10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2012

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

Commission File Number: 001-35058

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED

(Exact name of small business issuer as specified in its charter)

Nevada	75-3552213
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices, Zip Code)

+ (86) 10-85712518

(Registrant’s telephone number, including area code)

 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every, Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller Reporting Company x

(Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the issuer’s classes of common equity, as of May 14, 2012 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	36,807,075

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Table of Contents	Page
PART I: FINANCIAL INFORMATION	1
Item 1 Financial statements	1
Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011	1
Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2012 and 2011 (Unaudited)	2
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)	3
Notes to Consolidated Financial Statements (Unaudited)	4
Item 2 Management Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3 Quantitative and Qualitative Disclosure about Market Risk	32
Item 4 Controls and Procedures	32
PART II : OTHER INFORMATION	33
Item 1 Legal Proceedings	33
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3 Defaults Upon Senior Securities	33
Item 4 Mine Safety Disclosures	33
Item 5 Other Information	33
Item 6 Exhibits	33
SIGNATURES	34

i

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

PART I. FINANCIAL STATEMENTS

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2012		2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents*	$	6,071,371	$	6,139,589
Accounts receivable, net*		42,262,303		41,147,767
Advances to suppliers		11,926,430		13,270,125
Prepayment		2,148,201		316,258
Other current assets*		6,944,759		4,040,152
Due from directors*		577,801		758,033
Inventories*		12,292,660		11,297,513
Deferred tax asset		118,699		117,952
Total current assets		82,342,224		77,087,389
Property and equipment, net*		12,352,836		11,561,034
Land use right, net		5,912,852		5,905,583
Intangible assets, net		279,971		33,958
Long-term prepayment*		792,899		2,733,363
TOTAL ASSETS	$	101,680,782	$	97,321,327
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable*	$	1,194,843	$	2,238,179
Accrued expenses and other current liabilities*		2,298,441		2,216,128
Short-term loan		10,097,333		6,460,945
Due to directors*		0		11,959
Taxes payable*		3,240,015		4,209,907
Total current liabilities		16,830,632		15,137,118
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity
Preferred Stock: par value $0.001, authorized 10,000,000 shares, none issued and outstanding at March 31, 2012 and December 31, 2011, respectively		0		0
Common Stock: par value $0.001, authorized 190,000,000 shares, 36,807,075 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		36,807		36,807
Additional paid-in capital		39,671,966		39,671,966
Appropriated retained earnings		4,504,667		4,504,667
Unappropriated retained earnings		37,195,918		34,989,429
Accumulated other comprehensive income		3,440,792		2,981,340
Total stockholders’ equity		84,850,150		82,184,209
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	101,680,782	$	97,321,327

*The assets of the VIEs can be used only to settle the obligations of the VIEs. Conversely, liabilities recognized as of consolidating VIEs do not represent additional claims on the Company’s assets. (Note 24).

See notes to consolidated financial statements

1

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

	Three Months Ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)
Revenues	$	6,798,213		$	5,102,342
Less: Business tax and surcharges		116,551			121,424
Net revenues		6,681,662			4,980,918
Cost of revenues		1,339,336			551,833
Gross profit		5,342,326			4,429,085
Operating expenses
Selling and distribution expenses		1,025,022			436,608
General and administrative expenses		1,160,671			1,214,622
Research and development expenses		550,862			329,514
		2,736,555			1,980,744
Income from operations		2,605,771			2,448,341
Other income (expenses)
Interest income		55,632			13,203
Interest expense		(179,009	)		(33,252	)
Refund of value-added tax		0			1,307,836
Government grants		39,627			0
Other income		15,851			23,555
Other expenses		(10,811	)		(17,651	)
		(78,710	)		1,293,691
Income before income tax expense		2,527,061			3,742,032
Income tax expense		320,572			388,353
Net income		2,206,489			3,353,679
Foreign currency translation fluctuation		459,452			222,911
Comprehensive income	$	2,665,941		$	3,576,590
Weighted average number of common shares outstanding
Basic		36,807,075			34,980,519
Diluted		36,827,585			36,008,635
Earnings per share
Basic	$	0.06		$	0.10
Diluted	$	0.06		$	0.09

See notes to consolidated financial statements

2

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	2,206,489		$	3,353,679
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		112,853			48,887
Changes in operating assets and liabilities:
Accounts receivable		(855,358	)		(1,233,721	)
Advance to suppliers		1,429,898			253,787
Prepayment		(1,832,754	)		73,475
Other current assets		(1,774,648	)		(4,337,835	)
Due from directors		185,315			(153,455	)
Inventories		(925,047	)		(537,690	)
Long-term prepayment		1,960,778			(65,164	)
Accounts payable		(1,059,130	)		(718,578	)
Accrued expenses and other current liabilities		68,388			178,116
Amounts due to directors		(12,054	)
Taxes payable		(998,076	)		(938,693	)
Net cash flows used in operating activities		(1,493,346	)		(4,077,192	)
Cash flows from investing activities
Acquisition of property and equipment and intangible assets		(1,048,584	)		(231,921	)
Payment on loans to third parties		(1,109,561	)		0
Acquisition of Delixunda Company (net of cash acquired)		0			(37,690	)
Cash flows used in investing activities		(2,158,145	)		(269,611	)
Cash flows from financing activities
Proceeds from issuance of common stock (net of finance costs)		0			17,342,251
Proceeds from bank loan		3,601,015			0
Cash flows provided by financing activities		3,601,015			17,342,251
Effect of exchange rate fluctuation on cash and cash equivalents		(17,742	)		(72,954	)
Net increase in cash and cash equivalents		(68,218	)		12,922,494
Cash and cash equivalents – beginning of the year		6,139,589			10,259,750
Cash and cash equivalents – end of the period	$	6,071,371		$	23,182,244
Supplemental disclosure of cash flow information
Cash paid for interest	$	179,009		$	33,252
Cash paid for income taxes	$	320,572		$	0
Supplemental disclosure of noncash financing activities
Issuance of 30,000 shares of common stock at $5.00 each for the legal fees	$	0		$	150,000

See notes to consolidated financial statements

3

TRUNKBOW INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 — ORGANIZATION AND PRINCIPAL ACTIVITIES

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

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

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

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

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

4

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

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

2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles pursuant to Regulation S-X of the Securities and Exchange Commission, and include the accounts of the Company, and its subsidiaries and VIEs, Trunkbow, Trunkbow Hong Kong, Trunkbow Shandong, Trunkbow Shenzhen, Trunkbow Technologies and Delixunda. Delixunda is being consolidated from March 10, 2011 (the date of acquisition). Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of consolidated financial position as of March 31, 2012 and consolidated results of operations, and cash flows for interim periods presented, have been made. The interim results of operations are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.

b) Principles of Consolidation

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

c) Reclassification

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

d) Use of estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.

e) Foreign currency translation

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

5

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

The exchange rates applied are as follows:

	March 31, 2012		December 31, 2011
RMB exchange rate		6.3185		6.5601
		2012		2011
Average RMB exchange rate for the three months ended March 31,		6.3088		6.5804

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

f) Cash and cash equivalents

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

g) Accounts receivable

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

h) Inventory

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

i) Property and equipment, net

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

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

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

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

6

Impairment of long-lived assets

Long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized for the three months ended March 31, 2012 and the year ended December 31, 2011.

j) Land use right, net

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

k) Intangible assets

Intangible assets acquired by the company and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment loss.

l) Fair value measurement

The Group's financial instruments primarily consist of cash and cash equivalents, accounts receivable, advance to suppliers, prepayment, other current assets, accounts payable, accrued expenses and other current liabilities. The carrying values of these financial instruments approximate fair values due to their short maturities.

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

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC Subtopic 820-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

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

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

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

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

A discussion of the valuation technique used to measure the fair value of the warrant is provided in note 17.

7

m) Revenue recognition

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

System integration

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

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

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

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

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

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

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

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

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

Sales of software

The Group enters into contracts directly with the mobile operators or through the resellers where resellers designated by the mobile operators have well-developed operation teams to support local operations so as to enable the mobile operators to provide mobile payment and value-added service to the end-users.

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

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

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

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

8

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

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

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

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

Patent licensing

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

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

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

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

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

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

Maintenance services

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

Revenue sharing

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

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

9

Royalty income

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

n) Government grants

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

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

o) Cost of revenues

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

p) Concentration  risk

Credit risk

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

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

Major Customers

The Group had sales to two customers that accounted for approximately 68.8% of revenues during the three months ended March 31, 2012 and four customers who accounted for approximately 84.2% of revenues during the three months ended March 31, 2011. These customers accounted for approximately 20.9% and 18.2% of accounts receivable balance as of March 31, 2012 and December 31, 2011, respectively.

Major Suppliers

The Group had purchases from two and three vendors that accounted for approximately 65.5% and 86.1% of purchases during the three months ended March 31, 2012 and 2011, respectively. These vendors accounted for nil of accounts payable balance as of March 31, 2012 and December 31, 2011, respectively.

q) Research and development expenses

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

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r) Operating leases

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

s) Taxation

Income taxes

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

Value added taxes

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

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

Business tax and surcharges

The Company’s PRC subsidiaries and VIEs are also subject to a 5% business tax and related surcharges on the revenues earned from providing technical services.

t) Uncertain tax positions

ASC 740-10-25 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. For the three months ended March 31, 2012 and 2011 and the year ended December 31, 2011, the Group did not have any interest and penalties associated with tax positions and the Group did not have any significant unrecognized uncertain tax positions.

The Company’s subsidiaries and VIEs are subject to taxation in PRC and other tax jurisdictions. There is no ongoing examination by taxing authorities at this time. Various tax years during the three months ended March 31, 2012 and 2011 and the year ended December 31, 2011 of the Company’s subsidiaries and VIEs remain open in the relevant taxing jurisdictions.

u) Earnings per share

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

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v) Appropriated Retained Earnings

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

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

w) Comprehensive income

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

x) Commitments and contingencies

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

y) Recently issued accounting standards

In the three months ended March 31, 2012, the FASB has not issued any Accounting Standards Update.

3 — ACCOUNTS RECEIVABLE, NET

At March 31, 2012 and December 31, 2011, accounts receivable consisted of:

	March 31,			December 31,
	2012			2011
	(Unaudited)
Accounts receivable	$	43,211,895		$	42,091,386
Less: Allowance for doubtful debt		(949,592	)		(943,619	)
	$	42,262,303		$	41,147,767

The Group has recognized an allowance of $949,592 for a doubtful receivable that is over one year. The Group has not had any write-off of trade receivables during the years presented. $4,625,863 was subsequently collected by May 18, 2012. The accounts receivable of Trunkbow Shandong arising from all sales contracts or in kind from April 1, 2010 to December 30, 2013 have been pledged for the short-term bank loan of $6,488,882 due on December 28, 2012 and $791,327 on March 12, 2013.

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4 — ADVANCES TO SUPPLIERS

At March 31, 2012 and December 31, 2011, advances to suppliers consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Advances to suppliers	$	11,926,430	$	13,270,125

Advances to suppliers represent prepayments to the Group’s suppliers for the purchase of third party software and hardware to be used in our MVAS/MPS platforms.

5 — PREPAYMENT

Prepayments at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Prepaid royalty	$	1,857,640	$	0
Prepaid advertisement		0		267,359
Prepaid VAT		36,202		0
Prepaid insurance		138,705		0
Other prepaid expenses		115,654		48,899
	$	2,148,201	$	316,258

Prepaid royalties represented prepayment to Sony Music Entertainment China Holdings Limited for music license used in MPS and MVAS. The license will expire in March 2013.

Prepaid advertisement is amortized as the expense incurred. The balance as of December 31, 2011 was expensed during the three months ended March 31, 2012.

Prepaid VAT represented the payment of VAT-input over VAT-output.

Prepaid insurance is amortized within one year. Insurance expense for the three months ended March 31, 2012 and 2011 was $46,314 and $46,250.

Other prepaid expenses included prepaid property management fees, remodeling expenses, office rental and other operating expenses.

6 — OTHER CURRENT ASSETS

Loans receivable and other current assets at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Deposits	$	171,604	$	150,234
Loans to third parties		3,956,635		2,830,856
Staff advances		14,864		259,008
Advance to cloud APP agreement		2,801,656		800,054
	$	6,944,759	$	4,040,152

Loans to third parties as of December 31, 2011 and March 31, 2012 consisted primarily of $2.67 million and $3.48 million of payment to China Telecom Jinan Branch for the purchase of MPS hardware and software for the roll-out of MPS systems and application in Jinan City, Shandong Province. According to the agreement with China Telecom, Trunkbow will share monthly function fees based on 3% of total principal with China Telecom on the MPS systems and application for consecutive twelve months from January 2012 to December 2012. The principal will be repaid in December 2012. The revenue and interest income recognized during the three months ended March 31, 2012 was $137,353 and $52,857.

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Advance for cloud APP agreement represents a contribution per two cooperative agreements the Company entered into with a marketing company to start a music applet development project in December 2011 and January 2012. The contracts, in the amount of $2,000,000 and $801,656, respectively, call for 50% revenue sharing with a minimum guarantee of a 5% and 10% return, respectively. The terms of the agreements are nine and six months starting on January 1, 2012, respectively. In addition, the Company is guaranteed to receive its initial contribution of $2,801,656 at the end of the contract term.

7 — AMOUNT DUE FROM (TO) DIRECTORS

At March 31, 2012 and December 31, 2011, amount due from (to) directors consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Amount due from Directors	$	577,801	$	758,033

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

	March 31,		December 31,
	2012		2011
	(Unaudited)
Amount due to Directors	$	0	$	11,959

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

8 — INVENTORIES

At March 31, 2012 and December 31, 2011, inventories consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Hardware
-System integration hardware	$	97,060	$	95,354
-Point of sale systems		2,058,565		2,856,892
Project in progress		10,137,035		8,345,267
	$	12,292,660	$	11,297,513

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

9 — PROPERTY AND EQUIPMENT, NET

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

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Property and equipment as of March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Motor vehicles	$	545,972	$	454,309
Furniture and office equipment		124,668		109,140
Electronic equipment		433,762		426,580
Telecommunication equipment		779,860		189,659
Leasehold improvement		60,955		60,572
		1,945,217		1,240,260
Less: Accumulated depreciation		467,401		385,242
Construction in progress		10,875,020		10,706,016
	$	12,352,836	$	11,561,034

Depreciation expense for the three months ended March 31, 2012 and 2011 was $79,842 and $47,835, respectively.

Construction in progress represented phase payment on construction materials to a contractor for the construction of the R&D center in Jinan.

10 — LAND USE RIGHT, NET

	March 31,		December 31,
	2012		2011
	(Unaudited)
Land use right	$	6,013,223	$	5,975,395
Less: Accumulated amortization		100,371		69,812
	$	5,912,852	$	5,905,583

Trunkbow Shandong acquired the land use right for the construction of the R&D center in Jinan. The land use right expires in June 2061. The amortization of land use right for the three months ended March 31, 2012 and 2011 was $30,163 and nil. The estimated amortization expense is RMB761,160 (approximately $120,650) for each of the five succeeding fiscal years. The land use right has been pledged for the short-term bank loan of $6,488,882 due on December 28, 2012 and $791,327 on March 12, 2013.

11 — INTANGIBLE ASSETS, NET

At March 31, 2012 and December 31, 2011, intangible assets consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Software	$	251,878	$	3,216
License		41,149		40,890
		293,027		44,106
Less: Accumulated amortization		13,056		10,148
	$	279,971	$	33,958

Amortization expense for the three months ended March 31, 2012 and 2011 was $2,849 and $1,052, respectively.

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12 — LONG-TERM PREPAYMENT

At March 31, 2012 and December 31, 2011, long-term prepayment consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Office rental	$	3,324	$	8,191
Prepaid membership fee		245,135		250,758
Deposits		159,459		158,456
Prepaid royalties		0		1,857,011
Other prepaid expenses		384,981		458,947
	$	792,899	$	2,733,363

13 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The breakdowns of accrued expenses and other current liabilities as of March 31, 2012 and December 31, 2011 are as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Accrued payroll	$	314,819	$	477,091
Advance from customers		0		25,717
Loans from third parties		39,566		39,317
Payables to staff		378,330		160,006
Accrued expenses		390,057		357,481
Professional fees payable		225,000		231,454
Royalties payable		925,573		925,062
Others		25,096		0
	$	2,298,441	$	2,216,128

14 — SHORT-TERM LOAN

	March 31,		December 31,
	2012		2011
	(Unaudited)
China Minsheng Banking Corporation Limited	$	7,280,209	$	6,460,945
Agriculture Bank of China		2,817,124		0
	$	10,097,333	$	6,460,945

Total loan facility from China Minsheng Banking Corporation Limited is RMB50,000,000 (approximately $7,913,271) with 8.856% of annual interest rate. Among the $7,280,209, $6,488,882 is due on December 28, 2012, and $791,327 on March 12, 2013. The loan is guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use rights and Trunkbow Shandong’s accounts receivable as disclosed in note 3 and 10. The interest expense related to the loan for the three months ended March 31, 2012 and 2011 was $161,081 and nil.

On March 2, 2012, Trunkbow Shandong obtained a RMB 70,000,000 (approximately $11,078,579) total bank facility from Agriculture Bank of China. $2,817,124 of the total facility was received as of March 31, 2012, and the balance of the loan is due on September 1, 2012. The loan is secured by a transfer with full recourse of its accounts receivable of $3,162,079. Interest on the bank facility is a floating lending rate, 25% over the PBOC benchmark rate. Proceeds from the bank facility are restricted to use on projects signed directly with China Mobile, China Telecom, China Unicom, China Communications Services Corporation Limited and their subsidiaries. The interest expense related to the loan for the three months ended March 31, 2012 and 2011 was $17,928 and nil.

16

15 — TAXES PAYABLE

	March 31,		December 31,
	2012		2011
	(Unaudited)
Value Added Tax Payable	$	0	$	968,363
Income Tax Payable		3,214,150		3,056,321
Others		25,865		185,223
	$	3,240,015	$	4,209,907

16 — INCOME TAXES

Corporation Income Tax (“CIT”)

(i)            The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporation income tax. The Company became a holding company and does not conduct any substantial operations of its own after the Share Exchange. No provision for federal corporate income tax has been made in the financial statements as the Company has no taxable income in the United States for the three months ended March 31, 2012. Earnings in the PRC are intended to be permanently reinvested in the PRC operation.

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

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

(ii)          PRC subsidiaries and VIEs

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

Trunkbow Shandong

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

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

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

In March 2012, Trunkbow Shandong was recognized as New and High-Tech Enterprise. Under the Enterprise Income Tax Law effective from January 1, 2008, Trunkbow Shandong will be entitled to the 15% of preferential tax rate for the years ended December 31, 2014, 2015 and 2016.

17

Trunkbow Shenzhen

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

On June 8, 2011, Trunkbow Shenzhen was certified as a software enterprise by Shenzhen Technology, Industry, Commerce and Information Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. Trunkbow Shenzhen was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

Trunkbow Technologies

Trunkbow Technologies was registered in Shenzhen, a special economic zone in the PRC, which is entitled to preferential income tax rates of 18% and 15% in 2008 and 2007 respectively. According to the pronouncement of the tax bureau, for companies established before March 16, 2007, the income rate will gradually increase to 25% within 4 years, 20% in 2009, 22% in 2010, 24% in 2011 and 25% from 2012. Trunkbow Technologies was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

Delixunda

Delixunda was registered in Beijing, the PRC. The applicable income tax rate for Delixunda was 25% for the three months ended March 31, 2012. Delixunda had a net operating loss for the three months ended March 31, 2012, and no income tax provision was recorded.

1) Deferred tax asset 

	March 31,		December 31,
	2012		2011
	(Unaudited)
Deferred tax asset	$	118,699	$	117,952

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

2) The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for the three months ended March 31, 2012 and 2011, respectively:

	Three Months Ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)
PRC statutory tax rate		25	%		25	%
Accounting income before tax	$	2,861,733		$	4,228,937
Computed expected income tax expenses		715,433			1,057,234
Accumulated loss from subsidiaries and VIEs		1,878			52,320
Less: net operation loss carryforward		76,167			0
Less: tax exemption		320,572			721,201
Income tax expenses	$	320,572		$	388,353

17 — STOCKHOLDERS’ EQUITY

Preferred stock

The Company authorized 10,000,000 shares of preferred stock, with a par value of $.001 per share, but no preferred shares were issued and outstanding as of March 31, 2012.

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Common stock

Pursuant to the terms of the Exchange Agreement, in February 2010 the Shareholders transferred to the Company all of the Trunkbow Shares in exchange for the issuance of 19,562,888 shares of the Company’s common stock. Accordingly, the Company reclassified its common stock and additional paid-in-capital accounts for the year ended December 31, 2009.

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

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

Warrants

In connection with the February 2010 offering, we issued warrants (the “February 2010 Offering Warrants”) to purchase 3,005,519 shares of common stock at an exercise price of $2.00. The warrants have a five year term and are exercisable immediately. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

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

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

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

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

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

As of March 31, 2012, 305,000 warrants had been exercised at $2.00 per share.

On February 8, 2011, in connection with our IPO in February 2011, the Company granted Roth Capital Partners, LLC warrants (the “Roth Capital Warrants”) to purchase up to a total of 200,000 shares of our common stock as partial underwriting compensation. The warrants have a term of three years and an exercise price of $6, provide for cashless exercise at all times and, in accordance with FINRA Rule 5110(g)(1), may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such warrant by any person until August 7, 2011, except as provided in FINRA Rule 5110(g)(2). The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

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

19

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

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

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

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

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

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

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

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

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

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

As of March 31, 2012, no warrants had been exercised by China High Growth Capital LTD.

20

Escrow shares

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

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

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

18 — REVENUES AND COST OF REVENUES

The following consolidated result of operations includes the results of operations of the Company, all the subsidiaries and our VIEs, Trunkbow Technologies and Delixunda. Delixunda has being consolidated from March 10, 2011 (the date of acquisition).

For the three months ended March 31, 2012 and 2011, revenues and cost of revenues consisted of:

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
Gross Revenues
System integration	$	1,476,140	$	482,704
Software sales		4,673,976		3,606,930
Maintenance service		69,197		734,758
Shared revenue		578,900		277,950
		6,798,213		5,102,342
Less:
Business tax and surcharges		116,551		121,424
Cost of Revenues
Equipment costs		1,245,617		435,581
Labor Costs		93,719		116,252
		1,339,336		551,833
Gross profit	$	5,342,326	$	4,429,085

19 — SEGMENT INFORMATION

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

The Group operates in the PRC and all of the Group’s long-lived assets are located in the PRC. As of March 31, 2012, the Company provides two products and services: MVAS Technology Platforms and Mobile Payment Solutions. MVAS Technology Platforms enable the operators to offer mobile value added services to end-users through our major products including Caller Color Ring Back Tone, Number Change Notification and Color Numbering. Mobile Payment Solutions allows RF-SIM (radio frequency SIM) enabled mobile phones worldwide to be utilized as payment tools and authentication devices, and also enables the end-user to consolidate a variety of functions and services into one phone.

21

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

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

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
MVAS Technology Platforms
Gross Revenues	$	2,395,914	$	3,672,734
Business tax and surcharges		16,291		84,479
Cost of Revenues		573,983		464,300
	$	1,805,640	$	3,123,955
Mobile Payment Solutions
Gross Revenues	$	4,402,299	$	1,429,608
Business tax and surcharges		100,260		36,945
Cost of Revenues		765,353		87,533
	$	3,536,686	$	1,305,130

20 — EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require that the PRC subsidiaries of the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $231,939 and $132,985 for the three months ended March 31, 2012 and 2011, respectively.

21 — COMMITMENTS AND CONTINGENCIES

Commitments

Leasing Arrangements

The Group has entered into commercial leases for offices and vehicles 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:

	Rental commitment
	(Unaudited)
Nine months ending December 31, 2012	$	384,066
Year ending December 31, 2013		65,200
Year ending December 31, 2014		2,156
Total	$	451,422

Capital Commitment

We paid out the first phase payment to the contractor for our new R&D center in Jinan during the year ended December 31, 2011. We expect to make further payments as the construction progresses, although the timing and amount of such payments have not been agreed with the contractor as of the date hereof. The building is estimated to be completed by the first half of 2013, and the overall budget for the construction is between $23 – $30 million.

22

Contingencies

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

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

22 — EARNINGS PER SHARE

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
Numerator:
Net income	$	2,206,489	$	3,353,679
Denominator:
Weighted average number of common shares outstanding - Basic		36,807,075		34,980,519
Effect of dilutive securities - Warrant		20,510		1,028,116
Weighted average number of common shares outstanding - Diluted		36,827,585		36,008,635
Earnings per share
-Basic	$	0.06	$	0.10
-Diluted	$	0.06	$	0.09

 For the three months ended March 31, 2012, the Roth Capital Warrants were not included in the calculation of diluted earnings per share because the effect was anti-dilutive, as the exercise price of $6 was higher than the average stock price of $2.01 for the three months ended March 31, 2012.

For the three months ended March 31, 2011, the Roth Capital Warrants were not included in the calculation of diluted earnings per share because the effect was anti-dilutive, as the exercise price of $6 was higher than the average stock price of $4.64 for the three months ended March 31, 2011.

23 — RELATED PARTY TRANSACTIONS

1) Purchase from related parties

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

2) Guarantee and pledge of assets by related parties

The loan from China Minsheng Banking Corporation Limited was guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use right and Trunkbow Shandong’s accounts receivable. The pledge value of Mr. Li’s personal properties is RMB 3,930,000 (approximately $621,983).

3) Vehicle rental from related parties

Trunkbow (Asia Pacific) Investment Holdings Limited, our wholly owned Hong Kong subsidiary, entered into a vehicle rental agreement with Mr. Qiang Li for consecutive twelve months starting from January 1, 2012. Monthly rental fee is $12,000 on four cars owned by Mr. Li and $36,000 was paid to Mr. Li as deposit. Rental expense for the three months ended March 31, 2012 was $36,000.

23

24 — VARIABLE INTEREST ENTITIES

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

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

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

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

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

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

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

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

24

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

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

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

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

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

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

25

Summary information regarding consolidated VIEs is as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Assets:
Cash and cash equivalents	$	88,260	$	206,492
Accounts receivable		2,794,781		2,719,991
Other current assets		12,829		9,431
Inventories		123,569		134,126
Due from directors		2,862		3,103
Property and equipment, net		98,436		108,740
Long-term prepayment		5,678		7,431
Total Assets	$	3,126,415	$	3,189,314
Liabilities:
Accounts payable	$	213,799	$	180,338
Accrued expenses and other current liabilities		1,107,538		1,235,494
Due to directors		55,908		55,319
Taxes payable		1,730,846		1,721,633
Total Liabilities	$	3,108,091	$	3,192,784

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

For the three months ended March 31, 2012, the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $221,129, cost of revenues of $144,507, operating expenses of $51,242 and net income of $21,850.

For the three months ended March 31, 2011 the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $50,378, cost of revenues of nil, operating expenses of $135,606 and net loss of $87,301.

25 — SUBSEQUENT EVENTS

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

1)            Short-term loan

As part of the total bank facility obtained from Agriculture Bank of China on March 2, 2012, Trunkbow Shandong further received RMB18,000,000 (approximately $2,848,777) on April 26, 2012 secured by a transfer with full recourse of its accounts receivable of RMB20,155,000 (approximately $3,189,839). This short-term loan is due on October 25, 2012 and may only be used in connection with its project with Guangdong Guangxin Communications Service Co., Ltd. The loan is also personally guaranteed by Mr. Wanchun Hou and Mr. Qiang Li.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Introductory Note

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Report”) to the “Company,” “Trunkbow,” “we,” “us” or “our” are references to the combined business of Trunkbow International Holdings Limited and its consolidated subsidiaries. References to “China” or to the People’s Republic of China “PRC” are references. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” and dollars are to the United States dollar, the legal currency of the United States.

26

Special Note Regarding Forward Looking Statements

This Quarterly Report contains forward-looking statements and information relating to Trunkbow that are based on the beliefs of our management, as well as assumptions made by and information currently available to us.  Such statements should not be unduly relied upon.  When used in this Quarterly Report, forward-looking statements include, but are not limited to, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as well as statements regarding new and existing products, technologies and opportunities, statements regarding market and industry segment growth and demand and acceptance of new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China, any statements of belief or intention, any of the factors mentioned in the “Risk Factors” section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2012, and any statements or assumptions underlying any of the foregoing.  These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions.  There are important factors that could cause actual results to vary materially from those described in this Report as anticipated, estimated or expected, including, but not limited to, competition in our industry and the impact of such competition on pricing, revenues and margins, volatility in the securities market due to the general economic downturn; SEC regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties.  Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward- looking statements, even if new information becomes available in the future.  Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available.  Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act” ) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock.  Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

Overview

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. The Trunkbow brand is regarded by the 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 provider to the telecom operators.

Currently we have filed a more than 164 patent applications, of which 50 have been granted by the National Intellectual Property Administration of the PRC. In 2010, we began the process of filing for international and U.S. patents in order to protect our intellectual properties globally.

The primary geographic focus of our operations is in the PRC, where we derive substantially all of our revenues. We conduct our business operations 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.

How We Generate Revenue

Our customers are primarily telecom service providers in the PRC, including local branches of China’s three major cellular carriers, China Telecom, China Unicom and China Mobile. Collectively, these carriers provide services to greater than 1 billion cellular subscribers. Revenues generated directly by sales to China Telecom, China Unicom and China Mobile accounted for approximately 9%, 8% and nil, and 6%, 1% and nil, respectively, for the three months ended March 31, 2012 and 2011. When we include resale 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 accounted for approximately 59%, 31% and 2%, and 6%, 85% and 9%, respectively, for the three months ended March 31, 2012 and 2011. The increase in revenues for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011 was attributable to new products of our Mobile Value Added Solutions. Our revenues from Mobile Payment Solutions were $4.40 million and $1.43 million for the three months ended March 31, 2012 and 2011, respectively.

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Results of Operations

Net Revenues:

	Three Months Ended March 31,				% of
	2012		2011		change
	(Unaudited)		(Unaudited)
System integration	$	1,476,140	$	482,704		205.8	%
Software sales		4,673,976		3,606,930		29.6	%
Maintenance service		69,197		734,758		(90.6	)%
Shared revenue		578,900		277,950		108.3	%
Total revenues		6,798,213		5,102,342		33.2	%
Less:
Business tax and surcharges		116,551		121,424		(4.0	)%
Net revenues	$	6,681,662	$	4,980,918		34.1	%

Net revenues were $6.68 million for the first quarter of 2012, an increase of $1.70 million, or 34.1%, compared with net revenues of $4.98 million in the same period of 2011. The increase in net revenues was primarily attributable to the rapid growth of the system integration. System integration revenues increased $0.99 million for the first quarter of 2012 compared to the same period in 2011, mainly due to sales of MVAS platforms including mobile newspaper and other system hardware. Software sales increased $1.07 million, or 29.6%, due to new roll-out of MVAS platforms including business operator and SMS/phone-call management. Maintenance service revenue decreased to $0.07 million, from $0.73 million in the first quarter of 2011, mainly from less services provided to mainly from the services provided to the carrier on network testing. Shared revenue increased $0.30 million, or 108.3%, from $0.28 million for the first quarter of 2011 to $0.58 million in the same period of 2012, driven by shared revenue from mobile payment.

	Three Months Ended March 31,				% of
	2012		2011		change
	(Unaudited)		(Unaudited)
MVAS Technology Platforms
Gross Revenues	$	2,395,914	$	3,672,734		(34.8	)%
Business tax and surcharges		16,291		84,479		(80.7	)%
Cost of Revenues		573,983		464,300		23.6	%
	$	1,805,640	$	3,123,955		(42.2	)%
Mobile Payment Solutions
Gross Revenues	$	4,402,299	$	1,429,608		207.9	%
Business tax and surcharges		100,260		36,945		171.4	%
Cost of Revenues		765,353		87,533		774.4	%
	$	3,536,686	$	1,305,130		171.0	%

Revenue from MVAS decreased $1.28 million or 34.8% to $2.40 million from the first quarter of 2012, compared with $3.67 million in the same period of 2011. The decrease in MVAS revenue was primarily caused by less demand on MVAS including platforms and maintenance services. Revenue from our MPS offerings increased 207.9% to $4.40 million for the first quarter of 2012, compared with $1.43 million in the same period of 2011. The increase in MPS revenue was driven by the MPS software sales. For the first quarter of 2012, MPS and MVAS accounted for 35.2% and 64.8% of gross revenues, respectively. The shift to MPS revenue was mainly contributed from our MPS revenue increment from geographic expansion.

Cost of revenues:

	Three Months Ended March 31,				% of
	2012		2011		change
	(Unaudited)		(Unaudited)
Equipment costs	$	1,245,617	$	435,581		186.0	%
Labor Costs		93,719		116,252		(19.4	)%
	$	1,339,336	$	551,833		142.7	%

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Cost of revenues includes equipment hardware costs and labor costs. The equipment hardware mostly were servers, terminals and eBook readers and other hardware components related to the system platform. The increase in cost of revenue was primarily related to the rapid growth in the system integration, which consumed significant hardware costs.

Gross profit:

	Three Months Ended March 31,
	2012						2011
	MVAS			MPS			MVAS			MPS
	(Unaudited)			(Unaudited)			(Unaudited			(Unaudited)
Gross Revenues	$	2,395,914		$	4,402,299		$	3,672,734		$	1,429,608
Business tax and surcharges		16,291			100,260			84,479			36,945
Cost of Revenues		573,983			765,353			464,300			87,533
Gross profit	$	1,805,640		$	3,536,686		$	3,123,955		$	1,305,130
Gross margin		75.9	%		82.2	%		87.1	%		93.7	%

Gross profit was $5.34 million for the first quarter of 2012, an increase of $0.91 million, or 20.6%, compared with $4.43 for the same period of 2011. The gross margin was 80.0% for the first quarter of 2012, a decrease of 8.9%, compared with 88.9% for the same period of 2011. The decrease in gross margin was due to the decrease of gross margin from system integration. System integration carries an average gross margin of 23.2%. The gross profit and the gross margin for the MVAS and MPS were $1.81 million or 75.9% and $3.54 million or 82.2%, respectively, for the three months ended March 31, 2012 and $3.12 million or 87.1% and $1.31 million or 93.7%, respectively, for the three months ended March 31, 2011. The decrease of gross profit and gross margin in MPS was also related to the system integration which carries a lower gross margin than the average level.

Operating expenses:

	Three Months Ended March 31,										% of
	2012					2011					change
	(Unaudited)		% of  net revenues			(Unaudited)		% of net revenues
Selling and distribution expenses	$	1,025,022		15.3	%	$	436,608		8.8	%		134.8	%
General and administrative expenses		1,160,671		17.4	%		1,214,622		24.4	%		(4.4	)%
Research and development expenses		550,862		8.2	%		329,514		6.6	%		67.2	%
	$	2,736,555		41.0	%	$	1,980,744		39.8	%		38.2	%

Operating expenses including selling and distribution, general and administrative expenses and R&D, was $2.74 million for the first quarter of 2012, increased $0.76 million, or 38.2%, compared with $1.98 million for the same period of 2011.

Selling and distribution expenses: Selling and distribution expenses increased $0.59 million or by 134.8%, to $1.03 million for the three months ended March 31, 2012 from $0.44 million for the same period of 2011. Our selling and distribution expenses primarily consist of staff salaries and welfare, travel and communication expenses, office rental and related expenses, and entertainment expenses. For the three months ended March 31, 2012, the increase in selling and distribution expenses was mainly due to the recruitment of more sales people on mobile payment service line for our merchant acquisition, which raised our salaries and welfare expenses by $0.22 million when compared the three months ended March 31, 2012 to the same period in 2011. Recruitment of more sales people and establishment of branch offices in more regions also resulted in higher selling and distribution expenses. Meanwhile, our advertisement and promotion expenses also increased in line with our merchant acquisition efforts.

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General and administrative expenses: General and administrative expenses slightly decreased $0.05 million or by 4.4%, to $1.16 million for the three months ended March 31, 2012 as compared to $1.21 million for the same period in 2011. Our general and administrative expenses primarily consist of salaries and welfare for management, accounting and administrative personnel, office rentals, depreciation of office equipment, professional service fees, maintenance, utilities and other office expenses. 

Research and development expenses: Research and development expenses increased $0.22 million or by 67.2%, from $0.33 million for the three months ended March 31, 2011 to $0.55 million for the same period of 2012. Our research and development expenses primarily consist of salaries and welfare for the research and development staff, office utilities and supplies allocated to our research and development department. The increase of the research and development expenses for the first quarter of 2012 was mainly due to recruitment of more engineers, raises in salaries and relevant welfare and related expenses related to the research and development in mobile payment services.

Other income (expenses):  Other income (expenses) mainly includes interest income, interest expense, government grants and VAT refund. Other income decreased $1.37 million from $1.29 million for the three months ended March 31, 2011 to $(0.08) million for the three months ended March 31, 2012 due to lack of VAT tax refund during the three months ended March 31, 2012. The VAT refund for the three months ended March 31, 2011 was $1.31 million.

Income before income tax expense: Income before income tax expense decreased $1.21 million, or 32.5%, from $3.74 million for the three months ended March 31, 2011 to $2.53 million for the three months ended March 31, 2012, mainly due to the decrease of other income from VAT refund.

Liquidity and Capital Resources

Dividends

We are a holding company and conduct our operations primarily through our subsidiaries and VIEs in the PRC. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries and VIEs. The VIEs’ earnings are transferred to our subsidiaries in the form of payments under the technology support and related consulting agreements. If our subsidiaries incur debt on their own behalf, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations applicable to such subsidiaries. As of March 31, 2012, our PRC subsidiaries and VIEs had aggregate unappropriated earnings of approximately $43.16 million (based on an exchange rate of 6.3185 as of March 31, 2012 ) that were available for distribution. These unappropriated earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution.

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

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

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

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Government Control of Currency Conversion

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

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

Cash Flows

In summary, our cash flows were as follows:

Trunkbow International Holdings Limited Summary Cash Flows

	Three months ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)
Net cash flows used in operating activities	$	(1,493,346	)	$	(4,077,192	)
Cash flows used in investing activities		(2,158,145	)		(269,611	)
Cash flows provided by financing activities		3,601,015			17,342,251
Effect of foreign currency fluctuation on cash and cash equivalents		(17,742	)		(72,954	)
Net increase in cash and cash equivalents		(68,218	)		12,922,494
Cash and cash equivalents – beginning of year		6,139,589			10,259,750
Cash and cash equivalents – end of the period	$	6,071,371		$	23,182,244

Our cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months. As of March 31, 2012, we had cash and cash equivalents of $6.07 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operating activities, capital expenditures and other obligations for at least the next twelve months. We expect to fund the construction with operating cash flow, including collections of outstanding accounts receivable.

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out and continued expansion of our systems and platforms and (b) our working capital needs, which include deposits and advanced payment for hardware and software, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the payment for acquisitions of hardware and software in form of loan.

We lease offices and vehicles under lease agreements with a term expiring in April 2014. The leases may be cancelled by either party with 30-days prior written notice.

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

	Rental Commitment
	(Unaudited)
Nine months ending December 31, 2012	$	384,066
Year ending December 31, 2013		65,200
Year ending December 31, 2014		2,156
Total	$	451,422

We do not have other commitments other than those for office and vehicle rentals.

Operating Activities

Net cash flows used in operating activities for the three months ended March 31, 2012 was $1.49 million as compared with $4.08 million used in operating activities for the three months ended March 31, 2011, for a net decrease of $2.59 million.

The decrease in operating cash outflows was attributable to a substantial decrease in cash out flows from other current assets. An increase of $4.34 million in other current assets was noted as of March 31, 2011, when compared to the balance as of December 31, 2010. As of March 31, 2012, other current assets increased $1.77 million when compared to the balance as of December 31, 2011.

Investing Activities

Our main use of investing activities during the three months ended March 31, 2012 was on payment to third parties by $1.11 million mainly for the purchase of MPS hardware and software for the roll-out of MPS systems and application .

Financing Activities

Net cash flows provided by financing activities for the three months ended March 31, 2012 was $3.60 million as compared with $17.34 million provided by financing activities for the three months ended March 31, 2011.

The cash provided by financing activities for the three months ended March 31, 2011 included the net proceeds from the February 2011 initial public offering of $17.34 million. The cash provided for the three months ended March 31, 2012 was from the short-term bank loan.

Recent Developments

1)            Subsequent collection on accounts receivable

Up to May 18, 2012, we have subsequently collected $4,625,863 million of the accounts receivable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of March 31, 2012, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Controls over Financial Reporting.

There has been no change in our internal control over financial reporting during the first fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Neither we nor our subsidiaries are currently a party to any material legal proceedings.

ITEM 1A.  RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	Domestic Factoring Contract (with Recourse) between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated March 2, 2012
10.2	Domestic Factoring Contract (with Recourse) between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated April 26, 2012
10.3	Pledge Contract between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated April 26, 2012
10.4	Guarantee Contract between Agricultural Bank of China, Jinan Branch and Li Qiang, dated April 26, 2012
10.5	Guarantee Contract between Agricultural Bank of China, Jinan Branch and Hou Wanchun, dated April 26, 2012
10.6	Automobiles Lease Contract between Li Qiang and Trunkbow (Asia Pacific) Investment Holdings Limited
31.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

* Furnished electronically herewith

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRUNKBOW INTERNATIONAL HOLDINGS
	LIMITED
Date: May 21 , 2012	By:	/s/ Qiang Li
	Name: Qiang Li
	Title:   Chief Executive Officer (Principal Executive Officer)

34

EXHIBIT INDEX

Exhibit No.	Description
10.1	Domestic Factoring Contract (with Recourse) between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated March 2, 2012
10.2	Domestic Factoring Contract (with Recourse) between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated April 26, 2012
10.3	Pledge Contract between Agricultural Bank of China, Jinan Branch and Trunkbow Asia Pacific (Shandong) Co. Limited dated April 26, 2012
10.4	Guarantee Contract between Agricultural Bank of China, Jinan Branch and Li Qiang, dated April 26, 2012
10.5	Guarantee Contract between Agricultural Bank of China, Jinan Branch and Hou Wanchun, dated April 26, 2012
10.6	Automobiles Lease Contract between Li Qiang and Trunkbow (Asia Pacific) Investment Holdings Limited
31.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

* Furnished electronically herewith

35

EX-10.1

Domestic Factoring Contract (with Recourse)

S/N: 37062020120000044

(This is a summary translation to be used for reference only)

Party A:                      Trunkbow Asia Pacific (Shandong) Co. Limited

Authorized Agent:      LIU Xiangmao

Party B:                       Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Legal Representative: ZHANG Guiying

Whereas, Party A as the Seller (the creditor) will use the accounts receivable generated with the Buyer (the debtor) to apply for domestic factoring service (with recourse), the parties here have entered into the following contract.

Article 1 Definition

1.1           “Factoring Service with Recourse”: Party A transfers the accounts receivable generated from providing goods or services to the Buyer to Party B for Party B to provide comprehensive financing service to Party B in connection with such accounts receivable. In the event that the Buyer fails to pay the accounts receivable in full within the specific time, Party B has the right to pursue Party A for the loan amount that has not been repaid.

1.2           “Factoring Service without Recourse”: Party A transfers the accounts receivable generated from providing goods or services to the Buyer to Party B for Party B to provide comprehensive financing service to Party B in connection with such accounts receivable. In the event that the Buyer fails to pay the accounts receivable in full within the specific time, Party B has NO right to pursue Party A for the loan amount that has not been repaid.

1.3           “Purchase or Service Contracts”: Contracts between Party A and the Buyer from which the accounts receivable hereunder are generated.

1.4           “Accounts Receivable”: Party A’s lawful creditor’s right to demand the party to pay for the goods or services provided by Party A.

1.5           “Accounts Receivable Invoice Actual Amount”: The remaining amount after subtracting the returned amount of the loan from the invoice amount.

1.6           “Factoring Margin Loan Amount”: The margin loan amount provided to Party A by Party B hereunder.

1.7           “Interest Settlement Day”: For loans with one-time interest charge, the day when the loan is released by Party B; for loans with monthly interest charge, the 20^th of each month; for loans with quarterly interest charge, the 20^th of the last month of the quarter.

1.8           “Factoring Remaining Balance”: The remaining amount after subtracting loan principal, interest, penalty interest and all other fees from the accounts receivable payments actually received by Party B.

1.9           “Factoring Loan Special Account”: The account set up by Party A with Party B to be specifically used for the accounts receivable. Party A instructs the Buyer to make payments for the accounts receivable into this account.

1.10         “Factoring Service Fees and Financing Advisor Fee”: The fees that Party B is entitled to charge Party A pursuant to this contract for providing loans and other services to Party A.

Article 2 Party A’s Representation, Warranties and Promises

2.1           Party A is a duly incorporated and approved organization in good standing and holds valid business licenses.

2.2           Party A has obtained all necessary approval for the execution and performance of this contract.

2.3           Party A’s execution and performance of this contract will not violate any law or regulations, will not violate other contracts to which Party A is a party and will not its company charter.

2.4           The documents provided by Party A are true, complete, accurate, valid and effective.

2.5           The accounts receivable transferred by Party A to Party B are all true, valid and effective without dispute.

2.6           The purchase/service contracts between Party A and the Buyer have no provisions restricting the transfer of the accounts receivable.

2.7           Party A has completely performed its obligations to the Buyer and there are no defects on the accounts receivable transferred to Party B.

2.8           There are no outstanding litigations, arbitrations or other potential disputes against Party A at the time when this contract becomes effective.

2

2.9          The financial statements provided to Party B have been prepared in accordance with the law and accounting principles in China and are true, complete and fair reflection of Party A’s financial conditions.

2.10        The account number of the factory loan special account for the accounts receivable is 155101040038498 and Party A will not use this account to make any payment or for other purposes without Party B’s approval.

2.11        Party A authorizes Party B to monitor the account mentioned in Section 2.10 and will assist Party B in verifying the amounts received.

2.12         Upon any of the following, Party B shall have the right to deduct directly from the aforementioned account the loan principal, interest and relevant fees: 

2.12.1 Party A fails to pay interest in full on the interest settlement days.

2.12.2 When the loan is due (or declared due ahead of schedule by Party B), Party A fails to pay loan principal and interest in full.

2.12.3 The accounts receivable corresponding to the factoring loan are paid into the account in advance.

2.12.4 If there is insufficient amount in the special account when the loan is due, Party B shall have the right to deduct such amounts to repay loan principal and interest and other fees from any of Party A’s accounts with Party B.

Article 3 Amount and Term of the Factoring Loan

3.1          After Party A transfers the accounts receivable and the rights thereto to Party B, Party B provides to Party A a total of RMB 17,800,000 as factoring loan.

3.2          The term of the factoring loan starts on the date when the loan is released and ends on the date agreed to by the two parties (see “Accounts Receivable Transfer List” for details).

3.2          The actual release date and due date for the loan are based on those recorded in the loan certificates, which are components of this contract.

Article 4 Interest and Fees of Factoring Loans

4.1          The interest rate of the factoring loan hereunder is specified in the “Accounts Receivable Transfer List”. And the rate is determined according the provision set forth in Section 4.2.1.

4.2.1       Fixed at the base rate of the same type of loan published by People’s Bank of China on the date of execution plus 25%.

4.2          If the base rate is adjusted after the loan is released, the interest rate of the factoring loan will not be adjusted during the term of the loan.

3

4.3           If Party A fails to repay in full the loan when it is due, the interest rate set forth above shall still apply to the outstanding portion of that loan.

4.4           If the People’s Bank of China adjust the method for determining the interest rate, then all adjustments will be made in accordance with the rules and regulations of the People’s Bank of China.

4.5           The interest on the loan hereunder will be settled monthly on the 20^th of each month.

4.6           Party B will deduct interest charge directly from the Factoring Loan Special Account.

4.7           Party B will charge Party A the fees for the loan at the time when Party B accepts the transfer of the accounts receivable.

Article 5 Payment of the Accounts Receivable

5.1           Party A will be responsible for collecting the payments for the accounts receivable and asking the Buyer to make such payments into the factoring loan special account.

5.2           Upon receiving the full payments for the accounts receivable, Party B must verify such payments against each of the accounts receivable items.

Article 6 Conditions, Method and Procedures for the Accounts Receivable Buy-back

6.1          Party A must buy back the accounts receivable upon receiving Party B’s notice if Party A’s false representations or warranties cause adverse impact on the payments for the accounts receivable hereunder.

6.2          In addition to Section 6.1 above, with respect to the factoring loan with recourse, Party A must buy back the accounts receivable upon receiving Party B’s notice, upon the occurrence of any of the following:

6.2.1       The Buyer disputes the payment due to the loss of goods or any other reason, or refuses to pay in full;

6.2.2       On the due date of the factoring loan, Party B have not received payments for the accounts receivable from the Buyer or the amount of payments received is insufficient;

6.2.3       Any act that constitutes a breach of the provisions set forth in Article 9, resulting in the declaration by Party B that the accounts receivable are due.

6.3          [With respect to the factoring loan without recourse; Not applicable]

4

6.4          Party A must start the buy-back procedures within 3 days upon receiving Party B’s notice in writing.

Article 7 Party A’s Rights and Obligations

7.1 Party A has the following rights and obligations hereunder:

7.1.1 The right to request Party B to provide the loan pursuant to this contract;

7.1.2 The obligation to pay all fees, interest, penalty interest, past-due interest and other fees in connection with the loan and to complete buy-back pursuant to this contract;

7.1.3 The obligation to ensure that the payments for the accounts receivable are made into the factoring loan special account on time;

7.1.4 The obligation to assist Party B in Party B’s monitoring of its operation and financial condition and to provide financial statements and other information promptly when requested;

7.1.5 The obligation to assist Party B in the event of any litigation regarding the collection of payments for the accounts receivable;

7.1.6 The obligation to notify Party B within 5 days upon the occurrence of any of the following and provide Party B with relevant information:

(1) Any act of breach;

(2) Any anticipated or potential act of breach that will harm Party B’s rights and interests;

(3) Any litigation, arbitration or claim against the creditor involving more than RMB one million;

(4) Any change in the name, address, scope of operation, corporation type, charter, equity structure or registered capital, or any merger, spin-off, reorganization, lease, contract, joint venture and joint capital, or any material change in the financial condition.

7.1.7 If the Buyer or any third party has provided guarantee for the accounts receivable, such guarantee, if permitted, must also be transferred to Party B;

7.1.8 Party A must continue to perform its obligations under the sales/service contracts, after the rights with respect to the accounts receivable have been transferred to Party B;

7.1.9 After the contract has become effective, Party A must not entered into any other agreement or contract that will harm Party B’s rights and interests.

7.2          In addiction to the provision of 7.1, Party A shall bear the ultimate responsibility to repay the factoring loan hereunder, and Party A’s inability (for whatever reason) to collect in full the payments for the accounts receivable shall not affect Party B’s right to realize its recourse right against Party A.

Article 8 Party B’s Rights and Obligations

8.1          Party A has the following rights and obligations hereunder:

5

8.1.1 Party B is entitled to all the rights regarding the accounts receivable when such accounts receivable have been transferred to Party B;

8.1.2 Party B has the right to exercise its offset right and recourse right in the event of the occurrence of buy-back conditions and has the right to deduct such amount directly from any of Party A’s accounts with Party B;

8.1.3 Party B is entitled to receive the invoices related to the accounts receivable for safekeeping but must return them to Party A upon full repayment of the loan and interest hereunder;

8.1.4 Party B is obligated to issue the factoring loan and provide other services pursuant to this contract;

8.1.5 Party B has the obligation to maintain confidentiality on all the documents and information provided by Party A, except when the disclosure of such documents and information is required by law.

8.2          In addition to 8.1, with respect to the factoring loan with recourse, Party B has the following rights:

8.2.1 The right to deduct directly from the factoring loan special account the loan principal, interest, penalty interest and all other fees;

8.2.2 The right to monitor and supervise Party A’s operation and financial condition;

8.2.3 The right to decide whether to pursue the Buyer if the amount of the payments received is insufficient to repay the loan principal, interest, penalty interest and all other fees when the loan is due; Party B’s decision to pursue the Buyer shall not affect Party A’s obligation to buy back the accounts receivable.

8.3           In addition to 8.1, with respect to the factoring loan without recourse, Party B has the following rights:

[Not applicable]

Article 9 Breach and Liabilities for Breach

9.1          Either party’s violation of the provisions herein will be considered a breach by that party. 

9.2 Any of the following will be considered a breach by Party A

9.2.1 Party A fails to perform its obligations hereunder or violates its representations or warranties herein;

9.2.2 Events of cross-breach, including;

(1) Any debt obligation in excess of RMB 1 million is declared due before the stipulated due date;

(2) Party A fails to repay on time other debts when such debts are due;

(3) Other creditors have gained ownership to all or part of Party A’s assets or business, or any judgment or enforcement action has been implemented against Party A’s any assets;

9.2.3 Anticipated events of breach, including:

6

(1) Party A ceases or is likely to cease its operations or any important part thereof, or disposes all or part of Party A’s assets or business;

(2) Party A experiences material adverse change in its financial condition;

9.2.4 In addition to the events listed in 9.2.3 above, with respect to the factoring loan with recourse, anticipated events of breach also include any of the following:

(1) Occurrence of payment or interest past due in other loan services provided by Party B to Party A or to the Buyer;

(2) The rate of bad account in Party A’s accounts receivable has increased by 2 consecutive months;

(3) With respect to the Buyer, the portion of Party A’s accounts receivable that are due have reached more than 5% of the total accounts receivable;

(4) Party A fails for 2 consecutive times to buy back in full the accounts receivable;

(5) Other situations that may affect Party A’s performance of its obligations hereunder.

9.3          Upon the occurrence of any of the above, Party B has the right to take one or more of the following actions at its discretion:

9.3.1 Demand Party A to correct its acts of breach;

3.3.2 Suspend the factoring loan service and dissolve this contract;

9.3.3 Declare that the factoring loan already released immediately due and demand Party A to buy back the accounts receivable;

9.3.4 Deduct such amount from any of Party A’s accounts set up with Party B or any of Party B’s affiliates;

9.3.5 Demand Party A to provide valid and sufficient additional guarantee;

9.3.6 Pursue the Buyer directly when the accounts receivable are due.

9.4          Penalty interest and compound interest

9.4.1 If Party B [sic] fails to repay the loan principal at the specified time, Party A [sic] will charge the penalty interest at the rate of the factoring loan plus another 50% on that past-due portion of the loan, starting on the past-due date until the total repayment of such principal and interest.

9.4.2 If Party B [sic] fails to use the loan for the specified purpose, Party A [sic] will charge the default interest at the rate of the factoring loan plus another 100% starting on the date of such misuse until the total repayment of such principal and interest.

9.4.3 If a portion of the loan is both past due and misused, the rate of the interest charged will be the higher of the two.

9.4.5 If Party B [sic] fails to pay interest on time, Party A [sic] will charge compound interest on the monthly basis starting from the date of such failure.

Article 10 Others

10.1        Party B will record the loan principal, interest and fees and the Buyer’s payment history in Party B’s internal account books for verification purposes.

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10.2         Party A cannot transfer any of its rights and obligations hereunder to any third party without Party B’s approval.

10.3         Party B may transfer all or some of its rights to a third party.

10.4         Party B’s failure or delay to exercise its rights hereunder does not constitute its waiver of such rights; and such rights and remedial measures hereunder are cumulative and are not exclusive of other rights that Party B is entitled to.

10.5         Party A must notify the Buyer of the transfer of the accounts receivable.

Article 11 Dispute Resolution

11.1         The preparation, validity, interpretation and performance as well as the resolution of dispute are governed by the law of the People’s Republic of China. Any dispute arising from this contract must be resolved through consultation; if such consultation fails, the dispute may be submitted to the local people’s court.

Article 12 Contract Effectiveness, Amendment, Dissolution and Termination

12.1         This contract will become effective upon execution by the respective representatives of Party A and Party B and will remain effective until the completion of Party A’s performance of its obligations hereunder.

12.2         Neither party may unilaterally modify or dissolve this contract without the other party’s consent. All amendments must be in writing and be agreed to by both parties.

12.3         The parties hereto will modify such provisions as necessary that become not in compliance with the State law or regulation due to changes of such State law or regulation.

12.4         The amendment to or dissolution of this contract does not affect either party’s right to demand compensation for losses; and the dissolution of this contract does not affect the effectiveness of such provisions regarding dispute resolution.

Article 13 Other Provisions

13.1         Unless otherwise stipulated, in this contract:

This contract includes all the appendices and its amendments, modifications and supplements.

13.2         All the appendices and its amendments, modifications and supplements are the component parts of this contract and have the same legal effect.

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13.3         This contract include the Appendix the “Accounts Receivable Transfer List”.

13.4         Other matters not covered herein will be provided by Party A and Party B through consultation. This contract is in duplicates, with one to each party.

Party A:                       /seal/ Trunkbow Asia Pacific (Shandong) Co. Limited

Legal Representative: /s/ LIU Xiangmao

Party B:                       Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Legal Representative: ZHANG Guiying

March 2, 2012

9

EX-10.2

Domestic Factoring Contract (with Recourse)

S/N: 37062020120000119

(This is a summary translation to be used for reference only)

Party A:                       Trunkbow Asia Pacific (Shandong) Co. Limited

Legal Representative: HOU Wanchun

Party B:                       Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Legal Representative: ZHANG Guiying

Article 1 Definition

1.1          “Accounts Receivable”: Party A’s right to demand the party to pay for the goods or services provided by Party A.

1.2          The “Buyer”: The party that has purchased goods or services from Party A.

1.3          “Base Transaction Contracts”: Contracts between Party A and the Buyer from which the accounts receivable are generated.

1.4          “Accounts Receivable Amount”: The amount that the Buy must pay to Party A pursuant to the base transaction contracts.

1.5          “Accounts Receivable Due Date”: The date when the last accounts receivable payment is due.

1.6          “Margin Loan”: The amount Party B must pay to Party A as consideration for accepting the transfer of the accounts receivable.

1.7          “Margin Loan Delivery Date”: The date when Party B releases the margin loan to Party A.

1.8          “Accounts Receivable Transferred”: Accounts receivable accepted by Party B.

1.9          “Amount Receivable by the Bank”: Amount that Party B has the right to receive from the accounts receivable transferred.

1.10        “Buy Back”: Party A’s act of buying back the accounts receivable transferred upon the occurrence of certain events.

1.11        “Buy Back Amount”: The price that Party A must pay to Party B to buy back the accounts receivable transferred.

1.12        “Factoring”: The service whereby Party B accepts Party A’s accounts receivable and provides margin loan Party A.

1.13        “Resource”: Party B’s right to demand Party A to buy back accounts receivable transferred.

1.14        “Open Factoring”: Factoring service in which the transfer of accounts receivable by Party A is made known to the Buyer.

1.15        “Covert Factoring”: Factoring service in which the transfer of accounts receivable by Party A is temporarily not made known to the Buyer.

1.16        “Period”: Period of time defined by day, month and year.

1.17        “Laws and Regulations”: Laws and regulations of the People’s Republic of China.

Article 2 Party A’s Promises

2.1         Party A is a duly incorporated and approved organization in good standing and is permitted to engage in factoring financing transaction.

2.2         Party A has obtained all necessary approval in accordance with the law and the company’s charter for the execution and performance of this contract.

2.3         Party A will not use the margin loan to engage in activities in violation of law and regulations, and will accept Party B’s supervision on its operation and financial conditions and provide documents as requested.

2.4         The documents provided by Party A are true, complete, accurate, valid and effective.

2.5         Without Party B’s consent, Party A will not modify, terminate or dissolve the base transaction contracts.

2.6         Party A agrees that, if Party B accepts the transfer of the accounts receivable and is pursued by the buyer or a third party, Party A will assume all responsibility and compensate Party B for all resulting losses.

2.7         If Party B pursues the buyer (including through litigation, arbitration and filing for enforcement), Party A must take all necessary measures to assist Party B in realizing its recourse right.

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2.8         Party A will notify Party B in writing immediately if Party A comes to any knowledge of (actual or potential) bankruptcy, dissolution, going out of business and other corporate events that will materially affect Party B’s creditor rights.

Article 3 Basic Provisions

3.1         Margin Loan

3.1.1 Party A transfers the accounts receivable listed below to Party B; and Party B, based on the amount of each item of the transfer below, provides margin loan to Party A as consideration for such transfer (all four invoices listed are billed to Guangdong Guangxin Communications Services Co., Ltd. and all are due on Sept. 30, 2012):

· RMB 7,014,000          (for amount of RMB 6,310,000 in margin loan)

· RMB 1,141,000          (for amount of RMB 1,010,000 in margin loan)

· RMB 11,688,000        (for amount of RMB 10,500,000 in margin loan)

· RMB 312,000             (for amount of RMB 170,000 in margin loan)

Total amount of accounts receivable:        RMB 20,155,000

Total amount of margin loan:                    RMB 18,000,000

3.1.2 Margin Loan Interest

3.1.2.1 Margin Loan Interest Calculation:

Amount of margin loan X loan interest X term of the margin loan

3.1.2.2 Margin Loan interest

Fixed at the base rate of the same type of loan published by People’s Bank of China on the date of execution plus 25%

3.1.3 Interest Accrual and Settlement

Interest settlement date is the 20^th of each month.

3.1.4 Past-due penalty

If, upon the expiration of the term of the margin loan, Party B fails to receive the payments for the accounts receivable in full and Party A fails to buy back the accounts receivable in accordance with the provisions herein, Party B shall charge the past-due penalty at the penalty rate (amount of the accounts receivable times penalty rate) for each day past-due until Party A pays in full to buy back the accounts receivable and pays all other related fees and interests. The penalty rate is the margin loan rate specified herein plus 100%.

3.1.5 Compound rate

Interest will be compounded if Party A fails to pay interest on time.

3.16 Domestic factoring service fee

[None specified]

3.17 Factoring Model

Covert factoring.

3.2          Transfer of Accounts Receivable

3.2.1 Qualified accounts receivable

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The accounts receivable listed in Section 3.1.1 must meet the following criteria (otherwise, Party B shall have the right to refuse to accept them):

(1) They are generated in bona fide business transactions between Party A and the buyer; base transaction contracts are authentic, valid and effective; the transfer of the accounts receivable has not be forbidden or restricted; the creditor/debtor relationship does not involved a third party.

(2) They are payable in RMB.

(3) Party A is the rightful owner of such accounts receivable and such accounts receivable have not been encumbered in any manner or transferred; there are not disputes and objections nor any claims, demands or counter-claims regarding such accounts receivable.

(4) They are not generated by consignment, trial, brokering, distributor or other form of sales that might result in a refund upon return of the goods.

(5) Party A has performed major obligations under the base transaction contracts.

3.2.2 Delivery of documents regarding the accounts receivable

3.2.2.1 After the contract has become effective, Party B shall have the right to ask Party A to deliver the documents and invoices regarding the accounts receivable listed in Section 3.1.1, including but not limited to:

(1) Base transaction contract or documents evidencing the performance of sales/service contracts;

(2) Business invoices;

(3) Documents evidencing transportation of goods or delivery acceptance;

(4) “Accounts Receivable Performance Confirmation Letter”;

(5) Other documents that Party B reasonably requests.

3.2.2.2 If copies of the above documents are provided, they must be verified against the original and confirmed by Party A’s company seal.

3.2.2.3 In additional, Party B may request Party A to provide other documents at any time.

3.2.3 Transfer notice and account change notice

3.2.3.1 [N/A]

3.2.3.2 [N/A]

3.2.3.3 If Party A fails to deliver notices in accordance with the provisions herein, Party B shall have the right to refuse to accept the transfer of the accounts receivable.

3.2.4 Accounts receivable payment account

3.2.4.1 Party A and Party B agree to designate the following account as the accounts receivable repayments:

Account Title: Trunkbow Asia Pacific (Shandong) Co. Limited

Account Bank: Agricultural Bank of China,

  Jinan Hi-Tech Development Zone Branch

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Account No.: 15-155101040038498

3.2.4.2 The accounts receivable payment account must be the dedicated account for factoring service management. Any withdrawal of funds from this account must be approved by Party B and Party B shall have the right to place restrictions.

3.2.5 Transfer Effectiveness

3.2.5.1 [N/A]

3.2.5.2   Upon the delivery of margin loan funds, all the rights to the corresponding accounts receivable shall be transferred to Party B and Party B is entitled to all rights available to Party A prior to such transfer, including but not limited to:

(1) Right to receive payment for such accounts receivable, including principal, interest, penalty and past-due interest and fines;

(2) Corresponding lien, right of stoppage, endorsement right and other rights available to Party A upon return of the goods and services;

(3) Right to all measures provided by law to demand the buyer to repay such accounts receivable, including litigation, arbitration and subrogation;

(4) Right to demand the buyer to provide guarantee should the buyer experiences operation and financial difficulties;

(5) Right to participate in the buyer’s bankruptcy or liquidation proceedings as creditor of the accounts receivable;

(6) Right to transfer and pledge the accounts receivable;

(7) Other rights available under the law.

3.2.5.3 Party B’s acceptance of the accounts receivable shall not be construed to be Party B’s obligation to perform, on Party A’s behalf, any of Party A’s obligations under the base transaction contracts.

3.2.5.4 After the transfer of the accounts receivable, Party A shall not have any rights to the accounts receivable entitled to the creditor, but has the obligation to assist Party B in asserting Party B’s creditor claims against the buyer.

3.2.5.5 Party A agrees to be Party B’s agent for receiving the payment of the accounts receivable into the special accounts receivable payment account set up with Party B.

3.2.6      Registration of the transfer

After the transfer of the accounts receivable, the parties hereto must promptly proceed to process registration procedures for the transfer.

3.3         Receiving Accounts Receivable Payment

3.3.1 Accounts receivable payment due date

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On the due date for such accounts receivable, Party B has the right to deduct directly from the accounts receivable payment account such amount equal to the amount due to the bank. Whether the payment for the accounts receivable is in full or whether such payment is on time shall not affect the aforementioned right.

3.3.2 Early payment of the accounts receivable

If the buyer pay in full or in part the accounts receivable in advance any single amount of the accounts receivable, Party B has the right to deduct directly from the accounts receivable payment account such amount equal to the amount due to the bank.

3.3.3 Authorization for deduction

Party A irrevocably authorizes Party B to deduct directly from the accounts receivable payment account such amount equal to the amount due to the bank and the corresponding margin loan interest and other amount payable.

3.3.4 After making deductions in accordance with Section 3.3.1 and Section 3.3.2, Party B has the right to deduct the remaining amount in the accounts receivable payment account to offset other amount owed by Party A to Party B and outstanding interest and fees.

3.3.5 Order of payment for the accounts receivable

If the buyer has not specified which amount of the accounts receivable a payment is for, Party B shall have the right to make determination.

3.4          Buy-back of the accounts receivable

3.4.1 Buy-back on the due date

When the accounts receivable are due, if for whatever reason the fund in the accounts receivable payment account is insufficient to repay the amount owed to the bank and to pay interest and other amounts payable, Party A must provide enough fund to complete the buy-back of the accounts receivable within the grace period.

3.4.2 Advance buy-back

3.4.2.1 Upon the occurrence of any of the following, Party B has the right to demand Party A to buy back all or part of the accounts receivable:

(1) After accepting the transfer, Party B discovers unqualified item of the accounts receivable;

(2) The accounts receivable are seized or frozen, either in part or in whole, by judicial or administrative authorities;

(3) Party A fails to provide documents in accordance with the provisions herein;

(4) The buyer fails to make the accounts receivable payment into the accounts receivable payment account but instead into Party A’s other accounts;

(5) Party A reduces the creditor claim regarding the accounts receivable without Party B’s authorization;

(6) Party A and the buyer modify the base transaction contracts without Party B’s authorization; or Party A or the buyer announces its refusal to perform its major obligations thereunder;

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(7) Party A experiences material difficulty in its operations or financial conditions;

(8) Other situations specified herein.

3.4.2.2 Upon the occurrence of any of the following on the part of one buyer, Party B has the right to demand Party A to buy back all or part of such buyer’s accounts receivable:

(1) The buyer refuses to make payment or to make payment in full;

(2) The rate of bad accounts has increased for 2 consecutive months;

(3) The buyer experiences material difficulty in its operations or financial conditions;

(4) The buyer undertakes corporate activities such as merger, spin-off, reorganization, debt restructuring or the buyer’s assets have been frozen or seized;

(5) Other situations that will materially affect the buyer’s ability to make payments;

3.4.2.3 The parties hereto will choose the following method to calculate the interest on the margin loan that corresponds to the accounts receivable that are to be bought back.

[N/A]

3.4.2.4 If Party B demands Party A to buy back the accounts receivable in accordance with the provisions herein, Party A irrevocably authorizes Party B to make deductions from all of Party A’s accounts set up with Party B.

3.4.3 After Party B accepts the transfer of the accounts receivable and releases the amount of margin loan to Party A, if the amount that the buyer is obligated to pay is less than the amount of the accounts receivable listed in Section 3.1.1, thus triggering the buy-back condition, Party A must buy back the accounts receivable with amount specified herein.

3.4.4 Party A’s buy-back fund must be deposited into the accounts receivable payment account. If the accounts receivable payment account is set up with Party B, Party A irrevocably authorizes Party B to make corresponding deductions from such account to complete the buy-back.

3.4.5 If Party A fails to complete such buy-back, Party B has the right to charge default penalty and compound interest and Party A irrevocably authorizes Party B to make deductions from all of Party A’s accounts set up with Party B and Party B’s affiliates.

3.4.6 Party B will exercise its right to offset in accordance with the law or with the provisions herein; Party A has 7 days (starting from the day when Party B notifies Party A either orally or in writing) to raise objections.

3.5         Payment Reminder

Under the covert factoring model, Party A must send reminder for payment 15 prior to the due date of the accounts receivable.

3.6         Loan Certificate

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All the loan certificates constitute the component part of this contract and the loan amount, interest and release date must be based on those recorded in such certificates.

3.7         Rights and Obligations

3.7.1      Party A’s rights and obligations

(1) Withdraw the margin loan in accordance with the provisions herein;

(2) Buy back the accounts receivable in accordance with the provisions herein;

(3) Use the margin loan for the purpose in accordance with the provisions herein or with the law;

(4) Accept Party B’s supervision on its production operations and financial conditions and provide assistance and provide relevant documents at Party B’s request;

(5) If Party A undertakes the following activities, Party A must notify Party B in advance and obtain Party B’s approval:

(a) Merger, lease, consolidation, separation, joint venture, transfer of assets, shutting down, dissolution, issuance of securities or debts, major financing or investment, filling for bankruptcy;

(b) Providing guarantee or pledging its major assets for a third party;

(c) Other activities that may adversely affect Party B’s creditor’s rights.

(6) Upon the occurrence of any of the following, Party A must notify Party B in writing within 5 days:

(a) Involvement of Party A’s legal representative, major responsible person or control person in criminal activities;

(b) Ceasing operation, going out of business or having the license revoked;

(c) Deterioration of Party A’s production operations and financial conditions;

(d) Other events that may adversely affect Party B’s creditor’s rights.

(7) Upon the occurrence of any of the following, Party A must notify Party B in writing within 7 days:

(a) Change of affiliate relationship, major management change or major reorganization;

(b) Change in the name, address and scope of operation;

(c) Increase of registered capital or major amendment of the company’s charter;

(d) Other events that may adversely affect Party A’s ability to perform its obligations.

(8) Party A and its investor shall not evade its debt obligations by transfer funds or assets or equity without authorization and shall not engage in other activities harmful to Party B’s interests;

(9) Other rights and obligations provided by law or by the parties hereto.

3.7.2 Party B’s rights and obligations

(1) Release the margin loan in full and on time;

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(2) Has the right to monitor and inspect Party A’s operations, financial condition, inventory and use of the margin loan funds and request Party A to provide relevant documents;

(3) Has the right to demand Party A to take remedial measures, make arrangements or provide additional guarantee, buy back the accounts receivable and the right to suspend margin loan, upon the occurrence of events and activities that may affect the performance by Party A of this contract;

(4) Other rights and obligations provided by law or by the parties hereto.

3.7.3 Other obligations

3.7.3.1 Both parties hereto must maintain confidentiality on the other party’s commercial secrets or other critical information and must not disclose such information to any third party, except as required by law.

3.7.3.2 Upon the termination of the contract, the parties hereto must perform the necessary notification and assistance obligation in good faith.

Article 4 Optional Provisions

The Section 4.1, Section 4.2 and Section 4.3 all apply to the services hereunder and are binding to both parties. Other sections in this Article 4 are not binding

4.1 Purpose of use of the margin loan funds

4.1.1 The margin loan funds can only be used for payments under the contracts between the Company and Guangdong Guangxin Communications Service Co., Ltd.

4.1.2 Party B has the right to monitor Party A’s use of the margin loan funds, and Party A must provide relevant documents when using such funds.

4.1.3 If Party A fails to use the margin loan funds in accordance with the provisions herein, Party B will charge default penalty at the rate of the loan plus 100% until the principal and interest have been repaid.

4.1.4 If Party A uses the margin loan fund in violation of the provisions herein or fails to pay interest on time, Party A must pay past-due interest at the compounded rate in accordance with the provisions herein.

4.2 Performance of the obligations under the base transaction contracts

Party A warrants that Party A has already performed the major obligations under the base transaction contracts and promises to continue to perform other obligations thereunder.

4.3 The accounts receivable are not based on related-party transactions

Party A warrants that the accounts receivable listed in Section 3.1.1 are not based on related-party transactions.

4.4 [N/A]

4.5 [N/A]

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Article 5 Legal Liabilities

5.1         The following acts by Party A constitute breach:

(1) Violation of the obligations hereunder;

(2) Failure to carry out the commits stated in Article 2;

(3) Refusal to perform obligations hereunder;

(4) Failure to perform or to completely perform the obligations under other contracts between Party A and Party B;

5.2         Upon the occurrence of any of the following, Party B may dissolve this contract and other contracts between Party A and Party B:

(1) Party A’s breach;

(2) Party A breaches other contracts between Party A and Party B ;

(3) Party A’s ability to perform the obligations hereunder suffers material adverse change;

(4) State policy change that may have adverse effect on Party A’s ability to perform the obligations hereunder suffers material adverse change ;

(5) Party A commits major breaches with other creditors;

(6) Other situations provided by law or by this contract that can result in the dissolution of this contract.

If Party B decides to dissolve this contract, Party A has 7 days (starting from the day when Party B notifies Party A either orally or in writing) to raise objections.

5.3         Upon the occurrence of the situations set forth in Section 5.1 and Section 5.2, Party B may take the following remedial steps:

(1) Demand Party A to remedy the acts of breach, make arrangement to ensure the repayment of debts or provide other valid guarantee;

(2) Charge default penalty and compound interest rate, until the principal and interest have been repaid;

(3) Suspend the release of the margin loan funds, demand Party A to buy back in advance the accounts receivable and declare that other loans under other contracts between Party A and Party B immediately due;

(4) Exercise the right to offset and other rights;

(5) Demand Party A to assume responsibility for compensation and other legal liabilities;

(6) Take other measures to protect assets and other legal actions;

(7) Make public Party A’s acts of breach;

(8) Other remedies.

5.4         If Party A’s breaches force Party B to resort to litigation or arbitration, Party B must be responsible for all the attorney fees, traveling expenses, enforcement fees, appraisal fees and other fees incurred for realization of Party B’s creditor rights.

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5.5         Provided that Party A has performed the obligations hereunder, if Party B fails to accept the transfer of the accounts receivable listed in Section 3.1.1, Party B must compensate Party A for the actual resulting loss.

Article 6 Other Matters

6.1 Notification

All notices and other communication hereunder will be sent to the addresses and fax numbers listed herein.

6.2 Sharing of fees

All fees paid to a third party in the performance of this contract will be assumed based on the agreement between the parties hereto. If no such agreement, such fees will be assumed according to the law or the equitable principle.

6.3 Dispute Resolution

6.3.1 Any dispute arising from this contract must be resolved through consultation; if such consultation fails, the dispute may be submitted to the local people’s court.

6.3.2 During the period of the legal proceedings, the obligations hereunder not in dispute must continue to be carried out.

6.4 Contract Effectiveness

6.4.1 This contract becomes effective upon execution

6.4.2 Place of execution: Jinan, Shandong Province

6.4.3 Prior to the completion of the performance of this contract, if there is any change of law or regulation that renders some or all of the provisions herein not in compliance with the law, Party B may carry out the affected matters in accordance with the newly implemented law or regulations, unless otherwise stipulated between the two parties.

6.4.4 Other matters not covered herein will be determined between the parties hereto separately.

6.4.5 This contract is in duplicates, with one to each party.

Party A:                       /seal/ Trunkbow Asia Pacific (Shandong) Co. Limited

Legal Representative: /s/ HOU Wanchun

                      /s/ LI Qiang

April 26, 2012

Party B:                       Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Legal Representative: ZHANG Guiying

April 26, 2012

11

EX-10.3

Pledge Contract

S/N: 37100420120003495

(This is a summary translation to be used for reference only)

Pledgee: Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Pledgor: Trunkbow Asia Pacific (Shandong) Co. Limited

To ensure the performance of Domestic Factoring Contract (with Recourse) between the Pledgee and the Pledgor (“Master Contract”), the Pledgee and the Pledgor have entered into the following pledge contract as guarantee.

Article 1              Master Debt under the Guarantee and Amount of the Principal

The type of master debt under the guarantee is factoring financing with recourse, the principal amount of which is RMB 18,000,000.

Article 2              Scope of the Pledge Guarantee

The scope of this pledge guarantee includes the loan principal hereunder and interest, penalty interest, compound interest, default damages and other fees incurred by the creditor to realize the creditor claims.

Article 3              Right Pledged

The Pledgor agrees to pledge its creditor right to its accounts receivable (see details in the attached “List of Accounts Receivable Transferred”).

Article 4              The Pledgor’s Warranties

1.          The Pledgor has obtained all authorization necessary for the pledge.

2.          The Pledgor has full, uncontestable right to the item pledged.

1

3.          The creditor right pledged may be transferred in accordance with the law.

4.          There is no application for cancellation of and annulling the creditor right, nor is there any dispute, seizure, freeze, litigation, arbitration on such right.

5.          The Pledgor has obtained consent from the joint owner regarding the pledge.

6.          The Pledgor will continue to make payments for all the fees associated with the pledged right and perform other legal obligations to ensure the effectiveness of such right during the period of the pledge.

7.          During the period of the pledge, the Pledgor will notify the Pledgee in writing upon the occurrence of any of the following:

(1)         Application for cancellation of and annulling the creditor right; any dispute, seizure, freeze, litigation, arbitration on such right;

(2)         The Pledgor is dissolved, having its license cancelled or is ordered to shut down;

(3)         The Pledgor files, or is forced to file, for bankruptcy, restructuring;

8.           There exists no situation that will affect the realization of the creditor’s right.

Article 5              Effectiveness of the Pledged Right

The effectiveness of the pledged right extends to subordination, yield and other asset and rights provided by law.

Article 6              Delivery and Safekeeping of the Certificates of the Pledged Right

1.          If necessary, the Pledgor must deliver the certificates of the pledged right to the Pledgee for safekeeping.

2.          If such certificates are in the form of bank draft, promissory note, check, warehouse receipts, bill of lading or loan certificates, they should be marked “pledged” on the back.

3.          If registration is required, the pledge must be registered.

4.          During the effective period of the pledge, the Pledgor shall not gift, transfer or dispose of the pledged right in any other form without the authorization of the Pledgee.

5.          During the effective period of the pledge, if the value of the pledged right decreases, the Pledgor has the right to ask the Pledgor to provide additional guarantee.

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Article 7              Transfer of the Pledged Right

If the Pledgee transfers some of the claims under the pledged right, the Pledgee has the right not to transfer the corresponding pledgee’s right.

Article 8              Realization of the Pledgee’s Right

1.            Upon the occurrence of any of the following, the Pledgee has the right to exercise its pledgee’s right, and has the right to decide how to apply the proceeds from the disposition of the pledged item:

(1)         The debt under the Master Contract is due and the Pledgee has not been fully repaid;

(2)         The debtor’s, or the Pledgor’s, license is revoked, or the debtor or the Pledgor is ordered to shut down or dissolved;

(3)         The debtor or the Pledgor is involved in a bankruptcy or settlement proceeding ordered by a court;

(4)         The debtor or the Pledgor is dead or declared missing or dead;

(5)         The pledged right is being cancelled or declared invalid, or is involved in any seizure, freeze, litigation, arbitration or other enforcement action;

(6)         The Pledgor fails to provide additional guarantee at the Pledgee’s request;

(7)         The Pledgor violates its obligations hereunder;

(8)         Other situations that will affect the realization of the creditor right.

2.            If the pledged bank draft, promissory note, check, warehouse receipts or bill of lading become due prior to the due date of the debt under the Master Contract, the Pledgee has the right to cash them out or take the delivery and use the proceeds to repay the debt in advance (or deposit them in escrow).

3.            If the claims under the guarantee are also guaranteed by using property as security, the Pledgee may use such property to realize its claim and may also ask such guarantor to assume responsibility.

4.            If the Pledgor is a party other than the debtor, the Pledgor agrees to continue to provide such guarantee as necessary.

3

5.            If the proceeds from disposition of the pledged right and property is insufficient to repay all the debt due, the Pledgee has the right to decide the order of applying such proceeds with regard to the debt.

Article 9              Return of the Certificates of the Pledged Right

1.            Upon the full repayment of the debt under the Master Contract, the Pledgee must promptly return to the Pledgor all the certificates of the pledged right.

2.            If the Pledgor refuses to accept the return of such certificates, the Pledgor has the right to deposit them in escrow at the Pledgor’s cost.

Article 10             Liability for Breach

1.            Upon the occurrence of any of the following on the part of the Pledgor, the Pledgor must pay default damages and compensate the Pledgee for any resulting loss:

(1)         Failure to obtain valid authorization necessary for the pledge guarantee;

(2)         Withholding of information regarding dispute, bankruptcy proceeding, seizure, freeze, litigation or arbitration involving the pledge right;

(3)         Failure to provide certificates of the pledge right required;

(4)         Disposition of the pledge right without the Pledgee’s authorization;

(5)         Failure to provide additional guarantee at the Pledgee’s request;

(6)         Other acts in violation of the provisions herein.

2.            Upon the occurrence of any of the following on the part of the Pledgee, the Pledgee must compensate the Pledgor for any resulting loss:

(1)         Damage to or disappearance of certificates of the pledge right due to the Pledgee’s negligence;

(2)         Upon the expiration of the debt performance period, the Pledgor requests the Pledgee to exercise its pledgee right promptly but the Pledgee delays such exercise.

4

Article 11          Sharing of fees

All fees paid to a third party in the performance of this contract will be assumed based on the agreement between the parties hereto. If no such agreement, such fees will be assumed according to the law or the equitable principle.

The laws and regulations referenced herein are those of the People’s Republic of China, including local statutes and regulations.

Article 12          Dispute Resolution

Any dispute arising from this contract must be resolved through consultation; if such consultation fails, the dispute may be submitted to the local people’s court.

During the period of the legal proceedings, the obligations hereunder not in dispute must continue to be carried out.

Article 14          Other Matters

The Pledgor has already received and read the Master Contract under the guarantee.

Article 15          Contract Effectiveness

This contract becomes effective upon execution.

Article 16          This contract is in duplicates, with one to each party.

Pledgee: Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Legal Representative: ZHANF Guiying

Pledgor: /seal/ Trunkbow Asia Pacific (Shandong) Co. Limited

Legal Representative: /s/ HOU Wanchun

April 26, 2012

5

EX-10.4

Guarantee Contract

S/N: 37100120120038921

(This is a summary translation to be used for reference only)

Creditor: Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Guarantor: LI Qiang

To ensure the performance of Domestic Factoring Contract (with Recourse) (“Master Contract”) between the Creditor and Trunkbow Asia Pacific (Shandong) Co. Limited (the “Debtor”), the Guarantor is willing to provide the following guarantee.

Article 1             Master Debt under the Guarantee and Amount of the Principal

The type of master debt under the guarantee is factoring with recourse, the principal amount of which is RMB 18,000,000.

Article 2             Scope of the Guarantee

The scope of this pledge guarantee includes the loan principal hereunder and interest, penalty interest, compound interest, default damages and other fees incurred by the creditor to realize the creditor claims.

Article 3             Guarantee Method

The guarantee method hereunder is joint and several liability guarantee. If there are more than one guarantors, each guarantor will bear joint and several liabilities with respect to the Creditor.

Article 4             Term of the Guarantee

1.          The term of the guarantee provided by the Guarantor is 2 years starting from the expiration of the performance period under the Master Contract.

1

2.          The term of the guarantee under acceptance of commercial bills and issuance of relief margin and letter of credit is 2 years starting from the date on which the Creditor makes such advance payment.

3.          The term of the guarantee under discounted commercial bills is 2 years starting from the due date of such bills.

4.          If the Creditor and the Debtor extend the performance period of the Master Contract and the Guarantor continues its guarantee, the term of the guarantee is 2 years starting from the expiration of such extension.

5.          If the debt under the Master Contract is declared due in advance by the Creditor in accordance with the Master Contract, the term of the guarantee is 2 years starting from such earlier due date.

Article 5             The Guarantor’s Warranties

1.          The Guarantor has obtained all authorization necessary for the guarantee.

2.          The Guarantor has provided true, complete and effective financial statements, company charter or other relevant documents to the Creditor and will accept the Creditor’s supervision in its operation and financial condition.

3.          If the Debtor fails to perform its debt obligations, the Guarantor will perform its guarantee responsibility.

4.          If the Guarantor fails to perform its guarantee responsibility, the Creditor has the right to make deductions of such amount directly from the Guarantor’s account with the Creditor.

5.          During the period of the guarantee, the Guarantor will notify the Creditor immediately in writing upon the occurrence of any of the following:

(1)         Change in the name, address, contact information and legal representative of the Guarantor;

(2)         Change in the affiliate relationship, senior management, company charter and organization of the Guarantor;

(3)         Experience of material difficulty in the operations and financial condition;

(4)         The Guarantor files, or is forced to file, for bankruptcy, restructuring;

(5)         The Guarantor is dissolved, having its license cancelled or is ordered to shut down;

(6)         Other situations that will affect the realization of the creditor’s right;

2

6.           Before undertaking any of the following, the Guarantor must notify the Creditor in writing within 15 days and obtain the Creditor’s approval:

(1)         The Guarantor changes its capital or business structure, including but not limited to contracting, lease, merger, spin-off, reorganization, joint venture or joint capital, transfer of assets and filing for reorganization, settlement or bankruptcy;

(2)         The Guarantor provides guarantee to a third party or any other guarantee for its other debts.

Article 6              Assumption of the Responsibility for Guarantee

1.           Upon the occurrence of any of the following, the Creditor has the right to demand the Guarantor to assume its responsibility for guarantee:

(1)         The debt under the Master Contract is due and the Creditor has not been fully repaid;

(2)         The Debtor or the Guarantor is involved in the bankruptcy or settlement proceedings ordered by a court;

(3)         The Debtor’s, or the Guarantor’s, license is revoked, or the Debtor or the Guarantor is ordered to shut down or dissolved;

(4)         The Debtor or the Guarantor is dead or declared missing or dead;

(5)         The Guarantor violates its obligations hereunder;

(6)         Other situations that will adversely affect the realization of the Creditor’s right.

2.           If the claims under the guarantee are also guaranteed by using property as security, the Creditor may use such property to realize its claim and may also ask such guarantor to assume responsibility.

3.           If the Debtor has provided guarantee by using property as security and the Creditor waives such guarantee, the Guarantor agrees to continue to bear joint and several liability for guarantee.

4.           If the Guarantor has provided guarantee for multiple debts (including the debt under the Master Contract) and the payment from the Guarantor is insufficient to repay all the debts due, the Creditor has the right to decide the order of applying such payment with regard to the debts.

5.           The Creditor has the right to decide the order when exercising its right to offset or its right of subrogation

3

Article 7             Liability for Breach

1.           If the Debtor fails to repay the Creditor, the Guarantor must be responsible for all the resulting loss suffered by the Creditor.

2.           Upon the occurrence of any of the following on the part of the Guarantor, the Guarantor must pay default damages and compensate the Creditor for any resulting loss:

(1)         Failure to obtain valid authorization necessary for the pledge guarantee;

(2)         Failure to provide true, complete and effective financial statements, company charter or other relevant information;

(3)         Failure to notify the Creditor of the situation set forth in Section 5.5 herein;

(4)         Engaging in activities in Section 5.6 herein without obtaining the Creditor’s prior approval;

(5)         Other acts in violation of the provisions herein.

Article 8              Offset Right and the Dissolution Right Objection Period

If the Creditor exercises its offset right or dissolution right in accordance with the law or with the provisions herein, the Guarantor has 7 days (starting from the day when the Creditor notifies the Guarantor either orally or in writing) to raise objections.

Article 9              Dispute Resolution

Any dispute arising from this contract must be resolved through consultation; if such consultation fails, the dispute may be submitted to the local people’s court.

During the period of the legal proceedings, the obligations hereunder not in dispute must continue to be carried out.

Article 10             Other Matters

The Guarantor has already received and read the Master Contract under the guarantee.

Article 11            Contract Effectiveness

This contract becomes effective upon execution.

Article 12            This contract is in duplicates, with one to each party.

4

Creditor: /seal/ Agricultural Bank of China, Jinan Hi-Tech Development Zone

Legal Representative: ZHANF Guiying

Guarantor: /s/ LI Qiang

April 26, 2012

5

EX-10.5

Guarantee Contract

S/N: 37100120120038921-2

(This is a summary translation to be used for reference only)

Creditor: Agricultural Bank of China, Jinan Hi-Tech Development Zone Branch

Guarantor: HOU Wanchun

To ensure the performance of Domestic Factoring Contract (with Recourse) (“Master Contract”) between the Creditor and Trunkbow Asia Pacific (Shandong) Co. Limited (the “Debtor”), the Guarantor is willing to provide the following guarantee.

Article 1              Master Debt under the Guarantee and Amount of the Principal

The type of master debt under the guarantee is factoring with recourse, the principal amount of which is RMB 18,000,000.

Article 2              Scope of the Guarantee

The scope of this pledge guarantee includes the loan principal hereunder and interest, penalty interest, compound interest, default damages and other fees incurred by the creditor to realize the creditor claims.

Article 3              Guarantee Method

The guarantee method hereunder is joint and several liability guarantee. If there are more than one guarantors, each guarantor will bear joint and several liabilities with respect to the Creditor.

Article 4              Term of the Guarantee

1.          The term of the guarantee provided by the Guarantor is 2 years starting from the expiration of the performance period under the Master Contract.

1

2.          The term of the guarantee under acceptance of commercial bills and issuance of relief margin and letter of credit is 2 years starting from the date on which the Creditor makes such advance payment.

3.          The term of the guarantee under discounted commercial bills is 2 years starting from the due date of such bills.

4.          If the Creditor and the Debtor extend the performance period of the Master Contract and the Guarantor continues its guarantee, the term of the guarantee is 2 years starting from the expiration of such extension.

5.          If the debt under the Master Contract is declared due in advance by the Creditor in accordance with the Master Contract, the term of the guarantee is 2 years starting from such earlier due date.

Article 5              The Guarantor’s Warranties

1.          The Guarantor has obtained all authorization necessary for the guarantee.

2.          The Guarantor has provided true, complete and effective financial statements, company charter or other relevant documents to the Creditor and will accept the Creditor’s supervision in its operation and financial condition.

3.          If the Debtor fails to perform its debt obligations, the Guarantor will perform its guarantee responsibility.

4.          If the Guarantor fails to perform its guarantee responsibility, the Creditor has the right to make deductions of such amount directly from the Guarantor’s account with the Creditor.

5.          During the period of the guarantee, the Guarantor will notify the Creditor immediately in writing upon the occurrence of any of the following:

(1)         Change in the name, address, contact information and legal representative of the Guarantor;

(2)         Change in the affiliate relationship, senior management, company charter and organization of the Guarantor;

(3)         Experience of material difficulty in the operations and financial condition;

(4)         The Guarantor files, or is forced to file, for bankruptcy, restructuring;

(5)         The Guarantor is dissolved, having its license cancelled or is ordered to shut down;

(6)         Other situations that will affect the realization of the creditor’s right;

2

6.           Before undertaking any of the following, the Guarantor must notify the Creditor in writing within 15 days and obtain the Creditor’s approval:

(1)         The Guarantor changes its capital or business structure, including but not limited to contracting, lease, merger, spin-off, reorganization, joint venture or joint capital, transfer of assets and filing for reorganization, settlement or bankruptcy;

(2)         The Guarantor provides guarantee to a third party or any other guarantee for its other debts.

Article 6              Assumption of the Responsibility for Guarantee

1.            Upon the occurrence of any of the following, the Creditor has the right to demand the Guarantor to assume its responsibility for guarantee:

(1)         The debt under the Master Contract is due and the Creditor has not been fully repaid;

(2)         The Debtor or the Guarantor is involved in the bankruptcy or settlement proceedings ordered by a court;

(3)         The Debtor’s, or the Guarantor’s, license is revoked, or the Debtor or the Guarantor is ordered to shut down or dissolved;

(4)         The Debtor or the Guarantor is dead or declared missing or dead;

(5)         The Guarantor violates its obligations hereunder;

(6)         Other situations that will adversely affect the realization of the Creditor’s right.

2.            If the claims under the guarantee are also guaranteed by using property as security, the Creditor may use such property to realize its claim and may also ask such guarantor to assume responsibility.

3.            If the Debtor has provided guarantee by using property as security and the Creditor waives such guarantee, the Guarantor agrees to continue to bear joint and several liability for guarantee.

4.            If the Guarantor has provided guarantee for multiple debts (including the debt under the Master Contract) and the payment from the Guarantor is insufficient to repay all the debts due, the Creditor has the right to decide the order of applying such payment with regard to the debts.

5.            The Creditor has the right to decide the order when exercising its right to offset or its right of subrogation

3

Article 7              Liability for Breach

1.            If the Debtor fails to repay the Creditor, the Guarantor must be responsible for all the resulting loss suffered by the Creditor.

2.            Upon the occurrence of any of the following on the part of the Guarantor, the Guarantor must pay default damages and compensate the Creditor for any resulting loss:

(1)         Failure to obtain valid authorization necessary for the pledge guarantee;

(2)         Failure to provide true, complete and effective financial statements, company charter or other relevant information;

(3)         Failure to notify the Creditor of the situation set forth in Section 5.5 herein;

(4)         Engaging in activities in Section 5.6 herein without obtaining the Creditor’s prior approval;

(5)         Other acts in violation of the provisions herein.

Article 8              Offset Right and the Dissolution Right Objection Period

If the Creditor exercises its offset right or dissolution right in accordance with the law or with the provisions herein, the Guarantor has 7 days (starting from the day when the Creditor notifies the Guarantor either orally or in writing) to raise objections.

Article 9              Dispute Resolution

Any dispute arising from this contract must be resolved through consultation; if such consultation fails, the dispute may be submitted to the local people’s court.

During the period of the legal proceedings, the obligations hereunder not in dispute must continue to be carried out.

Article 10             Other Matters

The Guarantor has already received and read the Master Contract under the guarantee.

Article 11             Contract Effectiveness

This contract becomes effective upon execution.

Article 12             This contract is in duplicates, with one to each party.

4

Creditor: /seal/ Agricultural Bank of China, Jinan Hi-Tech Development Zone

Legal Representative: ZHANF Guiying

Guarantor: /s/ HOU Wanchun

April 26, 2012

5

EX-10.6

Automobiles Lease Contract

Unofficial Summary Translation from Chinese Language Original Document

Lessor:                           LI Qiang

Lessee:                          Trunkbow (Asia Pacific) Investment Holdings Limited

1.            Details on the Automobiles Leased and the Scope of Their Use

1.1          Details on the automobiles

Number of automobiles:           4

Make of the automobiles:        Mercedes Benz, Mazda, Buick and Audi

Model of the automobiles:       Mercedes Benz Cross Country, Mazda Familia, Buick Sail and Audi A8

1.2          Scope of use:                           To be used by Lessee and its subsidiaries in business and operational activities

2.          Term of the Lease and Payment Method

2.1         Term of the lease:                             January 1, 2012 to December 31, 2012.

2.2         Fees for the Lease:                           US$ 12,000.00 per month, to be paid semi-annually.

2.3         Security for the automobiles:          At the time of delivering the automobiles, the Lessor will collect from the Lessee, as security, three-month’s fees for the lease, namely US$36,000.00.

Within 7 days upon the expiry of the lease, the Lessor shall return the security or may notify the Lessee prior to the expiry of the lease that such security will be used to offset the fees for the lease.

2.4           Payment method for the fees for the lease:

The Lessee shall pay for the next half year’s fees for the lease before the 15^th of the sixth month of the first half of the year; at the time of collecting such fees, the Lessor must issue invoice with the amount equal to such fees to the Lessee.

The Lessee must make payments for the initial fees for the lease and for security within 7 days upon the execution of this contract.

3.          The Lessor’s Rights and Obligations

3.1           The Lessor shall have the right to recall the automobiles leased at any time in any place upon the occurrence of any of the following:

3.1.1 The Lessee uses such automobiles to engage in illegal or criminal activities.

3.1.2 The Lessee pledges, subleases, sells, pledges and mortgages such automobiles.

3.1.3 The Lessee engages in other activities that are harmful to the Lessor’s rights to such automobiles.

3.1.4 The Lessee delays any amount payable due for more than 7 consecutive days without obtaining the Lessor’s approval.

3.1.5       If the circumstances mentioned above result in any economic loss of the leased automobiles, the Lessee shall be responsible for the corresponding compensation.

3.2           The Lessor shall bear no responsibilities to any third party resulting that are generated during the term of the lease.

3.3           The Lessor shall be entitled to other rights provided by laws and statutes.

3.4           The automobiles provided must be in usable condition and all the related licenses and permits must be complete and valid.

4.           The Lessee’s Rights and Obligations

4.1           The Lessee shall have the right to use such automobiles during the term of the lease specified herein.

4.2           The Lessee shall be responsible for the repair and maintenance on such automobiles during the term of the lease; however the Lessee shall have no obligation to repair any damage to such automobiles that has occurred prior to the term of the lease.

4.3           The Lessee shall pay the fees for the lease in full and on time.

4.4           The Lessee shall be responsible for insurance, fuel and toll fees on such automobiles during the term of the lease.

4.5           The Lessee must comply with all state laws and regulations and must be responsible for all liabilities and economic losses resulting from violations of such laws and regulations or accidents during the term of the lease.

4.6           The Lessee must assist the Lessor during the term of the lease in handling damage inspection and claims.

5.           Provisions Regarding Insurance

5.1           The Lessee must report to the Lessor any accident within 24 hours of its occurrence; if the leased automobiles are stolen, scraped or otherwise totaled, the Lessee shall be responsible for 40% of the fees for the lease and the deductible portion of the insurance starting from the date of any such automobile is totaled until the Lessor receives the compensation from the insurance company.

5.2           The Lessee shall be responsible for all losses and the corresponding fees as the result of the refusal by the insurance to pay compensation due to any reason on the part of the Lessee.

6.          Liabilities for Breach

             6.1             If either party’s violation of the provisions herein renders it impossible to perform this contract completely, the party in breach must compensate for the resulting economic loss suffered by the other party; major policy change and Force Majeure excepted.

             6.2             The Lessee must return the automobiles leased at the time of return specified herein; for each day of delay, the Lessee must pay default penalty in the amount of 1% of the monthly fees for the lease in addition to the fees for the lease.

             6.3            The “economic loss” referred to herein include loss of fees for the lease; the rate of compensation for the loss of fees for the lease will be calculated at the standard rate.

7.           Changes to and Dissolution of the Contract

No change to or dissolution of the contract shall be valid, unless it is agreed to in an executed agreement by both parties hereto.

8.            Resolution of Dispute

All disputes arising from this contract must be resolved through friendly consultation between the two parties.

Lessor:           /s/          LI Qiang

Lessee:            /seal/    Trunkbow (Asia Pacific) Investment Holdings Limited

Date of Execution:       [Not dated]

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Li Qiang, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Trunkbow International Holdings Limited;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 21, 2012

/s/ Li Qiang

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ye Yuan Jun, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Trunkbow International Holdings Limited;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 21, 2012

/s/Ye Yuan Jun

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Trunkbow International Holdings Limited (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Li Qiang, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 21, 2012	/s/Li Qiang
	Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Trunkbow International Holdings Limited (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ye Yuan Jun, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 21, 2012
	/s/ Ye Yuan Jun
	Chief Financial Officer
	(Principal Financial Officer)

XML

SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2012

SEGMENT INFORMATION

19 — SEGMENT INFORMATION

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

The Group operates in the PRC and all of the Group’s long-lived assets are located in the PRC. As of March 31, 2012, the Company provides two products and services: MVAS Technology Platforms and Mobile Payment Solutions. MVAS Technology Platforms enable the operators to offer mobile value added services to end-users through our major products including Caller Color Ring Back Tone, Number Change Notification and Color Numbering. Mobile Payment Solutions allows RF-SIM (radio frequency SIM) enabled mobile phones worldwide to be utilized as payment tools and authentication devices, and also enables the end-user to consolidate a variety of functions and services into one phone.

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

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

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
MVAS Technology Platforms
Gross Revenues	$	2,395,914	$	3,672,734
Business tax and surcharges		16,291		84,479
Cost of Revenues		573,983		464,300
	$	1,805,640	$	3,123,955
Mobile Payment Solutions
Gross Revenues	$	4,402,299	$	1,429,608
Business tax and surcharges		100,260		36,945
Cost of Revenues		765,353		87,533
	$	3,536,686	$	1,305,130

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ACCOUNTS RECEIVABLE, NET

3 Months Ended

Mar. 31, 2012

ACCOUNTS RECEIVABLE, NET

3 — ACCOUNTS RECEIVABLE, NET

At March 31, 2012 and December 31, 2011, accounts receivable consisted of:

	March 31,			December 31,
	2012			2011
	(Unaudited)
Accounts receivable	$	43,211,895		$	42,091,386
Less: Allowance for doubtful debt		(949,592	)		(943,619	)
	$	42,262,303		$	41,147,767

The Group has recognized an allowance of $949,592 for a doubtful receivable that is over one year. The Group has not had any write-off of trade receivables during the years presented. $4,625,863 was subsequently collected by May 18, 2012. The accounts receivable of Trunkbow Shandong arising from all sales contracts or in kind from April 1, 2010 to December 30, 2013 have been pledged for the short-term bank loan of $6,488,882 due on December 28, 2012 and $791,327 on March 12, 2013.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2012

RELATED PARTY TRANSACTIONS

23 — RELATED PARTY TRANSACTIONS

1) Purchase from related parties

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

2) Guarantee and pledge of assets by related parties

The loan from China Minsheng Banking Corporation Limited was guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use right and Trunkbow Shandong’s accounts receivable. The pledge value of Mr. Li’s personal properties is RMB 3,930,000 (approximately $621,983).

3) Vehicle rental from related parties

Trunkbow (Asia Pacific) Investment Holdings Limited, our wholly owned Hong Kong subsidiary, entered into a vehicle rental agreement with Mr. Qiang Li for consecutive twelve months starting from January 1, 2012. Monthly rental fee is $12,000 on four cars owned by Mr. Li and $36,000 was paid to Mr. Li as deposit. Rental expense for the three months ended March 31, 2012 was $36,000.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2012

EARNINGS PER SHARE

22 — EARNINGS PER SHARE

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
Numerator:
Net income	$	2,206,489	$	3,353,679
Denominator:
Weighted average number of common shares outstanding - Basic		36,807,075		34,980,519
Effect of dilutive securities - Warrant		20,510		1,028,116
Weighted average number of common shares outstanding - Diluted		36,827,585		36,008,635
Earnings per share
-Basic	$	0.06	$	0.10
-Diluted	$	0.06	$	0.09

 For the three months ended March 31, 2012, the Roth Capital Warrants were not included in the calculation of diluted earnings per share because the effect was anti-dilutive, as the exercise price of $6 was higher than the average stock price of $2.01 for the three months ended March 31, 2012.

For the three months ended March 31, 2011, the Roth Capital Warrants were not included in the calculation of diluted earnings per share because the effect was anti-dilutive, as the exercise price of $6 was higher than the average stock price of $4.64 for the three months ended March 31, 2011.

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VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2012

VARIABLE INTEREST ENTITIES

24 — VARIABLE INTEREST ENTITIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary information regarding consolidated VIEs is as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Assets:
Cash and cash equivalents	$	88,260	$	206,492
Accounts receivable		2,794,781		2,719,991
Other current assets		12,829		9,431
Inventories		123,569		134,126
Due from directors		2,862		3,103
Property and equipment, net		98,436		108,740
Long-term prepayment		5,678		7,431
Total Assets	$	3,126,415	$	3,189,314
Liabilities:
Accounts payable	$	213,799	$	180,338
Accrued expenses and other current liabilities		1,107,538		1,235,494
Due to directors		55,908		55,319
Taxes payable		1,730,846		1,721,633
Total Liabilities	$	3,108,091	$	3,192,784

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

For the three months ended March 31, 2012, the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $221,129, cost of revenues of $144,507, operating expenses of $51,242 and net income of $21,850.

For the three months ended March 31, 2011 the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes revenues of $50,378, cost of revenues of nil, operating expenses of $135,606 and net loss of $87,301.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2012

SUBSEQUENT EVENTS

25 — SUBSEQUENT EVENTS

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

1)            Short-term loan

As part of the total bank facility obtained from Agriculture Bank of China on March 2, 2012, Trunkbow Shandong further received RMB18,000,000 (approximately $2,848,777) on April 26, 2012 secured by a transfer with full recourse of its accounts receivable of RMB20,155,000 (approximately $3,189,839). This short-term loan is due on October 25, 2012 and may only be used in connection with its project with Guangdong Guangxin Communications Service Co., Ltd. The loan is also personally guaranteed by Mr. Wanchun Hou and Mr. Qiang Li.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles pursuant to Regulation S-X of the Securities and Exchange Commission, and include the accounts of the Company, and its subsidiaries and VIEs, Trunkbow, Trunkbow Hong Kong, Trunkbow Shandong, Trunkbow Shenzhen, Trunkbow Technologies and Delixunda. Delixunda is being consolidated from March 10, 2011 (the date of acquisition). Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of consolidated financial position as of March 31, 2012 and consolidated results of operations, and cash flows for interim periods presented, have been made. The interim results of operations are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.

b) Principles of Consolidation

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

c) Reclassification

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

d) Use of estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.

e) Foreign currency translation

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

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

The exchange rates applied are as follows:

	March 31, 2012		December 31, 2011
RMB exchange rate		6.3185		6.5601
		2012		2011
Average RMB exchange rate for the three months ended March 31,		6.3088		6.5804

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

f) Cash and cash equivalents

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

g) Accounts receivable

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

h) Inventory

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

i) Property and equipment, net

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

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

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

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

Impairment of long-lived assets

Long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized for the three months ended March 31, 2012 and the year ended December 31, 2011.

j) Land use right, net

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

k) Intangible assets

Intangible assets acquired by the company and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment loss.

l) Fair value measurement

The Group's financial instruments primarily consist of cash and cash equivalents, accounts receivable, advance to suppliers, prepayment, other current assets, accounts payable, accrued expenses and other current liabilities. The carrying values of these financial instruments approximate fair values due to their short maturities.

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

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC Subtopic 820-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

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

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

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

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

A discussion of the valuation technique used to measure the fair value of the warrant is provided in note 17.

m) Revenue recognition

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

System integration

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

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

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

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

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

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

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

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

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

Sales of software

The Group enters into contracts directly with the mobile operators or through the resellers where resellers designated by the mobile operators have well-developed operation teams to support local operations so as to enable the mobile operators to provide mobile payment and value-added service to the end-users.

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

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

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

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

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

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

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

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

Patent licensing

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

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

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

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

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

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

Maintenance services

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

Revenue sharing

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

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

Royalty income

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

n) Government grants

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

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

o) Cost of revenues

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

p) Concentration  risk

Credit risk

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

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

Major Customers

The Group had sales to two customers that accounted for approximately 68.8% of revenues during the three months ended March 31, 2012 and four customers who accounted for approximately 84.2% of revenues during the three months ended March 31, 2011. These customers accounted for approximately 20.9% and 18.2% of accounts receivable balance as of March 31, 2012 and December 31, 2011, respectively.

Major Suppliers

The Group had purchases from two and three vendors that accounted for approximately 65.5% and 86.1% of purchases during the three months ended March 31, 2012 and 2011, respectively. These vendors accounted for nil of accounts payable balance as of March 31, 2012 and December 31, 2011, respectively.

q) Research and development expenses

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

r) Operating leases

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

s) Taxation

Income taxes

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

Value added taxes

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

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

Business tax and surcharges

The Company’s PRC subsidiaries and VIEs are also subject to a 5% business tax and related surcharges on the revenues earned from providing technical services.

t) Uncertain tax positions

ASC 740-10-25 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. For the three months ended March 31, 2012 and 2011 and the year ended December 31, 2011, the Group did not have any interest and penalties associated with tax positions and the Group did not have any significant unrecognized uncertain tax positions.

The Company’s subsidiaries and VIEs are subject to taxation in PRC and other tax jurisdictions. There is no ongoing examination by taxing authorities at this time. Various tax years during the three months ended March 31, 2012 and 2011 and the year ended December 31, 2011 of the Company’s subsidiaries and VIEs remain open in the relevant taxing jurisdictions.

u) Earnings per share

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

v) Appropriated Retained Earnings

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

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

w) Comprehensive income

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

x) Commitments and contingencies

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

y) Recently issued accounting standards

In the three months ended March 31, 2012, the FASB has not issued any Accounting Standards Update.

XML

CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012		Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 6,071,371	[1]	$ 6,139,589	[1]
Accounts receivable, net	42,262,303	[1]	41,147,767	[1]
Advances to suppliers	11,926,430		13,270,125
Prepayment	2,148,201		316,258
Other current assets	6,944,759	[1]	4,040,152	[1]
Due from directors	577,801	[1]	758,033	[1]
Inventories	12,292,660	[1]	11,297,513	[1]
Deferred tax asset	118,699		117,952
Total current assets	82,342,224		77,087,389
Property and equipment, net	12,352,836	[1]	11,561,034	[1]
Land use right, net	5,912,852		5,905,583
Intangible assets, net	279,971		33,958
Long-term prepayment	792,899	[1]	2,733,363	[1]
TOTAL ASSETS	101,680,782		97,321,327
Current liabilities
Accounts payable	1,194,843	[1]	2,238,179	[1]
Accrued expenses and other current liabilities	2,298,441	[1]	2,216,128	[1]
Short-term loan	10,097,333		6,460,945
Due to directors	0	[1]	11,959	[1]
Taxes payable	3,240,015	[1]	4,209,907	[1]
Total current liabilities	16,830,632		15,137,118
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Preferred Stock: par value $0.001, authorized 10,000,000 shares, none issued and outstanding at March 31, 2012 and December 31, 2011, respectively	0		0
Common Stock: par value $0.001, authorized 190,000,000 shares, 36,807,075 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively	36,807		36,807
Additional paid-in capital	39,671,966		39,671,966
Appropriated retained earnings	4,504,667		4,504,667
Unappropriated retained earnings	37,195,918		34,989,429
Accumulated other comprehensive income	3,440,792		2,981,340
Total stockholders' equity	84,850,150		82,184,209
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 101,680,782		$ 97,321,327

[1] The assets of the VIEs can be used only to settle the obligations of the VIEs. Conversely, liabilities recognized as of consolidating VIEs do not represent additional claims on the Company's assets. (Note 24).

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2011
Issuance of common stock for legal fees, shares	30,000
Issuance of common stock for legal fees, par value	$ 5

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INCOME TAXES

3 Months Ended

Mar. 31, 2012

INCOME TAXES

16 — INCOME TAXES

Corporation Income Tax (“CIT”)

(i)            The Company was incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporation income tax. The Company became a holding company and does not conduct any substantial operations of its own after the Share Exchange. No provision for federal corporate income tax has been made in the financial statements as the Company has no taxable income in the United States for the three months ended March 31, 2012. Earnings in the PRC are intended to be permanently reinvested in the PRC operation.

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

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

(ii)          PRC subsidiaries and VIEs

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

Trunkbow Shandong

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

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

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

In March 2012, Trunkbow Shandong was recognized as New and High-Tech Enterprise. Under the Enterprise Income Tax Law effective from January 1, 2008, Trunkbow Shandong will be entitled to the 15% of preferential tax rate for the years ended December 31, 2014, 2015 and 2016.

Trunkbow Shenzhen

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

On June 8, 2011, Trunkbow Shenzhen was certified as a software enterprise by Shenzhen Technology, Industry, Commerce and Information Committee. Pursuant to the PRC tax laws, newly established and certified software enterprises are entitled to tax preferential policies of full exemption from income tax for the first two years and a 50% reduction for the next three years, commencing from the first profit-making year after offsetting all tax losses carried forward from the previous five years. Trunkbow Shenzhen was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

Trunkbow Technologies

Trunkbow Technologies was registered in Shenzhen, a special economic zone in the PRC, which is entitled to preferential income tax rates of 18% and 15% in 2008 and 2007 respectively. According to the pronouncement of the tax bureau, for companies established before March 16, 2007, the income rate will gradually increase to 25% within 4 years, 20% in 2009, 22% in 2010, 24% in 2011 and 25% from 2012. Trunkbow Technologies was in net operation loss as of March 31, 2012 and no income tax provision was recorded.

Delixunda

Delixunda was registered in Beijing, the PRC. The applicable income tax rate for Delixunda was 25% for the three months ended March 31, 2012. Delixunda had a net operating loss for the three months ended March 31, 2012, and no income tax provision was recorded.

1) Deferred tax asset 

	March 31,		December 31,
	2012		2011
	(Unaudited)
Deferred tax asset	$	118,699	$	117,952

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

2) The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for the three months ended March 31, 2012 and 2011, respectively:

	Three Months Ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)
PRC statutory tax rate		25	%		25	%
Accounting income before tax	$	2,861,733		$	4,228,937
Computed expected income tax expenses		715,433			1,057,234
Accumulated loss from subsidiaries and VIEs		1,878			52,320
Less: net operation loss carryforward		76,167			0
Less: tax exemption		320,572			721,201
Income tax expenses	$	320,572		$	388,353

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REVENUES AND COST OF REVENUES

3 Months Ended

Mar. 31, 2012

REVENUES AND COST OF REVENUES

18 — REVENUES AND COST OF REVENUES

The following consolidated result of operations includes the results of operations of the Company, all the subsidiaries and our VIEs, Trunkbow Technologies and Delixunda. Delixunda has being consolidated from March 10, 2011 (the date of acquisition).

For the three months ended March 31, 2012 and 2011, revenues and cost of revenues consisted of:

	Three Months Ended March 31,
	2012		2011
	(Unaudited)		(Unaudited)
Gross Revenues
System integration	$	1,476,140	$	482,704
Software sales		4,673,976		3,606,930
Maintenance service		69,197		734,758
Shared revenue		578,900		277,950
		6,798,213		5,102,342
Less:
Business tax and surcharges		116,551		121,424
Cost of Revenues
Equipment costs		1,245,617		435,581
Labor Costs		93,719		116,252
		1,339,336		551,833
Gross profit	$	5,342,326	$	4,429,085

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ORGANIZATION AND PRINCIPAL ACTIVITIES

3 Months Ended

Mar. 31, 2012

ORGANIZATION AND PRINCIPAL ACTIVITIES

1 — ORGANIZATION AND PRINCIPAL ACTIVITIES

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

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

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

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

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

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

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

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Preferred Stock, par value	$ 0.001	$ 0.001
Preferred Stock, authorized	10,000,000	10,000,000
Preferred Stock, issued
Preferred Stock, outstanding
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, authorized	190,000,000	190,000,000
Common Stock, shares issued	36,807,075	36,807,075
Common Stock, shares outstanding	36,807,075	36,807,075

XML

INTANGIBLE ASSETS, NET

3 Months Ended

Mar. 31, 2012

INTANGIBLE ASSETS, NET

11 — INTANGIBLE ASSETS, NET

At March 31, 2012 and December 31, 2011, intangible assets consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Software	$	251,878	$	3,216
License		41,149		40,890
		293,027		44,106
Less: Accumulated amortization		13,056		10,148
	$	279,971	$	33,958

Amortization expense for the three months ended March 31, 2012 and 2011 was $2,849 and $1,052, respectively.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 14, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Trading Symbol	TBOW
Entity Registrant Name	TRUNKBOW INTERNATIONAL HOLDINGS LTD
Entity Central Index Key	0001485933
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		36,807,075

XML

LONG-TERM PREPAYMENT

3 Months Ended

Mar. 31, 2012

LONG-TERM PREPAYMENT

12 — LONG-TERM PREPAYMENT

At March 31, 2012 and December 31, 2011, long-term prepayment consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Office rental	$	3,324	$	8,191
Prepaid membership fee		245,135		250,758
Deposits		159,459		158,456
Prepaid royalties		0		1,857,011
Other prepaid expenses		384,981		458,947
	$	792,899	$	2,733,363

XML

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues	$ 6,798,213	$ 5,102,342
Less: Business tax and surcharges	116,551	121,424
Net revenues	6,681,662	4,980,918
Cost of revenues	1,339,336	551,833
Gross profit	5,342,326	4,429,085
Operating expenses
Selling and distribution expenses	1,025,022	436,608
General and administrative expenses	1,160,671	1,214,622
Research and development expenses	550,862	329,514
Operating Expenses, Total	2,736,555	1,980,744
Income from operations	2,605,771	2,448,341
Other income (expenses)
Interest income	55,632	13,203
Interest expense	(179,009)	(33,252)
Refund of value-added tax	0	1,307,836
Government grants	39,627	0
Other income	15,851	23,555
Other expenses	(10,811)	(17,651)
Nonoperating Income (Expense), Total	(78,710)	1,293,691
Income before income tax expense	2,527,061	3,742,032
Income tax expense	320,572	388,353
Net income	2,206,489	3,353,679
Foreign currency translation fluctuation	459,452	222,911
Comprehensive income	$ 2,665,941	$ 3,576,590
Weighted average number of common shares outstanding
Basic	36,807,075	34,980,519
Diluted	36,827,585	36,008,635
Earnings per share
Basic	$ 0.06	$ 0.10
Diluted	$ 0.06	$ 0.09

XML

OTHER CURRENT ASSETS

3 Months Ended

Mar. 31, 2012

OTHER CURRENT ASSETS

6 — OTHER CURRENT ASSETS

Loans receivable and other current assets at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Deposits	$	171,604	$	150,234
Loans to third parties		3,956,635		2,830,856
Staff advances		14,864		259,008
Advance to cloud APP agreement		2,801,656		800,054
	$	6,944,759	$	4,040,152

Loans to third parties as of December 31, 2011 and March 31, 2012 consisted primarily of $2.67 million and $3.48 million of payment to China Telecom Jinan Branch for the purchase of MPS hardware and software for the roll-out of MPS systems and application in Jinan City, Shandong Province. According to the agreement with China Telecom, Trunkbow will share monthly function fees based on 3% of total principal with China Telecom on the MPS systems and application for consecutive twelve months from January 2012 to December 2012. The principal will be repaid in December 2012. The revenue and interest income recognized during the three months ended March 31, 2012 was $137,353 and $52,857.

Advance for cloud APP agreement represents a contribution per two cooperative agreements the Company entered into with a marketing company to start a music applet development project in December 2011 and January 2012. The contracts, in the amount of $2,000,000 and $801,656, respectively, call for 50% revenue sharing with a minimum guarantee of a 5% and 10% return, respectively. The terms of the agreements are nine and six months starting on January 1, 2012, respectively. In addition, the Company is guaranteed to receive its initial contribution of $2,801,656 at the end of the contract term.

XML

PREPAYMENT

3 Months Ended

Mar. 31, 2012

PREPAYMENT

5 — PREPAYMENT

Prepayments at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Prepaid royalty	$	1,857,640	$	0
Prepaid advertisement		0		267,359
Prepaid VAT		36,202		0
Prepaid insurance		138,705		0
Other prepaid expenses		115,654		48,899
	$	2,148,201	$	316,258

Prepaid royalties represented prepayment to Sony Music Entertainment China Holdings Limited for music license used in MPS and MVAS. The license will expire in March 2013.

Prepaid advertisement is amortized as the expense incurred. The balance as of December 31, 2011 was expensed during the three months ended March 31, 2012.

Prepaid VAT represented the payment of VAT-input over VAT-output.

Prepaid insurance is amortized within one year. Insurance expense for the three months ended March 31, 2012 and 2011 was $46,314 and $46,250.

Other prepaid expenses included prepaid property management fees, remodeling expenses, office rental and other operating expenses.

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS' EQUITY

17 — STOCKHOLDERS’ EQUITY

Preferred stock

The Company authorized 10,000,000 shares of preferred stock, with a par value of $.001 per share, but no preferred shares were issued and outstanding as of March 31, 2012.

Common stock

Pursuant to the terms of the Exchange Agreement, in February 2010 the Shareholders transferred to the Company all of the Trunkbow Shares in exchange for the issuance of 19,562,888 shares of the Company’s common stock. Accordingly, the Company reclassified its common stock and additional paid-in-capital accounts for the year ended December 31, 2009.

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

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

Warrants

In connection with the February 2010 offering, we issued warrants (the “February 2010 Offering Warrants”) to purchase 3,005,519 shares of common stock at an exercise price of $2.00. The warrants have a five year term and are exercisable immediately. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

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

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

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

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

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

As of March 31, 2012, 305,000 warrants had been exercised at $2.00 per share.

On February 8, 2011, in connection with our IPO in February 2011, the Company granted Roth Capital Partners, LLC warrants (the “Roth Capital Warrants”) to purchase up to a total of 200,000 shares of our common stock as partial underwriting compensation. The warrants have a term of three years and an exercise price of $6, provide for cashless exercise at all times and, in accordance with FINRA Rule 5110(g)(1), may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such warrant by any person until August 7, 2011, except as provided in FINRA Rule 5110(g)(2). The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation.

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

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

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

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

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

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

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

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

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

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

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

As of March 31, 2012, no warrants had been exercised by China High Growth Capital LTD.

Escrow shares

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

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

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

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

3 Months Ended

Mar. 31, 2012

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

13 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The breakdowns of accrued expenses and other current liabilities as of March 31, 2012 and December 31, 2011 are as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Accrued payroll	$	314,819	$	477,091
Advance from customers		0		25,717
Loans from third parties		39,566		39,317
Payables to staff		378,330		160,006
Accrued expenses		390,057		357,481
Professional fees payable		225,000		231,454
Royalties payable		925,573		925,062
Others		25,096		0
	$	2,298,441	$	2,216,128

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PROPERTY AND EQUIPMENT, NET

3 Months Ended

Mar. 31, 2012

PROPERTY AND EQUIPMENT, NET

9 — PROPERTY AND EQUIPMENT, NET

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

Property and equipment as of March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Motor vehicles	$	545,972	$	454,309
Furniture and office equipment		124,668		109,140
Electronic equipment		433,762		426,580
Telecommunication equipment		779,860		189,659
Leasehold improvement		60,955		60,572
		1,945,217		1,240,260
Less: Accumulated depreciation		467,401		385,242
Construction in progress		10,875,020		10,706,016
	$	12,352,836	$	11,561,034

Depreciation expense for the three months ended March 31, 2012 and 2011 was $79,842 and $47,835, respectively.

Construction in progress represented phase payment on construction materials to a contractor for the construction of the R&D center in Jinan.

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AMOUNT DUE FROM (TO) DIRECTORS

3 Months Ended

Mar. 31, 2012

AMOUNT DUE FROM (TO) DIRECTORS

7 — AMOUNT DUE FROM (TO) DIRECTORS

At March 31, 2012 and December 31, 2011, amount due from (to) directors consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Amount due from Directors	$	577,801	$	758,033

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

	March 31,		December 31,
	2012		2011
	(Unaudited)
Amount due to Directors	$	0	$	11,959

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

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INVENTORIES

3 Months Ended

Mar. 31, 2012

INVENTORIES

8 — INVENTORIES

At March 31, 2012 and December 31, 2011, inventories consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Hardware
-System integration hardware	$	97,060	$	95,354
-Point of sale systems		2,058,565		2,856,892
Project in progress		10,137,035		8,345,267
	$	12,292,660	$	11,297,513

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

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LAND USE RIGHT, NET

3 Months Ended

Mar. 31, 2012

LAND USE RIGHT, NET

10 — LAND USE RIGHT, NET

	March 31,		December 31,
	2012		2011
	(Unaudited)
Land use right	$	6,013,223	$	5,975,395
Less: Accumulated amortization		100,371		69,812
	$	5,912,852	$	5,905,583

Trunkbow Shandong acquired the land use right for the construction of the R&D center in Jinan. The land use right expires in June 2061. The amortization of land use right for the three months ended March 31, 2012 and 2011 was $30,163 and nil. The estimated amortization expense is RMB761,160 (approximately $120,650) for each of the five succeeding fiscal years. The land use right has been pledged for the short-term bank loan of $6,488,882 due on December 28, 2012 and $791,327 on March 12, 2013.

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TAXES PAYABLE

3 Months Ended

Mar. 31, 2012

TAXES PAYABLE

15 — TAXES PAYABLE

	March 31,		December 31,
	2012		2011
	(Unaudited)
Value Added Tax Payable	$	0	$	968,363
Income Tax Payable		3,214,150		3,056,321
Others		25,865		185,223
	$	3,240,015	$	4,209,907

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EMPLOYEE DEFINED CONTRIBUTION PLAN

3 Months Ended

Mar. 31, 2012

EMPLOYEE DEFINED CONTRIBUTION PLAN

20 — EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require that the PRC subsidiaries of the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $231,939 and $132,985 for the three months ended March 31, 2012 and 2011, respectively.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011
Cash flows from operating activities
Net income	$ 2,206,489		$ 3,353,679
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	112,853		48,887
Changes in operating assets and liabilities:
Accounts receivable	(855,358)		(1,233,721)
Advance to suppliers	1,429,898		253,787
Prepayment	(1,832,754)		73,475
Other current assets	(1,774,648)		(4,337,835)
Due from directors	185,315		(153,455)
Inventories	(925,047)		(537,690)
Long-term prepayment	1,960,778		(65,164)
Accounts payable	(1,059,130)		(718,578)
Accrued expenses and other current liabilities	68,388		178,116
Amounts due to directors	(12,054)
Taxes payable	(998,076)		(938,693)
Net cash flows used in operating activities	(1,493,346)		(4,077,192)
Cash flows from investing activities
Acquisition of property and equipment and intangible assets	(1,048,584)		(231,921)
Payment on loans to third parties	(1,109,561)		0
Acquisition of Delixunda Company (net of cash acquired)	0		(37,690)
Cash flows used in investing activities	(2,158,145)		(269,611)
Cash flows from financing activities
Proceeds from issuance of common stock (net of finance costs)	0		17,342,251
Proceeds from bank loan	3,601,015		0
Cash flows provided by financing activities	3,601,015		17,342,251
Effect of exchange rate fluctuation on cash and cash equivalents	(17,742)		(72,954)
Net increase in cash and cash equivalents	(68,218)		12,922,494
Cash and cash equivalents - beginning of the year	6,139,589	[1]	10,259,750
Cash and cash equivalents - end of the period	6,071,371	[1]	23,182,244
Supplemental disclosure of cash flow information
Cash paid for interest	179,009		33,252
Cash paid for income taxes	320,572		0
Supplemental disclosure of noncash financing activities
Issuance of 30,000 shares of common stock at $5.00 each for the legal fees	$ 0		$ 150,000

[1] The assets of the VIEs can be used only to settle the obligations of the VIEs. Conversely, liabilities recognized as of consolidating VIEs do not represent additional claims on the Company's assets. (Note 24).

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ADVANCES TO SUPPLIERS

3 Months Ended

Mar. 31, 2012

ADVANCES TO SUPPLIERS

4 — ADVANCES TO SUPPLIERS

At March 31, 2012 and December 31, 2011, advances to suppliers consisted of:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Advances to suppliers	$	11,926,430	$	13,270,125

Advances to suppliers represent prepayments to the Group’s suppliers for the purchase of third party software and hardware to be used in our MVAS/MPS platforms.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

COMMITMENTS AND CONTINGENCIES

21 — COMMITMENTS AND CONTINGENCIES

Commitments

Leasing Arrangements

The Group has entered into commercial leases for offices and vehicles 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:

	Rental commitment
	(Unaudited)
Nine months ending December 31, 2012	$	384,066
Year ending December 31, 2013		65,200
Year ending December 31, 2014		2,156
Total	$	451,422

Capital Commitment

We paid out the first phase payment to the contractor for our new R&D center in Jinan during the year ended December 31, 2011. We expect to make further payments as the construction progresses, although the timing and amount of such payments have not been agreed with the contractor as of the date hereof. The building is estimated to be completed by the first half of 2013, and the overall budget for the construction is between $23 – $30 million.

Contingencies

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

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

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SHORT-TERM LOAN

3 Months Ended

Mar. 31, 2012

SHORT-TERM LOAN

14 — SHORT-TERM LOAN

	March 31,		December 31,
	2012		2011
	(Unaudited)
China Minsheng Banking Corporation Limited	$	7,280,209	$	6,460,945
Agriculture Bank of China		2,817,124		0
	$	10,097,333	$	6,460,945

Total loan facility from China Minsheng Banking Corporation Limited is RMB50,000,000 (approximately $7,913,271) with 8.856% of annual interest rate. Among the $7,280,209, $6,488,882 is due on December 28, 2012, and $791,327 on March 12, 2013. The loan is guaranteed by Mr. Wanchun Hou and his spouse, Mr. Qiang Li and his spouse, and also pledged by Mr. Qiang Li’s personal properties, Trunkbow Shandong’s land use rights and Trunkbow Shandong’s accounts receivable as disclosed in note 3 and 10. The interest expense related to the loan for the three months ended March 31, 2012 and 2011 was $161,081 and nil.

On March 2, 2012, Trunkbow Shandong obtained a RMB 70,000,000 (approximately $11,078,579) total bank facility from Agriculture Bank of China. $2,817,124 of the total facility was received as of March 31, 2012, and the balance of the loan is due on September 1, 2012. The loan is secured by a transfer with full recourse of its accounts receivable of $3,162,079. Interest on the bank facility is a floating lending rate, 25% over the PBOC benchmark rate. Proceeds from the bank facility are restricted to use on projects signed directly with China Mobile, China Telecom, China Unicom, China Communications Services Corporation Limited and their subsidiaries. The interest expense related to the loan for the three months ended March 31, 2012 and 2011 was $17,928 and nil.