonus
($)
  Option
Awards
($)
  All Other
Compensation
($)
  Total
($)
Li Qiang
Chief Executive Officer
    2010       88,512       0       0       0       88,512  
       2009       56,000       8,800       0       0       64,800  

During each of the last two fiscal years, none of our other officers had salary and bonus greater than $100,000. In addition, our executive officers and/or their respective affiliates will be reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of such expenses by anyone other than our Board of Directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged.

We do not have employment agreements with any of our officers. We formed a Compensation Committee consisting of the independent directors on March 1, 2010. In the future, compensation for executive officers will be determined based on the compensation policies, programs and procedures to be established by our Compensation Committee.

Option Grants in Last Fiscal Year

There were no options granted to any of the named executive officers during the fiscal years ended December 31, 2010 and 2009.

Equity Compensation Plan Information

We currently do not have any equity compensation plans.

Compensation of Directors

Our directors are reimbursed for expenses incurred by them in connection with attending Board of Directors’ meetings, but they do not receive any other compensation for serving on the Board of Directors.

60


 
 

TABLE OF CONTENTS

DESCRIPTION OF SECURITIES

General

Our current authorized capital stock consists of 190,000,000 shares of common stock and 10,000,000 shares of preferred stock, each with a par value of $.001 per share, of which 32,472,075 common shares and no preferred shares were issued and outstanding immediately prior to this offering.

Common Stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation. Any action other than the election of directors shall be authorized by a majority of the votes cast, except where the Nevada Revised Statutes prescribes a different percentage of votes and/or exercise of voting power. When a dividend is declared by the Board of Directors, all stockholders are entitled to receive a fixed dividend. To date, no dividends have been declared. All shares of common stock issued by us are of the same class, and have equal liquidation, preference, and adjustment rights.

Holders of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for our common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any additional preferred stock is authorized and issued. All outstanding shares of our common stock are, and the shares underlying all options and warrants and convertible securities will be, duly authorized, validly issued, fully paid and non-assessable upon our issuance of these shares.

Warrants

We have issued warrants to purchase 3,005,519 shares of common stock at an exercise price of $2.00 which remain outstanding. The warrants have a five year term.

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.

Anti-takeover Provisions of our Certificate of Incorporation

Our Certificate of Incorporation grants our board of directors the authority, without any further vote or action by stockholders, to issue preferred stock in one or more series, fix the number of shares constituting the series and establish the preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption, redemption price or prices, redemption rights and liquidation preferences of the shares of the series. The existence of authorized but unissued preferred stock could reduce our attractiveness as a target for an unsolicited takeover bid, since we could, for example, issue preferred stock to parties who might oppose such a takeover bid, or issue shares with terms the potential acquirer may find unattractive. This may have the effect of delaying or preventing a change in control, discourage bids for the common stock at a premium over the market price, and adversely affect the market price, and voting and other rights of holders of common stock. Our board of directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized preferred stock, unless otherwise required by law.

Anti-takeover Effects of Nevada Law

Business Combinations

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, generally prohibit a Nevada corporation with at least 200 stockholders of record, a “resident domestic corporation,” from engaging in various “combination” transactions with any “interested stockholder” unless certain conditions are met or the corporation has elected to not be subject to these provisions.

61


 
 

TABLE OF CONTENTS

A “combination” is generally defined to include (a) a merger or consolidation of the resident domestic corporation or any subsidiary of the resident domestic corporation with the interested stockholder or affiliate or associate of the interested stockholder; (b) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, by the resident domestic corporation or any subsidiary of the resident domestic corporation to or with the interested stockholder or affiliate or associate of the interested stockholder having: (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the resident domestic corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the resident domestic corporation, or (iii) 10% or more of the earning power or net income of the resident domestic corporation; (c) the issuance or transfer in one transaction or series of transactions of shares of the resident domestic corporation or any subsidiary of the resident domestic corporation having an aggregate market value equal to 5% or more of the resident domestic corporation to the interested stockholder or affiliate or associate of the interested stockholder; and (d) certain other transactions with an interested stockholder or affiliate or associate of the interested stockholder.

An “interested stockholder” is generally defined as a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation's voting stock. An “affiliate” of the interested stockholder is any person that directly or indirectly through one or more intermediaries is controlled by or is under common control with the interested stockholder. An “associate” of an interested stockholder is any (a) corporation or organization of which the interested stockholder is an officer or partner or is directly or indirectly the beneficial owner of 10% or more of any class of voting shares of such corporation or organization; (b) trust or other estate in which the interested stockholder has a substantial beneficial interest or as to which the interested stockholder serves as trustee or in a similar fiduciary capacity; or (c) relative or spouse of the interested stockholder, or any relative of the spouse of the interested stockholder, who has the same home as the interested stockholder.

If applicable, the prohibition is for a period of three years after the date of the transaction in which the person became an interested stockholder, unless such transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; and extends beyond the expiration of the three-year period, unless (a) the transaction was approved by the board of directors prior to the person becoming an interested stockholder; (b) the transaction is approved by the affirmative vote of a majority of the voting power held by disinterested stockholders at a meeting called for that purpose no earlier than three years after the date the person first became an interested stockholder; or (c) if the consideration to be paid to all stockholders other than the interested stockholder is, generally, at least equal to the highest of: (i) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, plus compounded interest and less dividends paid, (ii) the market value per share of common shares on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, plus compounded interest and less dividends paid, or (iii) for holders of preferred stock, the highest liquidation value of the preferred stock, plus accrued dividends, if not included in the liquidation value. With respect to (i) and (ii) above, the interest is compounded at the rate for one-year United States Treasury obligations from time to time in effect.

Because we have over 200 stockholders of record, we will be subject to the Nevada business combination provisions. Applicability of the business combination law would discourage parties interested in taking control of Trunkbow if they cannot obtain the approval of our Board of Directors. These provisions could prohibit or delay a merger or other takeover or change in control attempt and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Control Share Acquisitions

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, apply to “issuing corporations,” which are Nevada corporations with at least 200 stockholders of record, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada, unless the corporation has elected to not be subject to these provisions.

62


 
 

TABLE OF CONTENTS

The control share statute prohibits an acquirer of shares of an issuing corporation, under certain circumstances, from voting its shares of a corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: (a) one-fifth or more but less than one-third, (b) one-third but less than a majority, and (c) a majority or more, of the outstanding voting power. Generally, once a person acquires shares in excess of any of the thresholds, those shares and those shares acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters' rights.

A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes, and we may be subject to these statute after this offering.

The effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of Trunkbow.

63


 
 

TABLE OF CONTENTS

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our common stock as of January 31, 2011 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. As of January 31, 2011, we had 32,472,075 shares of common stock issued and outstanding.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Unless otherwise noted, the principal address of each of the stockholders, directors and officers listed below is Unit 1217-128, 12F of Tower B, Gemdale Plaza, No. 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China.

All share ownership figures include shares of our common stock issuable upon securities convertible or exchangeable into shares of our common stock within sixty (60) days of January 31, 2011, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.

   
Name and Address of Beneficial Owner   Number of
Shares
  Percentage of
Outstanding
Shares of
Common
Stock
Chief Honour Investments Limited
    8,558,764 (1)      26.36 % 
Capital Melody Limited     7,580,619 (2)      23.35 % 
VeriFone, Inc.
2099 Gateway Place
Suite 600 San Jose, CA 95110
    3,000,000 (3)      9.10 % 
HPCG Trunkbow Holdings, L.P.
21020 North Pima Rd.
Scottsdale, AZ 85255
    2,151,000 (4)      6.55 % 
Bay Peak LLC
169 Bolsa Avenue
Mill Valley, CA 94941
    1,452,332 (5)      4.45 % 
Dr. Hou Wanchun     8,558,764 (1)      26.36 % 
Li Qiang     7,580,619 (2)      23.35 % 
Regis Kwong     833,379       2.57 % 
Ye Yuan Jun     *       *  
Dr. An ChungMing     *       *  
Bao Jihong     *       *  
Wang Xin     *       *  
Dr. Tan Kok Hui     *       *  
Iris Geng     *       *  
Dr. Lv Tingjie     *       *  
Huang Zhaoxing     *       *  
Li Dong     *       *  
Larry Gilmore     *       *  
Albert Liu     *       *  
Cory Roberts     1,452,332 (5)      4.45 % 
All Directors, Executive Officers and Director Nominees, as a group     18,425,094       56.57 % 

* Less than one percent

64


 
 

TABLE OF CONTENTS

(1) Mr. Lao Chi Weng holds 100% common shares of Chief Honour Investments Limited, but he does not have the power to vote or dispose of any of our common stock. Dr. Hou Wanchun is the sole director of Chief Honour Investments Limited and has the sole power to vote and dispose of our common stock held by Chief Honour Investments Limited.

On September 21, 2009, Mr. Lao Chi Weng entered into a share transfer agreement with Dr. Hou Wanchun, pursuant to which Dr. Hou was granted the right to purchase, within 45-days from the end of each period, for $1.00 per share, the shares held by Chief Honour Investments Limited, as follows: (i) one-third of the shares if we generate at least US$2,800,000 in gross revenue for the twelve months from January 1, 2010 to December 31, 2010; (ii) one-third of the shares if we generates at least US$1,500,000 in gross revenue for the six months from January 1, 2011 to June 30, 2011; and (iii) one-third of the shares if we generate at least US$1,500,000 in gross revenue for the six months July 1, 2011 to December 31, 2011. In the event that we do not achieve any one of the performance targets specified above, then Dr. Hou may purchase the shares for $1.10 per share.

On October 1, 2009, Dr. Hou Wanchun also entered into an Entrustment Agreement with Chief Honour, pursuant to which, Chief Honour authorizes Dr. Hou Wanchun to act on behalf of it, as exclusive agents and attorneys in-fact with respect to all matters concerning Chief Honour Investments’ rights as a shareholder.

(2) Mr. Lao Chi Weng holds 100% common shares of Capital Melody Limited, but he does not have the power to vote or dispose of any of our common stock. Mr. Li Qiang is the sole director of Capital Melody and has the sole power to vote and dispose of the common stock held by Capital Melody Limited.

On September 21, 2009, Mr. Lao Chi Weng entered into a share transfer agreement with Mr. Li Qiang, pursuant to which, Mr. Li was granted the right to purchase, within 45-days from the end of each period, for $1.00 per share, the shares held by Capital Melody Limited, as follows: (i) one-third of the shares if we generate at least US$2,800,000 in gross revenue for the twelve months from January 1, 2010 to December 31, 2010; (ii) one-third of the shares if we generates at least US$1,500,000 in gross revenue for the six months from January 1, 2011 to June 30, 2011; and (iii) one-third of the shares if we generate at least US$1,500,000 in gross revenue for the six months July 1, 2011 to December 31, 2011. In the event that we do not achieve any one of the performance targets specified above, then Mr. Li may purchase the shares for $1.10 per share.

On October 1, 2009, Capital Melody also entered into an Entrustment Agreement with Li Qiang, pursuant to which, Capital Melody authorizes Li Qiang to act on behalf of it, as exclusive agents and attorneys in-fact with respect to all matters concerning Capital Melody’s rights as a shareholder.

(3) Includes warrants to purchase 500,000 shares of our common stock.
(4) Includes warrants to purchase 358,500 shares of our common stock. As the manager of HPCG Trunkbow Investment, LLC, the general partner of HPCG Trunkbow Holdings L.P., Christopher Jensen has the power to vote and dispose of the common stock.
(5) Includes a warrant to purchase 100,000 shares of our common stock. Cory Roberts has the power to vote and dispose of the common stock held by Bay Peak LLC.

65


 
 

TABLE OF CONTENTS

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS,
AND CERTAIN CONTROL PERSONS

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. As of September 30, 2010, we had advanced $990,980 to VeriFone for the purchase of the point of sale systems.

At September 30, 2010, December 31, 2009 and 2008, amounts due from directors consisted of:

     
  September 30,
2010
  December 31,
2009
  December 31,
2008
Amount due from Mr. Qiang Li   $ 140,114     $ 904,581     $ 447,026  
Amount due from Mr. Wan Chun Hou           1,183,587       737,090  
Amount due from Mr. Yue Lou                 22,703  
     $ 140,114     $ 2,088,168     $ 1,206,819  

Amounts due from directors are non-interest bearing short-term personal loans from the directors made pursuant to a written repayment agreement with a subsidiary of Trunkbow, with fixed repayment terms varying upon the circumstances, generally six to twelve months, without interest. The balance of the amount due from directors as of December 31, 2009 was subsequently settled in full.

The balance as of September 30, 2010 represented advance to the directors for expenses to be paid on behalf of the company.

At September 30, 2010, December 31, 2009 and 2008, amount due to directors consisted of:

     
  September 30,
2010
  December 31,
2009
  December 31,
2008
Amount due to Mr. Yue Lou   $     $ 24,430     $  

66