UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  Form 10-K/A
 (Mark
One)
 x
              ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the fiscal year ended December 31, 2009
 OR
  ̈
              ANNUALREPORT PURSUANT TO SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from
                  
      to
 Commission
file number: 0-23000
 
 MOQIZONE
HOLDING CORPORATION
 (Exact
name of registrant as specified in its charter)
  DELAWARE
                  95-4217605(State
      or other jurisdiction of
                    incorporation
      or organization)
                  (I.R.S.
      Employer Identification No.)7A-D
      Hong Kong Industrial Building
                    444-452
      Des Voeux Road West
                    Hong
      Kong
                  N/A(Address
      of principal executive offices)
                  (Zip
      Code)
  Registrant’s
telephone number, including area code:
 +852
34434384
  Securities
registered pursuant to Section 12(b) of the Act:
  Title
      of each class
                Name
      of each exchange on which registeredNone
                None
  Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, par value $0.001 per share
  Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act.
 Yes ̈    Nox
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 Yes ̈  Nox
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yesx
       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 ̈
       No ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this
chapter) is
not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K.   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 
 Large
      accelerated filer ̈
                      Accelerated
      filer ̈Non-accelerated
      filer ̈ (Do not check if
      a smaller reporting
                        company)
                      Smaller
      reporting companyx
  Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act).  Yes ̈
      No  x
  As of
June 30, 2009 (last business day of the registrant’s most recently completed
second fiscal quarter), the aggregate market value of the voting common stock
held by non-affiliates of the Registrant (without admitting that any person
whose shares are not included in such calculation is an affiliate) was
approximately $5,375,489.  On April 15, 2009, there were 13,667,764
shares of the Registrant’s common stock outstanding.
  
  INDEX
 
 PagePART
      IItem
      1
                  Business
                  
                  3Item
      1A
                  Risk
      Factors
                  
                  14Item
      1B
                  Unresolved
      Staff Comments
                  
                  26Item
      2
                  Properties
                  
                  26Item
      3
                  Legal
      Proceedings
                  
                  26Item
      4
                  (Removed
      and Reserved)
                  
                  26PART
      IIItem
      5
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  
                  26Item
      6
                  Selected
      Financial Data
                  
                  27Item
      7
                  Management’s
      Discussion and Analysis of Financial Conditions and Results of
      Operations
                  
                  28Item
      7A.
                  Quantitative
      and Qualitative Disclosures about Market Risk.
                  
                  33Item
      8
                  Financial
      Statements and Supplementary Data
                  
                  33Item
      9
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  
                  48Item
      9A
                  Controls
      and Procedures
                  
                  48Item
      9B
                  Other
      Information
                  
                  50PART
      IIIItem
      10
                  Directors
      and Executive Officers and Corporate Governance
                  
                  50Item
      11
                  Executive
      Compensation
                  
                  53Item
      12
                  Security
      Ownership of Certain Beneficial Owners and Management And Related
      Stockholder Matters
                  
                  54Item
      13
                  Certain
      Relationships and Related Transactions, and Director
      Independence
                  
                  56Item
      14
                  Principal
      Accounting Fees and Services
                  
                  58PART
      IVItem
      15
                  Exhibits,
      Financial Statements Schedules
                  
                  58SignaturesExhibit
      31Exhibit
      32
  2
 
 Explanatory
Note: We are filing this amendment to our Annual Report on Form 10-K to respond
to SEC Comments dated July 16, 2010.
 
 Except as
described above, we have not modified or updated disclosures presented in the
original Form 10-K in this amendment. Accordingly, this amendment does not
reflect events occurring after the filing of our original Form 10-K or modify or
update those disclosures, including the exhibits to the original Form 10-K,
affected by subsequent events. As such, this Amendment continues to speak as of
April 15, 2010 (the date the original Form 10-K was filed with the SEC).
Accordingly, this amendment should be read in conjunction with the original
Form 10-K and our other reports filed with the SEC subsequent to the filing of
our original Form 10-K, including any amendments to those filings.
  In
addition, as required by Rule 12b-15 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), currently dated certifications by our
principal executive officer and principal financial officer are filed as
exhibits to this amendment under Item 15 of Part IV
hereof.
  PART
I
  Item
1.  Business
 
 This
summary highlights selected information appearing elsewhere in this Form 10-K/A.
While this summary highlights what we consider to be the most important
information about us, you should carefully read this Form 10-K in its entirety
before investing in our common stock, which we discuss later in “Risk
Factors,” and our financial statements and related notes. Unless the context
requires otherwise, the words the “Company” “we,” “us” and “our” refer to
Moqizone Holding Corporation and our subsidiaries including MobiZone Hong
Kong, MoqiZone Cayman, Shanghai MoqiZone and SZ Alar, the word “MoqiZone”
refers only to Moqizone Holding Corporation.
 
 General
Overview
 
 Through
our Shanghai MoqiZone subsidiary, we provide an online game delivery platform
delivering contents of online games that are hosted by us to internet cafes
which have installed Netcafe Farmer and/or our WiMAX equipment in China via our
Netcafe Farmer software or our proprietary MoqiZone WiMAX Network. Our primary
business focus is to provide content delivery to the viral online gaming market
and connect game players to online content providers. Our MoqiZone WiMAX Network
is a wireless virtual proprietary network designed to provide online game
contents hosted by us to the Internet cafes which have installed our WiMAX
equipment. Netcafe Farmer is an online game auto-update distribution system
which enables internet cafés to automatically update the client-end gaming
software with patches on a real time basis for all their personal computers or
PCs in their cafes. The combination of MoqiZone WiMAX Network and Netcafe Farmer
form the backbone of our distribution channel for our online games to our
targeted market, which are licensed Internet cafes in cities where the internet
cafés business is more developed.
 
 Since
November 2009, we have connected approximately 30 Internet cafes in Chengdu and
3 Internet cafes in Suzhou. We have not generated any revenue as of 31st
December 2009, since these Internet cafes have been operating as our pilot trial
sites and are not revenue producing as we are providing our WiMAX installation
to the Internet cafes free of charge. Once there are a substantial number of
WiMAX installed Internet cafes participating in our business, we plan to
commence our charged services to the Internet cafes.
 
 Netcafe
Farmer is currently servicing approximately 700 internet cafés mainly in Henan,
Hebei, Zhejiang, and Northeast of China with a nominal annual subscription fees
and has also established a strong network with major content suppliers to help
them to promote games in internet cafés.
 
 Our key
business development objectives over the next two years are to grow and expand
our business penetration servicing Internet cafes throughout selected targeted
cities in China. These business objectives will require the build out of
our MoqiZone WiMAX Network, marketing Netcafe Farmer, continuous technological
development of our business portals including but not limited
to  www.moqizone.com  and  www.53mq.com .
Additionally, we plan to begin aggregating more online games. We will not be
able to generate significant revenue until we have a basic foundation of all
these components.
 
 Our
principal executive offices are located at Hong Kong and Shanghai with a branch
office in Chengdu and a representative office in Beijing, and our telephone
number is +852 34434383.
  Our
History
 
 Moqizone
Holding Corporation, formerly called Trestle Holdings, Inc., was previously a
non-operating public company which was seeking out suitable candidates for a
business combination with a private company.  Trestle originally
developed and sold digital tissue imaging and telemedicine applications linking
dispersed users and data primarily in the healthcare and pharmaceutical
markets.
 
 The
common stock of MoqiZone currently trades on the OTCBB under the symbol
“MOQZ.”
  3
  Acquisition
of our Operating Business
 
 On March
15, 2009, Trestle entered into a Share Exchange Agreement with MoqiZone Cayman,
Mr. Lawrence Cheung, the principal shareholder of MoqiZone Cayman, and, MKM
Capital Opportunity Fund Ltd., our former principal stockholder (the
“Agreement”).  MoqiZone Cayman is the record and beneficial owner of
100% of the share capital of MobiZone Hong Kong and MobiZone Hong Kong is the
record and beneficial owner of 100% of the share capital of Shanghai
MoqiZone.  On June 1, 2009, pursuant to the Agreement, and as a result
of MobiZone Hong Kong’s receipt of approximately $4,345,000 in gross proceeds
from our private financing, Trestle became the record and beneficial owner of
100% of the share capital of MoqiZone Cayman and therefore own 100% of the share
capital of MobiZone Hong Kong directly and Shanghai MoqiZone indirectly in
exchange for the issuance to Lawrence Cheung and the other shareholders of
MoqiZone Cayman of 10,743 shares of our Series B convertible preferred stock,
which Series B preferred stock was automatically converted (on the basis of
1,000 shares of common stock for each share of Series B preferred stock) into an
aggregate of 10,743,000 shares of our common stock, representing approximately
95% of our issued and outstanding shares of common stock  at the time
of conversion (but prior to the conversion of any of the shares our Series A
preferred stock ). The remaining 5% of the then outstanding shares of the
Company’s common stock are publicly traded and are owned by approximately
83 shareholders on record (see Reverse Stock Split below at
Page 3).
  Pursuant
to the terms of the Agreement, Eric Stoppenhagen resigned as our Interim
President, effective at the time of the transaction. Additionally, each of
our former directors tendered their resignation as directors on June 19, 2009,
to our stockholders.  Our Board of Directors appointed Lawrence Cheung
to serve as our Chief Executive Officer and director, effective June 19,
2009.  Additionally, commencing on that same date, Benjamin Chan was
elected to serve as a director as well.
 
 Recent
developments
 
 Name
Change
 On July
16, 2009, a majority of our shareholders, via written consent, approved changing
our corporate name from “Trestle Holdings, Inc.” to “MoqiZone Holding
Corporation”. In connection with our name change, we received a new trading
symbol and cusipnumber.  Effective August 31, 2009, we began trading
on the Over the Counter Bulletin Board under the symbol “MOQZ”; and our new
cusip number is 616348108.
 
 Preferred
Stock
 On July
8, 2009, a majority of our shareholders approved, via written consent, the
issuance of an additional 10,000,000 shares of preferred stock with a par value
of $0.001. As a result of the issuance, we have a total amount of 15,000,000
shares of preferred stock authorized.  These shares are made up of
three classes:
 
 (a)
              14,974,257
      shares of preferred stock (“Blank Check preferred
  stock”);
 
 (b)
              15,000
      shares of Series A preferred stock;
 
 (c)
              10,743
      shares of Series B preferred stock.
 
 Additionally,
we filed a Definitive Schedule 14C regarding the name change and increase in
preferred stock on August 24, 2009 and mailed such notice to our shareholders on
August 28, 2009.
 
 The
Reverse Stock Split
 On July
8, 2009, a majority of our shareholders approved a one-for-254.5 reverse stock
split (the “Reverse Stock Split”), via written consent. We were seeking via
reverse split to reduce the number of outstanding shares of our common stock by
reclassifying and converting all outstanding shares of our common stock into a
proportionately fewer number of shares of common stock.  On August 31,
2009, the Reverse Stock Split occurred thereby reducing 179,115,573 shares of
common stock to 703,974.  Simultaneous with the reverse split, the
Series B Preferred Stock automatically converted into 10,743,000 shares of
common stock.  As a result, this left us with 11,446,974 shares of
common stock issued and outstanding as of August 31,
2009.
 
 Additionally,
as of August 28, 2009, our corporate name changed to MoqiZone Holding
Corporation and our authorized capital increased by 10,000,000 shares of
preferred stock.  Pursuant to the additional financings we closed in
August 2009 and the authority vested in our Board of Directors, we also filed a
certificate of designation of Series A preferred stock and certificate of
designation of Series B preferred stock with Delaware’s Secretary of State to
designate 15,000 of the 15,000,000 shares of preferred stock as Series A
preferred stock and 10,743 of the 15,000,000 shares of preferred stock as Series
B preferred stock. Upon effectiveness of the Reverse Split on August 31, 2009,
each $1,000 principal amount of Notes was automatically cancelled and exchanged
for one share of Series A Preferred Stock.  Since we sold a total of
494.5 Units, upon exchange of the Notes, a total of 4,945 shares of Series A
Preferred Stock were issued, which are convertible into an aggregate of
2,747,222 shares of common stock, subject to anti-dilution and other adjustments
as provided in the Series A Preferred Stock Certificate of
Designations.  Additionally, upon effectiveness of the Reverse Split,
the 10,743 shares of Series B preferred stock were automatically converted into
10,743,000 shares of our common stock.
 
 New
VIE Agreements
 In
January 2009, Shanghai Moqizone entered into an Exclusive Business Cooperation
Agreement and certain ancillary agreements, including an Equity Pledge
Agreement, Exclusive Option Agreement, Loan Agreement and Irrevocable Power of
Attorney with SZ Mellow. However, as a result of disputes with the shareholders
of SZ Mellow, on September 21, 2009, in accordance with the terms of the SZ
Mellow Agreements, we sent out a 30-day prior written notice to SZ Mellow
stating our intention of terminating the SZ Mellow Agreements. The SZ Mellow
Agreements was terminated at the expiry of the 30-day notice on October 20,
2009.
  4
 
 In order
to continue our business and operations as planned, on September 25, 2009,
Shanghai MoqiZone entered into an Exclusive Business Cooperation and certain
ancillary agreements, including an Equity Pledge Agreement, Exclusive Option
Agreement, Loan Agreement and Irrevocable Power of Attorney with SZ Alar,
effectively gaining indirect control over SZ Alar. Also on September 25,
2009, Tai Ji agreed to grant the PLA authorization sub-license to SZ Alar and
terminate its current sub-license with SZ Mellow. As a result of the SZ Alar
Agreements between Shanghai MoqiZone and SZ Alar, we do not anticipate any
significant interruption in our business or operations as a result of our
terminating the agreements with SZ Mellow.
 
 Appointment
of New Director
 On
November 3, 2009, we announced that Mr. Paul Lu has been appointed as a director
of our board.
  Acquisition
of Netcafe Farmer
 On
December 21, 2009, we acquired a client-end software called “Netcafe Farmer”
which was originally developed by Mr. Liu Qian in 2006. It is a client-end
software solution that provides an automatic content update distribution system
in internet cafés allowing internet cafés to automatically update their
client-end software on a real time basis for all their computers. Pursuant to
the Agreement, we acquired the ownership of the software “Netcafe Farmer” from
Mr. Liu Qian, including all the intellectual property and all its existing
business has been transferred to Shanghai MoqiZone. The total consideration paid
was RMB650,000 (or approximately US$95,000). By acquiring Netcafe Farmer, the
Company also recruited Mr. Liu Qian and his development team of 4 people. The
incremental salary is approximately $75,500 (RMB516,000) per annum. It is
expected that the income generated from existing Netcafe Farmer business will
substantially subsidize the monthly additional salary expenses.
 
 Netcafe
Farmer is currently servicing approximately 700 internet cafés mainly in Henan,
Hebei, Zhejiang, and Northeast of China and has also established a strong
network with major content suppliers to help promote their games in internet
cafés. As a result of the foregoing, we will be able to bring tremendous
synergy to the MoqiZone online game platform business and improve our services
to internet café operators. The existing brand name “Netcafe Farmer” will be
retained and a new version will be developed to support the MoqiZone WiMAX
Network. The acquisition of Netcafe Farmer will also allow us to cover the
internet cafés, which cannot be installed with our WiMAX equipment due to
physical limitation, via fixed line network. Internet cafes installed with
Netcafe Farmer will be able to enjoy the same products and services as those
that are installed with WiMAX equipment, although the revenue sharing will be
different.
  Agreements
with Win’s Entertainment Ltd.
  We have
recently established partnership with Win’s Entertainment Limited (“Win’s”), a
major motion picture production company in Hong Kong through a series of
proprietary content agreements. In November 2009, we were contracted to develop
the online game for Win’s movie,Tiger Tang 2 (“Tiger
Tang 2 Game”) and we also acquired the exclusive rights from Win’s for
publishing Tiger Tang 2 Game. We are also currently in discussion with Win’s to
develop online games for Win’s other movies as well as publish those
games.
 
 The
March 2010 Financing
 
 We
completed a private equity financing of $1,956,200 on March 29, 2010, with 7
accredited investors. Net proceeds from the offering, were approximately
$1,760,400. Pursuant to the financing, we issued a total of 869,422 units of our
securities at $2.25 per unit. Each Unit consists of (i) one (1) share of the
Company’s Series C Convertible preferred stock, par value $0.001 per share,
convertible into one share of the Company’s common stock, par value $0.001 per
share , and (ii) a Series C Warrant and Series D Warrant, with the total amount
of Warrants of each Series exercisable to purchase that number of shares of
common stock as shall be equal to fifty percent (50%) of the number of Units
purchased in the Offering. Each of the Warrants has a term of three (3)
years.
 
 In
connection with this financing, we paid cash compensation to a placement agent
in the amount of $195,620. Additionally, in connection with this financing, we
granted warrants to purchase up to 86,942 shares of common stock, Series C
Warrants to purchase up to 43,471 shares of common stock and Series D Warrants
to purchase 43,471 shares of common stock to the placement agent or its
designees. These warrants have the same terms as the warrants issued to
Investors that are included in the Units.
 
 The
Securities in the Offering were issued pursuant to the exemption from the
registration provisions of the Securities Act of 1933 provided by Section 4(2),
therein, for issuances not involving a public offering.
 
 Our
Corporate Structure
  The
following table sets forth our current corporate structure.
  5
 
 
 
 3.5GMHz
Spectrum License
 
 On
October 31, 2007, the PLA Resource Office granted to Tai Ji an
authorization (the “PLA Authorization”) for the exclusive use for commercial
purposes throughout China of the 3.5GHz radio frequencies belonging to the
PLA.  On September 25, 2009, Tai Ji agreed to authorize SZ Alar
to use the PLA Authorization exclusively in the PRC for Internet café network
deployment purposes subject to payment of certain licensing fees. With the
3.5GHz, we can roll out our MoqiZone WiMAX Network to deliver online game
contents of our participating games through www.53mq.com to internet cafes which
have installed our WiMAX equipment. www.53mq.com is our gaming platform
designated to service the internet café customers.  The MoqiZone WiMAX
Network also enables direct access between the internet cafes and the content
providers hosted by us at ICDs.
 
 As a
result of the exclusivity granted by the PLA to Tai Ji and as a result of Tai Ji
granting us the exclusive usage of the 3.5GMHz radio frequency for Internet café
business, we believe that the Company is the only Chinese WiMAX carrier with
permitted national coverage license granted indirectly by the PLA to deploy a
network similar to the MoqiZone WiMAX Network. Such exclusivity, however, does
not extend to other potential competitors who may obtain WiMAX radio spectrum
via the MIIT as we are aware of other carriers who may have been granted similar
licenses by the MIIT.  Nevertheless, we believe that the PLA
Authorization is the only national WiMAX license for the use of 3.5GMHz radio
frequencies granted by the PLA using the WiMAX
technology.
 
 We are
not aware, however, that any of our potential competitors has any plans to
utilize a WiMAX platform to specifically target the Internet Café business, as
is our current plan. As a result, under our current arrangements, and as long as
the PLA Authorization granted to Tai Ji and its authorization to SZ Alar is
retained, we believe that no existing or potential competitor can foreclose our
access to any market in China for Internet cafés.  Accordingly, we
believe that the Company has access to the necessary business and operating
licenses to deploy China’s first national WiMAX network for Internet
cafés.
  Tai Ji is
one of our key cooperative partners and has obtained the permission to use the
3.5GHz radio frequency resources to the Company and its affiliates in
China.
  The
advantages and disadvantages of PLA Authorization versus MIIT are summarized as
follows:-
 a)
              The
      license fees for 2009 were RMB3 million (approximately $439,000) and the
      maximum annual license fees are RMB7 million (approximately $1.024
      million) per annum. This is substantially less costly than the WiMAX
      license fees secured by other telecom companies via MIIT, and as a
      result, the upfront capital requirements are  less than MITT
      WiMAX ;
  6
 
 b)
              The
      PLA Authorization allows national coverage subject to acknowledgement by
      local provincial military zone. The tendering of MIIT WiMAX license
      provincial and each province will only allow up to 3 companies to
      participate;
 
 c)
              There
      was official documentation regarding the tendering of China WiMAX
      frequency with the MIIT.  With this, the public or potential
      investor would be able to verify the substance and approval information of
      the licenses.
 
 d)
              The
      PLA has the right to control the use of WiMAX frequency when there are
      threats to the country or national crises and in such times this may cause
      the MoqiZone WiMAX Network to not function
  properly.
 
 e)
              PLA
      Authorization allows automatic annual renewal but the MIIT WiMAX is only
      valid for 2 years from the date of issuance. The risks of using the PLA
      Authorization are further discussed at Page 15 Item 1A Risk
      Factors
 
 The
VIE
 
 In July
2007, MobiZone Hong Kong signed a Memorandum of Cooperation with Tai Ji and
SZ Mellow which also included a draft of Cooperation Agreement to be
entered into among Tai Ji, a WOFE to be established by MoqiZone and SZ
Mellow.  According to this Memorandum of Cooperation, the major
terms are:
 
 i.
              Tai
      Ji agreed that the MobiZone Hong Kong can authorize its cooperative
      partners or subsidiaries in China (“MoqiZone's Representatives”) to use
      the 3.5GMHz radio frequency
resources;
 
 ii.
              Tai
      Ji will collect an annual license fees of RMB 2,500,000 for Year
      2008, RMB 3,000,000 for Year 2009 and thereafter, each year annual license
      fee shall be increased by RMB 500,000 per year based on the previous year
      annual license fee to a maximum of RMB 7,000,000 per year until the
      license expires; and
 
 iii.
              Tai
      Ji will further collect a usage fee of RMB 20,000 per year per radio base
      station.
 
 On
January 25, 2009 Shanghai MoqiZone was incorporated, and on January 26, 2009,
Shanghai MoqiZone, Tai Ji and SZ Mellow executed the formal Cooperation
Agreement, under which Tai Ji would provide SZ Mellow and Shanghai MoqiZone the
exclusive use of the 3.5GHz on Internet Cafes gaming business.
 
 As a
result of disputes with the shareholders of Shenzhen Mellow (see below “Legal
Proceeding” for further information), on September 21, 2009, in accordance with
the terms of the SZ Mellow Agreements, we sent out a 30 days' prior written
notice to SZ Mellow stating our intention of terminating the SZ Mellow
Agreements. The SZ Mellow Agreements were terminated at the expiry of the
30-day notice on October 20, 2009. In order to continue our business and
operations as planned, on September 25, 2009, Shanghai MoqiZone, Tai Ji and
SZ Alar executed another Cooperation Agreement, under which Tai Ji will provide
SZ Alar and Shanghai MoqiZone the exclusive use of the 3.5GHz on Internet cafes
gaming business. Certain of our principal shareholders and executive officers
are also affiliated with Tai Ji and the SZ Alar.
  Key
Advantages to the Moqizone WiMAX Network
 
 We
believe that the MoqiZone WiMAX Network provides a cheaper data transmission
alternative than those provided by incumbent telecoms and internet data
centers.  The MoqiZone Network provides direct access between the
Internet cafés and the content providers and enables a redistribution
of profits in China’s online media industry, specifically to the highly
fragmented Internet cafés industry.
 
 According
to a report published by the CNNIC, the number of Internet users in China
reached 210 million as at December 31, 2007, of which an estimated 120 million
are unique online game players.  On January 13, 2009, CNNIC released
the “23rd Statistical Survey Report on the Internet Development in China” in
Beijing. According to the report, by the end of 2008, the Internet penetration
rate of 22.6% in China had surpassed the global average level of 21.9% for
the first time. Meanwhile, the amount of Internet users in China had reached 298
million, with 279 million broadband users. The report further states that the
industry is expected to have a compounded annual growth rate of 28.16% and grow
from $2.85 billion to approximately $6.0 billion by 2011.  The top 25
Chinese games sold of $1.4 billion in prepaid cards in 2007 (Please refer to
http://www.cnnic.net.cn/uploadfiles/pdf/2009/11/24/110832.pdf  for the
full cite information).
 
 We
believe that our competitive advantages include:
 
 i.
              WiMAX First
      Mover Advantage. Through
      the PLA Authorization, we are able to invest in WiMAX base station and CPE
      and install them more cost-effectively on roof tops of buildings in a way
      similar to GSM radio stations.  WiMAX is in particularly cost
      effective for the “last mile” wireless internet connection. We are
      primarily aiming to deliver online game contents of our participating
      games to those internet cafes installed with our WiMAX equipment and which
      have joined into our MoqiZone WiMAX
Network.
  7
  ii.
              Reallocation
      of Online Gaming Value Chain. The
      MoqiZone WiMAX Network increases the net economic benefit to the content
      providers and the Internet cafés and eliminates the prepaid card
      distributors.
 
 iii.
              Other
      Benefits to Internet Cafés.  The
      MoqiZone WiMAX Network also benefits the Internet Café’s by eliminating
      certain duplicative resources and costs and providing
      incentives.
 
 iv.
              Benefits to
      Content Providers.  The MoqiZone WiMAX Network benefits
      the Content Provider by eliminating server storage and bandwidth hosting
      fees, and also protects their IP from piracy and hackers, via a closed
      network.
 
 v.
              Benefits to
      Game Publishers.   With our Moqizone business model, game
      companies can have one stop shopping with Moqizone and can access all the
      Internet cafés at one location.
 
 vi.
              Benefits of
      MoqiZone Prepaid Card. Our
      platform uses a proprietary prepaid game card that is game publisher
      agnostic (i.e. accessible for all games), thereby reducing game card
      inventory costs for Internet café’s, as well as reducing black marketed
      discounted prepaid cards and content theft for the Content
      Provider.
 
 vii.
              Realtime
      Reporting.  Our solution shares valuable point of sale
      (POS) data throughout the network to allow for real-time reporting,
      customer and payment tracking, and targeted marketing; a service that was
      previously unavailable to game content providers and publishers and
      Internet cafés
 
 viii.
              Access to
      Extensive Game Content.  In
      addition to our current arrangements, we expect to execute content
      agreements with the major online gaming companies that represent more than
      10 million unique concurrent users.
 
 ix.
              Significant
      Management Experience.  Our management team has long term
      business relationships and experience in dealing with the gaming companies
      and also leading players in the entertainment industry, including movies
      producers, music publishers and distributors of such content and we
      believe that we will be able to obtain the best online digital content in
      Asia.
 
 Key
Corporate Objectives
 
 Our key
business development objectives over the next two years are to build our game
delivery platforms and expand our business penetration in Internet cafes in
China.
  Before we
can achieve our business objectives, we will need to:
  i.
              build
      out our MoqiZone WiMAX Network, which involves the construction of a WiMAX
      base station covering our targeted internet cafes at each
      city;
 
 ii.
              install
      CPE at each internet café;
 
 iii.
              set
      up server farm in IDC;
 
 iv.
              develop
      and deploy a online game content delivery platform;
  and
 
 v.
              develop
      and deploy a centralized prepaid card clearing center as well as a
      accounting systems for internet cafes revenue distribution
      system.
 
 So far,
we have already signed up over 100 internet cafés in Chengdu of which 30
internet cafes are connected to our MoqiZone WiMAX Network. We have also
deployed our game delivery platform as well as our prepaid card clearing center
which is www.53mq.com  and  www.moqizone.com
respectively.
 
 We are
also aiming to service the non-WiMAX internet café by providing them a peer to
peer content updating engine “Netcafe Farmer” which the Company has recently
acquired. Netcafe Farmer can be easily deployed to each internet café for
content updating and we now have approximately 700 internet café subscribed to
the Netcafe Farmer services. Revenue to be generated from Netcafe Farmer has not
been forecasted and projected in our financial budget. As of March 31, 2010, we
are testing the 2nd generation of Netcafe
Farmer which will further enhance stability and the peer to peer connectivity
between each PC as well as allowing a virtual storage for games
updating.
  Our
business objectives will be required to execute through Shanghai Moqizone and SZ
Alar by implementing the structure portal arrangements described below in order
to allow MobiZone Hong Kong to have control. Neither our Company nor our
Shanghai MoqiZone subsidiary owns any equity interests in SZ
Alar.  Our business relationship withSZ Alar is based on contractual
arrangements which are commonly known as the “Sina Structure Portal Arrangement”
agreements.  These agreements may be summarized, as
follows:
  8
  Exclusive
Business Cooperation Agreement.   Pursuant to the exclusive ten
year business cooperation agreement between the SZ Alar and Shanghai MoqiZone,
Shanghai MoqiZone has the exclusive right to provide to SZ Alar comprehensive
technology and consulting services related to the business of SZ
Alar.  In consideration for such services, Shanghai MoqiZone is
entitled to receive 100% of the net income of SZ Alar.
 
 Equity Pledge
Agreement. Under the equity pledge agreement among SZ Alar, the shareholders
of t SZ Alar and Shanghai MoqiZone, the shareholders of SZ Alar pledged all of
their equity interests in SZ Alar to Shanghai MoqiZone to guarantee SZ Alar’s
performance of its obligations under the exclusive business cooperation
agreement. In the event that  SZ Alar were to breach its
contractual obligations, Shanghai MoqiZone, as pledgee, will be entitled to
certain rights, including the right to sell the pledged equity interests. The
equity pledge agreement will expire only after SZ Alar and its shareholders have
fully performed their respective obligations under the exclusive business
cooperation agreement.
 
 Exclusive Option
Agreement. Under an exclusive ten (10) year option agreement
between SZ Alar, the shareholders of SZ Alar and Shanghai MoqiZone, the
shareholders of SZ Alar have irrevocably granted to Shanghai MoqiZone or its
designated person an exclusive option to purchase, to the extent permitted under
PRC law, all or part of the equity interests in SZ Alar for RMB10 or the
evaluation amount of consideration permitted by applicable PRC
law.  Shanghai MoqiZone or its designated person has sole discretion
to decide when to exercise the option, whether in part or in full.
 
 Loan
Agreement.
  Under the loan agreement between the shareholders of the SZ Alar and
MobiZone Hong Kong, the parties confirmed that MobiZone Hong Kong has made an
interest-free loan to the shareholders of the SZ Alar solely to enable the
shareholders of the SZ Alar to fund the initial capitalization of SZ Alar. The
loan can be repaid only by sale of the shareholder’s equity interest in SZ Alar
to MobiZone Hong Kong. The term of the loan agreement is ten years from the date
thereof.
 
 Irrevocable Power
of Attorney.
  The shareholders of SZ Alar have each executed an irrevocable power
of attorney to appoint Shanghai MoqiZone as their exclusive attorneys-in-fact to
vote on their behalf on all SZ Alar matters requiring shareholder
approval.  The term of each power of attorney is valid so long as such
shareholder is a shareholder of SZ Alar.
 
 Internet
Café Collaboration
 
 We have
renewed our Memorandum of Understanding with the Beijing Internet Café
Association (“BICA”) on December 1, 2009. Our consultant Mr. Sun Qi is the newly
elected Chairman of the ICA in Beijing for the years 2009 - 2011. Our company
advisor is Madam Wu Yan, and she is also the immediate past Chairman of the
Beijing Internet Café Association. The major terms of the Memorandum of
Understanding are as follows:
  a.
              BICA
      has a membership base of approximately 1500
  members
 
 b.
              BICA
      will support and promote the MoqiZone WiMAX Network andwww.53mq.com to its
      member
 
 c.
              BICA
      will allow us to promote our services and products at meetings of BICA to
      its members
 
 d.
              The
      term of the MOU shall be 3 years from December 1,
  2009
 
 There is
no financial obligation between both parties under the MOU which is
non-binding.
 We are
also currently discussing various collaborations with the local internet café
associations in Suzhou and Chengdu in order to accelerate our internet café
business deployment.
 
 Content
Providers
 As of
December 24, 2009, we have entered into agreements to deploy 10 new games and
non binding memorandums of understanding with 10 more new game developers. On
October 28, 2009, the Company announced the launch of our business-to-customer
or B2C website  www.53mq.com . www.53mq.com is the online game
platform through which we aggregate and integrate all our online game contents
and will be the interface to interact with our WiMAX connected internet cafes as
well as our online game players. The typical terms of the agreement between
MoqiZone and content providers will include:
 
 a.
              Exclusivity
      of the publishing rights to the online
game;
 
 b.
              Whether
      it is a sole operation by us or a co-operation with the game
      publisher;
 
 c.
              The
      percentage of revenue split or percentage discount on the face value of
      the gaming recharge card/prepaid card and payment
  terms;
 
 d.
              The
      territory that the publishing right
covers;
 
 e.
              The
      term of the agreement;
  9
 
 f.
              Any
      upfront license fees or minimum guarantee on the amount of recharge
      card/prepaid card; and
 
 g.
              Service
      and technical support from the game
publisher.
 
 As
abovementioned in Page 5, we have entered into partnership agreement with Win’s
and we are going to publish our own games on our gaming delivery platforms. We
aim to partnership with more movie production companies and replicate the
business model of publishing our own games on our platform.
 
 Proprietary
Prepaid Card
 
 Traditionally
online game revenues are collected through the sale of pre-paid cards issued by
each individual game publishing company, which they sell in both virtual and
physical form, to third party distributors and retailers, including Internet
cafes, as well as, to a lesser extent, through direct online payment systems. In
most cases, game publishers receive cash pre-payments from these parties in
exchange for delivery of the pre-paid cards.  Online game companies do
not provide refunds to these distributors or retailers with respect to unsold
inventories of pre-paid cards.
 
 Most
online game companies, especially new games, will encounter the problem that
they need to build “trust” with these distributors before their game is
launched.  As a result, online game companies usually have
difficulties introducing their new products to distribution channels effectively
and efficiently.  With our business model, these new game publishers
can join our payment system without being exposed to the risk of cash collection
from their distributers.  At the same time, since our prepaid cards
can be used on other game, distributors have less financial risk exposure
stocking our cards.
 
 For the
pay-to-play subscription-based model, both prepaid cards and prepaid online
points provide customers with a pre-specified length of game playing time within
a specified period. All prepaid fees received from distributors and end
customers are initially recognized as deposits. Revenue is recognized upon
activation of the prepaid game cards or online points based on the actual
consumption of the game playing time by end customers.
 
 For the
item-billing revenue model, the customers can play the game for free with
limited basic functions. There are also in-game items and premium features sold
in the game by consuming online game points, commonly known as “Virtual Items”,
which are regarded as value-added services and are rendered over a pre-specified
period or throughout the whole game life. The revenue from these Virtual Items
is recognized ratably over the estimated practical usage period or
throughout the whole game life as appropriate. Future usage patterns may differ
from the historical usage patterns on which the item-billing revenue model
revenue recognition is based.
 
 Virtual
item trading between gamers will also become more secure by using our card
together with an online payment system as we are operating under a “close”
network environment. Under the traditional web-based Internet gaming
environment, virtual item trading can become insecure as there could be
“pirated” gaming servers co-exist with the authenticated gaming servers and
such “pirated” server will disturb the regular gaming economies and induce
unfairness to players. Also, theft and virtual item robbery or disappearance is
not uncommon due to the existence of such “fake” and “pirated” servers. With our
MoqiZone WiMAX Network, we are hosting all gaming servers in CERNET IDC and
as our network is physically a private proprietary network, illegal hackers and
“pirated” server operators will find to more difficult to interfere our server
system, as a result of which providing a more secure environment to the
participants in the gaming value chain.
  Our
Business Model Economics
  The
following table compares the estimated and anticipated allocation of revenues
paid by online game players at Internet cafés who purchase prepaid game playing
cards under current arrangements in China and as expected commencing in 2009 and
thereafter from the use of the MoqiZone Network.
 
 MoqiZone
                        
                        
                        Traditional Revenue
                          ModelAllocation of Revenues
                        
                        Revenue Share
                          Percentage
                        
                        
                        Revenue Share
                          PercentageOnline
      game software provider
                        
                        
                        25
                        %
                        
                        
                        20
                        %Online
      game publisher
                        
                        
                        29
                        %
                        
                        
                        36
                        %Telecom
      Internet data center
                        
                        
                        0
                        %
                        
                        
                        5
                        %Regional
      prepay card distributor
                        
                        
                        0
                        %
                        
                        
                        8
                        %Inner-city
      prepaid card distributor
                        
                        
                        0
                        %
                        
                        
                        8
                        %Regional
      marketing and promotions
                        
                        
                        3
                        %
                        
                        
                        10
                        %Internet
      café income
                        
                        
                        13
                        %
                        
                        
                        8
                        %MoqiZone
      revenue retention
                        
                        
                        25
                        %
                        
                        
                        0
                        %Taxes
                        
                        
                        5
                        %
                        
                        
                        5
                        %Total
                        
                        
                        100
                        %
                        
                        
                        100
                        %
  10
  Our
business will involve no charges to Internet cafés in China for all data
transmission via the MoqiZone Network at the very beginning.  We
believe that this will provide a significant direct benefit to internet café
owners because Internet cafés currently pay internet data transmission charges
of approximately $1,450 (RMB10,000) to $2,900 (RMB20,000) per month to Telecom
providers.  This is the single largest cost element for Internet café
operators in China after their rental fee.
  China
currently has content censoring policy.  Internet cafés are subject to
attack by hackers and other political news groups.  Our MoqiZone
Network is able to provide them all the necessary tools to meet government’s
objectives. Also, as it is a closed network, they are not as vulnerable as they
would be outside of our network.
 
 The
entire MoqiZone Network, whether with WiMAX or Netcafe Farmer, comes with a
POS-alike system for all online games.  This system is similar to any
internet bank system, so that each game player, content provider, and Internet
café will be able to access online for their billing and profit sharing detail
similar to bank statements.  This way each party will have an accurate
reporting on billing and profit sharing, in an easy to manage
manner.
 
 Traditionally,
a content publisher will be required to host their content at Internet Data
Center (“IDC”) for server storage and bandwidth costs.  This is one of
the highest expenses for publishing online game.  The total cost
per month can be as high as 20% of their gaming revenue. The MoqiZone Network
eliminates the server and bandwidth costs for the content publishers as we
will be paying the IDC for the hosting fees. The reason we are able to offer
this business term to the content provider is that we do not have to bear the
cost to access the Internet as we have our own network to connect directly
to all Internet cafés.  Also our MoqiZone Network infrastructure will
allow us to use fewer IDCs than the traditional Internet based online game
environment.  Conventional IDC’s biggest cost is Internet bandwidth
costs.  Therefore, we believe that we will be able to capture this
extra 20% of gaming revenue and pay IDC hosting costs for less than 1% for
physical floor area rental only.
 
 One of
the current challenges for online game companies is to be able to control the
final retail price for their pre-pay cards and to prevent price variation from
parallel trading, even between province to province.  As this product
has no differentiation from whom a game player buys it from, price cut strategy
is usually adopted by the “next-door” stores in order to sell as many cards
as possible.  Therefore Internet café or grocery stores are currently
both unable to earn their “theoretical” profit margin for selling these prepaid
cards in stores.  Our system is different, we only pay when a user
consumes the game at the café, then the café will get the commission regardless
where the end user purchased the pre-paid cards. Under this system, better
performing internet cafés are rewarded with bonuses so they have an incentive to
promote our system and encourage gamers to spend more to buy virtual items at
the café on our system.
 
 We also
offer a profit sharing platform detailing all the transactions for game
companies so that they know exactly when and where their users spend the
money.  Such information will be crucial for online game companies to
improve their service and marketing activity.  Currently no telecom
company is able to provide such figure to online game companies. Game companies
also will be able to know the performance for their sponsored Internet
cafes.
  
  Research
and Development
 
 Our
recent research and development efforts have focused on the development of an
online e-payment system to manage profit sharing information among content
providers, internet cafés, and promoters.  Game players also have
“pre-paid” accounts with MoqiZone.  MoqiZone has total ownership over
the payment system.  Although we do not have any proprietary
technology for WiMAX, we will integrate existing technology to manage our
network as required.
  Customers
and Market Potential
 
 There are
about 150,000 licensed internet café in China, with an average of 100 sets of PC
in each café.  The top three applications in any internet café are:
(a) online games, (b) Instant messaging and online chatting; and (c) online
TV/Movie streaming.  Each set of PC is shared by three users each
day in internet café, and this has covered 45 millions unique users per
day.
  11
 
 
 
 On
November 24, 2009, CNNIC published an analysis of the Chinese Online Gaming
market, called “China Online Game Market Research Report 20091 ” The following is a summary
of its major findings and the implications that we believe they have on our
business development in China.-
 
 Report
      Findings
                
                Implications and Importance to our business evaluationl
                China
      has 69.31 million online gamers, up 24.8% from 2008
                
                Online
      game is still a growing business in Chinal
                Large-scale
      casual game and MMORPG (i.e. Massivs (Massivel) Multiplayer Online
      Role-Playing Game) users account for 67.9% and 61% of the total
      respectively, up 19.8% and 11% from the previous year, while 38.9% of
      total users are female
                
                Causal
      game and MMORPG are still the major trend in China online games business.
      This influence the selection of our gaming contentsl
                Students
      comprise 37.2% of online gamers, with 46.1% of the online gamers between
      the ages of 10-19, the report said
                
                The
      demographic is important for marketing campaign planning
      execution.l
                By
      the end of June, 222 million of China's 338 million Internet users used
      online video sites, up 23.8% year-on-year
                
                Our
      business intends to include other forms of digital entertainment contents
      other than online gaming in the near future and the trend of such contents
      is vital to our business planningl
                Home
      use and internet cafe remain to be the major venues for online gaming, the
      ratio of user is 79.7% and 59.6% respectively
                
                Our
      major business revenue will be generated from internet café and therefore
      such statistic is important to our business evaluation.l
                The
      value of Internet café sales channel increases gradually. Internet café
      becomes the most important online game point cards selling point with
      52.8% slightly higher than traditional convenience store.
                
                Our
      major business revenue will be generated from prepaid sold in internet
      cafés and therefore such statistic is important to our
      valuation.l
                Ratio
      of internet café in Farming district is higher than those in major cities,
      internet café users ratio in farming district is 69.4% higher than 57.9%
      in major cities
                
                Farming
      districts will be the next great leap to our business development strategy
      as the local GDP as the living standard gradually increases since the cost
      of WiMAX deployment will be lower versus fixed line. The developed cities
      in China will become saturated, although ARPU is still relatively higher
      in the developed cities.l
                Internet
      café monitor policy further strengthen, 46.4% teenage users choose
      internet café for internet gaming, with 25.7% choose internet café as the
      major online gaming location.
                
                Our
      MoqiZone WiMAX Network is a closed virtual private network and therefore
      allows us to closely monitor any contents to be distributed to our
      internet cafes, as a result, we can provide necessary information to the
      relevant authorities on an as needed
basis.
 
 1 Source: CNNIC, China Internet
Network Information Centre,
http://www.cnnic.net.cn/uploadfiles/pdf/2009/11/24/110832.pdf
  12
  The
Growing Chinese Internet and Internet Café market
 
 According
the New York Times2, the
number of Internet users in the China reached about 253 million in June 2008,
thereby, putting it ahead of the United States as the world’s biggest Internet
market. Reports from the government-controlled Chinese Academy of Sciences
indicated that the number of Internet users jumped more than 50 percent, or by
about 90 million people, during 2007. This new estimate represents only about 19
percent of China’s population, underscoring the potential for growth. The survey
found that nearly 70 percent of China’s Internet users were 30 or younger, and
that in the first half of this year, high school students were, by far, the
fastest-growing segment of new users, accounting for 39 million of the 43
million users during the period.  According to the extract summary of
Niko Partners’ report onChina’s Internet Cafés Study 2008 , there are
estimated 185,000 Internet cafés nationwide in China, 71,000 of which are
unlicensed with approximately 22 million PCs installed throughout China.
(http://www.nikopartners.com/press-release-china-internet-cafe-2008.asp)
 
 According
to public information available from several NASDAQ and Hong Kong Stock Exchange
listed online game companies in China, the Average revenue per user per month
(ARPU per month) for each gamer in China is in the range of $5 to $40 per game
depending on the game.  Item-Billing business model often leads
to a higher ARPU figures (please refer to online game publisher Giant, Nasdaq
code: GA) This is important to our business evaluation and forecast as it shows
the consumption behavior of games in China, most of gamers are willing to pay $5
to $40 for game contents per month, we can use it as reference in setting
our price strategy on pre-paid cards.
 
 Our
MoqiZone Network Deployment Strategy
 
 The
following table sets forth our strategy for installing our MoqiZone WiMAX
Network and Netcafe Farmer throughout China over the next three
years.  Our ability to achieve these goals is subject to receipt of
approximately $25.0 million in financing over such period, including the net
proceeds from the June 2009, August 2009 and March 2010 Financings.
 
 Year
                      Cities
                      
                      Cumulative
                        Internet Cafés
                      
                      
                      Cumulative
                        Cities
                      
                      
                      MoqiZone Network
                        coverage as a % of
                        total InternetCafés2010
                      Beijing,
      Chengdu, Hangzhou, Nanjing, Suzhou, Chongqing, Yangzhou, Zhenjiang,
      Jinhua, Ningbo, Kunming, Fuzhou, Xiamen, Qingdao, Jinan
                      
                      
                      11,400
                      
                      
                      
                      15
                      
                      
                      
                      7.5
                      %2011
                      Shanghai,
      Guangzhou, Shenzhen, Zhuhai, Dongguan, Nanning, Hefei, Wuhu, Wuhan,
      Changsha, Xian, Shijiazhuang, Shenyang, Dalian, Harbin, Guangzhou,
      Wenzhou, Wuxi, Changshou, Nanchang, Lanzhou, Zhengzhou, Luoyang, Datong,
      Hainan
                      
                      
                      20,206
                      
                      
                      
                      40
                      
                      
                      
                      13.5
                      %2012
                      Seven
      cities per month
                      
                      
                      35,000
                      
                      
                      
                      124
                      
                      
                      
                      23.0
                      %
 
 Our cost
analysis indicates that it will cost approximately $400,000 to deploy our
MoqiZone Network system to service 100 Internet cafés.  Estimated
costs per 100 Internet cafés include establishment of approximately 10 base
stations, installation of CPE receivers at each of the 100 Internet café
locations, purchase and installation of five content servers,
rental payment of Internet Data Center, implementation and maintenance
expenses. Our deployment process includes obtaining letters of intent from the
Internet cafés in any given city or area, GPS data collection,
determination of the required number and installation of base stations and
simultaneously setting up regional service centers, offices and
IDCs.
 
 Once our
MoqiZone Network is established, a game player who purchases our prepaid card
from the Internet café can clicks on our logo, inputs his password, logs in to
his personal account and “clicks and plays.”
 
 Competition
 
 Although
we have no direct competitor using our WiMAX Network model, we will be competing
with some of the larger game providers in the PRC, most of which have
substantially greater revenues and financial resources than our
Company.
 
 As some
of the functions in the current online game industry chain can be replaced by
our MoqiZone Network, we believe that certain parties who are currently
fulfilling certain functions in the online game value chain might be affected in
some ways.
 
 2 “China Surpasses U.S. in Number of
Internet Users” , 7/26/08 by David Barboza
 
 13
  Wholesale
distributors: Due to the large physical area of China, most online game
companies will appoint different levels of wholesale distributors to help them
to distribute their pre-paid cards to retailers and internet
café.  They are usually required to stock the prepaid cards and make
advance payments to the online game companies.  We believe our
business model will eliminate the need for our customers to do business
with some of these distributers by allowing us to work directly with internet
cafes.  Although these distributors will continue to exist, we believe
that they will have only limited influence on our business. Major wholesale
distributors in China include: Junnet; www.untx.com; SIFANG TECHNOLOGY and
Federal Soft.
  Internet Data
Center, or Server Farms: As we provide for “free of charge” services for
online game companies to host their game servers in the MoqiZone Network,
traditional IDCs may lose some of their server hosting business from online game
companies.  Currently most independent IDCs are running at low profit
as their bandwidth costs are controlled by the top 3 telecom providers in
China.  For those IDCs owned by Telecom companies, they only provide
service to local broadband clients, they do not provide national
services.
 
 Last mile
internet connection providers (ADSL/T1):  Our MoqiZone WiMAX Network
only connects internet cafés which are installed with our WiMAX equipment
wirelessly to access our online game contents hosted in our CERNET IDC. We will
divert some internet traffic for online games, and therefore internet cafés can
reduce their bandwidth requirement from their current telecom
providers.  Internet cafés will still require Internet bandwidth
access for non-game functions such as Internet browsing, emails, other portal
access, or other web based function such as online chats as we are providing a
closed network environment and do not access the Internet (or world wide web).
The bandwidth demand, however, will become much lower.  We assume that
broadband service provision to internet cafés generates a very small
business income for local telecom companies, and, as a result, it is very
unlikely that we will significantly affect their major
revenue.
 
 Employees
 
 As of
December 31, 2009, we have 9 executive officers. We currently have a total of
37 paid employees comprising of the following:
 
 Chief
      Executive Officer
                        
                        
                        1Chief
      Technology Officer
                        
                        
                        1Shanghai
      Office Manager and Financial Controller
                        
                        
                        1Vice
      Presidents (Finance, Sales and Marketing, Technology Development and
      System Control)
                        
                        
                        4Product
      Development Department
                        
                        
                        5Business
      Development Department
                        
                        
                        1Marketing
      and Promotion Department
                        
                        
                        2Internet
      café Channel Development Department
                        
                        
                        7Software
      Development, Technology and R&D Department
                        
                        
                        3Finance
      Department
                        
                        
                        3Human
      Resources and Administration Department
                        
                        
                        2Design
      Department
                        
                        
                        2MIS
      Department
                        
                        
                        1Customer
      Services
                        
                        
                        2Consultant
                        
                        
                        2TOTAL
                        
                        
                        37
  Item
1A.  Risk Factors
 
 Investment
in our securities involves risk. You should carefully consider the risks we
describe below before deciding to invest. The market price of our securities
could decline due to any of these risks, in which case you could lose all or
part of your investment. In assessing these risks, you should also refer to the
other information included in this filing. You should pay particular attention
to the fact that a substantial amount of our operations in China are subject to
legal and regulatory environments that in many respects differ from that of the
United States. Our business, financial condition or results of operations could
be affected materially and adversely by any of the risks discussed below
and any others not foreseen. This discussion contains forward-looking
statements.
 
 Risks
Related to Our Business and Industry
 
 We
depend on the PLA’s approval and our cooperation relationship with Tai Ji
as low cost WiMAX network provider.  The termination or
alteration of the PLA’s approval or the termination of our cooperation
relationship with Tai Ji would materially and adversely impact our business
operations and financial conditions.
  14
  Tai Ji
was authorized to exclusively use the 3.5GHz radio frequency resources by an
approval letter issued by the PLA Resource Office dated October 31, 2007 (“PLA
Approval Letter”).  However, we cannot assure you that (i) the PLA
Resource Office or its higher authority will not revoke their approval by
issuing another letter; (ii) whether the PLA Resource Office has the authority
to grant an “exclusive” right to Tai Ji to use the 3.5GHz radio frequency
resources; (iii) whether the 3.5GHz radio frequency resources authorized by the
PLA Approval Letter can be widely used for commercial purpose. If the PLA
Approval Letter is revoked, the Company may be forced to purchase T1 ADSL
bandwidth from the incumbent telecom carriers, which will increase our
operational cost and materially and adversely impact our business operations and
financial conditions.
 
 Notwithstanding
the Cooperation Agreement (see further below the discussion of “VIE” at Page 44)
among Tai Ji, SZ Alar and Shanghai MoqiZone and the fact that there are
common members among the management teams of the Company and Tai Ji, we cannot
assure you that (i) the cooperation relationship between Shanghai MoqiZone and
Tai Ji will be maintained, and (ii) the Cooperation Agreement will be fully
performed.  In the event that Tai Ji breaches the Cooperation
Agreement, or we cannot get a renewal of the cooperation relationship
after it expires, we will not be able to use the 3.5GHz radio frequency
resources, which could cause significant disruptions to our business
operations or may materially adversely affect our business, financial
condition and results of operations.
 
 Significant
changes in policies or guidelines of the PLA may result in lower revenue or
additional costs for us and materially adversely affect our financial condition
or results of operations.
 
 It is
possible that the PLA will from time to time issue policies or guidelines,
requesting or stating its preference for certain actions to be taken by Tai Ji
using its networks, including changing the usable frequency from 3400-3430 MHz
and 3500-3530 MHz to other range. Due to our reliance on the PLA as low-cost
network resources provider, a significant change in its policies or guidelines
may have a material effect on us. Such change in policies or guidelines may
result in lower revenues or additional operating costs for us, and we cannot
assure you that our financial condition and results of operation will not be
materially adversely affected by any policy or guideline change by the PLA in
the future.
  If
the PRC government believes that the agreements that establish the structure for
operating our business do not comply with PRC government restrictions on foreign
investment in the value-added telecommunications industry, we could be subject
to severe penalties.
 
 In
December 2001, in order to comply with China’s commitments with respect to its
entry into the World Trade Organization, or WTO, the State Council promulgated
the Administrative Rules for Foreign Investments in Telecommunications
Enterprises, or the Telecom FIE Rules. The Telecom FIE Rules set forth
detailed requirements with respect to capitalization, investor qualifications
and application procedures in connection with the establishment of a
foreign-invested telecommunications enterprise. Pursuant to the Telecom FIE
Rules, the ultimate ownership interest of a foreign investor in a foreign-funded
telecommunications enterprise that provides value-added telecommunication
services, shall not exceed 50%.
 
 We
(including Shanghai MoqiZone), are considered as foreign persons or
foreign-invested enterprises under PRC laws. As a result, we operate our
wireless value-added services in China through the VIE, which is owned by PRC
citizens. We do not have any direct equity interest in the operating company but
instead, the Company will only share its economic benefits derived through
contractual arrangements, including agreements on provision of services, license
of intellectual property, and certain corporate governance and shareholder
rights matters. The VIE conducts portion of our operations and generates
portion of our revenues. It also holds the licenses (including the Content
Provider License) and approvals that are essential to our business.
 
 There are
substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations, including but not limited to the
laws and regulations governing the validity and enforcement of our contractual
arrangements. Accordingly, we cannot assure you that PRC regulatory authorities
will not determine that our contractual arrangements with the VIE violate PRC
laws or regulations.
 
 If we or
our operating company were found to violate any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad discretion in
dealing with such violation, including, without limitation, the
following:
  (a)
              levying
      fines;
 
 (b)
              confiscating
      our or our operating company’s
income;
 
 (c)
              revoking
      our or our operating company’s business licenses and other operating
      licenses;
 
 (d)
              shutting
      down the servers or blocking our or our operating company’s web
      sites;
 
 (e)
              restricting
      or prohibiting our use of the proceeds from this offering to finance our
      business and operations in China;
 
 (f)
              requiring
      us to restructure our ownership structure or operations;
      and/or
 
 (g)
              requiring
      us or our operating company to discontinue our wireless value-added
      services business.
 
 Any of
these or similar actions could cause significant disruptions to our business
operations or render us unable to conduct our business operations and may
materially adversely affect our business, financial condition and results of
operations.
  15
  Our
contractual arrangement with the VIE and their shareholders may not be as
effective in providing operational control as direct ownership of these
businesses and may be difficult to enforce. We were not able to maintain
operational control of SZ Mellow under prior agreements.
 
 PRC laws
and regulations currently restrict foreign ownership of companies that provide
value-added telecommunication services, which include wireless value-added
services and Internet content services. As a result, we conduct a portion of our
operations and could generate revenues through the VIE pursuant to a series of
contractual arrangements with it and its respective shareholders. These
agreements may not be as effective in providing control over our operations as
direct ownership of these businesses. Direct ownership would allow us, for
example, to directly exercise our rights as a shareholder to effect
changes in the board of the VIE, which, in turn, could affect changes,
subject to any applicable fiduciary obligations, at the management level.
However, under the current contractual arrangements, as a legal matter, if the
VIE or its shareholders fail to perform their respective obligations under
these contractual arrangements, we may have to incur substantial costs and
expend significant resources to enforce those arrangements, and rely on legal
remedies under PRC law. These remedies may include seeking
specific performance or injunctive relief, and claiming damages, any of
which may not be effective. For example, if the VIE’s shareholders refuse to
transfer their equity interest in the VIE to us or our designee when we exercise
the purchase option pursuant to these contractual arrangements, or if any of
those individuals otherwise act in bad faith towards us, we may have to take
legal action to compel them to fulfill their contractual obligations. This was
the case with regard to the shareholders of SZ Mellow.  When these
persons refused to cooperate with our management with regard to the use and
operation of SZ Mellow’s ISP license, we were forced to hire PRC litigation
counsel to terminate the agreements with SZ Mellow.  Additionally, we
were forced to seek out a new VIE company in order to continue to operate our
business as planned.  Although we were able to enter into new
agreements with SZ Alar and, as a result, our dispute with the owners of SZ
Mellow did not materially disrupt our business, we cannot guarantee that we will
not have similar problems with SZ Alar in the future or that we will be able to
prevent further disruption to our business and operations as a
result.
  Additionally,
all of these contractual arrangements are governed by PRC laws and provide for
the resolution of disputes through arbitration in the PRC. Accordingly, these
contracts would be interpreted in accordance with PRC laws 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 limit our
ability to enforce these contractual arrangements. In the event we are unable to
enforce these contractual arrangements, which relate to critical aspects of our
operations, we may be unable to exert effective control over the VIE and our
ability to conduct our business may be negatively affected.
 
 If we are unable to get additional
online games that are attractive to players and result in overall revenue
growth, our business, financial condition and results of operations may be
materially and adversely affected and our ability to recover related costs may
become limited  .
 
 In order
to maintain our long-term profitability and financial and operational success,
we must continually get new online games that are attractive to players. To
date, we have signed up 4 online game companies with approximately 30 games.
These games may or may not attract players away from other games companies
and may or may not be profitable or popular among the online game players in
China. If these games fail to attract new players and fail to drive our online
game revenues, our business, financial condition and results of operations may
be materially and adversely affected.
 
 Our
ability to purchase or license successful online games will depend on their
availability at acceptable terms, including price, our ability to compete
effectively against other potential purchasers or licensees to attract the
developers of these games, and our ability to obtain government approvals
required for the purchase or licensing and operation of these
games.
 
 The games
that we purchase or license may not be attractive to players, may be viewed by
the regulatory authorities as not complying with content restrictions, may not
be launched as scheduled or may not compete effectively with our competitors’
games. Additionally, new technologies in our competitors’ online game
programming or operations could render our games obsolete or unattractive to
players, thereby limiting our ability to recover related product development
costs, purchase costs and licensing fees. If we are not able to develop,
purchase or license successfully online games appealing to players, our future
profitability and growth prospects will decline.
  Our
limited operating history and the unproven long-term potential of our business
model make evaluating our business and prospects difficult.
 
 We were
incorporated in August 29, 2007. As our operating history is limited, the
revenue and income potential of our business and markets are yet to be fully
proven. In addition, we are exposed to risks, uncertainties, expenses and
difficulties frequently encountered by companies at an early stage of
development. Some of these risks and uncertainties relate to our ability
to:
 
 i.
              maintain
      our current, and develop new, cooperation
  arrangements;
 
 ii.
              increase
      the number of our users by expanding the type, scope and technical
      sophistication of the content and services we
  offer;
 
 iii.
              respond
      effectively to competitive
pressures;
  16





iv.
            respond
      in a timely manner to technological changes or resolve unexpected network
      interruptions;




v.
            comply
      with changes to regulatory
requirements;




vi.
            maintain
      adequate control of our costs and
expenses;




vii.
            increase
      awareness of our brand and continue to build user loyalty;
    and




viii.
            attract
      and retain qualified management and
employees.





We cannot
predict whether we will meet internal or external expectations of our future
performance. If we are not successful in addressing these risks and
uncertainties, our business, financial condition and results of operations may
be materially adversely affected.





Our
success depends on attracting and retaining qualified personnel.




We depend
on a core management and key executives.  In particular, we rely on the
expertise and experience of our founders and senior officers, in our business
operations, and their personal relationships with our other significant
shareholders, employees, the regulatory authorities, our clients, our suppliers
and the PLA. If any of them, become unable or unwilling to continue in their
present positions, or if they join a competitor or form a competing company in
contravention of their employment agreements, we may not be able to identify a
replacement easily, our business may be significantly disrupted and our
financial condition and results of operations may be materially adversely
affected. We do not currently maintain key-man life insurance for any of our key
personnel.




We
may not be able to adequately protect our intellectual property, and we may be
exposed to infringement claims by third parties.





We
believe the copyrights, service marks, trademarks, trade secrets and other
intellectual property we use are important to our business, and any unauthorized
use of such intellectual property by third parties may adversely affect our
business and reputation. We rely on the intellectual property laws and
contractual arrangements with our employees, clients, business partners and
others to protect such intellectual property rights. Third parties may be able
to obtain and use such intellectual property without authorization. Furthermore,
the validity, enforceability and scope of protection of intellectual property in
the Internet and wireless value-added related industries in China
is uncertain and still evolving, and these laws may not protect
intellectual property rights to the same extent as the laws of some other
jurisdictions, such as the United States. Moreover, litigation may be necessary
in the future to enforce our intellectual property rights, which could result in
substantial costs and diversion of our resources, and have a material adverse
effect on our business, financial condition and results of
operations.





The
laws and regulations governing the value-added telecommunications and Internet
industry in China are developing and subject to future changes. Substantial
uncertainties exist as to the interpretation and implementation of those laws
and regulations.





Our
services of providing content of online games that are hosted by us are subject
to general regulation regarding telecommunication services. In recent years, the
PRC government has begun to promulgate laws and regulations applicable to
Internet-related services and activities, many of which are relatively new and
untested and subject to future changes. In addition, various regulatory
authorities of the central PRC government, such as the State Council, the
MIIT (formerly known as the Ministry of Information Industry, or MII), the
State Administration of Industry and Commerce, or SAIC, and the Ministry of
Public Security, are empowered to issue and implement rules to regulate certain
aspects of Internet-related services and activities. Furthermore, some local
governments have also promulgated local rules applicable to Internet companies
operating within their respective jurisdictions. As the Internet industry itself
is at an early stage of development in China, there will likely be new laws and
regulations promulgated in the future to address issues that may arise from time
to time. As a result, uncertainties exist regarding the interpretation and
implementation of current and future PRC Internet laws and
regulations.




The VIE
has obtained various value-added telecommunication service licenses from the
MIIT or its local branches, and Tai Ji has obtained PLA Authorization, for the
provisions of their services in relation to the usage of 3.5GHz. Tai Ji will
apply for licenses for each and all WiMAX base stations when they are built up.
These licenses will be held by Tai Ji and Tai Ji will license these stations to
the VIE. We cannot assure you that we will be able to obtain or maintain these
licenses or that the regulatory authorities will not take any action against us
if we fail to obtain or maintain them. If the VIE and/or Tai Ji fails to
obtain or maintain any of the required licenses or permits respectively, it may
be subject to various penalties, including redressing the
violations, confiscation of income, imposition of fines or even suspension
of its operations. Any of these measures could materially disrupt our operations
and materially and adversely affect our financial condition and results of
operations.





The
MIIT issued regulations that regulate and limit ownership and investment in
internet and other value-added telecommunications businesses in the PRC which
may limit the type of businesses we will be able to acquire.





On July
13, 2006, the MII issued a notice with the purpose of increasing the regulation
of foreign investment in and operations of value added telecom services which
include internet and telecommunication businesses in the PRC. The regulations
require Chinese entities to own and control the following: (i)
internet domain names, (ii) registered trademarks, and (iii) servers and
other infrastructure equipment used to host and operate web-sites and conduct
businesses. The ownership requirements functionally limit foreign direct and
indirect ownership and control of the intellectual property of these businesses
even when attempted through various parallel control, licensing, use and
management agreements. It is anticipated that these regulations will be strictly
enforced, and the government has provided that the new regulations apply
retroactively and provide for audit procedures. The failure to comply may cause
the MIIT to terminate a telecommunication license or otherwise modify existing
agreements or require the disposition of the assets by the foreign entity. Any
anticipated foreign investment in such businesses will be subject to prior
approval by the MIIT, and it is expected that approval for investment may not be
easily obtained for foreign investment in these businesses unless in strict
compliance. Therefore, investment by us in this sector may not be actively
pursued because certain assets may not be acquirable and accounting
consolidation may be restricted or not permitted as a result of an unfavorable
but permitted transaction structure.


17





The
PRC government may prevent us from distributing, and we may be subject to
liability for content that any of them believes is inappropriate.





China has
promulgated regulations governing telecommunication service providers, Internet
access and the distribution of online games and other information. In the past,
the PRC government has stopped the distribution of information over the Internet
that it believes to violate Chinese law, including content that is obscene,
incites violence, endangers national security, is contrary to the national
interest or is defamatory.





The
growth of our business may be adversely affected due to public concerns over the
security and privacy of confidential user information.





The
growth of our business may be inhibited if the public concern over the security
and privacy of confidential user information transmitted over the Internet and
wireless networks is not adequately addressed. Our service quality may
decline and our business may be adversely affected if significant breaches of
network security or user privacy occur.




We
could be liable for breaches of security of our website and third-party online
payment system, which may have a material adverse effect on our reputation and
business.





Secure
transmission of confidential information, such as customers’ debit and credit
card numbers and expiration dates, personal information and billing addresses,
over public networks, including our official game website, is essential for
maintaining consumer confidence. We currently provide password protection, IP
address verification and hardware verification for all of player accounts. While
we have not experienced any breach of our security measures to date, such
current security measures may be inadequate. In addition, we expect that an
increasing number of our sales will be conducted over the Internet as result of
the growing use of online payment systems. We also expect that associated
online crime will likely increase accordingly. We must therefore be prepared to
increase our security measures and efforts so that our customers have confidence
in the reliability of the online payment system that we use. We do not have
control over the security measures of our third-party online payment operator,
and its security measures may not be adequate at present or may not be
adequate with the expected increased usage of online payment systems. We could
be exposed to litigation and possible liability if we fail to secure
confidential customer information, which could harm our reputation, ability to
attract customers and ability to encourage players to purchase our game
points.





Unexpected
network interruptions, security breaches or computer virus attacks could have a
material adverse effect on our business, financial condition and results of
operations.





Any
failure to maintain the satisfactory performance, reliability, security and
availability of our network infrastructure may cause significant harm to our
reputation and our ability to attract and maintain players. All our game servers
and all of the servers which handle log-in, billing and data back-up matters are
hosted and maintained by third party service providers. Major risks involved in
such network infrastructure include any break-downs or system failures resulting
in a sustained shutdown of all or a material portion of our servers,
including failures which may be attributable to sustained power shutdowns, or
efforts to gain unauthorized access to our systems causing loss or corruption of
data or malfunctions of software or hardware.




Our
network systems are also vulnerable to damage from fire, flood, power loss,
telecommunications failures, computer viruses, hacking and similar events. Any
network interruption, virus or other inadequacy that causes interruptions in the
availability of the online games or deterioration in the quality of access
to the online games could reduce our players’ satisfaction and ultimately harm
our business, financial condition and results of operations. In addition, any
security breach caused by hackings, which involve efforts to gain unauthorized
access to information or systems, or to cause intentional malfunctions or loss
or corruption of data, software, hardware or other computer equipment, and
the inadvertent transmission of computer viruses could have a material adverse
effect on our business, financial condition and results of operations. We do not
maintain insurance policies covering losses relating to our network systems and
we do not have business interruption insurance.





Future
acquisitions may have an adverse effect on our ability to manage our
business.




Selective
acquisitions form part of our strategy to expand our business. We do not,
however, have any prior experience integrating any new companies into ours, and
we believe that integration of a new company’s operation and personnel will
require significant management attention. The diversion of our management’s
attention from our business and any difficulties encountered in the integration
process could have an adverse effect on our ability to manage our
business.





We may
pursue acquisitions of companies, technologies and personnel that are
complementary to our existing business. However, our ability to grow through
future acquisitions or investments or hiring will depend on the availability of
suitable acquisition and investment candidates at an acceptable cost, our
ability to compete effectively to attract these candidates, and the availability
of financing to complete larger acquisitions. We may face significant
competition in executing our growth strategy. Future acquisitions
or investments could result in potential dilutive issuances of equity
securities or incurrence of debt, contingent liabilities or impairment of
goodwill and other intangible assets, any of which could adversely affect our
financial condition and results of operations. The benefits of an acquisition or
investment may also take considerable time to develop and any particular
acquisition or investment may not produce the intended
benefits.


18





Future
acquisitions would also expose us to potential risks, including risks associated
with the assimilation of new operations, technologies and personnel, unforeseen
or hidden liabilities, the diversion of resources from our existing businesses,
sites and technologies, the inability to generate sufficient revenue to offset
the costs and expenses of acquisitions, and potential loss of, or harm to, our
relationships with employees, customers, licensors and other suppliers as a
result of the integration of new businesses.





We
may be subject to infringement and misappropriation claims in the future, which
may cause us to incur significant expenses, pay substantial damages and be
prevented from providing our services or technologies.





Our
success depends, in part, on our ability to carry out our business without
infringing the intellectual property rights of third parties. We may be subject
to litigation involving claims of patent, copyright or trademark infringement,
or other violations of intellectual property rights of third parties. Future
litigation may cause us to incur significant expenses, and third-party claims,
if successfully asserted against us, may cause us to pay substantial
damages, seek licenses from third parties, pay ongoing royalties, redesign our
services or technologies, or prevent us from providing services or technologies
subject to these claims. Even if we were to prevail, any litigation would likely
be costly and time-consuming and divert the attention of our management and key
personnel from our business operations.





The
successful operation of our business depends upon the performance and
reliability of the Internet infrastructure and fixed telecommunication networks
in China.





Our
business depends, in part, on the performance and reliability of the Internet
infrastructure in China. Almost all access to the Internet is maintained through
state-owned telecommunication operators under the administrative control and
regulatory supervision of the MIIT. In addition, the national networks in China
are connected to the Internet through international gateways controlled by the
PRC government. These international gateways are the only channels through which
a domestic user can connect to the Internet. A more sophisticated Internet
infrastructure may not be developed in China. We or the players of online games
may not have access to alternative networks in the event of disruptions,
failures or other problems with China’s Internet infrastructure.  As
one of our important business partners are Internet cafés in China, intensified
government regulation of Internet cafés could limit our ability to maintain or
increase our net revenues and expand our customer base.





We rely
on Internet cafes as our business partners in China to provide our services to
the final users. Starting in 2001, the Chinese government began tightening its
supervision of Internet cafés, closing unlicensed Internet cafés, requiring
those remaining open to install software to prevent access to sites deemed
subversive and requiring web portals to sign a pledge not to host subversive
sites. In February 2007, 14 PRC national government authorities, including the
MIIT, the Ministry of Culture and the General Administration of Press and
Publication, jointly issued a notice suspending nationwide approval for the
establishment of new Internet cafés in 2007 and enhancing the punishment for
Internet cafés admitting minors. This suspension may continue indefinitely.
Furthermore, the Chinese government’s policy, which encourages the development
of a limited number of national and regional Internet café chains and
discourages the establishment of independent Internet cafés, may slow down the
growth of Internet cafés.




As
Internet cafés are the primary venue for users to use our service, any reduction
in the number, or any slowdown in the growth, of Internet cafés in China will
limit our ability to maintain or increase our net revenues and expand our
customer base, which will in turn materially and adversely affect our business
and results of operations.





Our
business may be adversely affected by public opinion and government policies in
China.





Internet
cafés, which are currently the most important outlets for online games, have
been criticized by the general public in China for having exerted a negative
influence on young people. Due primarily to such adverse public reaction,
regulators in China have tightened their regulation of Internet café operations
through, among other things, suspending the issuance of new operating licenses
and further reducing the hours during which the Internet cafés are permitted to
remain open for business. Also, local and higher-level governmental authorities
may from time to time decide to more strictly enforce age limits and other
requirements relating to Internet cafés as a result of the occurrence of, and
the media attention on, gang fights, arson and other incidents in or related to
Internet cafés. As most of our customers access online games from Internet
cafés, any restrictions on Internet café operations could result in a reduction
of the amount of time the customers spend on online games or a reduction in or
slowdown in the growth of the player base. Moreover, any adverse public
reaction to the online game industry may discourage players from spending too
much time playing online games, which could limit the growth of or reduce our
net revenues. In addition, it is also possible that the Chinese government
authorities may decide to adopt more stringent policies to monitor the online
game industry as a result of adverse public reaction or otherwise. Any such
restrictions on online game playing would adversely affect our business and
results of operations.


19





Our
operations may be adversely affected by implementation of new addiction-related
regulations.





The
Chinese government may decide to adopt more stringent policies to monitor the
online game industry as a result of adverse public reaction to perceived
addiction to online games, particularly by minors. On April 15, 2007, eight
PRC government authorities, including the State Press and Publication
Administration, the Ministry of Education and the Ministry of Information
Industry issued a Notice on the Implementation of Online Game Anti-Addiction
System to Protect the Physical and Psychological Health of Minors (the
“Anti-Addiction Notice”), requiring all Chinese game operators to adopt an
“anti-addiction system” in an effort to curb addiction to online games by
minors. Under the anti-addiction system, three hours or less of continuous play
is defined to be “healthy,” three to five hours is defined to be “fatiguing,”
and five hours or more is defined to be “unhealthy.” Game operators are required
to reduce the value of game benefits for minor players by half when those
players reach the “fatigue” level, and to zero when they reach the “unhealthy”
level. In addition, online game players in China are now required to
register their identity card numbers before they can play an online game.
This system allows game operators to identify which players are minors. Failure
to comply with the requirements under the Anti-Addiction Notice may subject us
to penalties, including but not limited to suspension of the operation of online
games, revocation of the licenses and approvals for Internet cafes’ operations,
rejection or suspension of the application for approvals, licenses, or filings
for any new games, or prohibiting Internet cafes from operating any new
game.





Internet
cafes currently do not allow the admission of juvenile players. If these
restrictions are expanded to apply to adult players in the future, it could have
a material and adverse effect on our business, financial condition and operating
results.





Risks
Related to International Operations





Substantially
all of our assets may be located in the PRC and substantially all of our revenue
may be derived from our operations in the PRC. Accordingly, our results of
operations and prospects will be subject, to a significant extent, to the
economic, political and legal policies, developments and conditions in such
country.





The PRC
economic, political and social conditions, as well as government policies, could
affect our business. For instance, the PRC economy differs from the economies of
most developed countries in many respects. The PRC economy has been
transitioning from a planned economy to a more market-oriented economy. Although
in recent years the PRC government has implemented measures emphasizing the use
of market forces for economic reform, the reduction of state ownership of
productive assets and the establishment of sound corporate governance in
business enterprises, a substantial portion of productive assets in the PRC is
still owned by the PRC government. In addition, the PRC government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over PRC
economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies.





Future
inflation in China may inhibit our activity to conduct business in
China.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten years, the rate of inflation in China
has been as high as 20.7% and as low as -2.2%. These factors have led to the
adoption by Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. While inflation has been more moderate since 1995, high
inflation may in the future cause Chinese government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the market for our products.




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




Our
reporting currency is the U.S. dollar and our operations in China use their
local currency as their functional currencies. Substantially all of our revenue
and expenses are in Chinese Renminbi. We are subject to the effects of exchange
rate fluctuations with respect to any of these currencies. For example, the
value of the Renminbi depends to a large extent on Chinese government policies
and China’s domestic and international economic and political developments, as
well as supply and demand in the local market. Since 1994, the official exchange
rate for the conversion of Renminbi to the U.S. dollar had generally been stable
and the Renminbi had appreciated slightly against the U.S. dollar. However, on
July 21, 2005, the Chinese government changed its policy of pegging the value of
Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. As a result of this policy change, Chinese Renminbi appreciated
approximately 2.5% against the U.S. dollar in 2005, 3.3% in 2006, and 6.5% in
2007. It is possible that the Chinese government could adopt a more flexible
currency policy, which could result in more significant fluctuation of Chinese
Renminbi against the U.S. dollar. We can offer no assurance that Chinese
Renminbi will be stable against the U.S. dollar or any other foreign
currency.




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


20




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





Our
corporate structure may limit our ability to receive dividends from, and
transfer funds to, our PRC subsidiary, which could restrict our ability to act
in response to changing market conditions.





Moqizone
is a holding company. Shanghai MoqiZone, our indirectly wholly-owned subsidiary
established in China has entered into contractual arrangements with the VIE
through which we conduct our wireless value-added activities and receive
substantially all of our revenues in the form of service fees. We rely on
dividends and other distributions on equity paid by our subsidiary and service
fees from the VIE for our cash requirements in excess of any cash raised from
investors and retained by us. If our subsidiary incurs debt in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other distributions to us.





In
addition, PRC law requires that payment of dividends by our subsidiary can only
be made out of its net income, if any, determined in accordance with PRC
accounting standards and regulations. Under PRC law, our subsidiary is also
required to set aside no less than 10% of its after-tax net income each year to
fund certain reserve funds unless such reserve funds have reached 50% of the
registered capital of our subsidiary, and these reserves are not distributable
as dividends. Any limitation on the payment of dividends by our subsidiary could
materially adversely affect our ability to grow, fund investments, make
acquisitions, pay dividends, and otherwise fund and conduct our business.
Any transfer of funds from our company to our PRC subsidiary, either as a
shareholder loan or as an increase in registered capital, is subject to
registration or approval of Chinese governmental authorities, including the
relevant administration of foreign exchange and/or the relevant examining and
approval authority. These limitations on the free flow of funds between us and
our PRC subsidiary could restrict our ability to act in response to
changing market conditions.





Changes
in foreign exchange regulations in the PRC may affect our ability to pay
dividends in foreign currency or conduct other foreign exchange
business.




The
Renminbi is not a freely convertible currency currently, and the restrictions on
currency exchanges may limit our ability to use revenues generated in RMB to
fund our business activities outside the PRC or to make dividends or other
payments in United States dollars. The PRC government strictly regulates
conversion of RMB into foreign currencies. Over the years, foreign exchange
regulations in the PRC have significantly reduced the government’s control over
routine foreign exchange transactions under current accounts. In the PRC, the
State Administration for Foreign Exchange, or the SAFE, regulates the conversion
of the RMB into foreign currencies. Pursuant to applicable PRC laws and
regulations, foreign invested enterprises incorporated in the PRC are required
to apply for “Foreign Exchange Registration Certificates.” Currently, conversion
within the scope of the “current account” (e.g. remittance of foreign currencies
for payment of dividends, etc.) can be effected without requiring the approval
of SAFE. However, conversion of currency in the “capital account” (e.g. for
capital items such as direct investments, loans, securities, etc.) still
requires the approval of SAFE.




In
addition, on October 21, 2005, SAFE issued the Notice on Issues Relating to the
Administration of Foreign Exchange in Fundraising and Reverse Investment
Activities of Domestic Residents Conducted via Offshore Special Purpose
Companies (“Notice 75”), which became effective as of November 1, 2005. Notice
75 replaced the two rules issued by SAFE in January and April 2005.




According
to Notice 75:




(a)
            prior
      to establishing or assuming control of an offshore company for the purpose
      of obtaining overseas equity financing with assets or equity interests in
      an onshore enterprise in the PRC, each PRC resident, whether a natural or
      legal person, must complete the overseas investment foreign exchange
      registration procedures with the relevant local SAFE
    branch;




(b)
            an
      amendment to the registration with the local SAFE branch is required to be
      filed by any PRC resident that directly or indirectly holds interests in
      that offshore company upon either (1) the injection of equity interests or
      assets of an onshore enterprise to the offshore company, or (2) the
      completion of any overseas fund raising by such offshore company;
      and




(c)
            an
      amendment to the registration with the local SAFE branch is also required
      to be filed by such PRC resident when there is any material change in the
      capital of the offshore company that does not involve any return
      investment, such as (1) an increase or decrease in its capital, (2) a
      transfer or swap of shares, (3) a merger or division, (4) a long term
      equity or debt investment, or (5) the creation of any security
      interests.


21





Moreover,
Notice 75 applies retroactively. As a result, PRC residents who have established
or acquired control of offshore companies that have made onshore investments in
the PRC in the past are required to complete the relevant overseas investment
foreign exchange registration procedures by March 31, 2006. Under the relevant
rules, failure to comply with the registration procedures set forth in Notice 75
may result in restrictions being imposed on the foreign exchange activities of
the relevant onshore company, including the payment of dividends and other
distributions to its offshore parent or affiliate and the capital inflow from
the offshore entity, and may also subject relevant PRC residents to penalties
under PRC foreign exchange administration regulations.




In
addition, SAFE issued updated internal implementing rules (“Implementing Rules”)
in relation to Notice 75. The Implementing Rules were promulgated and became
effective on May 29, 2007. Such Implementing Rules provide more detailed
provisions and requirements regarding the overseas investment foreign exchange
registration procedures. However, even after the promulgation of Implementing
Rules there still exist uncertainties regarding the SAFE registration for PRC
residents’ interests in overseas companies.





As a
result, we cannot predict how they will affect our business operations following
a business combination. For example, our ability to conduct foreign exchange
activities following a business combination, such as remittance of dividends and
foreign-currency-denominated borrowings, may be subject to compliance with the
SAFE registration requirements by such PRC residents, over whom we have no
control. In addition, we cannot assure you that such PRC residents will be able
to complete the necessary approval and registration procedures required by the
SAFE regulations. We will require all our shareholders, following a business
combination, who are PRC residents to comply with any SAFE registration
requirements, if required by Notice 75, Implementing Rules or other applicable
PRC laws and regulations, although we have no control over either our
shareholders or the outcome of such registration procedures. Such uncertainties
may restrict our ability to implement our business combination strategy and
adversely affect our business and prospects following a business
combination.





The
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability to
operate, including our ability to pay dividends.





On August
8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the State-Owned Assets
Supervision and Administration Commission of the State Council, State
Administration of Taxation, State Administration for Industry and Commerce,
China Securities Regulatory Commission (“CSRC”) and SAFE, amended and released
the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises,
which took effect as of September 8, 2006.  This new regulation, among
other things, has certain provisions that require SPVs formed for the purpose of
acquiring PRC domestic companies and controlled by PRC individuals, to
obtain the approval of the CSRC prior to publicly listing their securities on an
overseas stock market. However, the new regulation does not expressly provide
that approval from the CSRC is required for the offshore listing of a SPV which
acquires, directly or indirectly, equity interest or shares of domestic PRC
entities held by domestic companies or individuals by cash payment, nor
does it expressly provide that approval from CSRC is not required for the
offshore listing of a SPV which has fully completed its acquisition of equity
interest of domestic PRC equity prior to September 8, 2006. On September 21,
2006, the CSRC published on its official website a notice specifying the
documents and materials that are required to be submitted for obtaining CSRC
approval.





It is not
clear whether the provisions in the new regulation regarding the offshore
listing and trading of the securities of a SPV applies to an offshore company
such as us which owns controlling contractual interest in the VIE. We believe
that the new M&A regulation and the CSRC approval are not required in the
context of the share exchange because (i) the Share Exchange is a purely foreign
related transaction governed by foreign laws, not subject to the jurisdiction of
PRC laws and regulations; (ii) we are not a special purpose vehicle formed or
controlled by PRC companies or PRC individuals, (iii) we are owned or
substantively controlled by foreigners.  However, we cannot assure
that the relevant PRC government agencies, including the CSRC, would reach the
same conclusion, and we still cannot rule out the possibility that CSRC may deem
that the transactions effected by the Share Exchange circumvented the new
M&A rules, the PRC Securities Law and other rules and notices, especially
when taking into consideration of the performance-based incentive option
arrangement by way of the share transfer between Mr. Cheung and other
management.




If the
CSRC or another PRC regulatory agency subsequently determines that the CSRC’s
approval is required for this Offering, we may face sanctions by the CSRC or
another PRC regulatory agency. If this happens, these regulatory agencies may
impose fines and penalties on our operations in the PRC, limit our operating
privileges in the PRC, delay or restrict the repatriation of the proceeds from
this offering into the PRC, restrict or prohibit payment or remittance of
dividends to us or take other actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation
and prospects, as well as the trading price of our shares. The CSRC or other PRC
regulatory agencies may also take actions requiring us, or making it
advisable for us, to delay or cancel this offering before settlement and
delivery of the shares being offered by us.





The new
M&A rules, along with foreign exchange regulations discussed in the above
subsection, will be interpreted or implemented by the relevant government
authorities in connection with our future offshore financings or acquisitions,
and we cannot predict how they will affect our acquisition strategy. For
example, our prospective partner’s ability to remit dividends to us, or to
engage in foreign-currency-denominated borrowings, may be conditioned upon
compliance with the SAFE registration requirements by such Chinese domestic
residents, over whom we may have no control. In addition, such Chinese domestic
residents may be unable to complete the necessary approval and registration
procedures required by the SAFE regulations. Such uncertainties
may restrict our ability to implement our acquisition strategy and
adversely affect our business and prospects.


22





Because
Chinese law will govern almost all of our business’ material agreements, we may
not be able to enforce our rights within the PRC or elsewhere, which could
result in a significant loss of business, business opportunities or
capital.





The
Chinese legal system is similar to a civil law system based on written statutes.
Unlike common law systems, it is a system in which decided legal cases have
little precedential value. Although legislation in the PRC over the past 25
years has significantly improved the protection afforded to various forms of
foreign investment and contractual arrangements in the PRC, these laws,
regulations and legal requirements are relatively new. Due to the limited volume
of published judicial decisions, their non-binding nature, the short history
since their enactments, the discrete understanding of the judges or government
agencies of the same legal provision, inconsistent professional abilities of the
judicators, and the inclination to protect local interest in the court rooms,
interpretation and enforcement of PRC laws and regulations involve
uncertainties, which could limit the legal protection available to us, and
foreign investors, including you. The inability to enforce or obtain a remedy
under any of our future agreements could result in a significant loss of
business, business opportunities or capital and could have a material adverse
impact on our business, prospects, financial condition, and results of
operations. In addition, the PRC legal system is based in part on government
policies and internal rules (some of which are not published on a timely basis
or at all) that may have a retroactive effect. As a result, we may not be aware
of our violation of these policies and rules until some time after the
violation. In addition, any litigation in the PRC, regardless of outcome, may be
protracted and result in substantial costs and diversion of resources and
management attention.





You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based on United States
or other foreign laws against us and our management.





We
conduct substantially all of our operations in China and substantially all of
our assets are located in China. In addition, some of our directors and
executive officers reside within China. As a result, it may not be possible to
effect service of process within the United States or elsewhere outside
China upon some of our directors and senior executive officers, including with
respect to matters arising under U.S. federal securities laws or applicable
state securities laws. It would also be difficult for investors to bring an
original lawsuit against us or our directors or executive officers before a
Chinese court based on U.S. federal securities laws or otherwise. Moreover,
China does not have treaties with the United States or many other countries
providing for the reciprocal recognition and enforcement of judgment of
courts.




New
PRC enterprise income tax law could adversely affect our business and our net
income.





On March
16, 2007, the National People’s Congress of the PRC passed the new Enterprise
Income Tax Law (or “EIT Law”), which took effect on of January 1, 2008. The new
EIT Law imposes a unified income tax rate of 25.0% on all companies established
in China. Under the new EIT Law, an enterprise established outside of the PRC
with “de facto management bodies” within the PRC is considered as a
resident enterprise and will normally be subject to the enterprise income tax at
the rate of 25.0% on its global income. If the PRC tax authorities subsequently
determine that we should be classified as a resident enterprise, then our global
income will be subject to PRC income tax at a tax rate of 25.0%.





With the
introduction of the EIT Law, China has resumed imposition of a withholding tax
(10.0% in the absence of a bilateral tax treaty or new domestic regulation
reducing such withholding tax rate to a lower rate).  Per the Double
Tax Avoidance Arrangement between Hong Kong and Mainland China, a Hong Kong
company as the investor, which is considered a “non-resident enterprise” under
the EIT Law, may enjoy the reduced withholding tax rate of 5% if it holds more
than 25% equity interest in its PRC subsidiary.  As MobiZone Hong Kong
is the sole shareholder of Shanghai MoqiZone, substantially all of our income
will be derive from dividends we receive from Shanghai MoqiZone through MobiZone
Hong Kong.  When we declare dividends from the income in the PRC, we
cannot assure whether such dividends may be taxed at a reduced withholding tax
rate of 5% per the Double Tax Avoidance Arrangement between Hong Kong and
Mainland China as the PRC tax authorities may regard our MobiZone Hong Kong as a
shell company only for tax purpose and still deem Shanghai MoqiZone in the PRC
as the subsidiary directly owned by the Company. Based on the Notice on Certain
Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties,
issued on February 20, 2009 by the State Administration of Taxation, if the
relevant PRC tax authorities determine, in their discretion, that a company
benefits from such reduced income tax rate due to a structure or arrangement
that is primarily tax-driven, such PRC tax authorities may adjust the
preferential tax treatment.




Investors
should note that the new EIT Law provides only a framework of the enterprise tax
provisions, leaving many details on the definitions of numerous terms as well as
the interpretation and specific applications of various provisions unclear and
unspecified.  Any increase in our tax rate in the future could
have a material adverse effect on our financial conditions and results of
operations.





Under
the new EIT Law, we may be classified as a “resident enterprise” of China. Such
classification will likely result in unfavorable tax consequences to us and
holders of our securities.





Under the
new EIT Law, an enterprise established outside of China with its “de facto
management body” in China is considered a “resident enterprise,” meaning that it
can be treated the same as a Chinese enterprise for enterprise income tax
purposes. The implementing rules of the New EIT Law defines “de facto management
body” as an organization that exercises “substantial and overall management and
control over the production and operations, personnel, accounting, and
properties” of an enterprise. Currently no interpretation or application of the
new EIT Law and its implementing rules is available, therefore it is unclear how
tax authorities will determine tax residency based on the facts of each
case.





If the
PRC tax authorities determine that our Hong Kong holding company is a “resident
enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we will be subject to enterprise income
tax at a rate of 25% on our worldwide income as well as PRC enterprise income
tax reporting obligations. This would mean that income such as interest on
offering proceeds and other non-China source income may be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the new EIT Law
and its implementing rules dividends paid to us by our PRC subsidiaries would
qualify as “tax-exempt income,” we cannot guarantee that such dividends will not
be subject to a 10% withholding tax, as the PRC foreign exchange control
authorities, which enforce the withholding tax, have not yet issued guidance
with respect to the processing of outbound remittances to entities that are
treated as resident enterprises for PRC enterprise income tax purposes. Finally,
a 10% withholding tax may be imposed on dividends we pay to our non-PRC
shareholders.


23





Related
transactions in China may be subject to a high level of scrutiny by the PRC tax
authorities. The contractual arrangements entered into among our PRC subsidiary,
our affiliated entity and its shareholders may be subject to audit or challenge
by the PRC tax authorities; a finding that our PRC subsidiary or our affiliated
entity owes additional taxes could substantially reduce our net income and the
value of your investment.





Under PRC
tax law, arrangements and transactions among related parties may be subject to
audit or challenge by the PRC tax authorities. We may have related transactions
that are not at arm’s length price. If any of the transactions we enter into
with potential future PRC subsidiaries and affiliated PRC entities are found not
to be on an arm’s-length basis, or to result in an unreasonable reduction in tax
under PRC law, the PRC tax authorities have the authority to disallow any tax
savings, adjust the profits and losses of such potential future PRC entities and
assess late payment interest and penalties. A finding by the PRC tax authorities
that we are ineligible for any such tax savings, or that any of our possible
future affiliated entities are not eligible for tax exemptions, would
substantially increase our possible future taxes and thus reduce our net income
and the value of a shareholder’s investment. In particular, we could face
material and adverse tax consequences if the PRC tax authorities determine that
the contractual arrangements among our PRC subsidiary, the VIE, and the
shareholders of the VIE do not represent arm’s-length prices and adjust any of
their income in the form of a transfer pricing adjustment. A transfer pricing
adjustment could, among other things, result in, for PRC tax purposes, a
reduction of expense deductions recorded by our PRC subsidiary or the VIE
or an increase in taxable income, all of which could in turn increase our
tax liabilities. In addition, the PRC tax authorities may impose late payment
fees and other penalties on our PRC subsidiary or the VIE for under-paid
taxes.





Our
Chinese operating company is obligated to withhold and pay PRC individual income
tax in respect of the salaries and other income received by their employees who
are subject to PRC individual income tax. If it fails to withhold or pay such
individual income tax in accordance with applicable PRC regulations, it may be
subject to certain sanctions and other penalties, which could have a material
adverse impact on our business.





Under PRC
laws, our Chinese operating company will be obligated to withhold and pay
individual income tax in respect of the salaries and other income received by
its employees who are subject to PRC individual income tax. Our Chinese
operating company may be subject to certain sanctions and other liabilities
under PRC laws in case of failure to withhold and pay individual income taxes
for its employees in accordance with the applicable laws.





In
addition, the PRC State Administration of Taxation has issued several circulars
concerning employee stock options. Under these circulars, employees working in
the PRC (which could include both PRC employees and expatriate employees subject
to PRC individual income tax) are required to pay PRC individual income tax in
respect of their income derived from exercising or otherwise disposing of their
stock options. Our Chinese subsidiary will be obligated to file documents
related to employee stock options with relevant tax authorities and withhold and
pay individual income taxes for those employees who exercise their stock
options. While tax authorities may advise us that our policy is compliant, they
may change their policy, and we could be subject to sanctions.




We
may not be able to continue as a going concern because it’s not clear that they
will be able to indefinitely raise enough resources to stay
operational





Our
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. We have sustained a loss since inception of
US$24,671,816 and, as of December 31, 2009, has only generated a nominal amount
of revenue from Netcafe Farmer software license fee. In addition, the Company
had cash or cash equivalents of approximately US$584,000 as of December 31,
2009. This amount represents the balance of the approximately US$4.3 million of
net proceeds from the recent Financings. We originally believed that these
funds were sufficient to maintain current operations until March 2010. On March
29, 2010, we completed a private equity financing of $1,956,200, with 7
accredited investors. Net proceeds from the offering, are approximately
$1,760,400. This financing will allow us to continue operations and business
development until December 31, 2010 before additional capital is required to
continue to execute our current growth plans. Accordingly, our current level of
our revenues is not sufficient to finance all of our operations on a long-term
basis. We continue to attempt to raise additional debt or equity financing as
our operations do not produce sufficient cash to offset the cash drain of our
general operating and administrative expenses. Accordingly, our business and
operations are substantially dependent on our ability to raise additional
capital to: (i) supply working capital for the expansion of sales and the
costs of marketing of new and existing products; and (ii) fund ongoing
selling, general and administrative expenses of our business. If we do not
receive additional financing, we may have to restrict or discontinue our
business. Our success is dependent on future financings. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern. In addition, our independent auditors, Paritz & Company,
P.A., have expressed substantial doubt concerning our ability to continue as a
going concern. As of December 31, 2009, we had a stockholders’ deficiency of
$24,324,044 and a net loss of $23,441,283 for the year ended December 31, 2009.
We will continue incurring additional expenses as we implement our growth in the
fiscal year of 2010, which will reduce our net income in 2010. If we are not
able to achieve profit or continue to raise capital from additional financings
to fund our operation, then we likely will be forced to cease operations and
investors will likely lose their entire investment.


24




Risks
Relating to Our Securities





Insiders
have substantial control over us, and they could delay or prevent a change in
our corporate control even if our other stockholders wanted it to
occur.





Our
executive officers, directors, and principal stockholders hold approximately
63.95% of our outstanding common stock.  Accordingly, these
stockholders are able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions.  This could delay or prevent an outside party from
acquiring or merging with us even if our other stockholders wanted it to
occur.





There
may not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.




There is
currently only a limited public market for our common stock, which is listed on
the Over-the-Counter Bulletin Board, and there can be no assurance that a
trading market will develop further or be maintained in the
future.  During the month of March 2010, our common stock traded an
average of approximately 5 shares per day.  As of April 14, 2010, the
closing bid price of our common stock was $3.77 per share.  As of
April 14, 2010, we had approximately 114 shareholders of record of our common
stock, not including shares held in street name.  In addition, during
the past two fiscal years our common stock has had a trading range with a low
price of $0.01 per share and a high price of $15.00 per share.




The market price of our common stock
may be volatile.





The
market price of our common stock has been and will likely continue to be highly
volatile, as is the stock market in general, and the market for OTC Bulletin
Board quoted stocks in particular. Some of the factors that may materially
affect the market price of our common stock are beyond our control, such
as changes in financial estimates by industry and securities analysts,
conditions or trends in the industry in which we operate or sales of our common
stock.  These factors may materially adversely affect the market price
of our common stock, regardless of our performance.  In addition, the
public stock markets have experienced extreme price and trading volume
volatility.  This volatility has significantly affected the market
prices of securities of many companies for reasons frequently unrelated to the
operating performance of the specific companies.  These broad market
fluctuations may adversely affect the market price of our common
stock.





Additionally,
because our stock is thinly trading, there is a disparity between the bid and
the asked price that may not be indicative of the stock’s true
value.





The
outstanding warrants may adversely affect us in the future and cause dilution to
existing shareholders.





We
currently have a total of 3,616,650 warrants issued and outstanding in the
2009 and 2010 Financings.  Associated with these financings, we also
have 756,663 Placement Agent Warrants issued and outstanding. The exercise price
of these warrants range from $1.80 to $3.00 per share, subject to adjustment in
certain circumstances.  Exercise of the warrants may cause dilution in
the interests of other shareholders as a result of the additional common stock
that would be issued upon exercise.  In addition, sales of the shares
of our common stock issuable upon exercise of the warrants could have a
depressive effect on the price of our stock, particularly if there is not a
coinciding increase in demand by purchasers of our common
stock.  Further, the terms on which we may obtain additional financing
during the period any of the warrants remain outstanding may be adversely
affected by the existence of these warrants as well.




Our
common stock is considered a “penny stock” and may be difficult to
sell.





The SEC
has adopted regulations which generally define a “penny stock” to be an equity
security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock is less than $5.00 per share and, therefore, it is
designated as a “penny stock” according to SEC rules.  This
designation requires any broker or dealer selling these securities to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase the securities.  These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares.




The
market for penny stocks has experienced numerous frauds and abuses which could
adversely impact investors in our stock.





OTCBB
securities are frequent targets of fraud or market manipulation, both because of
their generally low prices and because OTCBB reporting requirements are less
stringent than those of the stock exchanges or NASDAQ.





Patterns
of fraud and abuse include:





(a)
            Control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or
issuer;


(b) Manipulation
of prices through prearranged matching of purchases and sales and false and
misleading press releases;




(c)
            “Boiler
      room" practices involving high pressure sales tactics and unrealistic
      price projections by inexperienced sales
  persons;




(d)
            Excessive
      and undisclosed bid-ask differentials and markups by selling
      broker-dealers; and




(e)
            Wholesale
      dumping of the same securities by promoters and broker-dealers after
      prices have been manipulated to a desired level, along with the inevitable
      collapse of those prices with consequent investor
  losses.


25





Our
management is aware of the abuses that have occurred historically in the penny
stock market.





We
have not paid dividends in the past and do not expect to pay dividends in the
future, and any return on investment may be limited to the value of our
stock.





We have
never paid any cash dividends on our common stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable future and any return
on investment may be limited to the value of our stock.  We plan to
retain any future earnings to finance our business growth.




Item
1B. Unresolved Staff Comments





This
section is not applicable to us as we are a smaller reporting company.





Item
2.  Properties.




We
currently do not own any property and all of our offices are through rental
agreements.  Our rental cost in Hong Kong is approximately $1,300 per
month (with 3 staff and as registered office for MobiZone Hong Kong). Rental for
Shanghai office is approximately $6,000 per month (with 25 staff and as
registered office of Shanghai MoqiZone) and Shenzhen is approximately $1,000 per
month (with 1 staff and as registered office for SZ Alar). We do not have an
official Beijing office since we terminated our relationship with SZ
Mellow.  We are using the office of Tai Ji Office as a temporary
Beijing representative office (with 3 staff). We also have a representative
office in Chengdu and the rental cost is approximately $500 per month (with 5
staff).





Item
3.  Legal Proceedings.




In
January 2009, Shanghai Moqizone entered into an Exclusive Business Cooperation
Agreement and certain ancillary agreements, including an Equity Pledge
Agreement, Exclusive Option Agreement, Loan Agreement and Irrevocable Power of
Attorney with SZ Mellow.  This arrangement was necessary as a foreign
owned company, such as Moqizone, cannot directly hold an ISP license in China,
As a result, similar VIE arrangements, whereby the ISP license is held by a
domestically owned Chinese company but the operations are directed by the
foreign owned entity, are common.  Pursuant to our agreement with SZ
Mellow, we had a right to direct and control the management of SZ Mellow
and an option to purchase the equity of SZ Mellow in the event that Chinese law
permits such acquisition. Following our successful capital raise and entry to
the U.S. capital markets, the Chinese shareholders of SZ Mellow, who are also
parties to the VIE agreements between Moqizone and SZ Mellow refused to
cooperate with management of Moqizone and demanded additional consideration
beyond what was set forth in the existing agreements. MoqiZone considered that
the shareholders were acting in contravention of the existing VIE agreements and
consulted legal counsel with regard to potential remedies.  On
September 21, 2009, we served SZ Mellow and their respective shareholders a
demand letter pursuant to the VIE Agreement demanding, amongst other things, the
return of approximately US$117,647 (RMB800,000) cash, capital equipment and also
provided a 30 day notice  to terminate VIE agreement. As of December
31, 2009, we have not had any response from the shareholders of the SZ Mellow in
relation to our demands. We have been advised that the serving of the 30 day
notice is sufficient to terminate the VIE Agreement between the Company and SZ
Mellow.  Accordingly, The SZ Mellow Agreements were terminated at the
expiry of the 30-day notice on October 20, 2009. The Company is considering
taking legal action against the SZ Mellow and the shareholders of SZ Mellow in
order to enforce our further demands.





Other
than the abovementioned litigation matters, neither we nor any of our direct or
indirect subsidiaries is a party to, nor is any of our property the subject of,
any legal proceedings other than ordinary routine litigation incidental to their
respective businesses.  There are no proceedings pending in which any
of our officers, directors or 5% shareholders are adverse to us or any of our
subsidiaries or in which they are taking a position or have a material interest
that is adverse to us or any of our subsidiaries.





Neither
we nor any of our subsidiaries is a party to any administrative or judicial
proceeding arising under federal, state or local environmental laws or their
Chinese counterparts.




From time
to time, we may be involved in litigation relating to claims arising out of our
operations in the normal course of business.





Item 4. (Removed and
reserved.)





PART
II




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




Market
Prices





Our
Common Stock is currently quoted on the over–the-counter (“OTC”) Bulletin Board
under the symbol “MOQZ.”. Prior to August 27, 2009, shares of our common stock
were quoted on the OTC Bulletin Board under the trading symbol “TLHO”. Prior to
October 6, 2003, our common stock was traded on the OTC Bulletin Board under the
symbol “SLDE” and prior to August 9, 2002, our common stock was traded on the
OTC Bulletin Board under the symbol “SUN.”


26





Accordingly,
the following table sets forth the quarterly high and low bid prices for our
common stock since the quarter ended March 31, 2008.  The prices below
have been adjusted for the recent reverse split and represent inter-dealer
quotations, without retail markup, markdown or commission and may not be
reflective of actual transactions.





High
                
                
                LowQuarter
      ended March 31, 2008
                
                $
                0.07
                
                
                $
                0.02Quarter
      ended June 30, 2008
                
                $
                0.07
                
                
                $
                0.01Quarter
      ended September 30, 2008
                
                $
                0.02
                
                
                $
                0.01Quarter
      ended December 31, 2008
                
                $
                0.02
                
                
                $
                0.01Quarter
      ended March 31, 2009
                
                $
                0.03
                
                
                $
                0.01Quarter
      ended June 30, 2009
                
                $
                0.05
                
                
                $
                0.01Quarter
      ended September 30, 2009
                
                $
                15.00
                
                
                $
                0.01Quarter
      ended December 31, 2009
                
                $
                10.00
                
                
                $
                2.01




On April
14, 2010, the closing price of the Common Stock was $3.77 and we had
approximately 114 record holders of our Common Stock. This number excludes any
estimate by us of the number of beneficial owners of shares held in street name,
the accuracy of which cannot be guaranteed.




Dividends





We have
never declared or paid dividends on our common stock.  We intend to
retain earnings, if any, to support the development of our business and
therefore do not anticipate paying cash dividends for the foreseeable
future.  Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including current financial condition, operating results and current and
anticipated cash needs.





Recent
Sale of Unregistered Securities.





We have
disclosed recent sales of unregistered securities in Current Reports on Form 8-K
that we filed on June 3, 2009 and March 31, 2010.





Securities
Authorized for Issuance Under Equity Compensation Plans





We did
not have any equity compensation plans as of December 31, 2009.  Our
Board of Directors may adopt an equity compensation plan in the
future.




Item
6.  Selected Financial Data.





Selected
Financial Data - Consolidated Statement of Operations Data:




Years ended
                    December 31,2009
                  
                  
                  2008(in thousands)Revenues
                  
                  $
                  1
                  
                  
                  $
                  -Cost
      of revenues
                  
                  
                  -
                  
                  
                  
                  -Gross
      profit
                  
                  
                  1
                  
                  
                  
                  -Depreciation
      and amortization expenses
                  
                  
                  (54
                  )
                  
                  
                  -Selling,
      general and administrative and research and development
      expenses
                  
                  
                  (3,348
                  )
                  
                  
                  913Other
      expense
                  
                  
                  (20,040
                  )
                  
                  
                  -Income
      taxes
                  
                  
                  -
                  
                  
                  
                  -Net
      profit (Loss)
                  
                  
                  (23,441
                  )
                  
                  
                  (913
                  )Foreign
      adjustment
                  
                  
                  4
                  
                  
                  
                  (6)Comprehensive
      income (Loss)
                  
                  
                  (23,550
                  )
                  
                  
                  (919
                  )




27





Selected Financial Data -
Consolidated Balance Sheet Data:





As of December 31,2009
                  
                  
                  2008(in thousands)
                  
                  
                  (in thousands)Balance Sheet Data:Cash
      and cash equivalents
                  
                  $
                  584
                  
                  
                  $
                  18Prepayments,
      deposits and other receivable
                  
                  
                  80
                  
                  
                  
                  -Inventory
                  
                  
                  -
                  
                  
                  
                  -Other
      current assets
                  
                  
                  -
                  
                  
                  
                  -Property
      and equipment, net
                  
                  
                  899
                  
                  
                  
                  199Intangibles,
      net
                  
                  
                  -
                  
                  
                  
                  -Loan
      receivable
                  
                  
                  -
                  
                  
                  
                  249Due
      from related parties
                  
                  
                  1
                  
                  
                  
                  -Total
      assets
                  
                  
                  1,565
                  
                  
                  
                  466Total
      Current Liabilities
                  
                  
                  25,889
                  
                  
                  
                  1,187Long-term
      liabilities
                  
                  
                  -
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  25,889
                  
                  
                  
                  1,187Total
      Stockholders’ Deficit
                  
                  $
                  (24,324
                  )
                  
                  $
                  (721
                  )





Supplementary
Financial Information





Not
applicable.





Item
7.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations.




The
following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in the
financial statements of MoqiZone for the fiscal years ended December 31, 2009
and 2008 and should be read in conjunction with such financial statements and
related notes included in this Form 10-K.





Overview





We are a
Chinese online game delivery platform company that offers digital infrastructure
solutions to China’s online game industry. Through our Shanghai MoqiZone
subsidiary, we provide an online game delivery platform delivering contents of
online games that are hosted by us to internet cafes which have installed
Netcafe Farmer and/or our WiMAX equipment in China via our Netcafe Farmer
software or our proprietary MoqiZone WiMAX Network. The Moqizone Network is a
secured distribution platform for online game developers and operators to
promote publish and monetize online game content. Our primary business focus is
to provide content delivery to the viral online gaming market and connect game
players to online content providers in China. Our MoqiZone WiMAX Network is a
wireless virtual proprietary network designed to provide online game
content hosted by us to the internet cafes which have installed our WiMAX
equipment. The business model could eliminate 50% of costs associated with
incumbent digital media content delivery.  Our targeted market is licensed
internet cafes in cities where the internet cafés business is more developed.
Our existing penetration to internet cafes is low; however, we have already
successfully deployed a few WiMax test sites in Beijing, Suzhou and Shenzhen in
Fall 2009 and have aligned ourselves with local internet café associations in
order to accelerate our business penetration. We have also launched commercial
deployment in Chengdu on December 15, 2009. As of December 31, 2009, in Chengdu
there are over 30internet cafés installed with our CPE and 15 of which are
utilizing our Moqizone WiMAX Network, approximately 100 internet cafés are
connected to the Moqizone gaming delivery platform to access the games
on  www.53mq.com  and over 700 Internet Cafés accessing
Moqizone servers via NetCafe Farmer. In addition, we have 293 CPE and 43 Base
Stations in the inventory for immediate deployment. We have not generated any
revenue from MoqiZone WiMAX Network and little revenue from Netcafe Farmer as of
December 31, 2009 as we are providing our WiMAX installation to the internet
cafes free of charge. Once a substantial number of WiMAX installed internet
cafes are participating in our business, we plan to initiate our charged
services to the internet cafes.





Our
revenue will be generated from cash collected from game players through issuing
universal prepaid game cards. We provide a profit sharing online billing system
for internet cafes, game providers, marketing promotion companies and ourselves,
via www.moqizone.com , enabling profit sharing through the universal Moqizone
Prepaid Card. It effectively prevents discounted online game cards, helps
internet cafés avoid obsolete prepaid card inventory and at the same time is
more user friendly by unifying prepaid game cards across different content
providers’ games. The universal prepaid game card will be distributed only via
internet cafés and will be collected through our POS system. In addition, our
software provides real-time reporting, payment and customer tracking
via  www.moqizone.com  to internet cafés and content
providers. It allows customer behavior tracking from POS data and stronger gamer
community management. Therefore, we are able to establish a direct relationship
with gamers, content providers and café owners through our Moqizone WiMAX
Network.




Although
we launched over 30 WiMAX connected internet cafes in our test cities in 2009,
they were open only for testing purposes and were not revenue
producing.  Subject to our ability to secure necessary financing, our
goal is to deploy our online game content delivery platform on the MoqiZone
WiMAX Network in various targeted cities in China. We plan on: (a) expanding
into Beijing in the 2nd
quarter of 2010 through execution of Memorandum of understanding with the
Beijing Internet Café Association which represents 1,542 Internet Cafés in
Beijing; and (b) launching commercial deployment in Chengdu, Jinan, Nanjing,
Beijing, Changsha, Fuzhou, Guizhou, Suzhou and Zhengzhou.





As of
April 14, 2010, we have launched three websites: (a) www.moqz.com, our company’s
corporate website; (b) www.moqizone.com , a business-to-business or B2B portal
which supports Internet Café online billing and profit share with Net cafés and
content providers; and (3)  www.53mq.com , a business-to-customer or
B2C portal which delivers game content through a client end interface to gamers.
www.53mq.com was launched on November 30, 2009. We are currently hosting 14
games from 2 online game companies through executed agreements which include 1
MMORPG or Massively Multiplayer Online Role Playing Game – “Dragon Rider”, the
“Moqi Entertainment Village” which is a casual game platform with 13 different
games and we are linked with over 30 external games which servers are not hosted
by us.


28





In
addition, 4 companies have agreed to memorandums of understanding (“MOU”) and
they are representing a total of 16 games. 5 online games have been presented
proposals and are under negotiation. Furthermore, we have an alliance with Zebra
Music, a top music video channel in China and Hapame 3D Social Network Sites
(SNS) which is the first domestic built 3D virtual world.





We have
recently established a partnership with Win’s Entertainment Limited (“Win’s”), a
major motion picture producing company in Hong Kong through a series of
proprietary content agreements. In November 2009, we were contracted to develop
the online game for Win’s movie,Tiger Tang
2  (“Tiger Tang 2 Game”) and we also acquired the exclusive
rights from Win’s for publishing Tiger Tang 2 Game. We are also currently under
discussion with Win’s to develop online games for Win’s other movies as well as
publish those games.





Our key
business development objectives over the next two years are to grow and expand
our business penetration servicing Internet cafes throughout selected targeted
cities in China. These business objectives will require the build out of
our MoqiZone WiMAX Network, continuous technological development of our portals
including but not limited to www.moqizone.com and www.53mq.com, and also
aggregation of online game content. We will not be able to generate significant
revenue until we have a basic foundation for all of these
components.





Liquidity
and Capital Resources





On June 1
and August 11, 2009, we raised a total of US$4,945,000 from 11 accredited
investors in two private placements.  As a result of the financings,
we issued a total of approximately 494.5 Units of securities each consisting of
(a) $10,000 of 8% exchangeable convertible notes of MobiZone Hong Kong due March
31, 2011, (b) three year Class A callable warrants to purchase 2,778 shares of
common stock of Trestle, at an exercise price of $2.50 per share, and (c) three
year Class B non-callable warrants to purchase 2,778 shares of common stock of
the Company at an exercise price of $3.00 per share. Pursuant to the sale of
approximately 494.5 Units, we issued an aggregate of approximately US$4,945,000
of Notes, Class A Warrants to purchase up to 1,373,614 shares of common stock
and Class B Warrants to purchase up to 1,373,614 of common stock. Following our
reverse split, the Notes were converted in shares of Series A Preferred
Stock.  The financings were completed pursuant to exemption from
registration provided by Regulation D and Regulation S promulgated under the
Securities Act of 1933, as amended.





The
Company has sustained a loss since inception of US$24,671,816 and has generated
little revenue from Netcafe Farmer software license fee as of December 31, 2009.
In addition, the Company had cash or cash equivalents of approximately
US$584,000 as of December 31, 2009.  This amount represents the
balance of the approximately US$4.3 million of net proceeds from the recent
Financings. We originally believed that these funds were sufficient to maintain
current operations until to operate until March 2010. On March 29, 2010, we
completed a private equity financing of $1,956,200 on March 29, 2010, with 7
accredited investors. Net proceeds from the offering, are approximately
$1,760,400. This financing will allow us to continue operations and business
development until December 2010 before additional capital is required to
continue to execute our current growth plans. Based on our current business
development plans, we will need approximately US$2 million of
additional financing to fund our WiMAX deployment to the point where our
cash flow from operating activities will be positive and a further US$1 million
to aggregate and license contents. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





Our cash
requirements may vary materially from those currently anticipated due to changes
in our operations, including our marketing and distribution activities, product
development, expansion of our personnel and the timing of our receipt of
revenues.  Our ability to obtain additional financing in the future will
depend in part upon the prevailing capital market conditions, as well as
our business performance.  There can be no assurance that we will be
successful in our efforts to arrange additional financing on terms satisfactory
to us or at all. These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




On
December 21, 2009, we acquired a client-end software called “Netcafe Farmer”
which was originally developed by Mr. Liu Qian in 2006. The total consideration
paid was RMB650,000 (or approximately US$95,000). By acquiring Netcafe Farmer,
the Company also recruited Mr. Liu Qian and his development team of 4 people.
The incremental salary is approximately $75,500 (RMB516,000) per annum. It is
expected that the income generated from existing Netcafe Farmer business will
substantially subsidize the monthly additional salary expenses.




Critical
Accounting Policies and Estimates





Our
financial information has been prepared in accordance with generally accepted
accounting principles in the United States, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period.  We continually evaluate these estimates
based on our own historical experience, knowledge and assessment of current
business and other conditions, our expectations regarding the future based on
available information and reasonable assumptions, which together form our basis
for making judgments about matters that are not readily apparent from other
sources.  Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those
estimates.  Some of our accounting policies require a higher degree of
judgment than others in their application.


29





When
reviewing our financial statements, you should consider (1) our selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions.  We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.





Fair
Value.





Fair
value is generally based on independent sources such as quoted market prices or
dealer price quotations. To the extent certain financial instruments trade
infrequently or are non-marketable securities, they may not have readily
determinable fair values. The Company may estimate the fair value of the
Warrants and Preferred stock using various pricing models and available
information that management deems most relevant. Among the factors considered in
determining the fair value of financial instruments are discounted anticipated
cash flows, the cost, terms and liquidity of the instrument, the financial
condition, operating results and credit ratings of the issuer or underlying
company, the quoted market price of similar traded securities, and other factors
generally pertinent to the valuation of financial instruments.  In
regards to the warrants issued in our financings, Management and the board of
directors consider market price quotations, recent stock offering prices and
other factors in determining fair market value for purposes of valuing the
common stock.  The fair value of each warrant granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the various
weighted average assumptions, including dividend yield, expected volatility,
average risk-free interest rate and expected lives.





Stock
Compensation.





We
account for stock-based employee compensation arrangements using the fair value
method in accordance with the provisions of the FASB ASC 718,
“Compensation-Stock Compensation”. It requires that the fair value of employees
awards issued, modified, repurchased or cancelled after implementation, under
share-based payment arrangements, be measured as of the date the award is
issued, modified, repurchased or cancelled. The resulting cost is then
recognized in the statement of earnings over the service period.





We
periodically issue common stock for acquisitions and services
rendered.  Common stock issued is valued at the estimated fair market
value, as determined by our management and board of
directors.  Management and the board of directors consider market
price quotations, recent stock offering prices and other factors in determining
fair market value for purposes of valuing the common stock.  The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the various weighted average
assumptions, including dividend yield, expected volatility, average risk-free
interest rate and expected lives.




FASB
Establishes Accounting Standards Codification TM





In June
2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally
Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB
Accounting Standards Codification (“the Codification” or “ASC”) as the official
single source of authoritative U.S. generally accepted accounting principles
(“GAAP”). All existing accounting standards are superseded. All other accounting
guidance not included in the Codification will be considered non-authoritative.
The Codification also includes all relevant Securities and Exchange Commission
(“SEC”) guidance organized using the same topical structure in separate sections
within the Codification.




Following
the Codification, the Financial Accounting Standards Board will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASU”) which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
changes to the Codification.





The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our third-quarter
2009 financial statements and the principal impact on our financial statements
is limited to disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the Codification.  In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.




Basis
of Presentation - Development Stage Company




The
Company has been obtaining the requisite approvals from the Chinese government
and since inception, has not earned any revenue from
operations.  Accordingly, the Company’s activities have been accounted
for as those of a “Development Stage Entities”, as set forth in ASC
205-915.  Among the disclosures required by ASC 205-915 are that the
Company’s financial statements be identified as those of a development stage
company, and that the statements of operations and other comprehensive income
(loss), owner’s equity and cash flows disclose activity since the date of the
Company’s inception.




Use
of estimates in the preparation of financial statements




The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the
reporting period. On an ongoing basis, we evaluate our estimates which are based
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. The result of these evaluations forms the
basis for making judgments about the carrying values of assets and liabilities
and the reported amount of expenses that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions. The following accounting policies require significant management
judgments and estimates:


30





Impairment of
long-lived assets.  We assess the potential impairment of
long-lived assets and identifiable intangibles under the guidance of SASC
360-15, "Accounting for the Impairment or Disposal of Long-Lived Assets." which
states that a long-lived asset should be tested for recoverability whenever
events or changes in circumstances indicate that the carrying amount of the
long-lived asset exceeds its fair value. An impairment loss is recognized only
if the carrying amount of the long-lived asset exceeds its fair value and
is not recoverable.





Deferred income
taxes. The
Company accounts for income taxes in accordance with ASC 740 which requires that
deferred tax assets and liabilities be recognized for future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  In
addition, ASC 740 requires recognition of future tax benefits, such as carry
forwards, to the extent that realization of such benefits is more likely than
not and that a valuation allowance be provided when it is more likely than not
that some portion of the deferred tax asset will not be realized.




Foreign currency
translation. Our reporting currency is the US
dollar.  Our functional currency is United States dollars (“US$”), and
the functional currency of our Hong Kong subsidiary is Hong Kong dollars
(“HK$”).  The functional currency of our PRC operating entities is the
Renminbi (“RMB’), and PRC is the primary economic environment in which our
businesses operate. Assets and liabilities are translated into U.S. Dollars at
the year end exchange rates and records the related translation adjustments as a
component of other comprehensive income (loss). Revenue and expenses are
translated using average exchange rates prevailing during the period. Foreign
currency transaction gains and losses are included in current
operations.





We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from these estimates.





Income
Taxes





Moqizone
Holdings Corporation, formerly Trestle Corporation, Inc., is a Delaware
corporation and conducts all of its business through our Shanghai MoqiZone
subsidiary. All business is conducted in PRC. As the Delaware holding company
has not recorded any income for the year ended December 31, 2009 and 2008, it is
not subject to any income taxes in the United States. Moqizone Holdings Limited
was incorporated in the Cayman Islands. Under the laws of Cayman Islands, the
Company is not subject to tax on income or capital gain. In addition, payment of
dividends by Moqizone Holdings Limited is not subject to withholding tax in the
Cayman Islands.




Under the
current Hong Kong Inland Revenue Ordinance, MobiZone Hong Kong is subject to
16.5% income tax on its taxable income generated from operations in Hong Kong.
Additionally, payments of dividends by MobiZone Hong Kong to us are not subject
to any Hong Kong withholding tax.





The new
Enterprise Income Tax Law (or EIT Law) imposes a unified income tax rate of
25.0% on all companies established in China. Shanghai MoqiZone and the VIE are
subject to 25% PRC income tax.  Under the new EIT Law, an enterprise
established outside of the PRC with “de facto management bodies” within the PRC
is considered as a resident enterprise and will normally be subject to the
enterprise income tax at the rate of 25.0% on its global income. The new EIT
Law, however, does not define the term “de facto management bodies.” If the PRC
tax authorities subsequently determine that we should be classified as a
resident enterprise, then our global income will be subject to PRC income tax at
a tax rate of 25.0%.




With the
introduction of the EIT Law, China has resumed imposition of a withholding tax
(10.0% in the absence of a bilateral tax treaty or new domestic regulation
reducing such withholding tax rate to a lower rate).  As MobiZone Hong Kong
is the sole shareholder of Shanghai MoqiZone, the dividends from Shanghai
MoqiZone may be taxed at a reduced withholding tax rate of 5% per the Double Tax
Avoidance Arrangement between Hong Kong and Mainland China.





Our PRC
companies are subject to PRC business tax. We primarily pay business tax on
gross revenues generated from online game operations, rentals, service fees and
license fees. Our PRC operating companies pay business tax on their gross
revenues derived from online game operations at a rate ranging from 3% to 5%,
and this business tax is deducted from total revenues. In addition, our PRC
subsidiaries pay a 5% business tax on the gross revenues derived from their
contractual arrangements with our PRC operating companies, and these taxes are
primarily recorded in operating expenses in accordance with our accounting
policy.





Results
of Operations





The
following table shows the results of our business.  All references to the
results of operations and financial condition are those of Moqizone Holdings
Corporation, formerly “Trestle Holdings, Inc.”.


31





Comparison
of Fiscal Year Ended December 31, 2009 and 2008




Year 
      Ended  December  31
                                
                                2009
                                
                                
                                2008Revenues
                                
                                US$
                                1,372
                                
                                
                                US$
                                0Cost
      of revenues
                                
                                US$
                                0
                                
                                
                                US$
                                0Gross
      profit
                                
                                US$
                                1,372
                                
                                
                                US$
                                0Depreciation
      and amortization expense
                                
                                US$
                                53,902
                                
                                
                                US$
                                0Selling,
      general and administrative expenses
                                
                                US$
                                3,317,913
                                
                                
                                US$
                                913,157Other
      income (expense)
                                
                                US$
                                (20,040,393
                                )
                                
                                US$
                                (325
                                )Income
      taxes
                                
                                US$
                                0
                                
                                
                                US$
                                0Net
      Loss
                                
                                US$
                                (23,441,283
                                )
                                
                                US$
                                (913,482
                                )Foreign
      currency translation adjustment
                                
                                US$
                                3,723
                                
                                
                                US$
                                (5,577
                                )Comprehensive
      income (Loss)
                                
                                US$
                                (23,549,799
                                )
                                
                                US$
                                (919,059
                                )





Revenues. Total revenues for the
year ended December 31, 2009 were US $1,372.  This was generated from
the license fee of Netcafe Farmer during the fiscal year of 2009. Total revenues
for the year ended December 31, 2008 were US$0. We are only in the initial
stages of launching our business plan of providing “last mile” connectivity to
those internet cafes installed with our WiMAX equipment and have joint into our
MoqiZone WiMAX Network. In our 2009 fiscal year, management also continued to
place a greater emphasis on aggregating content and building out our
infrastructure.  Management continued its emphasis on working to
provide an online game content delivery via our platform.  Management
believes that our emphasis on development and expansion of overall platform will
yield increased revenues in our 2010 fiscal year and
beyond.  Furthermore, management believes that over the next two years
as we work towards growing and expanding our business penetration in Internet
cafes throughout targeted cities in China, we will experience significant
revenue growth.  However, until we recruit a substantial number of
WiMAX installed Internet cafes participating in our business, we will not be
able to commence marketing or begin generating significant
revenues.





Selling, general and administrative
expenses. Selling, general and administrative expenses were approximately
US$3.32 million for the year ended December 31, 2009 as compared to
approximately US$913,000 for the year ended December 31, 2008, an increase of
approximately US$2.40 million or 263%. The increase was mainly due to our active
expansion of operations, including commercial deployment on December 15, 2009 in
Chengdu, where we provided our WiMAX installation to the internet cafes free of
charge, the consolidation of company operation in January 2009 and our increase
of staffing as well as legal expenses, due diligence expenses and other
professional expenses in relation to the Financings.  Since January, 2009,
we have gradually increased the number of staffing in various departments
including, without limitation, sales and marketing, software programming,
customer services as well as network deployment for site
visits. We  have had approximately 10 technical related staff in
charge of base station build out, network deployment, game portal
development, and data centre management, as well as research and development. We
also have a team of approximately 5 people focusing on online games and other
contents aggregation and 5 people on sales and marketing. Senior management now
constitutes of approximately 10 people. We have also established branch offices
in Chengdu as well as in Shanghai which office supervises our operations in
Suzhou. Legal expenses were increased as we engaged our Chinese lawyers to
assist with various aspects of our reorganization and our corporate
development.  In addition, we began to incur legal expenses related to
various aspects related to maintaining our US public listing, including expenses
related to our offering and reverse merger. Management expects that general and
administrative expenses will continue rise as we continue to expand our
operations.  However, we believe that any increase will begin to be offset
by our expected revenue growth.




Other expense. Interest
expense, net of interest income was approximately US$100,000 for the year ended
December 31, 2009, and the interest income for the year ended December 31, 2008
was US$240. Additionally, losses related to the amortization of certain
placement fee associated with our convertible note financing was roughly
US$58,000 for the year ended December 31, 2009 as compared to nil for the year
ended December 31, 2008. Loss on foreign currency transactions was roughly
US$14,000 for the year ended December 31, 2009, as compared to US$565 for the
year ended December 31, 2008. Non cash item includes a change in fair value of
warrants of approximately $19.87 million for the facial year of 2009.As a
result, other expenses for the year ended December 31, 2009 and 2008 were
approximately US$20.04 million and US$325 respectively.


32




Net loss.   Net loss was
approximately US$23.44 million for the year ended December 31, 2009, as compared
to net loss of approximately US$913,000 for the year ended December 31, 2008, an
increase of US$ 22.53 million. This increase was substantially due to loss
associated with the change in fair value of the recently issued warrants and
other expenses related to our recent reverse merger and financing. In fact,
$19.87 million of this net loss was due to change in fair value of the warrants
from our recent financing. In addition, the net loss also increased due to our
commercial deployment in Chengdu on December 15, 2009, the consolidation of
company operation in January 2009 and the increase of staffing as well as legal
expenses, due diligence expenses, other professional expenses in relation to the
Financings and the change in the fair value of the warrants. In the near term,
Management believes that our net loss may actually increase until we begin to
gain traction and start producing revenue from the delivery of online game
content via our Network.





Foreign Currency Translation
Adjustment. Our reporting currency is the US dollar.  Our
local currency, Renminbi (RMB), is our functional currency.  Results of
operations and cash flow are translated at average exchange rates during the
period, assets and liabilities are translated at the unified exchange rate as
quoted by the People’s Bank of China at the end of the period and equity
accounts are translated at historical rate.  Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the statement of shareholders’ equity.  Transaction gains and
losses that arise from exchange rate fluctuations on transactions denominated in
a currency other than the functional currency are included in the results of
operations as incurred.





Currency
translation adjustments resulting from this process are included in accumulated
other comprehensive income in the consolidated statement of shareholders' equity
and amounted to a gain of US$3,723 and a loss of US$5,577 as of December 31,
2009, and 2008 respectively.




Comprehensive Loss. As
a result of the above, the comprehensive loss, which adds the currency and
dividend on preferred shares adjustments to Net Income, were roughly
US$23.55 million for the year ended December 31, 2009, as compared to the
comprehensive loss of approximately US$919,000 for the year ended December 31,
2008, an increase of US$22.63 million.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.





Item
7A. Quantitative and Qualitative Disclosures about Market Risk.





Not
applicable.





Item
8. Financial Statements and Supplementary Data




MOQIZONE
HOLDING CORPORATION





TABLE
OF CONTENTS





PAGEReport
      of Independent Registered Public Accounting Firm
                
                34Financial
      Statements as of and for the Years Ended December 31, 2009 and
      2008Consolidated
      Balance Sheets
                
                35Consolidated Statements
      of Operations and Comprehensive Loss
                
                36Consolidated Statements
      of Changes in Shareholders’ Equity
                
                37Consolidated Statements
      of Cash Flows
                
                38Notes
      to  Consolidated Financial Statements
                
                39




33




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors


Moqizone
Holding Corporation (A Development Stage Company)


Hong
Kong, China





We have
audited the accompanying balance sheets of Moqizone Holding Corporation (A
Development Stage Company) (the “Company”) as of December 31, 2009 and 2008 and
the related statements of operations and comprehensive loss, changes in owners’
equity (deficiency) and cash flows for the periods from inception (August 29,
2007) to December 31, 2009 and for the years ended December 31, 2009 and 2008.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.





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





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in Note 3 to the accompanying
financial statements, the Company has sustained a loss since inception of
$24,671,816 and the Company has only earned revenues of US $1,372 for the year
ended December 31, 2009. In addition, the Company has a working capital
deficiency of $25,223,291 as of December 31, 2009. These factors, among others,
raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Moqizone Holding Corporation (A
Development Stage Company) as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for the periods from inception (August 29,
2007) to December 31, 2009 and for the years ended December 31, 2009 and 2008,
in conformity with accounting principles generally accepted in the United States
of America.





/s/
Paritz & Company, P.A.


Paritz
& Company, P.A.


Hackensack,
New Jersey


April 15,
2010


34


MOQIZONE HOLDING
CORPORATION




(A Development Stage
Company)




CONSOLIDATED
BALANCE SHEETS




December
      31,
                
                
                December 31,2009
                
                
                2008ASSETSCurrent
      assets:Cash
                
                $
                584,300
                
                
                $
                18,286Prepayments,
      deposits and advances
                
                
                80,180
                
                
                
                -Due
      from related parties
                
                
                1,071
                
                
                
                -Total
      current assets
                
                
                665,551
                
                
                
                18,286Property
      and equipment, net
                
                
                899,247
                
                
                
                198,717Loan
      receivable
                
                
                -
                
                
                
                249,284Total
      assets
                
                $
                1,564,798
                
                
                $
                466,287LIABILITIESCurrent
      liabilities:Accounts
      payable
                
                $
                58,339
                
                
                $
                66,237Other
      payables and accruals
                
                
                202,468
                
                
                
                13,013Accrued
      directors’ fees
                
                
                228,901
                
                
                
                771,420Interest
      payable
                
                
                85,707
                
                
                
                -Warrant
      liabilities
                
                
                25,313,369
                
                
                
                -Convertible
      loan payable
                
                
                -
                
                
                
                316,437Due
      to related parties
                
                
                58
                
                
                
                20,374Total
      current liabilities
                
                $
                25,888,842
                
                
                $
                1,187,481Shareholders’ deficitCommon
      stock , par value $0.001, 40,000,000 share authorized, 13,620,260 issued
      and outstanding at December 31 2009 and capital at 2008
                
                $
                13,620
                
                
                $
                514,027Series
      A preferred shares, par value $0.001, 15,000 authorized, 1,145 and none
      issued and outstanding at December 31, 2009 and 2008,
      respectively
                
                
                1
                
                
                
                -Additional
      paid-in capital
                
                
                447,355
                
                
                
                -Deficit
      accumulated during development stage
                
                
                (24,784,055
                )
                
                
                (1,230,533
                )Accumulated
      other comprehensive income/(loss) – foreign exchange
      adjustment
                
                
                (965)
                
                
                
                (4,688
                )Total
      shareholders’ deficit
                
                
                (24,324,044
                )
                
                
                (721,194
                )Total
      liabilities and shareholders’ deficit
                
                $
                1,564,798
                
                
                $
                466,287




See notes
to financial statements


35


MOQIZONE
HOLDING CORPORATION




(A
Development Stage Company)




CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS




For the years ended December
                  31,
                
                
                From inception
                  (August 29, 2007)
                  to2009
                
                
                2008
                
                
                December 31, 2009REVENUE
                
                $
                1,372
                
                
                $
                -
                
                
                $
                1,372COSTS AND
      EXPENSES:Research
      and development expense
                
                
                (30,447
                )
                
                
                -
                
                
                
                (30,447
                )Depreciation
      and amortization expense
                
                
                (53,902
                )
                
                
                -
                
                
                
                (53,902
                )Selling,
      general and administrative expense
                
                
                (3,317,913
                )
                
                
                (913,157
                )
                
                
                (4,548,138
                )LOSS
      FROM OPERATIONS
                
                
                (3,400,890
                )
                
                
                (913,1570
                
                
                
                (4,631,115
                )OTHER
      (EXPENSES)/INCOME:Interest
      expense, net of interest income
                
                
                (100,092
                )
                
                
                240
                
                
                
                (99,835
                )Change
      in fair value of warrants
                
                
                (19,867,901
                )
                
                
                -
                
                
                
                (19,867,901
                )Amortization
      of placing fees of convertible notes
                
                
                (58,115
                )
                
                
                -
                
                
                
                (58,115
                )Loss
      on foreign currency transactions
                
                
                (14,285
                )
                
                
                (565
                )
                
                
                (14,850
                )TOTAL
      OTHER EXPENSES
                
                
                (20,040,393
                )
                
                
                (325
                )
                
                
                (20,040,701
                )NET
      LOSS
                
                $
                (23,441,283
                )
                
                $
                (913,482
                )
                
                $
                (24,671,816
                )Dividend
      on preferred shares
                
                
                (112,239
                )
                
                
                -
                
                
                
                (112,239
                )NET
      LOSS APPLICABLE TO COMMON SHAREHOLDERS
                
                
                (23,553,522
                )
                
                
                (913,482
                )
                
                
                (24,784,055
                )Foreign
      currency translation
                
                
                3,723
                
                
                
                (5,577
                )
                
                
                (965
                )COMPREHENSIVE
      LOSS
                
                
                (23,549,799
                )
                
                
                (919,059
                )
                
                
                (24,785,020
                )Net
      income per share:Basic
                
                $
                (5.31
                )
                
                $
                (1.30
                )
                
                $
                (10.81
                )Diluted
                
                $
                (5.31
                )
                
                $
                (1.30
                )
                
                $
                (10.81
                )Weighted
      average number of shares used in computation:Basic
                
                
                4,433,418
                
                
                
                703,794
                
                
                
                -Diluted
                
                
                4,433,418
                
                
                
                703,794
                
                
                
                -





See notes
to financial statements


36


MOQIZONE
HOLDING CORPORATION





(A
Development Stage Company)





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT


YEARS
ENDED DECEMBER 31, 2009 and 2008





Ordinary
      shares
                    (US$0.001
      par value)
                  
                  
                  Series
      A
                  
                  
                  
                  
                  
                  Additional
                  
                  
                  Accumulated
                    other
                  
                  
                  Deficit
                    accumulated
                    during
                  
                  
                  TotalNumber
      of
                    shares
                  
                  
                  Par
      value
                  
                  
                  preferred
                    shares
                  
                  
                  Paid-in
                    Capital
                  
                  
                  paid-in
                    capital
                  
                  
                  comprehensive
                    income/(loss)
                  
                  
                  development
                    stage
                  
                  
                  shareholders’
                    deficitBalance
      as of August 29, 2007
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Capital
      contribution
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  316,003
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  316,003Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (317,051
                  )
                  
                  
                  (317,051
                  )Foreign
      exchange translation difference
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  889
                  
                  
                  
                  
                  
                  
                  
                  889Balance
      as of December 31, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  316,003
                  
                  
                  
                  -
                  
                  
                  
                  889
                  
                  
                  
                  (317,051
                  )
                  
                  
                  (159
                  )Capital
      contribution
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  166,011
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  166,011Capital
      issued for directors’ fees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  32,013
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  32,013Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (913,482
                  )
                  
                  
                  (913,482
                  )Foreign
      exchange translation difference
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,577
                  )
                  
                  
                  
                  
                  
                  
                  (5,577
                  )Balance
      as of December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  514,027
                  
                  
                  
                  -
                  
                  
                  
                  (4,688
                  )
                  
                  
                  (1,230,533
                  )
                  
                  
                  (721,194
                  )Recapitalization
      of Trestle Holdings, Inc.
                  
                  
                  179,115,573
                  
                  
                  
                  179,116
                  
                  
                  
                  
                  
                  
                  
                  (514,027
                  )
                  
                  
                  334,911
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Reverse
      split
                  
                  
                  (178,411,779
                  )
                  
                  
                  (178,412
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  178,412
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Conversion
      of series B preferred stock
                  
                  
                  10,743,000
                  
                  
                  
                  10,743
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (10,743
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Capital
      issued for directors’ fees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  771,563
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  771,563Amortized
      placement agent fee
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (436,385
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (436,385
                  )Conversion
      of loan to preferred shares
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5
                  
                  
                  
                  
                  
                  
                  
                  4,944,995
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,945,000Initial
      take-up of warrant liability
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,447,575
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,447,575
                  )Conversion
      of preferred shares to common shares
                  
                  
                  2,111,111
                  
                  
                  
                  2,111
                  
                  
                  
                  (4
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,107Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (23,553,522
                  )
                  
                  
                  (23,553,522
                  )Foreign
      exchange translation difference
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,723
                  
                  
                  
                  
                  
                  
                  
                  3,723Common
      stock issued for dividends
                  
                  
                  62,355
                  
                  
                  
                  62
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  112,177
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  112,239Balance
      as of December 31, 2009
                  
                  
                  13,620,260
                  
                  
                  
                  13,620
                  
                  
                  
                  1
                  
                  
                  
                  0
                  
                  
                  
                  447,355
                  
                  
                  
                  (965
                  )
                  
                  
                  (24,784,055
                  )
                  
                  
                  (24,324,044
                  )




See notes
to financial statements


37


MOQIZONE
HOLDING CORPORATION




(A
Development Stage Company)




CONSOLIDATED
STATEMENTS OF CASH FLOWS





For the years ended December 31,
                
                
                From inception
                  (August 29, 2007)
                  to2009
                
                
                2008
                
                
                December 31, 2009Operating
      activities:Net
      loss
                
                $
                (23,441,283
                )
                
                $
                (913,482
                )
                
                $
                (24,671,816
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Capital
      issued for directors’ fees and officers’ salaries
                
                
                -
                
                
                
                32,013
                
                
                
                292,883Depreciation
      and amortization
                
                
                53,902
                
                
                
                -
                
                
                
                53,902Amortization
      of placement fees of convertible notes
                
                
                58,115
                
                
                
                -
                
                
                
                58,115Interest
      expenses
                
                
                79,670
                
                
                
                -
                
                
                
                79,670Warrant
      liabilities
                
                
                19,867,901
                
                
                
                -
                
                
                
                19,867,901Change
      in operating assets and liabilities:Other
      receivables
                
                
                (80,180
                )
                
                
                -
                
                
                
                (80,180
                )Accounts
      payable
                
                
                (7,898
                )
                
                
                30,137
                
                
                
                58,339Other
      payables and accruals
                
                
                195,492
                
                
                
                780,383
                
                
                
                979,925Accrued
      payroll
                
                
                228,901
                
                
                
                -
                
                
                
                228,901Due
      from/to related parties
                
                
                (21,387
                )
                
                
                -
                
                
                
                21,387Net
      cash used in operating activities
                
                
                (3,066,767
                )
                
                
                (70,949
                )
                
                
                (3,153,747
                )Investing
      activities:Acquisition
      of property and equipment
                
                
                (752,183
                )
                
                
                (158,417
                )
                
                
                (950,900
                )Net
      cash used in investing activities
                
                
                (752,183
                )
                
                
                (158,417
                )
                
                
                (950,900
                )Financial
      activities:Loan
      receivable
                
                
                249,284
                
                
                
                (249,284
                )
                
                
                -Borrowing
      of convertible notes payable
                
                
                4,450,500
                
                
                
                316,437
                
                
                
                4,766,937Repayment
      of convertible notes
                
                
                (316,437
                )
                
                
                -
                
                
                
                (316,437
                )Payments
      to owners and officers
                
                
                -
                
                
                
                (22,851
                )
                
                
                20,374Capital
      contribution
                
                
                -
                
                
                
                166,011
                
                
                
                221,144Net
      cash provided by financing activities
                
                
                4,383,347
                
                
                
                210,313
                
                
                
                4,692,018Effect
      of exchange rate on cash
                
                
                1,617
                
                
                
                (5,311
                )
                
                
                (3,071
                )Net
      increase in cash
                
                
                566,014
                
                
                
                (24,364
                )
                
                
                584,300Cash,
      beginning of year
                
                
                18,286
                
                
                
                42,650
                
                
                
                -Cash,
      end of year
                
                $
                584,300
                
                
                $
                18,286
                
                
                $
                584,300Supplement
      disclosure of cash flow informationInterest
      paid
                
                
                21,008
                
                
                
                -
                
                
                
                21,008Supplement
      disclosure of non cash transactionsIssuance
      of stock for dividends
                
                $
                112,239
                
                
                $
                -
                
                
                $
                112,239Warrant
      liability incurred in connection with convertible note
                
                
                25,313,369
                
                
                
                -
                
                
                
                25,313,369Forgiveness
      of director’s fee
                
                
                771,563
                
                
                
                (0
                )
                
                
                771,563





See notes
to financial statements


38


MOQIZONE
HOLDING CORPORATION





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS




Note
1.  ORGANIZATION AND NATURE OF OPERATIONS





The
accompanying consolidated financial statements include the financial statements
of MoqiZone Holding Corporation (the “Company”), its subsidiaries of MoqiZone
Holdings Limited, a Cayman Island corporation (“MoqiZone Cayman”), MobiZone
Holdings Limited, a Hong Kong corporation (“MobiZone Hong Kong”), MoqiZone
(Shanghai) Information Technology Company Limited (“Shanghai MoqiZone”) and a
variable interest entity (“VIE”), Shenzhen Alar Technology Company Limited
(“Shenzhen Alar”).  The Company, its subsidiaries and VIE are collectively
referred to as the “Group”.  MobiZone Hong Kong operates a Chinese online
game content delivery platform company that delivers last mile connectivity to
internet cafes installed with our WiMAX equipment and which have joined into our
MoqiZone WiMAX Network.





The
Share Exchange Agreement, Reverse Merger and Reorganization





On March
15, 2009, Trestle Holdings, Inc. (the “Trestle”) entered into a Share Exchange
Agreement with MoqiZone Cayman, Cheung Chor Kiu Lawrence, the principal
shareholder of MoqiZone Cayman (“Cheung”), and MKM Capital Opportunity Fund Ltd.
(“MKM”), our principal stockholder (the “Agreement”).  MoqiZone Cayman is
the record and beneficial owner of 100% of the share capital of MobiZone Hong
Kong and MobiZone Hong Kong is the record and beneficial owner of 100% of the
share capital of Shanghai MoqiZone.





On June
1, 2009, pursuant to the Agreement, and as a result of MobiZone Hong Kong’s
receipt of $4,345,000 in gross proceeds from the financing described below, we
acquired all of the issued and outstanding capital stock of MoqiZone Cayman in
exchange for the issuance to Cheung and the other shareholders of MoqiZone
Cayman of 10,743 shares of our sought to be created Series B convertible
preferred stock.  The transaction was regarded as a reverse merger whereby
MoqiZone Cayman was considered to be the accounting acquirer as it retained
control of Trestle after the exchange and Trestle is the legal acquirer. 
The share exchange was treated as a recapitalization and, accordingly, Trestle
reclassified its common stock and additional paid-in-capital accounts for the
year ended December 31, 2008.  The Financial Statements have been prepared
as if MoqiZone had always been the reporting company and then on the share
exchange date, had changed its name and reorganized its capital
stock.





As of
August 28, 2009, our corporate name changed to from Trestle Holdings, Inc. to
MoqiZone Holding Corporation and our authorized capital increased by 10,000,000
shares of preferred stock.  Pursuant to the additional financings we closed
in August 2009 and the authority vested in our Board of Directors, we also filed
a certificate of designation of Series A preferred stock and certificate of
designation of Series B preferred stock with Delaware’s Secretary of State to
designate 15,000 of the 15,000,000 shares of preferred stock as Series A
preferred stock and 10,743 of the 15,000,000 shares of preferred stock as Series
B preferred stock.





On
August, 31, 2009, a one-for-254.5 reverse stock split became effective and
reduced outstanding shares of our common stock to 703,794 shares. 
Following the reverse stock split described and per the terms and conditions of
our share exchange, the  Series B Preferred Stock automatically (and
without any action on the part of the holders) converted (on the basis of 1,000
shares of common stock for each share of Series B Preferred Stock) into an
aggregate of 10,743,000 shares of our common stock, representing approximately
95% of our issued and outstanding shares of common stock, on a fully-diluted
basis, as at the time of conversion (but prior to the issuance of any other
equity or equity type securities).





As a
result of these transactions, our authorized capital now consists of 40,000,000
shares of common stock, 14,974,257 shares of undesignated preferred stock, whose
terms shall be determined by the board of directors at the time of issuance,
15,000 shares of Series A preferred stock, and 10,743 shares Series B preferred
stock.





Note
2.  PRINCIPAL ACCOUNTING POLICIES





(1)
            FASB
      Establishes Accounting Standards Codification
TM





In June
2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally
Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB
Accounting Standards Codification (“the Codification” or “ASC”) as the official
single source of authoritative U.S. generally accepted accounting principles
(“GAAP”). All existing accounting standards are superseded. All other accounting
guidance not included in the Codification will be considered non-authoritative.
The Codification also includes all relevant Securities and Exchange Commission
(“SEC”) guidance organized using the same topical structure in separate sections
within the Codification.





Following
the Codification, the Financial Accounting Standards Board will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASU”) which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
changes to the Codification.





The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our third-quarter
2009 financial statements and the principal impact on our financial statements
is limited to disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the Codification.  In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.


39





(2)
            Basis
      of Presentation





The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the
reporting period.  On an ongoing basis, we evaluate our estimates which are
based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances.  The result of these
evaluations forms the basis for making judgments about the carrying values of
assets and liabilities and the reported amount of expenses that are not readily
apparent from other sources.  Actual results may differ from these
estimates under different assumptions





(3)
            Development
      Stage Company


MoqiZone
Group (the “Company”) has been obtaining the requisite approvals from the
Chinese government and since inception, has not earned any revenue from
operations.  Accordingly, MoqiZone Group’s activities have been accounted
for as those of a “Development Stage Enterprise.”  Among the
disclosures required are that the financial statements be identified as those of
a development stage company, and that the statements of operations and other
comprehensive income (loss), owner’s equity and cash flows disclose activity
since the date of inception.





(4)
            Consolidation





The
consolidated financial statements include the financial statements of the
Company, its subsidiaries and VIE subsidiary for which the Company is the
primary beneficiary.  All transaction and balances among the Company, its
subsidiaries and VIE subsidiary have been eliminated upon
consolidation.





The Group
has adopted“Consolidation of Variable Interest
Entities .  This interpretation requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties.





To comply
with PRC laws and regulations that restrict foreign ownership of companies that
operate online games, the Company operates its online games mainly through
Shenzhen Alar, which is wholly owned by certain PRC citizens.  Shenzhen
Alar holds the licenses and approvals to operation line games in the
PRC.





Pursuant
to the contractual arrangements with Shenzhen Alar, MoqiZone Shanghai mainly
provides the following intra-group services to Shenzhen Alar.





·
            Gaming
      related licensing service;





·
            Software
      licensing service;





·
            Equipment
      and maintenance service;





·
            Strategic
      consulting service;





·
            Licensing
      of billing technology; and





·
            Billing
      service.





In
addition, MoqiZone Shanghai has entered into agreements with Shenzhen Alar and
its equity owners with respects to certain shareholder rights and corporate
governance matters that provide the Company with the substantial ability to
control Shenzhen Alar.  Pursuant to these contractual
arrangements:





·
            The
      equity owners of Shenzhen Alar have granted an irrevocable proxy to
      individuals designated by MoqiZone Shanghai to exercise the right to
      appoint directors, general manager and other senior management of Shenzhen
      Alar;





·
            Shenzhen
      Alar will not enter into any transaction that may materially affect its
      assets, liabilities, equity or operations without the prior written
      consent of MoqiZone Shanghai.





·
            Shenzhen
      Alar will not distribute any
dividend;





·
            The
      equity owners of Shenzhen Alar have pledged their equity interest in
      Shenzhen Alar to MoqiZone Shanghai to secure the payment obligations of
      Shenzhen Alar under all the agreements between Shenzhen Alar and MoqiZone
      Shanghai; and





·
            The
      equity owners of Shenzhen Alar will not transfer, sell, pledge or dispose
      of their equity interest in Shenzhen Alar without any prior written
      consent of MoqiZone Shanghai.


40


As a
result of these agreements, the Company is considered the primary beneficiary of
Shenzhen Alar and accordingly Shenzhen Alar’s results are consolidated in the
Company’s financial statements.





(5)
            Cash
      and cash equivalents





Cash and
cash equivalents represent cash on hand and highly liquid investment placed with
banks, which have original maturities less than three months.  Cash and
cash equivalents kept with financial institutions in the People’s Republic of
China (“PRC”) are not insured or otherwise protected.  Should any of those
insinuations holding the Company’s cash become insolvent, or the Company is
unable to withdraw funds for any reason, the Company could lose the cash on
deposit on that institution.




(6)
            Property
      and equipment





Property
and equipment are stated at cost less accumulated depreciation. 
Depreciation is computed using the straight-line method over the following
estimated useful lives:





Network
      equipment
              
              3
      yearsComputer
      equipment
              
              3
      yearsLeasehold
      improvements
              
              Lesser
      of the term of the lease or the estimated useful lives of the
      assetsFurniture
      and fixtures
              
              3
      years





(7)
            Computer
      software





Purchased
computer software for internal use is capitalized and amortized over its
estimated useful live starting when it is placed in service.





(8)
            Impairment
      of long-lived assets and intangible
assets





Long-lived
assets are reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable.  For assets that are to be held
and used, impairment is recognized when the estimated undiscounted cash flows
associated with the asset or group of assets is less than their carrying
value.  If impairment exists, an adjustment is made to write the asset down
to its fair value, and a loss is recorded as the difference between the carrying
value and fair value.  Fair values are determined based on quoted market
values, discounted cash flows or internal and external appraisals, as
applicable.  Assets to be disposed of are carried at the lower of carrying
value or estimated net realizable value.  No impairment was recognized
during the year ended December 31, 2009 and 2008.





(9)
            Derivative Financial
      Instruments





In
connection with the sale of debt or equity instruments, we may sell options or
warrants to purchase our common stock. In certain circumstances, these options
or warrants may be classified as derivative liabilities, rather than as equity.
Additionally, the debt or equity instruments may contain embedded derivative
instruments, such as embedded derivative features, which in certain
circumstances may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument
liability.




Derivative
financial instruments are recorded as liabilities in the consolidated balance
sheet, measured at fair value.  When available, quoted market prices are
used in determining fair value.  However, if quoted market prices are not
available, we estimate fair value using either quoted market prices of financial
instruments with similar characteristics or other valuation
techniques.





The
identification of, and accounting for, derivative instruments is complex. Our
derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative instrument liabilities, we estimate fair value using either
quoted market prices of financial instruments with similar characteristics or
other valuation techniques. The valuation techniques require assumptions related
to the remaining term of the instruments and risk-free rates of return, our
current common stock price and expected dividend yield, and the expected
volatility of our common stock price over the life of the option. The
identification of, and accounting for, derivative instruments and the
assumptions used to value them can significantly affect our financial
statements.





Derivative
financial instruments that are not designated as hedges or that do not meet the
criteria for hedge accounting under SFAS No. 133 are recorded at fair value,
with gains or losses reported currently in earnings.  All derivative
financial instruments we held as of December 31, 2009, were not designated as
hedges.


41





(10)
            Policy
      Revenue Recognition




Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectability is probable.
 We license a client-end software to internet cafes for them to
automatically update their client-end software on a real time basis. 
Revenue for such licensing fee is recognized on a straight-line basis over the
license period.





(11)
            Deferred
      income taxes





Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  In
addition, SFAS 109 requires recognition of future tax benefits, such as
carryforwards, to the extent that realization of such benefits is more likely
than not and that a valuation allowance be provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized.





(12)
            Foreign
      currency translation





Since the
Group operates solely in Hong Kong and the PRC, the Group’s functional currency
is the Hong Kong Dollar (“HKD”) and the Renminbi (“RMB”).  Assets and
liabilities are translated into U.S. Dollars at the exchange rates at the
end of each reporting period and records the related translation adjustments as
a component of other comprehensive income (loss).  Revenue and expenses are
translated using average exchange rates prevailing during the period. 
Foreign currency transaction gains and losses are included in current
operations.





(13)
            Comprehensive
      income (loss)





Comprehensive
income is defined to include all changes in equity except those resulting from
investments by shareholders and distributions to shareholders.  Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements.  Comprehensive income includes net income and
the foreign currency translation gain, net of tax.





(14)
            Recent
      accounting pronouncements





The
Company adopted FASB ASC 820-10 (formerly FSP FAS 157-2, “Effective
Date of FASB Statement 157”), which deferred the provisions of previously issued
fair value guidance for nonfinancial assets and liabilities to the first
fiscal period beginning after November 15, 2008. Deferred nonfinancial assets
and liabilities include items such as goodwill and other non-amortizable
intangibles. Effective January 1, 2009, the Company adopted the fair value
guidance for nonfinancial assets and liabilities. The adoption of this ASC did
not have a material impact on the Company’s Consolidated Financial
Statements.




Effective
January 1, 2009, the Company adopted FASB ASC 805-10, (formerly SFAS No.
141R, “Business Combinations”), which establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in an acquiree and the goodwill acquired.  In addition, the
provisions in this ASC require that any additional reversal of deferred tax
asset valuation allowance established in connection with fresh start
reporting on January 7, 1998 be recorded as a component of income tax
expense rather than as a reduction to the goodwill established in
connection with the fresh start reporting. The Company will apply ASC
805-10 to any business combinations subsequent to adoption.




Effective
January 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS
141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies”), which amends ASC 805-10 to require
that an acquirer recognize at fair value, at the acquisition date, an asset
acquired or a liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value of
such an asset acquired or liability assumed cannot be determined, the acquirer
should apply the provisions of ASC Topic 450, Contingences, to determine whether
the contingency should be recognized at the acquisition date or after such date.
The adoption of ASC 805-20 did not have a material impact on the
Company’s Consolidated Financial Statements.




Effective
January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements — an amendment of
ARB No. 51), which amends previously issued guidance to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity.
Among other requirements, this Statement requires that the consolidated net
income attributable to the parent and the non-controlling interest be clearly
identified and presented on the face of the consolidated income statement. 
The adoption of the provisions in this ASC did not have a material impact on the
Company’s Consolidated Financial Statements.




Effective
January 1, 2009, the Company adopted FASB ASC 815-10-65 (formerly SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities”), which
amends and expands previously existing guidance on derivative instruments to
require tabular disclosure of the fair value of derivative instruments and their
gains and losses. This ASC also requires disclosure regarding the credit-risk
related contingent features in derivative agreements, counterparty credit risk,
and strategies and objectives for using derivative instruments. The adoption of
this ASC did not have a material impact on the Company’s Consolidated Financial
Statements.


42


Effective
January 1, 2009, the Company adopted FASB ASC 350-30 and ASC 275-10-50 (formerly
FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets:), which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company will
apply ASC 350-30 and ASC 275-10-50 prospectively to intangible assets acquired
subsequent to the adoption date. The adoption of these revised provisions did
not have a material impact on the Company’s Consolidated Financial
Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FSP FAS 107-1 and
Accounting Principles Board 28-1, Interim Disclosures about Fair Value of
Financial Instruments), which amends previous guidance to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. The
adoption of FASB ASC 825-10-65 did not have a material impact on the Company’s
Consolidated Financial Statements.





Effective
July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and
FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments).
Under ASC 320-10-65, an other-than-temporary impairment must be recognized
if the Company has the intent to sell the debt security or the Company is more
likely than not will be required to sell the debt security before its
anticipated recovery. In addition, ASC 320-10-65 requires impairments related to
credit loss, which is the difference between the present value of the cash flows
expected to be collected and the amortized cost basis for each security, to be
recognized in earnings while impairments related to all other factors to be
recognized in other comprehensive income. The adoption of ASC 320-10-65 did not
have a material impact on the Company’s Consolidated Financial
Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly), which provides guidance on how to determine the fair
value of assets and liabilities when the volume and level of activity for the
asset or liability has significantly decreased when compared with normal market
activity for the asset or liability as well as guidance on identifying
circumstances that indicate a transaction is not orderly. The adoption of ASC
820-10-65 did not have a material impact on the Company’s Consolidated Financial
Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 855-10 (formerly SFAS No. 165,
“Subsequent Events”), which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. Adoption of ASC
855-10 did not have a material impact on the Company’s Consolidated Financial
Statements.




In
December 2008, the FASB issued ASC 715, Compensation – Retirement Benefits
(formerly FASB FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement
Benefit Plan Assets”), which expands the disclosure requirements about plan
assets for defined benefit pension plans and postretirement plans. The adoption
of these disclosure requirements did not have any material effect on the
Company’s Consolidated Financial Statements.




In
August, 2009, the FASB issued ASC Update No. 2009-05 to provide guidance on
measuring the fair value of liabilities under FASB ASC 820 (formerly SFAS No.
157, “Fair Value Measurements”).  The adoption of this Update did not have
any material effect on the Company’s Consolidated Financial
Statements





Note
3.  GOING CONCERN




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has sustained a loss since
inception of approximately $24,671,816 and has generated little revenues from
operations since inception. In addition, the Company has a stockholders’ deficit
of approximately $24,324,000 as of December 31, 2009. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern.  The accompanying financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.




Note
4.  DUE FROM/TO RELATED PARTIES





The
amounts are due from/to the directors, officers of MoqiZone Group and the
companies being controlled by them, are non-interest bearing and are due on
demand.




Note
5. ACQUISTION OF NETCAFE FARMER





Netcafe
Farmer





On
December 21, 2009, we acquired a client-end software called Netcafe Farmer. This
acquisition was accounted for under the acquisition method of accounting. 
The cost of the acquisition was approximately US$95,000 (or RMB650,000) and is
being amortized over its estimated useful life. Proforma results of operations
as if the acquisitions occurred at the beginning of the periods included in the
financial statements are not presented as they would be immaterial. By
acquiring Netcafe Farmer, the Company also recruited Mr. Liu Qian and his
development team of 4 people. Their incremental salary is approximately
US$75,500 (or RMB516,000) per annum.


43


Note
6.  LOAN RECEIVABLE





The loan
receivable is non-interest bearing and has been received in 2009.




Note
7.  PROPERTIES AND EQUIPMENT





Property
and equipment and its related accumulated depreciation as of December 31, 2009
and 2008 are as follows:





2009
                
                
                2008Computers
      and related equipment
                
                
                601,387
                
                
                
                40,969Office
      equipment
                
                
                40,639
                
                
                
                368Software
                
                
                291,514
                
                
                
                157,380Furniture
      and fixtures
                
                
                17,360
                
                
                
                -950,900
                
                
                
                198,717Less:
      accumulated depreciation
                
                
                (51,653
                )
                
                
                -Net
      book value
                
                
                899,247
                
                
                
                198,717





Note
8.  CONVERSION OF CONVERTIBLE NOTES





Upon
effectiveness of the Reverse Split on August 31, 2009, each $1,000 principal
amount of Notes (see Note 1) was automatically cancelled and exchanged for one
share of Series A Preferred Stock.  Since we sold a total of 494.5 Units,
upon exchange of the Notes, a total of 4,945 shares of Series A Preferred Stock
were issued, which were convertible into an aggregate of 2,747,222 shares of
common stock, subject to anti-dilution and other adjustments as provided in
the Series A Preferred Stock Certificate of Designations.





We raised
a total of $4,945,000 from 11 accredited investors from the Financings after
repayment of the Convertible Notes.  As a result of the Financings, we
issued a total of approximately 494.5 Units of securities each consisting of (a)
the Notes, (b) the Class A Warrants, and (c) the Class B Warrants. 
Pursuant to the sale of approximately 494.5 Units, we issued an aggregate of
approximately $4,945,000 of Notes, Class A Warrants to purchase up to 1,373,614
shares of common stock and Class B Warrants to purchase up to 1,373,614 of
common stock.  The net proceeds from the Financings are to be used for
working capital and general corporate purposes.  We are obligated to file a
registration statement within 150 days of the second closing, providing for the
resale of the shares of common stock underlying the securities issued pursuant
to the Financings.





In
connection with the June 1 Financing and August 11 Financing, we granted
warrants to purchase up to 582,779 shares of common stock respectively to
Tripoint Global Equities, LLC, the placement agent or its designees.  These
warrants have the same terms as the warrants issued to Investors and included
in the Units.  The placement agent received a total of 582,779
warrants to purchase up to 582,779 shares of our common stock from the
Financing. These warrants have the same terms as the warrants issued to
Investors and included in the Units.





For a
more complete description of the terms of the Notes, the Class A Warrants, Class
B Warrants, and the Series A Preferred Stock, please see the section
entitled“Description of Securities ” in
our June 1, 2009 Current Report on Form 8-K.





Following
the Reverse Stock Split and the automatic conversion of the Series B preferred
stock issued under the Share Exchange Agreement to the MoqiZone Cayman
shareholders into Series B Conversion Shares:





·
            all
      of the issued and outstanding Notes have been, by their terms be deemed
      cancelled;





·
            all
      interest accrued on the Notes (at the rate of 8% per annum) from the date
      of issuance to the date of cancellation will be paid, at the Company’s
      option, in cash or in a shares of Trestle common stock valued at $1.80 per
      share;





·
            each
      $1,000 principal amount of cancelled MobiZone Hong Kong Note has been
      exchanged for one share of Series A Preferred Stock, $0.001 par value per
      share.  The Series A Preferred Stock (i) a liquidation value of
      $1,000 per share, (ii) vote, together with the Trestle common stock, on an
      “as converted basis”, and (iii) are convertible, at any time after
      issuance, at the option of the holder, into shares of the Company’s common
      stock at a conversion price of $1.80 per share, subject to customary
      adjustments, including weighted average anti-dilution
      protection.




Pursuant
to the terms of the Financing, the Company has agreed to cause (i) the maximum
number of shares of Moqizone common stock issuable upon conversion of all shares
of Series A Preferred Stock and (ii) the maximum number of Class A Warrant
Shares and Class B Warrant Shares to be registered for resale under the
Securities Act of 1933, as amended, pursuant to a registration rights agreement,
which providesinter
alia  that Moqizone shall file a registration statement for the
Registrable Shares within 30 days after the completion of the Reverse Stock
Split and cause the registration statement to become effective within 150 days
after the completion of the Reverse Stock Split or 180 days in the event of a
full review by the SEC.  If Moqizone does not comply with the foregoing
obligations under the registration rights agreement, it will be required to pay
cash liquidated damages to Investors, at the rate of 2% of the $10,000 offering
price of each Unit sold in the offering ($200.00) for each 30 day period after
the Registration Date that such Registrable Shares have not be registered for
resale under the Securities Act of 1933, as amended; provided that, such
liquidated damages shall not exceed $1,000 per Unit sold in the offering (a
minimum of $400,000 and a maximum of $800,000); provided, however, that such
liquidated damages shall not apply to any Registrable Shares that are subject to
an SEC comment with respect to Rule 415 promulgated under the Securities Act of
1933, as amended


44


In
addition, in the event the Company’s revenues for the year ending December 31,
2010 shall equal or exceed $21,560,000, the management shareholders of MoqiZone
Cayman shall be issued warrants to purchase up to 900,000 additional shares of
the Company’s common stock at an exercise price of $1.80 per share, exercisable
for a period of three years.





Under the
terms of the Share Exchange Agreement, all of the shareholders of MoqiZone
Cayman who are members of our senior management have deposited in an escrow
account an aggregate of 900,000 shares of the Company’s common stock. 
These shares (the “Performance Shares”) will be delivered to the management
group shareholders only in the event that the Company achieves certain
performance targets over the twelve consecutive months commencing July 1, 2009
and ending June 30, 2010 (the “Measuring Period”).  If $6,000,000 or more
raised in the Financing, then: (i) in the event that we realize at least
$19,171,000 (the “Target Revenue”) of revenues by the end of the Measuring
Period, all of the Performance Shares will be released to the management group,
and (ii) in the event that less than the Target Revenue is realized by the end
of the Measuring Period, a pro-rata portion of the Performance Shares shall be
distributed to the purchasers of the Units offered hereby, based upon 0.2347
Performance Shares for each USD $1.00 that the actual revenues achieved by the
end of the Measuring Period shall be less than the Target Revenue, or 45,000
Performance Shares for each 1% of $19,171,000 ($191,710) by which the actual
revenues shall be less than the Target Revenue. If less than $6,000,000 is
raised in the Financing, then: (i) in the event that we realize at least
$10,450,000 (the “Lower Target Revenue”) in reported revenues by the end of the
Measuring Period, all of the Performance Shares will be released to the
management group and (ii) in the event that less than $10,450,000 of reported
revenues are realized by the end of the twelve month Measuring Period, a
pro-rata portion of the Performance Shares shall be distributed to the
purchasers based upon 0.4306 Performance Shares for each USD $1.00 that the
actual revenues achieved by the end of the Measuring Period shall be less than
the Lower Target Revenue, or 45,000 Performance Shares for each 1% of
$10,450,000 ($104,500) by which the actual revenues shall be less than the Lower
Target Revenue. As we only raised $5,245,000 which is less than $6,000,000 from
our Financings, the Lower Target Revenue scenario will be
applicable.





The
Performance Warrants





Certain
of the members of our senior management will be, under the terms of the Share
Exchange Agreement, entitled to receive three year warrants to purchase 900,000
shares of Trestle common stock, exercisable at $1.80 per share (the “Performance
Warrants”) in the event that our audited net income as of the date that is 24
months after the Final Closing of the Financings shall equal or exceed
$21,560,000, assuming that we complete this Offering with the sale of at least
600 Units for $6,000,000.  If however, we complete the Offering for an
aggregate amount less than $6,000,000, than such persons shall only be entitled
to receive the Performance Warrants in the event that our audited net income as
of the date that is 24 months after the Final Closing of the Financing equals or
exceeds $5,000,000.





Note
9.  WARRANT LIABILITY





As
described in Note 8 (Conversion of Convertible Notes), we issued a total of
approximately 494.5 Units of securities each consisting of (a) the Notes, (b)
the Class A Warrants, and (c) the Class B Warrants.  Pursuant to the sale
of approximately 494.5 Units, we issued an aggregate of approximately $4,945,000
of Notes, Class A Warrants to purchase up to 1,373,614 shares of common stock
and Class B Warrants to purchase up to 1,373,614 of common stock will be
issued.  The Class A warrants have an exercise price of $2.50 per share
with a three year term and the Class B warrants have an exercise price of $3.00
per share with a three year term.




In
connection with the June 1 Financing and August 11 Financing, we granted
warrants to purchase up to 582,779 shares of common stock respectively to
Tripoint Global Equities, LLC, the placement agent or its designees.  These
warrants have the same terms as the warrants issued to Investors and included in
the Units and have exercise prices of between $1.80 and $3.00 per
share.





The Class
A, Class B and Placement Agent warrants (“Warrants”) have an initial exercise
price which is subject to adjustments in certain circumstances for stock splits,
combinations, dividends and distributions, reclassification, exchange or
substitution, reorganization, merger, consolidation or sales of assets, issuance
of additional shares of common stock or equivalents.





Accounting
for Warrants





The
Warrants are entitled to a price adjustment provision that allows the price of
the Warrants to be reduced in the event the Company issues any additional shares
of common stock at a price per share less than the then-applicable warrant
price, The Company determined that the Warrants meet the definition of a
derivative under ASC Topic 815,Derivatives and Hedging “ASC
Topic 815”). In determining whether the Warrants were eligible for a scope
exception from ASC Topic 815, the Company considered the provisions of ASC Topic
815-40 (Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock ). The Company
determined that the Warrants do not meet a scope exception because they are not
deemed indexed to the Company’s own stock.   Pursuant to ASC Topic
815, derivatives should be measured at fair value and re-measured at fair value
with changes in fair value recorded in earnings at each reporting
period.





Fair
Value





Fair
value is generally based on independent sources such as quoted market prices or
dealer price quotations. To the extent certain financial instruments trade
infrequently or are non-marketable securities, they may not have readily
determinable fair values. The Company estimated the fair value of the Warrants
and Series A preferred stock using various pricing models and available
information that management deems most relevant. Among the factors considered in
determining the fair value of financial instruments are discounted anticipated
cash flows, the cost, terms and liquidity of the instrument, the financial
condition, operating results and credit ratings of the issuer or underlying
company, the quoted market price of similar traded securities, and other factors
generally pertinent to the valuation of financial instruments.


45


Warrant
Liability





The
warrants that each investor received as a result of our Financing and conversion
of the convertible notes (see Note 10for additional details)
contained a down round protection if the company sells or issue shares at a
price per share less that the then-applicable warrant price.  As such and
in accordance with the accounting guidelines, we valued the warrants as a
derivative financial instrument and the corresponding liabilities were entered
onto our consolidated balance sheet, measured at fair value.  The Company
determined the fair value of the warrants as follows as of August 31, 2009
(effective issuance date).





The
Company used the Black-Scholes option-pricing model with the following
assumptions: an expected life equal to the contractual term of the warrants
(three years), underlying stock price of $5.09 (as at August 31, 2009 –
effective date of conversion), no dividends; a risk free rate of 1.49% which
equals three -year yield on Treasury bonds at constant (or fixed) maturity (for
those warrants with an effective issue date of August 31); and volatility of
55.24%. Under the assumptions, the Black-Scholes option pricing model yielded an
aggregate value of approximately $9,968,597.





The
Company performed the same calculations as of December 31, 2009, to revalue the
warrants as of that date.  In using the Black Scholes option-pricing model,
the Company used an underlying stock price of $10.00 per share; no dividends; a
risk free rate of 1.7% which equals three-year yield on Treasury bonds at
constant (or fixed) maturity (for those warrants with an effective issue date of
August 31); and volatility of 57.77% The resulting aggregate allocated value of
the warrants as of December 31, 2009 equaled approximately $25,313,000.
 The change in fair value of approximately $19,868,000 was recorded for the
year ended December 31, 2009.





Upon the
earlier of the warrant exercise or the expiration date, the warrant liability
will be reclassified into shareholders’ equity.  Until that time, the
warrant liability will be recorded at fair value based on the methodology
described above.  Liquidated damages under the registration rights
agreement will be expensed as incurred and will be included in operating
expenses.





Note
10.  ACCOUNTING FOR SERIES A PREFERRED STOCK





The
management has adopted FASB ASC 480-10, “S99 SEC Materials”. Under this rule,
ASR 268 requires equity instruments with redemption features that are not solely
within the control of the issuer to be classified outside of permanent equity.
As there was no redemption provision attached to Series A Preferred Stock, it
has been classified as permanent equity.





The
management has also adopted FASB ASC 815-15-25-1. It requires that an embedded
derivative shall be separated from the host contract and accounted for as a
derivative if and only if all of the following three criteria are met: a. the
economics characteristics and risks of the embedded derivative are not clearly
and closely related to the economics characteristics and risks of the host
contract. b. The hybrid instrument is not remeasured at fair value under
otherwise applicable GAAP with changes in fair value reported in earnings as
they occur. c. A separate instrument with the same terms as the embedded
derivative would be a derivative instrument subject to the requirements of
section 815-10-15. Additionally, under FASB ASC 815-15-25-16 through FASB ASC
815-15-25-18, if the host contract encompasses a residual interest in an entity,
then its economic characteristics and risks shall be considered that of an
equity instrument and an embedded derivative would need to possess principally
equity characteristics (related to the same entity) to be considered clearly and
closely related to the host contract. Given the fact that the Series A
Preferred Stock encompasses a residual interest in the company and it is related
to the company itself,  the conversion feature is clearly and closely
related to the host instrument. Thus, the embedded conversion feature in Series
A preferred stock should not be account as a derivative
instrument.





Equity
instruments that contain a beneficial conversion feature are recorded as a
deemed dividend to the holders of the convertible equity instruments. The deemed
dividend associated with the beneficial conversion is calculated as the
difference between the fair value of the underlying common stock less the
proceeds that have been received for the equity instrument limited to
the value received. The beneficial conversion amount is recorded as a
reduction on the carrying value of the equity instrument and an increase to
additional paid-in-capital.





In the
case the conversion of the convertible note, the fair market value of the
warrant liability exceeded the cash raised in the financings and therefore the
residual value assigned to the Preferred Stock was nil.  As such, the
financing was not deemed to have beneficial conversion feature and any value
assigned to a beneficial conversion was deemed to be zero.





Note
11.   PREFERRED STOCK DIVIDENDS





On
December 31, 2009, the board of directors passed a resolution to issue 62,355
shares of our common stock as dividends to the holders of our Series A
Convertible Preferred Stock.  The number of shares issued was calculated at
a rate of 8% per annum (subject to a pro rata adjustment) of the liquidation
preference amount payable in shares equal to (i) the dividend payment divided by
(ii) $1.80.  As such, the shares were valued at approximately $112,239 and
the total aggregate value of the transaction was recorded as a preferred
stock dividend.





Preferred
Stock Dividends Issued on December 31, 2009





Date
                
                Preferred
      Stock
                
                
                Common
      Shares Issued
                
                
                Dividend
      Value12/31/2009
                
                Series
      A
                
                
                
                62,355
                
                
                $
                112,239


46


Note
12.  INCOME TAX/SALES TAX




Under the
current laws of the Cayman Islands, we are not subject to tax on income or
capital gains.  In addition, payment of dividends by us is not subject to
withholding tax in the Cayman Islands.





Under the
current Hong Kong Inland Revenue Ordinance, MobiZone Hong Kong is subject to
16.5% income tax on its taxable income generated from operations in Hong
Kong.  Additionally, payments of dividends by MobiZone Hong Kong to us are
not subject to any Hong Kong withholding tax.





With the
introduction of the EIT Law, China has resumed imposition of a withholding tax
(10.0% in the absence of a bilateral tax treaty or new domestic regulation
reducing such withholding tax rate to a lower rate).  As Mobizone Hong Kong
is the sole shareholder of Shanghai MoqiZone, the dividends from Shanghai
MoqiZone may be taxed at a reduced withholding tax rate of 5% per the Double Tax
Avoidance Arrangement between Hong Kong and Mainland China.





Our PRC
companies are subject to PRC business tax. We primarily pay business tax on
gross revenues generated from online game operations, rentals, service fees and
license fees.  Our PRC operating companies pay business tax on their gross
revenues derived from online game operations at a rate ranging from 3% to 5%,
and this business tax is deducted from total revenues.  In addition, our
PRC subsidiaries pay a 5% business tax on the gross revenues derived from their
contractual arrangements with our PRC operating companies, and these taxes are
primarily recorded in operating expenses in accordance with our accounting
policy.





As of
December 31, 2009, we have a deferred tax asset of approximately US$721,000,
resulting from available net operating loss carryforwards on a financial
reporting basis for which a 100% valuation has been applied.




Note
13.  CONCENTRATION OF CREDIT RISK





Financial
instruments that potentially subject the Group to significant concentrations of
credit risk consist primarily of cash and cash equivalents and prepayments and
other current assets.  As of December 31, 2009 and 2008 substantially
all of the Group’s cash and cash equivalents were held by major financial
institutions located in the PRC and in Hong Kong, which management believes are
of high credit quality.





Note
14.  COMMITMENTS AND CONTIGENCIES





Operating
lease agreements





The
Company has entered into leasing arrangements relating to office premise and
computer equipment that are classified as operating lease.  Future
minimum lease payments for non-cancelable operating leases as of December 31,
2009 are as follows:





2010
                    
                    $
                    66,016




Legal
Contingencies





In
January 2009, Shanghai Moqizone entered into an Exclusive Business Cooperation
Agreement and certain ancillary agreements, including an Equity Pledge
Agreement, Exclusive Option Agreement, Loan Agreement and Irrevocable Power of
Attorney with SZ Mellow.  This arrangement was necessary as a foreign owned
company, such as Moqizone, cannot directly hold an ISP license in China, As a
result, similar VIE arrangements, whereby the ISP license is held by a
domestically owned Chinese company but the operations are directed by the
foreign owned entity, are common.  Pursuant to our agreement with SZ
Mellow, we had a right to direct and control the management of SZ Mellow and an
option to purchase the equity of SZ Mellow in the event that Chinese law
permits such acquisition. Following our successful capital raise and entry to
the U.S. capital markets, the Chinese shareholders of SZ Mellow, who are also
parties to the VIE agreements between Moqizone and SZ Mellow refused to
cooperate with management of Moqizone and demanded additional consideration
beyond what was set forth in the existing agreements.





Management’s
position is that the shareholders were acting in contravention of the existing
VIE agreements and consulted legal counsel with regard to potential
remedies.  On September 21, 2009, we served SZ Mellow and their respective
shareholders a demand letter pursuant to the VIE Agreement demanding, amongst
other things, the return of approximately US$117,647 (RMB800,000), certain
computer equipment and also provided a 30 day notice  to terminate VIE
agreement. As of December 31, 2009, we have not had any response from the
shareholders of the SZ Mellow in relation to our demands. We have been advised
that the serving of the 30 day notice is sufficient to terminate the VIE
Agreement between the Company and SZ Mellow.  Accordingly, The SZ Mellow
Agreements were terminated at the expiry of the 30-day notice on October 20,
2009. The Company is considering taking legal action against the SZ Mellow and
the shareholders of SZ Mellow in order to enforce our further
demands.


47


Note
15.  SUBSEQUENT EVENTS





We
completed a private equity financing of $1,956,200 on March 29, 2010, with 7
accredited investors. Net proceeds from the offering, are approximately
$1,760,400. Pursuant to the financing, we issued a total of 869,422 units of our
securities at $2.25 per unit. Each Unit consists of (i) one (1) share of the
Company’s Series C Convertible Preferred Stock, par value $0.001 per share
(the “Preferred Shares”), convertible into one share of the Company’s common
stock, par value $0.001 per share (the “Common Stock”), and (ii) a Series C
Warrant (the “Series C Warrant”) and Series D Warrant (the “Series D Warrant”),
collectively the “Warrants”), with the total amount of Warrants of each Series
exercisable to purchase that number of shares of Common Stock as shall be equal
to fifty percent (50%) of the number of Units purchased in the Offering. Each of
the Warrants has a term of three (3) years.





In
connection with this financing, we paid cash compensation to a placement agent
in the amount of approximately $196,000. We also granted warrants to purchase up
to 86,942 shares of common stock, Series C Warrants to purchase up to 43,471
shares of common stock and Series D Warrants to purchase 43,471 shares of common
stock to the placement agent or its designees. These warrants have the same
terms as the warrants issued to Investors that are included in the
Units.





We have
evaluated events after the date of these financial statements through April 14,
2010, the date that these financial statements were issued.  There were no
other material subsequent events as of that date.





Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.





Effective
August 13, 2009, we dismissed our principal accountant and the client-auditor
relationship between us and Goldman Parks Kurland Mohidin (“GPKM”) ceased. 
On that same day, we engaged Paritz & Company, PA (‘Paritz”) as our
principal independent accountant.  We do not have an audit committee, but
our Board approved changing our auditors.  GPKM served as our independent
public accountant from 2006 to the date of their dismissal.  The GPKM’s
audit reports for our past two fiscal years did not contain an adverse opinion
or disclaimer of opinion, or qualification or modification as to uncertainty,
audit scope, or accounting principles.





During
the two most recent fiscal years ended December 31, 2008 and 2007 and in the
subsequent interim periods through the date of dismissal – August 13, 2009,
there were no disagreements with GPKM on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of GPKM would have caused GPKM to
make reference to the matter in their report.





Paritz
reviewed the financial balance sheet of Trestle Holdings, Inc. as of June 30,
2009 and the related statements of operations and comprehensive income,
stockholders’ equity, and cash flows for the six months ended June 30, 2009.
Other than the aforementioned review and report, during our two most recent
fiscal years and the subsequent interim periods prior to engaging Paritz on
August 13, 2009, we have not previously consulted with Paritz regarding either
(i) the application of accounting principles to a  specified
transaction, either completed or proposed; or (ii) the type of audit opinion
that might be rendered on our financial statements; or (iii) any matter that was
either the subject matter of a disagreement (as defined in Item 304(a)(1)(iv) of
Item 304 of Regulation S-K and the related instructions to that item) between us
and GPKM, as there were no such disagreements, or another reportable event (as
defined in Item 304(a)(1)(v) of Regulation S-K) during our two most recent
fiscal years and any later interim period; we also have not received any written
report or any oral advice concluding that there was an important factor to be
considered by us in reaching a decision as to an accounting, auditing, or
financial reporting issue.





In
connection with Paritz audit, we requested that they review the disclosure
contained above and provided them with an opportunity to furnish us with a
letter addressed to the Commission containing any new information, clarification
of our views expressed above or the respects in which they do not agree with our
statements above. Paritz informed us that no such letter is
necessary.





We
provided GPKM with a copy of the disclosures in this Report and requested that
GPKM furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not GPKM agrees with the statements in this Item
4. A copy of the letter dated August 13, 2009 furnished by GPKM in response to
that request was filed as Exhibit 16 to the 8-K which was filed on August 13,
2009.





Item
9A.  Controls and Procedures.




(a) Evaluation of Disclosure Controls
and Procedures




We
maintain disclosure controls and procedures designed to provide reasonable
assurance that material information required to be disclosed by us in the
reports we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that the information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. We performed an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined by Rule 240.13a-15(e) or
15d-15(e) of the Exchange Act Rule 13a-15) as of the end of the period covered
by this report. Based on this evaluation, our Chief Executive Officer and our
Acting Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in ensuring that information required to be disclosed
in reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
by the Securities and Exchange Commission, and are effective in providing
reasonable assurance that information required to be disclosed by the Company in
such reports is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Acting Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.


48


We do not
expect that our disclosure controls and procedures will prevent all errors and
all instances of fraud. Disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the disclosure controls and procedures are met. Further,
the design of disclosure controls and procedures must reflect the fact that
there are resource constraints, and the benefits must be considered relative to
their costs. Because of the inherent limitations in all disclosure controls and
procedures, no evaluation of disclosure controls and procedures can provide
absolute assurance that we have detected all our control deficiencies and
instances of fraud, if any. The design of disclosure controls and procedures
also is based partly on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future
conditions. Over time, control may become inadequate because of changes in
conditions, or because the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.




(b)
Management’s Annual Report on Internal Control over Financial
Reporting




The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act and for assessing the effectiveness of internal
control over financial reporting.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness of internal control over financial reporting to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.




Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009.  In making its assessment of internal
control over financial reporting, management used the criteria established in
Internal Control — Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission.  This assessment
included an evaluation of the design of the Company’s internal control over
financial reporting and testing of the operational effectiveness of those
controls.





Based on
the results of this assessment, management had originally concluded that
the Company’s internal control over financial reporting was effective as of
December 31, 2009. However, as a result of recent SEC comments on management’s
inability to properly file our Form 10K with proper signatures, Management
reviewed its original conclusions and, based on this review, now believes that
it has identified a material weakness.   A material weakness is a
control deficiency, or combination of control deficiencies, that results in a
more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.





Per Rule
13a-15(e), disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by the
issuer in the reports that it files or submits is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Act is
accumulated and communicated to the issuer's management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.





Management
has now determined that it does not believe that we have sufficient
documentation of our existing financial processes, risk assessment and internal
controls. As a result, we were unable to properly file Form 10-K with all
required signatures.  We believe that this constitutes a material
weakness in the effectiveness of internal control over financial reporting as of
December 31, 2010.We plan to work closely with external
financial advisors to document the existing financial processes, risk assessment
and internal controls systematically in order to correct this
weakness.




This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.





(c)
Changes in Internal Control over Financial Reporting




Management
has also identified a significant deficiency; a significant deficiency is a
deficiency, or a combination of deficiencies, that is less severe than a
material weakness, yet important enough to merit attention by those responsible
for oversight of the registrant’s financial reporting. Currently we do
not have sufficient in-house expertise in US GAAP reporting. Instead, we
rely very much on the expertise and knowledge of external financial advisors in
US GAAP conversion. External financial advisors have helped prepare and review
the consolidated financial statements. Although we have not identified any
material errors with our financial reporting or any material weaknesses with our
internal controls, no assurances can be given that no such material errors or
weaknesses exist. To remediate this situation, we are seeking to recruit
experienced professionals to augment and upgrade our financial staff to address
issues of timeliness and completeness in US GAAP financial reporting. In
addition and as discussed above, we do not believe we have sufficient
documentation with our existing financial processes, risk assessment and
internal controls. We plan to work closely with external financial advisors to
document the existing financial processes, risk assessment and internal controls
systematically.





We
believe that the remediation measures we are taking, if effectively implemented
and maintained, will remediate the significant deficiency discussed
above.


49


Except as
described above, there were no changes in the Company’s internal control over
financial reporting that occurred during the fourth quarter of the year ended
December 31, 2009 that have materially affected, or that are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.





Item
9B.  Other Information.





None





PART III




Item
10.  Directors, Executive Officers and Corporate Governance.




The
following table and text set forth the names and ages of all directors and
executive officers, as well as some of our significant employees – who are not
executive officers, but who are expected to make significant contributions to
our business, as of the date of this filing, April 15, 2009. The Board of
Directors is comprised of only one class. All of the directors will serve until
the next annual meeting of shareholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal.
To date we have not had an annual meeting. There are no
family relationships among our directors and executive officers; however,
our Vice President of Sales and Marketing, Leo Cheung is Lawrence Cheung’s, our
CEO, brother.  Also provided herein are brief descriptions of the business
experience of each director, executive officer and advisor during the past
five years and an indication of directorships held by each director in other
companies subject to the reporting requirements under the Federal securities
laws.





In
connection with the Share Exchange, Mr. Stoppenhagen resigned as our Interim
President, CEO and CFO as of June 5, 2009; each of our directors tendered their
resignation as one of our directors on that same day. Our Board of Directors
appointed Cheung Chor Kiu Lawrence (Lawrence Cheung) to serve as our Chief
Executive Officer and become one of our board members effective
immediately.  Messrs. Benjamin Chan was nominated to serve as our
directors with such appointment to be effective on June 19, 2009. Mr. Paul Lu
was appointed as our director on November 3, 2009.





Name
                
                Age
                
                PositionLawrence
      Cheung
                
                42
                
                Chairman
      of the Board of Directors, Chief Executive OfficerBenjamin
      Chan
                
                36
                
                Director,
      Company Secretary, Vice President of FinancePaul
      Lu
                
                45
                
                DirectorSam
      Huang
                
                57
                
                Chief
      Technology OfficerLeo
      Cheung
                
                37
                
                Vice
      President of Sales and MarketingQi
      Sun
                
                46
                
                Consultant of
      Internet café Channel DevelopmentCalvin
      Ng
                
                36
                
                Vice
      President of System and Information ControlQing
      Guo Wu
                
                42
                
                Vice
      President of Government RelationshipsVivian
      Qian
                
                39
                
                Financial
      ControllerChris
      Wong
                
                37
                
                Business
      Strategist





Lawrence Cheung,
the Chairman of the Board and Chief Executive Officer. Mr. Lawrence
Cheung is one of the founders of MobiZone Hong Kong in 2007 and since then has
been acting as the director of MobiZone Hong Kong. Mr. Cheung is an expert
in online entertainment business in China with extensive senior management
experience including successful IPO of Gamania, the top online game company in
Taiwan. He served as COO for Gamania Digital Entertainment Ltd in 2002 and
founded MobiChannel Ltd subsequently. Mr. Cheung also pioneered the first
interactive TV company and foreign ISP in Shanghai to deliver video online in
1998. Prior to becoming an entrepreneur, Mr. Cheung had worked as Finance
Director of J Walter Thompson Advertising Ltd. in 1996 and Audit Manager at
KPMG Shanghai since 1994. He has a BSC with honors from University of Bradford,
England, and 3 years Chartered Accountants Training in England
(ICAEW).





During
the last five years, Mr. Cheung did not hold directorship in any other public
companies. During the past 10 years, Mr. Cheung has not been involved in any of
the following types of legal proceedings: (a) any judicial or administrative
proceedings resulting from involvement in mail or wire fraud or fraud in
connection with any business entity; (b) any judicial or administrative
proceedings based on violations of federal or state securities, commodities,
banking or insurance laws or regulations, or any settlement to such actions; or
(c) any disciplinary sanctions or orders imposed by a stock, commodities or
derivatives exchange or other self regulatory organization.





Benjamin Chan,
Director, Company Secretary and Vice President of Finance.  Mr.
Benjamin Chan is one of the founders of MobiZone Hong Kong. Mr. Chan is
responsible for the finance of the Company.  He joins the Board with a
strong legal background.  He is a qualified Australian barrister and
solicitor and has practiced in the telecom media and technology sector. His
professional highlights include the successful tendering of the first pay
television broadcasting license in Hong Kong as well as involving into many
other local listing activities.  He was also a corporate consultant for
various listed companies in Hong Kong from 2000 to 2003. During 2003 to present,
Mr. Chan operates various successful businesses including IT solution providers,
IT equipment trading, medical business manufacturing as well as the current
MoqiZone operations. Mr. Chan holds a Bachelor of Commerce Degree, majoring in
finance and account, and a Bachelor of Laws Degree from the University of
Melbourne, Victoria, Australia.


50





During
the last five years, Mr. Chan did not hold directorship in any other public
companies. During the past 10 years, Mr. Chan has not been involved in any of
the following types of legal proceedings: (a) any judicial or administrative
proceedings resulting from involvement in mail or wire fraud or fraud in
connection with any business entity; (b) any judicial or administrative
proceedings based on violations of federal or state securities, commodities,
banking or insurance laws or regulations, or any settlement to such actions; or
(c) any disciplinary sanctions or orders imposed by a stock, commodities or
derivatives exchange or other self regulatory organization.





Paul Lu,
Director.  Mr. Paul Lu is a certified public accountant in the
United States. He is also an independent director of Astro Corp., a company
listed on the Taiwan Stock Exchange under the stock code: 3064. In addition, Mr.
Lu is a director of Bright International Group Limited, a company listed on the
Hong Kong Stock Exchange under the stock code: 1163; the chairman and director
of Green Power (Baoding) Limited, a business involved in renewable energy; and,
he is a managing director of Twin Oaks Capital LLC. Previously, Mr. Lu also
worked as an audit manager at the US firm Koo Chow & Co, CPA.
Accordingly, Mr. Lu has extensive experience in accounting and financial
management. Mr. Lu holds a Master in Business Administration degree from
California State University at Los Angeles.





During
the past 10 years, Mr. Lu has not been involved in any of the following types of
legal proceedings: (a) any judicial or administrative proceedings resulting from
involvement in mail or wire fraud or fraud in connection with any business
entity; (b) any judicial or administrative proceedings based on violations of
federal or state securities, commodities, banking or insurance laws or
regulations, or any settlement to such actions; or (c) any disciplinary
sanctions or orders imposed by a stock, commodities or derivatives exchange or
other self regulatory organization.





Sam Huang. Chief
Technology Officer.  Mr. Huang is one of the founders of MobiZone
Hong Kong. Mr. Huang has been involved in MobiTech and MobiZone Hong Kong since
2005 together with Lawrence Cheung and is currently in charge of our technology
development department, MoqiZone WiMAX Network operations as well as our gaming
platform development. Prior to joining the MoqiZone group, Mr. Huang was
formerly CTO of Beijing Quantum Limited deploying 3.5GHz WiMAX technology and
has over 20 years experience in network management and planning. He was the
deputy general manager in Wai Te Mobile Communication Ltd.. Prior to telecom
industry, he was the investment manager for Hong Kong Macau Investment Group,
and Manager for Hangzhou Mechanical Tools Factory. Mr. Huang has a degree
in material engineering.





Leo Cheung. Vice
President of Sales and Marketing.  Mr. Cheung is in charge of our
Sales and Marketing Department and Shanghai Moqizone operations since 2009.
During the two years prior to joining MoqiZone group, Mr. Cheung joined another
online game company, Optic Communications, which is a subsidiary of CDC
Corporation (NASDAQ:CHINA) as Project Director of "The Lord of the Rings Online"
and Director of Marketing. Mr. Cheung was formally the Director of E-sports
department and Manager of Channel Development of the IPTV Division of Shanda
Interactive Entertainment (NASDAQ:SNDA) in 2005. Mr. Cheung was the founder of
the 2 national licensed China Electronic Sports Tournament Organization, namely
China Internet Gaming (CIG) and China E-sports Games (CEG).





Qi Sun.
Consultant of Internet caféChannel
Development.  Mr. Sun is currently the Chairman of the Beijing
Internet Café Association. Mr. Sun has a wide national network in the Internet
café industry and will be supervising our business development and co-operation
with Internet cafes. Mr. Sun has over 10 years of experience in the online game
industry and was one of the founders and management of a major Beijing Internet
café chain operation from 2002 to 2008.





Calvin
Ng.
Vice President of System and Information Control.  Mr. Ng is one of
the founders of MobiZone Hong Kong. Mr. Ng is in charge of all of our system and
documents control, as well as corporate information control. Mr. Ng was also
involved in MobiTech and MobiZone Hong Kong together with Lawrence Cheung in
promoting the company services to internet cafes. Mr. Ng was the founder of
Green Digital, the biggest Internet Café association in China representing China
Telecom’s Internet Café chain in 2002. Mr. Ng has over 6 years in the
internet café business in China and has developed software which is used in most
internet cafés in China.





Qing Guo Wu. Vice
President of Government Relationships.  Mr. Wu’s responsibility is
to supervise the internal and external security affairs of the Company. Mr. Wu
has been working with various government departments for a long time and will be
extremely valuable when the Company expands its business to unfamiliar
provinces.





Vivian Qian.
Financial Controller.  Prior to joining MoqiZone, Ms. Qian was the
Chief Financial officer of a solar product manufacturing company. Ms. Qian used
to be the Audit Partner of KPMG Shanghai from July 2005 to July 2008; and prior
to that, Ms. Qian was acting as the Audit Senior Manager & Head of an audit
department working with affiliates of US, European and Asian public companies,
as well as domestic Chinese companies listed on the China and overseas markets.
Ms. Qian is a member of the Chinese Institute of Certified Public
Accounts.





Chris Wong.
Business
Strategist.  Mr. Wong is responsible for formulating business
strategies of the Company to position our overall business development. Mr. Wong
was previously employed as the business analyst for China Youth Foundation (a
company listed on the main board of the Hong Kong Stock Exchange). Mr. Wong also
worked for Shanda Interactive Entertainment (NASDAQ:SNDA) as the personal
assistant to the Chairman and CEO. He is a consultant in the “Society of
Industry Leader” for Vista Research, a business of Standard & Poor’s. He has
an MBA from University of Bradford, England and membership from the Institute
for the Management of Information Systems in 2002.


51





Certain
Legal Proceedings





To our
knowledge, during the past five years, none of our directors, executive
officers, promoters, control persons, or nominees has been:





•
            the
      subject of any bankruptcy petition filed by or against any business of
      which such person was a general partner or executive officer either at the
      time of the bankruptcy or within two years prior to that
    time;





•
            convicted
      in a criminal proceeding or is subject to a pending criminal proceeding
      (excluding traffic violations and other minor
  offenses);





•
            subject
      to any order, judgment, or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or





•
            found
      by a court of competent jurisdiction (in a civil action), the Commission
      or the Commodity Futures Trading Commission to have violated a federal or
      state securities or commodities
law.





CORPORATE
GOVERNANCE





Corporate
governance is the system that allocates duties and authority among a company’s
stockholders, board of directors and management. The stockholders elect the
board of directors and vote on extraordinary matters; the board of directors is
a company’s governing body, responsible for hiring, overseeing, and evaluating
management, particularly the chief executive officer; and management runs a
company’s day-to-day operations. Our Board of Directors currently consists of
three seats.





Board Leadership Structure and the
Board’s Role in Risk
Oversight.





The Board
of Directors maintains a structure with the Chief Executive Officer of the
Company holding the position as Chairman of the Board of Directors. Due to our
lack of operations and size prior to the Share Exchange, we do not have an Audit
Committee or any other separate committees, discussed further
below.





The Board
does not have a policy regarding the separation of the roles of Chief Executive
Officer and Chairman of the Board as the Board believes it is in the best
interests of the Company to make that determination based on the position and
direction of the Company and the membership of the Board.  The Board
believes that there is no one best leadership structure model that is most
effective in all circumstances and retains the authority to separate the
position of Chairman and Chief Executive Officer in the future if such
change is determined to be in our best interests and the best interests of our
shareholders.





The Board
of Directors utilizes a leadership structure that has the Chief Executive
Officer (who is the Corporation’s principal executive officer and a director)
who also acts in the capacity as Board Chairman, without a designated
independent lead director. This structure creates efficiency in the preparation
of the meeting agendas and related Board materials as the Corporation’s Chief
Executive Officer works more directly with those preparing the necessary board
materials and is more connected to the overall daily operations of the
Corporation. Agendas are also prepared with the permitted input of the full
Board of Directors allowing for any concerns or risks of any individual
director to be discussed as deemed appropriate. The Board believes that the
Company has benefited from this structure and, based upon Mr. Cheung’s
experienced leadership, Mr. Cheung’s continuation in the combined role of the
Chairman and Chief Executive Officer is in the best interests of the
shareholders.





The
Company believes that this structure is appropriate and allows for efficient and
effective oversight, given the Company’s relatively small size (both in terms of
number of employees and in scope of operational activities directly conducted by
the Company), its corporate strategy and its focus on research and development.
The Board of Directors does not have a specific role in risk oversight of the
Company. The Chairman, President and Chief Executive Officer and, as needed,
other executive officers and employees of the Company provide the Board of
Directors with information regarding the Company’s risks.





Section
16(a) Beneficial Ownership Reporting Compliance.





Section
16(a) of the Securities Exchange Act of 1934 requires that our executive
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, file reports of ownership and changes
in ownership with the SEC.  Executive officers, directors and
greater-than-ten percent stockholders are required by SEC regulations to furnish
us with all Section 16(a) forms they file.  Based solely on our review
of the copies of the forms received by us and written representations from
certain reporting persons that they have complied with the relevant filing
requirements, we believe that, during the year ended December 31, 2009, all of
our executive officers, directors and greater-than-ten percent stockholders
complied with all Section 16(a) filing requirements.




Code
of Ethics





In
January 2005, we adopted a Code of Ethics.  This Code provides rules and
procedures to help the Company’s employees, officers and directors recognize and
respond to situations that present ethical issues.  This Code applies to
all of our employees, officers and directors, wherever they are located and
whether they work for the Company on a full or part-time basis.  Compliance
with this code is mandatory and those who violate the standards in
this Code will be subject to disciplinary action.  The Company intends
to review the  Code of  Ethics and shall determine if any
revisions are necessary so that it complies with the NSYE Amex rules and
regulations.


52





A copy of
the Company’s Code of Ethics may be obtained free of charge by contacting the
Company at the address or telephone number listed on the cover page
hereof.




Audit
Committee and Financial Expert




Due to
our lack of operations and size prior to the Share Exchange, we do not have an
Audit Committee. Furthermore, we are currently quoted on the OTC Bulletin Board,
which is sponsored by the NASD, under the symbol “MOQZ” and the OTCBB does not
have any listing requirements mandating the establishment of any particular
committees. Our Board of Directors acts as our audit committee and performs
equivalent functions, such as: recommending a firm of independent certified
public accountants to audit the annual financial statements; reviewing the
independent auditor’s independence, the financial statements and their audit
report; and reviewing management’s administration of the system of internal
accounting controls. At the present time, we believe that the members of the
Board of Directors are collectively capable of analyzing and evaluating our
financial statements and understanding internal controls and procedures for
financial reporting.




For these
same reasons, we did not have any other separate committees prior to the Share
Exchange.  All functions of a nominating committee, audit committee and
compensation committee were, and continue to be performed by our Board of
Directors.




We
currently do not have a member of the Board of Directors who qualifies as an
“audit committee financial expert” as defined in Item 401(h) of Regulation S-K
and is “independent” as the term is used in Item 7(d)(3) (iv) of Schedule 14A
under the Exchange Act. However, our Board of Directors is in the process of
searching for a suitable candidate for this position.




Item
11.  Executive Compensation





We strive
to provide our named executive officers with a competitive base salary that is
in-line with their roles and responsibilities when compared to peer companies of
comparable size in the same or similar locality.





It is not
uncommon for companies with operations primarily in China to have base salaries
and bonuses as the sole and only form of compensation. The base salary level is
established and reviewed based on the level of responsibility, the experience
and tenure of the individual and the current and potential
contributions of the individual. The base salary is compared to similar
positions within comparable peer companies and with consideration of the
executive’s relative experience in his or her position. Based on an evaluation
of available information with respect to the base salaries of executives of our
competitors, the base salary and bonus paid to our named executive officers is
in line with our competitors.  Base salaries are reviewed periodically and
at the time of promotion or other changes in responsibilities.





We plan
to implement a more comprehensive compensation program appropriate for
executives of a public company, which takes into account other elements of
compensation, including without limitation, short and long term compensation,
cash and non-cash, and other equity-based compensation such as stock
options.  We expect that such compensation programs shall be comparative to
our competitors in the industry and aimed to retain and attract talented
individuals.





Executive
Compensation





Trestle
Executive and Director Compensation Information





Pursuant
to a consulting agreement that we maintained with Venor, Inc., a consulting
company over which Mr. Stoppenhagan is a principal, we paid Venor $61,000,
$36,000 and $12,000 in 2007, 2008 and 2009, respectively as cash compensation
for Mr. Stoppenhagen’s services as our Interim President and Secretary;
additionally, Mr. Stoppenhagen received a $500 allowance per month for office
expenses. Mr. Stoppenhagan did not receive any other compensation - not in the
form of stock awards, stock options, or any other form.





The
Company Executive and Director Compensation Information





SUMMARY
COMPENSATION TABLE








Name and
                        Principal Position
                      
                      Year
                      
                      Salary
                        ($)
                      
                      
                      Bonus
                        ($)
                      
                      
                      Stock
                        Awards
                        ($)
                      
                      
                      Option
                        Awards
                        ($)
                      
                      
                      Non-
                        Equity Incentive
                        Plan Compensation
                        Earnings ($)
                      
                      
                      Non-
                        qualified
                        Deferred
                        Compensation
                        Earnings ($)
                      
                      
                      All Other
                        Compensation
                        ($)
                      
                      
                      Total
                        ($)Lawrence Cheung, CEO
                      
                      2009
                      
                      $
                      111,262
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      111,262
                      (1)Lawrence
      Cheung, CEO
                      
                      2008
                      
                      $
                      0
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      0
                      (2)Benjamin
      Chan
                      
                      2009
                      
                      $
                      83,447
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      83,447
                      (3)Benjamin
      Chan
                      
                      2008
                      
                      $
                      0
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      0
                      (4)Eric
      Stoppenhagen
                        Interim
      President
                      
                      2009
                      
                      $
                      12,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      2,000
                      
                      
                      $
                      14,000
                      (5)Eric
      Stoppenhagen
                        Interim
      President
                      
                      2008
                      
                      $
                      36,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      6,000
                      
                      
                      $
                      42,000
                      (5)


53





(1)
            Mr.
      Lawrence Cheung is entitled to approximately $111,262 for 2009,
      approximately $52,154 of which has been received and $59,108 remains
      unpaid; Mr. Cheung waived such salary until such time as the Company’s
      cash position improves. The amount that Mr. Cheung is entitled
      to represents his director fees in addition to his executive officer
      role as Chief Executive Office. The compensation for Mr. Cheung reflects
      his salary at MobiZone Hong Kong, prior to the Share
    Exchange.





(2)
            No
      salary was paid in cash to the CEO Lawrence Cheung or any of the officers
      and directors in 2007 and 2008. Lawrence Cheung had accrued salary of
      $771,420 for the fiscal year ended December 31, 2008, but all such
      outstanding salary was waived before the
  Financings.





(3)
            Mr.
      Benjamin Chan is entitled to $83,447 for 2009, $42,593 of which has
      been received and $40.854 remains unpaid. Mr. Chan waived such salary
      until such time as the Company’s cash position improves. The amount that
      Mr. Chan is entitled to represents his director fees in addition to his
      executive officer role as VP of
Finance.





(4)
            Mr.
      Chan did not receive any compensation for
2008.





(5)
            Mr.
      Stoppenhagen received $3,000 per month as cash compensation for his
      services as our Interim President and Secretary; additionally, Mr.
      Stoppenhagen received a $500 allowance per month for office
      expenses.




Grants
of Plan-Based Awards and Outstanding Equity Awards at Fiscal
Year-End




We did
not grant any options or awards to any of our named executive officers during
our last two completed fiscal years nor did any of our executive officers
exercise any such options or awards during such period.





Employment
Agreements





We have
employment agreements with all of our executive officers at market rates as
determined by the board of directors and confidentiality agreements with our
executive officers.





Retirement/Resignation
Plans





We do not
have any plans or arrangements in place regarding the payment to any of our
executive officers following such person’s retirement or
resignation.





Compensation
of Directors





As of
December 31, 2009, Mr. Lawrence Cheung is entitled to approximately $111,262 for
2009 and Mr. Lawrence Cheung has received approximately $52,154 and $59,108
remains unpaid. Mr. Benjamin Chan is entitled to $83,447 for 2009 and has
received $42,593 and $40.854 remains unpaid. The amounts that Messrs Lawrence
Cheung and Benjamin Chan are entitled to represent their director fees in
addition to their respective executive officer role as Chief Executive Office
and VP of Finance. Paul Lu will be paid approximately $23,000 per annum as his
director fees only.





DIRECTOR
COMPENSATION







Name
                                
                                Fees
                                  Earned or
                                  Paid in
                                  Cash
                                  ($)
                                
                                
                                Stock
                                  Awards
                                  ($)
                                
                                
                                Option
                                  Awards
                                  ($)
                                
                                
                                Non-
                                  Equity Incentive
                                  Plan Compensation
                                  Earnings ($)
                                
                                
                                Non-
                                  qualified
                                  Deferred
                                  Compensation
                                  Earnings ($)
                                
                                
                                All Other
                                  Compensation
                                  ($)
                                
                                
                                Total
                                  ($)Paul
      Lu
                                
                                $
                                23,000
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                23,000


Item
12.  Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder
Matters





As of
April 14, 2010, we had a total of 13,667,764 shares of Common
Stock.





The
following table sets forth, as of April 14, 2010: (a) the names and addresses of
each beneficial owner of more than five percent (5%) of our Common Stock known
to us, the number of shares of Common Stock beneficially owned by each such
person, and the percent of our Common Stock so owned currently; and (b) the
names and addresses of each director, executive officer and significant
employee, the number of shares our Common Stock beneficially owned, and the
percentage of our Common Stock so owned, by each such person, and by all of
our directors and executive officers as a group. Each person has sole voting and
investment power with respect to the shares of our Common Stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of Common Stock, except as otherwise indicated. Individual beneficial
ownership also includes shares of Common Stock that a person has the right to
acquire within 60 days from April 14, 2010.


54





Pursuant
to the terms of the Share Exchange Agreement, Eric Stoppenhagan resigned as our
Interim President, effective immediately.  All of our current directors
tendered their resignation as our directors, which resignations were effective
on June 19, 2009, the tenth day after mailing of a Schedule 14f-1 pursuant
to Rule 14f-1 of the Securities Exchange Act of 1934, as amended to our
stockholders.   On that same day, our Board of
Directors appointed Cheung Chor Kiu Lawrence (Lawrence Cheung) to serve as
the Chairman of our board and our Chief Executive Officer effective as of the
close of the Share Exchange, and nominated Benjamin Chan to serve as our other
director with such appointment to be effective on the tenth day after
mailing the Schedule 14f.





The
Company also appointed Paul Lu to be our director with such appointment being
effective on November 3, 2009.





Unless
otherwise noted, the principal address of each of the directors, officers and
director nominee listed below is 7A-D Hong Kong Industrial Building, 444-452 Des
Voeux Road West, Hong Kong.





Name
                  
                  Current Amount and Nature of
                    Beneficial Ownership (1)
                  
                  
                  Current Percentage of
                    Outstanding Shares (1)Eric
      Stoppenhagen (2)
                  
                  
                  196
                  
                  
                  
                  *MKM
      Opportunity Master Fund, Ltd (4)
                  
                  
                  1,272,086
                  (5)
                  
                  
                  8.81
                  %JSDWay
      Digital Technology (Samoa) Co., Ltd. (6)
                  
                  
                  704,008
                  
                  
                  
                  5.15
                  %Cheung
      Chor Kiu Lawrence (Lawrence Cheung)
                  
                  
                  8,556,092
                  (7)
                  
                  
                  62.60
                  %Benjamin
      Chan
                  
                  
                  -
                  
                  
                  
                  -Lu
      Lo, Hsi-Kuang
                  
                  
                  184,150
                  
                  
                  
                  1.35
                  %All
      Directors, Executive Officers and Director Nominees after the Share
      Exchange and after the Effective Date of this Schedule, As a
      Group
                  
                  
                  8,740,242
                  
                  
                  
                  63.95
                  %




*
Represents less than 1%





(1)
            The
      numbers are based on 13,667,764 shares of common stock outstanding. All
      Percentages have been rounded up to the nearest one hundredth of one
      percent and such percentage is based upon the amount of outstanding our
      common stock. All share ownership figures include shares of our Common
      Stock issuable upon securities convertible or exchangeable into shares of
      our Common Stock within sixty (60) days of April 14, 2010, which
      are deemed outstanding and beneficially owned by such person for purposes
      of computing his or her percentage ownership, but not for purposes of
      computing the percentage ownership of any other
  person.





(2)
            Mr.
      Stoppenhagan’s address is c/o Trestle Holdings, Inc., P.O. Box 4198,
      Newport Beach, CA 92661-4198.





(3)
            The
      person having voting, dispositive or investment powers over Strategic is
      Bruce Gallaway, Authorized Agent.  The address of Strategic is c/o
      Trestle Holdings, Inc., P.O. Box 4198, Newport Beach,
      CA 92661-4198.





(4)
            The
      person having voting, dispositive or investment powers over MKM is David
      Skirloff, Authorized Agent.  The address of Strategic is c/o Trestle
      Holdings, Inc., P.O. Box 4198, Newport Beach,
      CA 92661-4198.





(5)
            This
      number represents: (i) 494,530 shares of Common Stock MKM held in Trestle
      prior the Share Exchange, assuming the Reverse Split is effected; (ii) an
      aggregate of 277,778 shares of common stock underlying the Series A
      Preferred Stock pursuant to the Financing; (iii) an aggregate of 111,000
      shares of common stock underlying the Series C Preferred Stock that MKM
      shall receive upon conversion of the Series C Preferred Stock
      pursuant to the Financing; (iv) 138,889 shares of common stock underlying
      the Series A Warrants; (v) 138,889 shares of common stock underlying
      the Series B Warrants; (vi) 55,500 shares of common stock underlying the
      Series C Warrants; and (vii) 55,500 shares of common stock underlying the
      Series D Warrants.


55





(6)
            The
      person having voting, dispositive or investment powers over JSDWay Digital
      Technology (Samoa) Co., Ltd. is JSDWay Digital Technology Company Limited,
      a Taiwan incorporated corporation. The address of JSDWay is c/o Equity
      Trust (Samoa) Limited, Equity Trust Chambers, P.O. Box 3269, Apia,
      Samoa.





(7)
            After
      the Share Exchange, 900,000 of Mr. Cheung’s shares are subject to an
      escrow agreement pursuant to which such shares are to be released back to
      Mr. Cheung and/or to the Investors of the Financing, based upon certain
      performance targets as set forth in the Share Exchange Agreement dated
      March 15, 2009. In addition, Of the 8,556,092 shares that Mr. Cheung
      currently owns, he plans to transfer 5,235,883 shares to the following
      persons, subject to such persons achieving certain performance
      requirements under agreements to be entered into during the 1st or 2nd
      quarter of 2010. These proposed transfers and the prospective transferees
      are as follows: approximately 656,646 shares to Goodstand Holdings, Ltd.,
      a company currently owned by Mr. Cheung, the shares of which will be
      transferred to Sam Huang – the Company’s Chief Technical Officer;
      approximately 1,553,770 shares to Cheerman Investment Ltd., a company
      currently owned by Mr. Cheung, the shares of which will be transferred to
      Zhang Xin Hua – the Company’s General Manager; approximately
      1,477,483 shares to Bright Clever Holdings Ltd., a company currently owned
      by Mr. Cheung, the shares of which will be transferred to Zheng Wei;
      approximately 1,147,984 shares to Red Path Limited, and these shares will
      be transferred to Benjamin Chan – Vice President of Finance; approximately
      400,000 shares to Calvin Ng– Vice President of System Control; After these
      transfers, Mr. Cheung will continue to own approximately 2,420,209
      shares.




Change
in the Control





As a
result of consummation of the transactions under the Share Exchange Agreement,
Trestle owns 100% of the capital stock of MoqiZone Cayman which, in turn owns
100% of the capital stock of MobiZone Hong Kong and its wholly-owned Shanghai
MoqiZone subsidiary.  The former stockholders of MoqiZone Cayman own an
aggregate of 10,743,000 shares of Trestle common stock or approximately 95% of
its outstanding Trestle common stock after giving effect to
the transactions under the Share Exchange Agreements but before giving
effect to dilution resulting from the conversion by investors of any of their
shares of Series A Preferred Stock or the exercise of any of the Warrants
issued and to be issued in the MobiZone Hong Kong Unit offering.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





Contractual
Arrangements with the VIE and its Shareholders





PRC law
currently limits foreign equity ownership of companies that provide wireless
value-added services and Internet content services.  To comply with these
foreign ownership restrictions, we operate our websites and provide online
advertising services in China through a series of contractual arrangements with
variable interest entities (“VIEs”) and their shareholders. We currently have
VIE agreements with SZ Alar.   The shareholders of SZ Alar are Zheng
Wei, Jiang Jin Kun, and Xiong Ping Bo. We refer to these VIE contractual
arrangements “Sina Structure Portal Arrangement” agreements.  These
agreements may be summarized, as follows:





Exclusive Business Cooperation
Agreement. Pursuant to the exclusive ten year business cooperation
agreement between the VIE and Shanghai MoqiZone, Shanghai MoqiZone has the
exclusive right to provide to the VIE comprehensive technology and consulting
services related to the business of the VIE.  In consideration for such
services, Shanghai MoqiZone is entitled to receive 100% of the net income of the
VIE.





Equity Pledge
Agreement. Under the equity pledge agreement among the VIE, the
shareholders of VIE and Shanghai MoqiZone, the shareholders of VIE pledged all
of their equity interests in VIE to Shanghai MoqiZone to guarantee the VIE’s
performance of its obligations under the exclusive business cooperation
agreement. In the event that VIE were to breach its contractual obligations,
Shanghai MoqiZone, as pledgee, will be entitled to certain rights, including the
right to sell the pledged equity interests. The equity pledge agreement will
expire only after the VIE and its shareholders have fully performed their
respective obligations under the exclusive business cooperation
agreement.





Exclusive Option
Agreement.Under
an exclusive ten (10) year option agreement between the VIE, the shareholders of
the VIE and Shanghai MoqiZone, the shareholders of the VIE have irrevocably
granted to Shanghai MoqiZone or its designated person an exclusive option to
purchase, to the extent permitted under PRC law, all or part of the equity
interests in the VIE for RMB10 or the evaluation amount of consideration
permitted by applicable PRC law.  Shanghai MoqiZone or its designated
person has sole discretion to decide when to exercise the option, whether in
part or in full.





Loan Agreement. Under
the loan agreement between the shareholders of the VIE and MobiZone Hong Kong,
the parties confirmed that MobiZone Hong Kong has made an interest-free loan to
the shareholders of the VIE solely to enable the shareholders of the VIE to fund
the initial capitalization of the VIE. The loan can be repaid only by sale of
the shareholder’s equity interest in the VIE to MobiZone Hong Kong. The term of
the loan agreement is ten years from the date thereof.





Irrevocable Power of
Attorney. The shareholders of the VIE have each executed an
irrevocable power of attorney to appoint Shanghai MoqiZone as their exclusive
attorneys-in-fact to vote on their behalf on all the VIE matters requiring
shareholder approval.  The term of each power of attorney is valid so long
as such shareholder is a shareholder of the VIE.


56





The
Performance Shares





Under the
terms of the Share Exchange Agreement, all of the shareholders of MoqiZone
Cayman who are members of our senior management have deposited in an escrow
account an aggregate of 900 shares of the Series B Preferred Stock (which were
automatically converted into 900,000 shares of Trestle common stock). 
These shares (the “Performance Shares”) will be delivered to the management
group shareholders only in the event that the Company achieves certain
performance targets over the twelve consecutive months commencing July 1, 2009
and ending June 30, 2010 (the “Measuring Period”).  If $6,000,000 or more
raised in the Financing, then: (i) in the event that we realize at least
$19,171,000 of reported revenues by the end of the twelve month Measuring
Period, all of the Performance Shares will be released to the management group,
and (ii) in the event that less than $19,171,000 of reported revenues are
realized by the end of the twelve month Measuring Period, a pro-rata portion of
the Performance Shares shall be distributed to the purchasers of the Units
offered hereby, based upon 0.2347 Performance Shares for each USD $1.00 that the
actual revenues achieved by the end of the Measuring Period shall be less than
the $19,171,000 Target Revenue, or 45,000 Performance Shares for each 1% of
$19,171,000 ($191,710) by which the actual revenues shall be less than the
Target Revenue. If less than $6,000,000 is raised in the Financing, then: (i) in
the event that we realize at least $10,450,000 (the “Lower Target Revenue”) in
reported revenues by the end of the twelve month Measuring Period, all of the
Performance Shares will be released to the management group and (ii) in the
event that less than $10,450,000 of reported revenues are realized by the end of
the twelve month Measuring Period, a pro-rata portion of the Performance Shares
shall be distributed to the purchasers of the Units offered hereby, based upon
0.4306 Performance Shares for each USD $1.00 that the actual revenues achieved
by the end of the Measuring Period shall be less than the Lower Target Revenue,
or 45,000 Performance Shares for each 1% of $10,450,000 ($104,500) by which the
actual revenues shall be less than the Lower Target Revenue.





Any
Performance Shares distributable from the escrow will be made within ten
business days after the final calculations with respect to the distribution of
the Performance Shares are made, and will be distributed to investors in the
MobiZone Hong Kong financing on a pro-rata basis by which the amount of
securities purchased by each investor bears to the total amount of securities
sold. Performance Shares not distributed to investors will be returned to the
management group at the end of the Measuring Period. The Board has not
determined the persons who shall be entitled to the Performance Shares as at
December 31, 2009 except that it shall be rewarded to employees with significant
contributions to the Company.




The
Performance Warrants





Certain
of the members of our senior management will be, under the terms of the Share
Exchange Agreement, entitled to receive three year warrants to purchase 900,000
shares of Trestle common stock, exercisable at $1.80 per share (the “Performance
Warrants”) in the event that our audited net income as of the date that is 24
months after the Final Closing of the Financing shall equal or exceed
$21,560,000, assuming that we complete this Offering with the sale of at least
600 Units for $6,000,000.  If however, we complete the Offering for an
aggregate amount less than $6,000,000, than such persons shall only be entitled
to receive the Performance Warrants in the event that our audited net income as
of the date that is 24 months after the Final Closing of the Financing equals or
exceeds $5,000,000.





Lock
Up Agreements





All of
the Trestle shares of common stock to be owned by the management shareholders
will be restricted from public or private sale for a period of twelve months
following the effective date of the registration statement registering the
Series B Conversion Shares and Warrant Shares for resale under the Securities
Act of 1933, as amended; following such twelve month period, management shall be
allowed to sell up to 1/12 of their holdings each month for the next twelve
months.





Review,
Approval and Ratification of Related Party Transactions





We have
not entered into any transactions during the last two fiscal years with any
director, executive officer, director nominee, 5% or more shareholder, nor have
we entered into transactions with any member of the immediate families of the
foregoing person (include spouse, parents, children, siblings, and in-laws)
nor is any such transaction proposed, except as follows:





Lawrence
Cheung, Zhang Xin Hua, Sam Huang, Ling Tao, Calvin Ng, Zheng Wei had accrued
salary of [US$771,420] accrued for the fiscal year ended December 31, 2008 but
all such outstanding salary have been waived by all individuals before the
Financings due to the delay in deployment of MoqiZone WiMAXWimax Network. The
amount of $771,420 is classified as accrued directors’ fees in the accompanying
balance sheet as of December 31, 2008. It is incurred as a result of the monthly
directors’ fees of the management as a group of $59,340 and paid in 13 months.
The salary for the 4 months period of January 1, 2009 to April 30, 2009 of
Lawrence Cheung, Zhang Xin Hua, Sam Huang, Ling Tao, Calvin Ng, Zheng Wei
and Benjamin Chan were all accrued and the total amount is
US$188,333.  And As of June 30, 2009, the company incurred another $232,616
of director fees with total accrued director fees and officer compensation of
$1,004,036. All amounts were included in selling, general and administrating
expenses and authorized pursuant to a Board of Directors
resolution.





Director
Independence




Presently,
we are not required to comply with the director independence requirements of any
securities exchange.  In determining whether our directors are
independent, however, we intend to comply with the rules of the New York Stock
Exchange Alternext Exchange, or the AMEX.  The board of directors also
will consult with counsel to ensure that the Board of
Director’s determinations are consistent with those rules and all relevant
securities and other laws and regulations regarding the independence of
directors, including those adopted under the Sarbanes-Oxley Act of 2002 with
respect to the independence of future audit committee members.  The
AMEX listing standards define an “independent director” generally as a person,
other than an officer of a company, who does not have a relationship with the
company that would interfere with the director’s exercise of independent
judgment.


57





Currently
we do not satisfy the “independent director” requirements of the American Stock
Exchange, which requires that a majority of a company’s directors be
independent.  Our board of directors intends to appoint additional
members, each of whom will satisfy such independence requirements.





Item
14.  Principal Accountant Fees and Services





Independent
Public Accountants





Audit
Fees





The
aggregate fees billed by Paritz & Company, P.A. for the audit of the
Company’s  financial statements in the years ended December 31, 2009
and 2008, the reviews of the quarterly reports on Form 10-Q for the same fiscal
years and statutory and regulatory filings were $62,000 for 2009 and
$27,000  for 2008.





Audit-Related
Fees





There
were no fees billed by Paritz & Company for audit-related services for the
years ended December 31, 2009 and 2008.





All
Other Fees





There
were no fees billed by Paritz & Company for other services not described
above for the years ended December 31, 2009 and 2008.





Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of
Independent Auditors




The
Board’s policy is to pre-approve all audit and permissible non-audit services
provided by the independent registered public accounting firm. These services
may include audit services, audit-related services, tax services and other
services. Pre-approval is generally detailed as to the particular service or
category of services and is generally subject to a specific budget. The
independent registered public accounting firm and management are required to
periodically report to the Board regarding the extent of services provided by
the independent registered public accounting firm in accordance with this
pre-approval, and the fees for the services performed to date. The Board may
also pre-approve particular services on a case-by-case basis.





The Board
has determined that the rendering of the services other than audit services by
Paritz & Company is compatible with maintaining the principal accountant’s
independence.




1.Audit
services include audit work performed in the preparation of financial
statements, as well as work that generally only the independent auditor can
reasonably be expected to provide, including comfort letters, statutory audits,
and attest services and consultation regarding financial accounting and/or
reporting standards.




2.Audit-Related services are for assurance and related services that are
reasonably related to the audit or review of our financial
statements.




3.Tax
services include all services performed by the independent auditor’s tax
personnel except those services specifically related to the audit of the
financial statements, and includes fees in the areas of tax compliance, tax
planning, and tax advice.




4.Other
Fees are those associated with products or services not captured in the
other categories.





PART
IV




Item
15.  Exhibits and Financial Statement Schedules.





The
following documents are filed as a part of this Report:




1.
            Financial
      Statements. The following financial statements of Moqizone
      Holding Corporation are included in
Item 8:




o
            Report
      of Independent Registered Public Accounting
  Firm.





o
            Balance
      Sheets as of December 31, 2009 and
2008.





o
            Statements
      of Operations and Comprehensive Loss for the Year ended December 31, 2009
      and 2008.





o
            Statements
      of Changes in Shareholders’ Equity for the years ended December 31, 2009
      and 2008.





o
            Statements
      of Cash Flows for the years ended December 31, 2009 and
    2008.


58





o
            Notes
      to Financial Statements.




2.
            Financial
      Statement Schedule(s):




All
schedules are omitted for the reason that the information is included in the
financial statements or the notes thereto or that they are not required or are
not applicable.




3.
            Exhibits:




Exhibit
      No.
                
                Document3.1
                
                Certificate
      of Incorporation of MoqiZone Holding Corporation (Incorporated by
      reference to exhibit 3.1 of Registration Statement on Form S-1/A that we
      filed on January 26, 2010).10.1
                
                Form
      of Securities Purchase Agreement (Incorporated by reference to exhibit
      10.1 of the Current Report on Form 8-K that we filed on June 3,
      2009).10.2
                
                Form
      of 8% Exchangeable Note issued under Securities Exchange Agreement
      (Incorporated by reference to exhibit 10.2 of the Current Report on Form
      8-K that we filed on June 3, 2009).10.3
                
                Form
      of Registration Rights Agreement (Incorporated by reference to exhibit
      10.3 of the Current Report on Form 8-K that we filed on June 3,
      2009).10.4
                
                Form
      of Certificate of Designation of the Relative Rights and Preferences of
      the Series A Convertible Preferred Stock (Incorporated by reference to
      exhibit 10.4 of the Current Report on Form 8-K that we filed on June 3,
      2009).10.5
                
                Form
      of Certificate of Designation of the Relative Rights and Preferences of
      the Series B Convertible Preferred Stock (Incorporated by reference to
      exhibit 10.5 of the Current Report on Form 8-K that we filed on June 3,
      2009).10.6
                
                Form
      of Series A Warrant (Incorporated by reference to exhibit 10.6 of the
      Current Report on Form 8-K that we filed on June 3,
  2009).10.7
                
                Form
      of Series B Warrant (Incorporated by reference to exhibit 10.7 of the
      Current Report on Form 8-K that we filed on June 3,
  2009).10.8
                
                Form
      of Pledge Agreement (Incorporated by reference to exhibit 10.8 of the
      Current Report on Form 8-K that we filed on June 3,
  2009).10.9
                
                Form
      of Guaranty Agreement (Incorporated by reference to exhibit 10.9 of the
      Current Report on Form 8-K that we filed on June 3,
  2009).10.10
                
                Form
      of Share Escrow Agreement (Incorporated by reference to exhibit 10.11 of
      the Current Report on Form 8-K that we filed on June 3,
    2009).10.11
                
                Form
      of Exclusive Business Cooperation Agreement (Incorporated by reference to
      exhibit 10.1 of the Current Report on Form 8-K that we filed on September
      25, 2009).10.12
                
                Netcafe
      Farmer Agreement (Incorporated by reference to exhibit 10.1 of the Current
      Report on Form 8-K that we filed on December 23, 2009).31.1
                
                Certification
      of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. (Filed herewith.)31.2
                
                Certification
      of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. (Filed herewith.)32.1
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to
      18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002. (Filed herewith.)99.1
                
                Press
      Release (Incorporated by Reference to Exhibit 99.1 on the Current Report
      8-K that we filed on August 12,
2009).


59


SIGNATURES




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





Moqizone
      Holding CorporationDate:
      October 4, 2010By:
              /s/
      Lawrence CheungLawrence
      CheungChief
      Executive Officer





POWER OF
ATTORNEY




The
undersigned directors and officer of Moqizone Holding Corporation do hereby
constitute and appoint Lawrence Cheung with full power of substitution and
resubstitution, as their true and lawful attorneys and agents, to do any and all
acts and things in our name and behalf in our capacities as directors and
officer and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorney and agent, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended and any rules, regulations and requirements of
the Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K/A, including specifically but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto, and we do
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.




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





/s/
      Lawrence Cheung
            
            Dated: October
      4, 2010Lawrence
      CheungChief
      Executive Officer, Acting Chief Financial Officer,Acting
      Principal Accounting Officer and Chairman/s/
      Benjamin Chan
            
            Dated: October
      4, 2010Benjamin
      Chan, Director/s/
      Paul Lu
            
            Dated: October
      4, 2010Paul
      Lu, Director


60