UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(MARK
ONE)





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


ACT
OF 1934





For the
quarterly period ended October 31, 2009





OR





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
transition period from _____ to ____





Commission
File No. 000-53367





DOT
VN, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            20-3825987(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)





9449
Balboa Avenue, Suite 114


San
Diego, California 92123


(Address
of principal executive offices, zip code)





(858)
571-2007


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year,


if
changed since last report)





Check
whether the issuer (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.   Yes x   No
 ̈





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





Large
      accelerated filer   ̈
            Accelerated
      filer   ̈
            Non-accelerated
      filer   ̈
            Smaller
      reporting company  x(Do
      not check if a smallerreporting
      company)





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





As of
December 8, 2009, there were 40,091,013 shares of the issuer’s common stock, par
value $0.001 per share, outstanding.





DOT
VN, INC.


QUARTERLY
REPORT ON FORM 10-Q


FOR
THE PERIOD ENDED OCTOBER 31, 2009





INDEX





Index
                  
                  PagePart
      I.
                  Financial
      InformationItem
      1.       Financial
      StatementsBasis of
      Presentation.
                  4Report of Independent
      Registered Public Accounting Firm.
                  5Condensed Consolidated Balance
      Sheets as of October 31, 2009 (unaudited) and April 30,
    2009.
                  6Condensed Consolidated
      Statements of Operations for the Three Months ended October 31, 2009 and
      2008 (unaudited).
                  7Condensed Consolidated
      Statements of Operations for the Six Months ended October 31, 2009 and
      2008 (unaudited).
                  8Condensed Consolidated
      Statements of Changes in Stockholders Equity for the Six Months ended
      October 31, 2009 (unaudited) and Year ended April 30,
2009.
                  9Condensed Consolidated
      Statements of Cash Flows for the Six Months ended October 31, 2009 and
      2008 (unaudited).
                  11Notes to Condensed Consolidated
      Financial Statements (unaudited).
                  13Item
      2.       Management’s Discussion and
      Analysis of Financial Condition and Results of Operations.
                  44Item
      3.       Quantitative and Qualitative
      Disclosures About Market Risk.
                  61Item
      4.       Controls and
      Procedures.
                  61Part
      II.
                  Other
      InformationItem
      1.       Legal Proceedings.
                  63Item
      1A.    Risk Factors.
                  63Item
      2.       Unregistered Sales of Equity
      Securities and Use of Proceeds.
                  63Item
      3.       Defaults Upon Senior
      Securities.
                  63Item
      4.       Submission of Matters to a Vote of
      Security Holders.
                  63Item
      5.       Other Information.
                  63Item
      6.       Exhibits.
                  64Signatures
                  
                  65Certifications


2


CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
Quarterly Report on Form 10-Q of Dot VN, Inc., a Delaware corporation (the
“Company”) contains “forward-looking statements“.  In some cases, you
can identify forward-looking statements by terminology such as “may”, “will”,
“should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”,
“estimates”, “predicts”, “potential” or “continue” or the negative of such terms
and other comparable terminology.  These forward-looking statements
include, without limitation, statements about our market opportunity, our
strategies, competition, expected activities and expenditures as we pursue our
business plan, and the adequacy of our available cash
resources.  Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.  Actual results may
differ materially from the predictions discussed in these forward-looking
statements.  The economic environment within which we operate could
materially affect our actual results.  Additional factors that could
materially affect these forward-looking statements and/or predictions include,
among other things: (i) our limited operating history; (ii) our ability to
obtain additional financing to complete our business plan; (iii) our ability to
pay down existing debt; (iv) unforeseen costs and expenses; (v) potential
litigation with our shareholders, creditors and/or former or current investors;
(vi) the Company’s ability to comply with federal, state and local government
regulations; (vii) the Company’s ability to maintain current material agreements
with the government of Vietnam and secure additional agreements in furtherance
of the Company’s business in Vietnam; and (viii) the exercise of the
approximately 46.8% control Thomas Johnson, the Company’s Chief Executive
Officer and Chairman of the Board of Directors, holds of the Company’s voting
securities, (ix) the exercise of the approximately 45.0% control Lee Johnson,
the Company’s President, Chief Technology Officer, and Chief Financial Officer
and a Director, holds of the Company’s voting securities, (x) other factors over
which we have little or no control; and (xii) other factors discussed in the
Company’s filings with the Securities and Exchange Commission
(“SEC”).





Our
management has included projections and estimates in this Form 10-Q, which are
based primarily on management’s experience in the industry, assessments of our
results of operations, discussions and negotiations with third parties and a
review of information filed by our competitors with the Securities and Exchange
Commission or otherwise publicly available.  We caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made.  We disclaim any obligation subsequently to revise
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.


3





Dot
VN, INC. AND SUBSIDIARIES





PART
I.  FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS.





BASIS
OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and the instructions
for Form 10-Q pursuant to the rules and regulations of the Securities and
Exchange Commission.  Accordingly, they do not include all information
and footnote disclosures necessary for a complete presentation of the financial
position, results of operations, cash flows, and stockholders equity in
conformity with generally accepted accounting principles.  In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.





The
unaudited condensed consolidated balance sheet of the Company as of October 31,
2009, and the related consolidated balance sheet of the Company as of April 30,
2009, which is derived from the Company's audited consolidated financial
statements, the un-audited condensed consolidated statement of operations and
cash flows for the six months ended October 31, 2009 and October 31, 2008 and
the condensed consolidated statement of stockholders equity for the period of
April 30, 2008 to October 31, 2009 are included in this
document.  These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and related notes included in the Company’s most recently filed Form
10-K.





Operating
results for the six months ended October 31, 2009 are not necessarily indicative
of the results that can be expected for the year ending April 30,
2010.


4





Chang
G. Park, CPA, Ph. D.


t
2667 CAMINO
DEL RIO S. SUITE B t
SAN
DIEGO t
CALIFORNIA
92108 t


t
TELEPHONE
(858)722-5953 t
FAX (858)
761-0341 t
FAX (858)
764-5480


t
E-MAIL
changgpark@gmail.com

t





Report of Independent
Registered Public Accounting Firm





To the
Board of Directors of


Dot VN,
Inc.


9449
Balboa Avenue, Suite 114


San
Diego, CA 92123





We have
reviewed the accompanying condensed consolidated balance sheet of Dot VN, Inc.
(the “Company”) as of October 31, 2009, the related condensed consolidated
statements of operations for the three months and six months ended October 31,
2009, and the condensed consolidated statements of changes in stockholders’
equity (deficit) and condensed consolidated cash flows for the six months ended
October 31, 2009 and 2008.  These financial statements are the
responsibility of the Company’s management.





We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.  Accordingly, we
do not express such an opinion.





Based on
our review, we are not aware of any material modifications that should be made
to the financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 14 to the
condensed consolidated financial statements, the Company's losses from
operations raise substantial doubt about its ability to continue as a going
concern.  The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





/s/ Chang G. Park, CPAChang
      G. Park, CPA





December
11, 2009





San
Diego, CA 92108





Member
of the California Society of Certified Public Accountants


Registered with
the Public Company Accounting Oversight Board


5







Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Balance Sheets





October
      31,
                                
                                
                                April
      30,2009
                                
                                
                                2009(unaudited)ASSETSCurrent
      assets:Cash
                                
                                $
                                43,245
                                
                                
                                $
                                144,842Accounts
      receivable
                                
                                
                                157,985
                                
                                
                                
                                103,833Prepaid
      expenses and other current assets
                                
                                
                                79,229
                                
                                
                                
                                47,561Notes
      receivable, net
                                
                                
                                -
                                
                                
                                
                                -Total
      current assets
                                
                                
                                280,459
                                
                                
                                
                                296,236Equipment,
      net
                                
                                
                                777,115
                                
                                
                                
                                740,816Intangible
      assets
                                
                                
                                1,022,336
                                
                                
                                
                                1,022,336Other
      noncurrent assets
                                
                                
                                280,015
                                
                                
                                
                                221,321Total
      assets
                                
                                $
                                2,359,925
                                
                                
                                $
                                2,280,709LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                
                                $
                                156,209
                                
                                
                                $
                                96,323Customer
      deposits
                                
                                
                                9,718
                                
                                
                                
                                21,471Due
      to related party, net of zero and zero discount
                                
                                
                                8,613,315
                                
                                
                                
                                8,109,452Short-term
      convertible debt, net of zero and zero discount
                                
                                
                                111,298
                                
                                
                                
                                106,913Short-term
      debt and current portion of long-term debt
                                
                                
                                2,555,016
                                
                                
                                
                                2,683,450Accrued
      and other liabilities
                                
                                
                                694,312
                                
                                
                                
                                524,673Total
      current liabilities
                                
                                
                                12,139,668
                                
                                
                                
                                11,542,282Long-term
      liabilities:Long-term
      debt, net of current portion
                                
                                
                                180,484
                                
                                
                                
                                189,904Total
      long-term liabilities
                                
                                
                                180,484
                                
                                
                                
                                189,904Total
      Liabilities
                                
                                
                                12,320,152
                                
                                
                                
                                11,732,186Commitments
      and ContingenciesShareholders'
      equity (deficit):Preferred
      stock: 50,000,000 shares authorized of $0.001 par value;
      120,000shares
      designated Series A, $10.00 stated value; 0 issued and
      outstanding
                                
                                
                                -
                                
                                
                                
                                -as
      of October 31, 2009 and April 30, 2009Common
      stock: 250,000,000 shares  authorized of $0.001 par
      value;29,999,083
      and 28,360,322 shares issued and outstanding as of October
    31,2009
      and April 30, 2009
                                
                                
                                29,999
                                
                                
                                
                                28,360Additional
      paid-in capital
                                
                                
                                33,778,230
                                
                                
                                
                                30,344,251Accumulated
      deficit
                                
                                
                                (43,770,322
                                )
                                
                                
                                (39,825,769
                                )Accumulated
      comprehensive income
                                
                                
                                1,866
                                
                                
                                
                                1,681Total
      shareholders' equity (deficit)
                                
                                
                                (9,960,227
                                )
                                
                                
                                (9,451,477
                                )Total
      liabilities and shareholders' equity (deficit)
                                
                                $
                                2,359,925
                                
                                
                                $
                                2,280,709





The
accompanying notes are an integral part of these condensed consolidated
financial statements


6





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations (Unaudited)





Three Months Ended October
    31,2009
                
                
                2008Revenues
                
                $
                290,228
                
                
                $
                227,671Cost
      of revenues
                
                
                127,261
                
                
                
                111,975Gross
      profit
                
                
                162,967
                
                
                
                115,696General
      and administrative expenses:Consulting
      and professional fees
                
                
                29,046
                
                
                
                57,708Marketing
      and promotion
                
                
                12,000
                
                
                
                12,000Option
      bonus
                
                
                658,971
                
                
                
                618,614Bad
      debt expense
                
                
                5,600
                
                
                
                1,185Other
      general & administrative expenses
                
                
                538,876
                
                
                
                514,884Total
      general and administrative expenses
                
                
                1,244,493
                
                
                
                1,204,391(Loss)
      from operations
                
                
                (1,081,526
                )
                
                
                (1,088,695
                )Other
      income (expenses)Interest
      income
                
                
                215
                
                
                
                738Finance
      expense
                
                
                (1,054
                )
                
                
                (129,736
                )Interest
      expense
                
                
                (257,794
                )
                
                
                (374,359
                )Foreign
      exchange (loss) gain
                
                
                (6,452
                )
                
                
                660Other
      income and (expense)
                
                
                -
                
                
                
                1,920Total
      other income (expenses)
                
                
                (265,085
                )
                
                
                (500,777
                )Net
      loss
                
                $
                (1,346,611
                )
                
                $
                (1,589,472
                )Loss
      per common share:Basic
      and diluted
                
                $
                (0.05
                )
                
                $
                (0.06
                )Weighted
      average common shares outstanding:Basic
      and diluted
                
                
                29,548,760
                
                
                
                27,323,505Comprehensive
      loss:Net
      loss
                
                $
                (1,346,611
                )
                
                $
                (1,589,472
                )Other
      comprehensive loss:Foreign
      currency translation
                
                
                779
                
                
                
                58Comprehensive
      loss
                
                $
                (1,345,832
                )
                
                $
                (1,589,414
                )





The
accompanying notes are an integral part of these condensed consolidated
financial statements


7





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations (Unaudited)





Six Months Ended October
31,2009
                
                
                2008Revenues
                
                $
                653,340
                
                
                $
                604,351Cost
      of revenues
                
                
                257,858
                
                
                
                255,381Gross
      profit
                
                
                395,482
                
                
                
                348,970General
      and administrative expenses:Consulting
      and professional fees
                
                
                90,900
                
                
                
                182,964Marketing
      and promotion
                
                
                24,140
                
                
                
                24,000Option
      bonus
                
                
                2,631,364
                
                
                
                1,532,329Bad
      debt expense
                
                
                8,200
                
                
                
                27,185Other
      general & administrative expenses
                
                
                1,077,973
                
                
                
                1,106,559Total
      general and administrative expenses
                
                
                3,832,577
                
                
                
                2,873,037(Loss)
      from operations
                
                
                (3,437,095
                )
                
                
                (2,524,067
                )Other
      income (expenses)Interest
      income
                
                
                429
                
                
                
                2,382Finance
      expense
                
                
                (1,754
                )
                
                
                (294,099
                )Interest
      expense
                
                
                (505,113
                )
                
                
                (1,105,776
                )Foreign
      exchange (loss)
                
                
                (1,020
                )
                
                
                (1,860
                )Other
      income and (expense)
                
                
                -
                
                
                
                1,920Total
      other income (expenses)
                
                
                (507,458
                )
                
                
                (1,397,433
                )Net
      loss
                
                $
                (3,944,553
                )
                
                $
                (3,921,500
                )Loss
      per common share:Basic
      and diluted
                
                $
                (0.13
                )
                
                $
                (0.14
                )Weighted
      average common shares outstanding:Basic
      and diluted
                
                
                29,315,214
                
                
                
                27,214,497Comprehensive
      loss:Net
      loss
                
                $
                (3,944,553
                )
                
                $
                (3,921,500
                )Other
      comprehensive loss:Foreign
      currency translation
                
                
                185
                
                
                
                58Comprehensive
      loss
                
                $
                (3,944,368
                )
                
                $
                (3,921,442
                )





The
accompanying notes are an integral part of these condensed consolidated
financial statements


8





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(Unaudited)





Common
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    AccumulatedCommon
                    
                    
                    stock
                    
                    
                    paid-in
                    
                    
                    Accumulated
                    
                    
                    comprehensivestock
                    
                    
                    amount
                    
                    
                    capital
                    
                    
                    deficit
                    
                    
                    income
                    
                    
                    TotalBalance,
      April 30, 2008
                    
                    
                    27,059,423
                    
                    
                    $
                    27,059
                    
                    
                    $
                    28,079,334
                    
                    
                    $
                    (34,353,039
                    )
                    
                    $
                    -
                    
                    
                    $
                    (6,246,646
                    )Shares
      issued for cash
                    
                    
                    333,334
                    
                    
                    
                    334
                    
                    
                    
                    99,666
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    100,000Shares
      issued to employees
                    
                    
                    26,000
                    
                    
                    
                    26
                    
                    
                    
                    16,824
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    16,850Shares
      issued for services
                    
                    
                    69,252
                    
                    
                    
                    69
                    
                    
                    
                    27,893
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    27,962Shares
      issued under investor’s registration rightsagreement
                    
                    
                    15,300
                    
                    
                    
                    15
                    
                    
                    
                    13,602
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,617Shares
      issued upon conversion of debenture
                    
                    
                    191,213
                    
                    
                    
                    191
                    
                    
                    
                    191,021
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    191,212Shares
      issued upon conversion of Spot-On Networksdebenture
                    
                    
                    25,000
                    
                    
                    
                    25
                    
                    
                    
                    24,975
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,000Shares
      issued as payment on term debt
                    
                    
                    565,249
                    
                    
                    
                    565
                    
                    
                    
                    288,009
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    288,574Shares
      issued upon exercise of warrants
                    
                    
                    63,500
                    
                    
                    
                    64
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    64Shares
      issued upon cashless exercise of warrants
                    
                    
                    12,051
                    
                    
                    
                    12
                    
                    
                    
                    (12
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Warrants
      issued for debt issuance costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,918
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,918Stock
      options expensed
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,594,021
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,594,021Comprehensive
      loss, April 30, 2009
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,472,730
                    )
                    
                    
                    1,681
                    
                    
                    
                    (5,471,049
                    )Balance,
      April 30, 2009
                    
                    
                    28,360,322
                    
                    
                    
                    28,360
                    
                    
                    
                    30,344,251
                    
                    
                    
                    (39,825,769
                    )
                    
                    
                    1,681
                    
                    
                    
                    (9,451,477
                    )





The
accompanying notes are an integral part of these condensed consolidated
financial statements


9





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(Unaudited)





Common
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  AccumulatedCommon
                  
                  
                  stock
                  
                  
                  paid-in
                  
                  
                  Accumulated
                  
                  
                  comprehensivestock
                  
                  
                  amount
                  
                  
                  capital
                  
                  
                  deficit
                  
                  
                  income
                  
                  
                  TotalBalance,
      April 30, 2009
                  
                  
                  28,360,322
                  
                  
                  
                  28,360
                  
                  
                  
                  30,344,251
                  
                  
                  
                  (39,825,769
                  )
                  
                  
                  1,681
                  
                  
                  
                  (9,451,477
                  )Shares
      issued for cash
                  
                  
                  790,000
                  
                  
                  
                  790
                  
                  
                  
                  376,210
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  377,000Shares
      issued for services
                  
                  
                  49,872
                  
                  
                  
                  50
                  
                  
                  
                  23,450
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,500Shares
      issued as payment on term debt
                  
                  
                  796,389
                  
                  
                  
                  796
                  
                  
                  
                  397,398
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  398,194Shares
      issued upon exercise of warrants
                  
                  
                  2,500
                  
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3Warrants
      issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,721
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,721Warrants
      issued for debt issuance costs
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,836
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,836Stock
      options expensed
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,631,364
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,631,364Comprehensive
      loss, October 31, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,944,553
                  )
                  
                  
                  185
                  
                  
                  
                  (3,944,368
                  )Balance,
      October 31, 2009
                  
                  
                  29,999,083
                  
                  
                  $
                  29,999
                  
                  
                  $
                  33,778,230
                  
                  
                  $
                  (43,770,322
                  )
                  
                  $
                  1,866
                  
                  
                  $
                  (9,960,227
                  )





The
accompanying notes are an integral part of these condensed consolidated
financial statements


10





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows (Unaudited)





For the Six Months Ended
                  October 31,2009
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (3,944,553
                )
                
                $
                (3,921,500
                )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
                
                
                10,104
                
                
                
                5,448Accrued
      interest expense
                
                
                469,428
                
                
                
                365,898Accrued
      bad debt expense
                
                
                -
                
                
                
                25,000Amortization
      of debt issuance costs
                
                
                1,754
                
                
                
                195,778Amortization
      of service warrants
                
                
                3,721
                
                
                
                91,771Amortization
      of debt discounts
                
                
                -
                
                
                
                758,309Stock
      options expensed
                
                
                2,631,364
                
                
                
                1,532,329Stock
      issued to employees
                
                
                -
                
                
                
                18,100Stock
      issued for services
                
                
                21,000
                
                
                
                28,579Changes
      in operating assets and liabilities:(Increase)
      in accounts receivable
                
                
                (68,752
                )
                
                
                (58,565
                )(Increase)
      in prepaid expenses and other current assets
                
                
                (29,253
                )
                
                
                (19,590
                )Decrease
      in other noncurrent assets
                
                
                (59,424
                )
                
                
                (113,604
                )Increase
      in accounts payable
                
                
                74,486
                
                
                
                (3,423
                )(Decrease)
      increase in customer deposits
                
                
                (11,753
                )
                
                
                28,181Increase
      in accrued and other liabilities
                
                
                367,304
                
                
                
                407,969Net
      cash (used in) operating activities
                
                
                (534,574
                )
                
                
                (659,320
                )Cash
      flows from investing activities:Purchase
      of equipment
                
                
                (10,563
                )
                
                
                (14,871
                )Purchase
      of leasehold improvements
                
                
                (774
                )
                
                
                -Proceeds
      from equipment sale
                
                
                -
                
                
                
                870Net
      cash (used in) investing activities
                
                
                (11,337
                )
                
                
                (14,001
                )Cash
      flows from financing activities:Proceeds
      from term notes
                
                
                95,000
                
                
                
                420,000Repayments
      on term notes
                
                
                (59,206
                )
                
                
                -Proceeds
      from related parties
                
                
                43,000
                
                
                
                -Repayments
      to related parties
                
                
                (12,592
                )
                
                
                (62,101
                )Proceeds
      from stock issuances
                
                
                377,003
                
                
                
                53Net
      cash provided by financing activities
                
                
                443,205
                
                
                
                357,952Effect
      of exchange rate changes on cash
                
                
                1,109
                
                
                
                58Net
      increase (decrease) in cash
                
                
                (101,597
                )
                
                
                (315,311
                )Cash,
      beginning of the period
                
                
                144,842
                
                
                
                480,350Cash,
      end of the period
                
                $
                43,245
                
                
                $
                165,039





The
accompanying notes are an integral part of these condensed consolidated
financial statements


11





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows (Unaudited) (continued)





For the Six Months Ended
                  October 31,2009
                
                
                2008Non-cash
      investing and financing activities:Increase
      in construction in progress from accrued interest
                
                $
                35,116
                
                
                $
                29,394Common
      stock issued in exchange for convertible note
                
                $
                -
                
                
                $
                178,713Common
      stock issued to employees
                
                $
                -
                
                
                $
                5,100Common
      stock issued for services
                
                $
                23,500
                
                
                $
                2,413Common
      stock issued for note receivable
                
                $
                -
                
                
                $
                25,000Common
      stock issued as payment on term debt
                
                $
                398,194
                
                
                $
                11,784Supplemental
      cash flow disclosure:Interest
      paid
                
                $
                29,001
                
                
                $
                50,553Taxes
      paid
                
                $
                3,900
                
                
                $
                -





The
accompanying notes are an integral part of these condensed consolidated
financial statements


12


Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





1.      Condensed
consolidated financial statements





The
accompanying October 31, 2009 condensed consolidated financial statements have
been prepared by the Company without audit.  In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at October 31, 2009 and 2008 and for all periods presented have been
made.  Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted.  It is suggested that these condensed
consolidated financial statements be read in conjunction with the Company's
April 30, 2009 audited consolidated financial statements and related notes
included in the Company’s most recent Form 10-K as filed with the Securities and
Exchange Commission.  The results of operations for periods ended
October 31, 2009 and 2008 are not necessarily indicative of the operating
results for the full years.









2.      Organization





The
Company





Dot VN,
Inc., its predecessors, and its subsidiaries (the “Company” or “Dot VN”), is an
Internet and telecommunications company focused on the Vietnamese
market.  The Company intends to apply the benefits of best of breed
technology through strategic partnerships to deploy hardware, software and
wireless point-to-point layer one solution in Vietnam.  In order to
maximize the benefits the Company can derive from the technology, the Company
also intends:





·
            to
      drive growth in registrations of the Vietnamese ccTLD ‘.vn’;


·
            to
      build and operate Internet data centers in major city centers in
      Vietnam;


·
            to
      commercialize the use of multi-gigabit capacity virtual fiber systems, a
      wireless point-to-point layer one
solution;


·
            to
      commercialize the use of rack-level data center solutions meeting
      Tier III standards; and


·
            to
      identify, deploy and commercialize best of breed technologies and
      applications in Vietnam.





Dot VN
has signed agreements with the Vietnamese Internet Network Information Center
(“VNNIC”) to serve as the only domain name registrar empowered with independent
authority to approve domain names, in real time, online which provides Dot VN
with a competitive advantage vis-à-vis other domain name registrars (the “VNNIC
Registrars Agreement”).  The current VNNIC Registrars Agreement has no
fixed term.  On May 25, 2009, the Company signed an exclusive rights
agreement with VNNIC to promote and advertise the registration of the ‘.vn’ ccTLD with the
commercialization of a pay-per-click (“PPC”) parking page program for ‘.vn’ domain
registrations.





Dot VN is
currently in the process of designing an Internet data center (“IDC” in the
singular or “IDCs” in the plural) which will serve as an internal data and
telecommunications network within the country of Vietnam.  The IDCs
will provide web hosting, collocation, and disaster recovery services as well as
serve as the basic infrastructure for additional Internet and data technologies
such as virtual fiber connectivity, distance e-learning and e-government
projects.  The Company has secured a 35-year lease, ending September
21, 2043, for approximately 8,768 square meters of land in the Danang Industrial
Zone in Danang City, Vietnam upon which it intends to construct a dedicated IDC
building.  The IDC developments are anticipated to occur in the near
to mid-term.  In the long term, the Company intends to develop
additional IDCs in the rest of the Country of Vietnam.





Dot VN
has a signed agreement with E-Band Communications Corporation providing the
Company the exclusive right to distribute E-Band’s multi-gigabit capacity
virtual fiber systems and related E-Band technology and services (the
“E-Band Products”) in Vietnam, and the non-exclusive right to distribute E-Band
Products in Cambodia, Thailand and Laos.





Dot VN
has a signed agreement with Elliptical Mobile Solutions, LLC (“EMS”)
providing the Company the exclusive right to distribute EMS’s rack-level data
center solutions and related technology and services (the “EMS Products”) in
Vietnam, and the non-exclusive right to distribute EMS Products in
Asia.




13





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





2.      Organization
(continued)








Reverse
Merger





Malers,
Inc. was incorporated in the State of Delaware on May 27, 1998, under the name
Trincomali Ltd. (“Trincomali”).  Over the course of its history,
Trincomali underwent additional name changes until being renamed Malers, Inc.
(“Malers”) on April 28,
2005.  On June 19, 2006, Malers affected a 1 for 2,000 reverse stock
split of its 278,687,224 outstanding shares with fractional shares rounded up
resulting in 139,690 shares issued and outstanding post split.





Dot VN,
Inc., was incorporated in the State of California on March 27, 2001 under the
name Hi-Tek-Com-VN and was renamed Dot VN, Inc. (“Dot VN CA”) on August 3,
2005.  Dot VN CA signed its first contract September 18, 2003 with the
Vietnamese government to register the top level country code domain names
(“ccTLD”).





On July
17, 2006, Dot VN CA effected an Agreement and Plan of Merger by and among (i)
Dot VN CA, (ii) Malers, and (iii) Malers Acquisition Corp. (“MAC”), a Washington
corporation and wholly owned subsidiary of Malers, Inc., the completion of which
transaction resulted in (w) MAC merging with and into Dot VN CA there by ending
MAC’s corporate existence; (x) Dot VN CA becoming a wholly owned subsidiary of
Malers a Delaware corporation; (y) Dot VN CA being renamed “Hi-Tek Multimedia,
Inc.” a California corporation; and (z) Malers being renamed “Dot VN, Inc.” a
Delaware corporation (the “Malers Merger”).  Final state regulatory
approval was received on August 17, 2006.  In connection with the
merger, the 14,232,250 outstanding shares Dot VN CA Common Stock were exchanged
for 11,368,068 shares of the Company’s Common Stock.  There were no
outstanding stock options or warrant to purchase a share of Dot VN CA Common
Stock.





Prior to
the merger, Malers was an inactive shell corporation quoted on the Pink Sheets
and had engaged in no substantive business operations.





For
accounting purposes, the acquisition has been treated as a recapitalization of
Dot VN CA with Dot VN CA as the acquirer (reverse acquisition).  Dot
VN CA was treated as the acquirer for accounting purposes because after the
acquisition the shareholders of Dot VN CA controlled Malers and the officers and
directors of Dot VN CA assumed the same positions at Malers; Malers is the
surviving entity for legal purposes.  The historical financial
statements prior to July 17, 2006 are those of Dot VN CA.





3.      Prepaid
expenses and other current assets





Prepaid
expenses and other current assets at October 31, 2009 and April 30, 2009
consisted of the following:





October
      31,
                  
                  
                  April
      30,2009
                  
                  
                  2009Prepaid
      expenses
                  
                  $
                  25,019
                  
                  
                  $
                  22,743Prepaid
      land lease, Danang City, Vietnam
                  
                  
                  259,040
                  
                  
                  
                  207,718Vietnam
      value added tax ("VAT") receivable
                  
                  
                  16,651
                  
                  
                  
                  9,147VNNIC
      Deposit
                  
                  
                  9,480
                  
                  
                  
                  4,130Miscellaneous
      receivable
                  
                  
                  20,437
                  
                  
                  
                  3,909330,627
                  
                  
                  
                  247,647Less
      prepaid land lease included in othernoncurrent
      assets  (see Note 7)
                  
                  
                  251,398
                  
                  
                  
                  200,086Total
      prepaid expenses and other current assets
                  
                  $
                  79,229
                  
                  
                  $
                  47,561


14





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





3.      Prepaid
expenses and other current assets (continued)





On August
21, 2008, Dot VN Company, Ltd. (Danang City), an entity existing under the laws
of the Country of Vietnam (“Dot VN Danang”), a wholly owned subsidiary of the
Dot VN, Inc., entered into a Land Sublease Agreement (the “Land Sublease”)
with Massda Land Company Limited, an entity existing under the laws of the
Country of Vietnam.  Pursuant to the Land Sublease, Dot VN Danang
leases approximately 8,768 square meters of land in the Danang Industrial Zone,
known as Lot 47, in Danang City, Vietnam, for the express purpose of building an
Internet data center and related uses, for a term of approximately 35 years
expiring September 21, 2043.  Base rent is $32/square meter, excluding
value added taxes (“VAT”) and other possible fees and costs, for the term is
payable in three installments of 50%, 30% and 20%.  Base rent
(excluding VAT) of $140,293, $84,175 and $56,118 was paid September 22, 2008,
March 16, 2009 and August 27, 2009, respectively.  Lease expense
charged to operations was $3,855 and $5,530 for the six months ended October 31,
2009 and the year ended April 30, 2009.





Dot VN
Danang is required to bill and collect from its customers a Ten Percent (10%)
VAT.  In addition, Dot VN Danang can offset its obligation to pay the
VAT collected from its customers with the VAT it pays to others during the tax
reporting period (typically a calendar quarter) and can request a refund, if the
amount overpaid/collected is greater than 200,000,000 VND (approximately
$11,000).  For the period from inception through December 31, 2008,
Dot VN Danang received a $13,000 refund of VAT paid, principally on the first
payment of the Land Sublease.  For the nine month period ending
September 30, 2009, Dot VN Danang requested a refund of $16,276, principally on
the second and final payments of the Land Sublease, which was received on
November 5, 2009.  In addition, Dot VN Danang has paid $375 of VAT
during October, for which it will request a refund from the taxing
authority.





The
Company maintains a credit balance with the VNNIC from which it pays the domain
name registration and renewal fees incurred daily.  The balance as of
October 31 and April 30, 2009 was $9,480 and $4,130, respectively.





During
the six months ended October 31, 2009 and year ended April 30, 2009, the Company
provided administrative and technical support to Business.VN, a Nevada
corporation, for an aggregate fee of $1,500 per month; in addition the Company
also provides office space to Business.VN for an aggregate fee of $1,000 per
month.  Business.VN, which develops travel related Internet
applications focused on the emerging market in the country of Vietnam, is
majority owned by Hi-Tek, Inc. a privately held California corporation (“Hi-Tek
Private”), previously a related party (see Note 10).  The balance owed
the Company as of October 31 and April 30, 2009 was $15,000 and
zero.





4.      Notes
receivable





During
the year ended April 30, 2009, the Company issued an aggregate of 25,000
restricted shares of its Common Stock pursuant to the conversion of $25,000
convertible debenture issued by Spot-On Networks, LLC (“Spot-On”).  On
January 31 and February 9, 2007 the Company issued a series of convertible
debentures (see Note 8) for an aggregate of $1,148,212 due January 31, 2009 (the
“February Financing”) which convert at the option of each individual noteholder
(the “February Investors”) into restricted shares of the Company’s Common Stock
at $1.00 per share.  The February Financing was funded in conjunction
with a like amount of convertible debentures issued concurrently by Spot-On to
the February Investors (the “Spot-On Debenture”).  The February
Financing terms required that the convertible debentures issued by Spot-On be
convertible into either membership units of Spot-On or common stock of the
Company, at the option of the February Investors.  Upon the February
Investors’ election to convert a Spot-On Debenture into the Company’s Common
Stock the Spot-On Debenture is assigned and transferred into the name of the
Company (the “Assigned Spot-On Debentures”) at which time the Company issues the
Common Stock and records a note receivable.  Future monthly interest
payments, at Ten Percent (10%) per annum, accrue for the benefit of the Company;
during the six months ended October 31, 2009 and the year ended April 30, 2009
interest of $11,908 and $23,368 has accrued, respectively.  On January
31, 2009, at maturity, the Spot-On Conversion right expired and the Assigned
Spot-On Debentures principal and accrued interest was due to be paid by
Spot-On.  On January 30, 2009, the Company received a request from
Spot-On to (i) extend the maturity date to March 31, 2009 and (ii) waive any
defaults under the Assigned Spot-On Debentures or any of the related documents
or events of default which are outstanding or have occurred (the “Spot-On
Offer”).  The Company did not accept the Spot-On Offer and continues
discussing options to receive the full amount due, with accrued
interest.  To date the Company has not received any payment from
Spot-On on the Assigned Spot-On Debentures and Spot-On is unable to provide the
Company with a firm repayment date as they negotiated to raise funds to satisfy
their obligation under the Spot-On Debentures.


15





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (unaudited)


As
of October 31, 2009





4.      Notes
receivable (continued)





Spot-On
is a private company and does not furnish the Company with financial statements
to evaluate their ability to pay the Assigned Spot-On Debentures principal and
accrued interest, currently in default.  The Company’s ability to
collect the Assigned Spot-On Debentures is dependent on Spot-On’s ability to
raise additional financing.  Due to the uncertainty of collection the
Company has recorded a bad debt expense for the full amount of the Assigned
Spot-On Debentures principal and does not record the monthly accrual of
interest.  Interest income ($39,106) will be recognized upon
collection from Spot-On.





October
      31,
                  
                  
                  April
      30,2009
                  
                  
                  2009Notes
      receivable
                  
                  $
                  236,213
                  
                  
                  $
                  236,213Less
      allowance
                  
                  
                  236,213
                  
                  
                  
                  236,213Notes
      receivable, net
                  
                  $
                  -
                  
                  
                  $
                  -





5.      Equipment





Equipment
at October 31 and April 30, 2009 consisted of the following:





October
      31,
                  
                  
                  April
      30,2009
                  
                  
                  2009Computer
      equipment
                  
                  $
                  66,477
                  
                  
                  $
                  57,374Other
      furniture and equipment
                  
                  
                  16,581
                  
                  
                  
                  15,167Leasehold
      improvements
                  
                  
                  4,614
                  
                  
                  
                  3,853Internet
      data center, construction in progress
                  
                  
                  723,031
                  
                  
                  
                  687,915810,703
                  
                  
                  
                  764,309Less
      accumulated depreciation and amortization
                  
                  
                  33,588
                  
                  
                  
                  23,493Equipment,
      net
                  
                  $
                  777,115
                  
                  
                  $
                  740,816





Depreciation
expense charged to operations was $9,004 and $12,419 for the six months ended
October 31, 2009 and the year ended April 30, 2009,
respectively.  Amortization expense charged to operations was $1,100
and $193 for the six months ended October 31, 2009 and the year ended April 30,
2009, respectively.  Capitalized interest on borrowings related to the
Internet data center was $35,116 and $64,620 for the six months ended October
31, 2009 and the year ended April 30, 2009, respectively.





6.      Intangibles
assets





On
October 16, 2006 the Company acquired the rights to the US trademark “Dot VN”
including its logo and certain related domain names for $360,000 in the form of
a two year convertible note (see Note 8) from Hi-Tek Private, previously a
related party (see Note 10).  The trademark was determined to have an
indefinite useful life and is not amortized.





On June
29, 2007, the Company acquired the rights to the Vietnam trademark “Dot VN” from
Business.com.VN, Co. Ltd. for 285,000 shares of the Company’s Common Stock and a
convertible note (see Note 8) in the amount of $100,000 due in one year (the
“Business.com.VN Agreement”).  The note, which accrues no interest
during its term, was recorded at its present value based on an Eight Percent
(8%) interest rate assumption.  The aggregate consideration of
$662,336 was recorded as an indefinite lived intangible asset and is not
amortized.


16





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





6.      Intangibles
assets (continued)





Indefinite
lived assets are not amortized, but instead are evaluated for impairment
annually and if events or changes in circumstances indicate that the carrying
amount may not be recoverable in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (the “Codification”) topic
350-30.  If the carrying amount of an intangible asset exceeds its
fair value, an impairment loss is recognized in an amount equal to that
excess.  After an impairment loss is recognized, the adjusted carrying
amount of the intangible asset is its new accounting
basis.  Subsequent reversal of a previously recognized impairment loss
is prohibited.  There was no change in the carrying amount of
intangible assets during the six months ended October 31, 2009 or the year ended
April 30, 2009.





7.      Other
noncurrent assets





Other
noncurrent assets at October 31 and April 30, 2009 consisted of the
following:





October
      31,
                  
                  
                  April
      30,2009
                  
                  
                  2009Deposits
                  
                  $
                  19,922
                  
                  
                  $
                  12,241Deferred
      debt issuance cost
                  
                  
                  8,300
                  
                  
                  
                  8,218Prepaid
      land lease, Danang City, Vietnam (see Note 3)
                  
                  
                  251,398
                  
                  
                  
                  200,086Other
      noncurrent assets
                  
                  
                  395
                  
                  
                  
                  776Total
      other noncurrent assets
                  
                  $
                  280,015
                  
                  
                  $
                  221,321





In
connection with the January 31 and February 9, 2007 issuance of a series of
convertible debentures (see Note 8) the Company paid the placement agent a Ten
Percent (10%) cash fee ($114,821) and issued warrants (see Note 13) for the
purchase of an aggregate of 298,480 shares of the Company’s Common Stock with a
fair value of $731,340.  The Company capitalized the $846,161 as a
deferred charge associated with the issuance of these debt
instruments.  The deferred charge was amortized on a straight-line
basis over the two year term of the debt with zero and $131,656 expensed in the
six months ended October 31, 2009 and the year ended April 30, 2009,
respectively.





Following
the January 31, 2009 maturity of the convertible debentures (see Note 8) the
Company contacted the February Investors for an extension of the due date in
exchange for modified terms, to include an amortized term note (see Note 9) and
warrants.  The Company issued a series of warrants to thirteen
(13) February Investors for the purchase of an aggregate of 36,623
restricted shares of the Company’s Common Stock (see Note 13) with a fair value
of $10,754 capitalized as a deferred charge associated with the issuance of
these debt instruments.  The deferred charge is amortized on a
straight-line basis over the approximate thirty-six month term of the debt with
$1,754 and $700 expensed in the six months ended October 31, 2009 and the year
ended April 30, 2009, respectively.  Amortization for the year ended
April 30, 2010 will be $3,390.


17







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





8.      Convertible
notes





As of
October 31, 2009, convertible notes consist of the following:





Issued date
                      
                      Maturity
                      
                      Conversion
                        price
                      
                      
                      Amount
                      
                      
                      Debt
                        discount
                      
                      
                      Accrued
                        interest
                      
                      
                      Net amountConvertible
      Note 1
                      
                      Oct.
      16, 2006
                      
                      Dec.
      31, 2009
                      
                      $
                      1.00
                      
                      
                      $
                      360,000
                      
                      
                      $
                      -
                      
                      
                      $
                      127,614
                      
                      
                      $
                      487,614Convertible
      Notes 2
                      
                      Feb.
      9, 2007
                      
                      Jan.
      31, 2009
                      
                      $
                      1.00
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Convertible
      Note 3
                      
                      June
      29, 2007
                      
                      Dec.
      31, 2009
                      
                      $
                      1.43
                      
                      
                      
                      92,336
                      
                      
                      
                      -
                      
                      
                      
                      18,962
                      
                      
                      
                      111,298Convertible
      Notes 4
                      
                      Aug.
      1, 2007
                      
                      Aug.
      1, 2008
                      
                      $
                      1.43
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Convertible
      Notes 5
                      
                      Aug.
      14,2008
                      
                      Mar.
      31, 2009
                      
                      $
                      1.43
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Convertible
      Notes 6
                      
                      Apr.
      20, 2009
                      
                      Dec.
      31, 2009
                      
                      $
                      0.30
                      
                      
                      
                      5,769,316
                      
                      
                      
                      -
                      
                      
                      
                      250,213
                      
                      
                      
                      6,019,529Convertible
      Note 7
                      
                      July
      6, 2009
                      
                      Dec.
      31, 2009
                      
                      $
                      0.46
                      
                      
                      
                      113,244
                      
                      
                      
                      -
                      
                      
                      
                      2,958
                      
                      
                      
                      116,2026,334,896
                      
                      
                      
                      -
                      
                      
                      
                      399,747
                      
                      
                      
                      6,734,643


Less
      notes 1, 6, and 7 included in due to related parties, current (see Note
      10)
                
                
                6,242,560
                
                
                
                -
                
                
                
                380,785
                
                
                
                6,623,345Less
      note 3 included in short-term convertible debt
                
                
                92,336
                
                
                
                -
                
                
                
                18,962
                
                
                
                111,298Long-term
      convertible notes, net of current portion
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -





Convertible
Note 1 for $360,000 was issued on October 16, 2006 with a two year term,
converts at the option of the holder into restricted shares of the Company’s
Common Stock at $1.00 per share and bears an interest rate of Ten Percent (10%)
per annum.  The note is payable to Hi-Tek Private, a former related
party (see Note 10), (the “Hi-Tek Trademark Loan”) (see Note 6), had accrued
interest of $127,614 at October 31, 2009.  The beneficial conversion
feature was calculated to be $360,000 at the time of issuance in accordance with
Codification topic 470-20; the Company recorded this amount as debt discount
with a corresponding credit to additional paid in capital.  On October
13, 2008, the Hi-Tek Trademark Loan was amended to extend the due date to June
30, 2009, with no other change to the terms of the note or conversion
feature.  On June 25, 2009, the Hi-Tek Trademark Loan was amended to
extend the due date to December 31, 2009, with no other change to the terms of
the note or conversion feature.  In accordance with Codification topic
470-20, there is no beneficial conversion feature at the time of the two
extensions.  As of October 31, 2009, the unamortized debt discount was
zero.  On December 2, 2009, the unpaid note and accrued interest
($491,890.92) was cancelled and replaced with a convertible note due June 30,
2010 which converts at the option of the holder, in whole or in part, into
restricted shares of the Company’s Common Stock at $0.38 per share and bears an
interest rate of Ten Percent (10%) per annum.  In accordance with
Codification topic 470-20, there is no beneficial conversion feature at the time
of the new convertible note.





Convertible
Notes 2 are a set of sixteen (16) convertible debentures with an aggregate face
value of $949,500 issued January 31 and February 9, 2007 (the “February
Debentures”), net of conversions, which were due January 31,
2009.  The convertible debentures bear no interest until July 2007 at
which point they accrue Ten Percent (10%) per annum with interest payable
monthly.  The Company accrued interest over the term of the February
Debentures at an imputed rate of approximately Eight Percent (8%) per annum
effective from the date the convertible debentures were issued.  The
debentures convert at the option of each individual noteholder (the “February
Investors”) into restricted shares of the Company’s Common Stock at $1.00 per
share; representing a beneficial conversion feature.  In addition, the
February Investor received a detachable warrant exercisable into restricted
shares of the Company’s Common Stock; the number of shares of each warrant is
equal to 30% of the note face value for an aggregate of 344,465 shares
amount.  The detachable warrants have an exercise price of $2.00 per
share and a term of five years from the date of issuance.  The
combined fair value of the beneficial conversion feature and detachable warrants
calculated, in accordance with Codification topic 470-20, is limited to the
proceeds of the debt and was allocated between the beneficial conversion feature
and detachable warrants as $888,258 and $259,954, respectively.  The
beneficial conversion feature and detachable warrants are recorded as debt
discount with a corresponding credit to additional paid in capital and were
amortized over the life of the February Debentures.  During the year
ended April 30, 2009, five (5) February Investors exercised the conversion
option, prior to the January 31, 2009 expiration of the conversion option, on an
aggregate of $191,212 convertible debenture.  Upon conversion, $44,991
of unamortized debt discount for the converted debenture was
expensed.


18





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





8.      Convertible
notes (continued)





The
Company did not repay the $949,500 due the sixteen (16) February Investors
and is negotiating an extension of the due date with the February
Investors.  During March 2009, six (6) of the February Investors
agreed to modify the terms of their February Debentures aggregating $125,000 as
follows: (i) the February Debenture plus the unpaid liquidated damages ($10,125)
are combined into a single amortized term note for each of the six (6) February
Investors, (ii) interest accrues from February 1, 2009 at Twelve Percent (12%)
per annum, (iii) a one-time Fifteen Percent (15%) principal payment was paid in
March, and (iv) commencing April 1, 2009, the unpaid balance will be amortized
over thirty-five (35) equal monthly payments.  On April 13, 2009, one
(1) of the February Investors agreed to modify the terms of his $49,500 February
Debentures as follows: (i) the February Debenture plus the unpaid liquidated
damages ($4,455) are combined into a single amortized term note, (ii) interest
accrues from February 1, 2009 at Twelve Percent (12%) per annum, (iii) a
one-time Fifteen Percent (15%) principal payment was paid in April for March,
and (iv) commencing April 1, 2009, the unpaid balance will be amortized over
thirty-five (35) equal monthly payments.  During May 2009, three (3)
of the February Investors agreed to modify the terms of their February
Debentures aggregating $112,500 as follows: (i) the February Debenture plus the
unpaid liquidated damages ($10,125) are combined into a single amortized term
note for each of the three (3) February Investors, (ii) interest accrues from
February 1, 2009 at Twelve Percent (12%) per annum, (iii) a one-time Fifteen
Percent (15%) principal payment was paid in May, and (iv) commencing June 1,
2009, the unpaid balance will be amortized over thirty-six (36) equal monthly
payments.  On August 25, 2009, three (3) of the February Investors
agreed to modify the terms of their February Debentures aggregating $50,000 as
follows: (i) the February Debenture plus the unpaid liquidated damages ($4,500)
are combined into a single amortized term note, (ii) interest accrues from
February 1, 2009 at Twelve Percent (12%) per annum, (iii) a one-time Fifteen
Percent (15%) principal payment was paid in September, and (iv) commencing
October 1, 2009, the unpaid balance will be amortized over thirty-nine (39)
equal monthly payments.  In addition, warrants aggregating 36,623
shares were issued to the thirteen (13) February Investors, upon agreeing to
modify the terms of their February Debentures, with a $2 exercise price expiring
on January 31, 2012 (collectively the “Extended Debentures”).  Three
(3) February Investors holding February Debentures aggregating $612,500 have not
responded to the Company’s request to modify their repayment terms, these
amounts, which are no longer convertible into common stock of the Company, are
included under term-debt as a current obligation (see Note 9).





The
February Debentures were funded in conjunction with a like amount of convertible
debentures issued concurrently by Spot-On Networks, LLC (“Spot-On”) to the
February Investors.  The terms of the February Debentures required
that the convertible debentures issued by Spot-On be convertible into either
membership units of Spot-On or common stock of the Company (the “Spot-On
Conversion”), at the option of the February Investors (see Note
4).  The Spot-On Conversion right expired on January 31,
2009.





Additionally,
pursuant to its engagement of Pali Capital, Inc., the Company’s placement agent
in the February Debentures, the Company paid a cash fee equal to Ten Percent
(10%)  of the aggregate convertible debentures and issued three series
of warrants: (i) retainer warrants issued on January 31, 2007 totaling in the
aggregate 250,000 shares exercisable at a per share price of $0.001 (the “Pali
Retainer Warrants”); (ii) placement warrants issued on February 9,
2007  totaling in the aggregate 229,600 shares exercisable at a per
share price of $1.00 (the “Pali Placement Warrants A”); and (iii) placement
warrants issued on February 9, 2007 totaling in the aggregate 68,880 shares
exercisable at a per share price of $2.00 (the “Pali Placement Warrants B”)
(collectively the “Pali Placement Agent Warrants”).  The Pali
Placement Agent Warrants have a term of five (5) years from the date of issuance
(see Note 13).  The Pali Retainer Warrants were expensed over the one
year engagement term and the two placement warrants were expensed over the two
year term of the February Debentures as deferred debt issuance costs (see Note
7).  Upon exercise of a Pali Placement Agent Warrants the unamortized
deferred debt issuance costs was expensed.




19





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





8.      Convertible
notes (continued)





On
February 9, 2007, in connection with the February Debentures, the Company
executed an investor’s registration rights agreement (the “IRRA”) by and between
the February Investor participating in the February Debentures and the
Company.  Pursuant to the terms of the IRRA, in connection with the
February Debentures, the Company is required to file a registration statement on
Form S-1 or SB-2 by August 15, 2007 (the “Registration Deadline”) and further
required that the registration statement be declared effective 120 days from the
date of the IRRA filing.  In the event that the Registration Deadline
is not met, the February Investors shall be entitled to liquidated damages equal
to One Percent (1%) of the outstanding convertible debentures issued in the
February Debentures paid, at the option of the February Investors, in cash or
restricted shares of the





Convertible
Note 3 for $100,000 was issued on June 29, 2007 to Business.com.VN, a Vietnamese
company, converts at the option of the holder into shares of the Company’s
restricted Common Stock at $1.43 per share and bears no interest during the one
year term.  The note was recorded at the present value of $92,336
based on the state default interest rate of Eight Percent (8%) per annum after
the original maturity date of June 29, 2008 (see Note 6) (the “Business.com.VN
Loan”).  The Company has accrued interest of $18,962 at October 31,
2009.  The beneficial conversion feature was calculated to be $39,860
at the time of issuance in accordance with Codification topic 470-20; the
Company recorded this amount as debt discount with a corresponding credit to
additional paid in capital.  On July 23, 2008, the Business.com.VN
Loan was amended to extend the due date to June 30, 2009 and accrue interest at
the rate of Eight Percent (8%) per annum; there was no change to the conversion
feature.  On June 25, 2009, the Business.com.VN Loan was amended to
extend the due date to December 31, 2009, with no other change to the terms of
the note or conversion feature.  In accordance with Codification topic
470-20, there is no beneficial conversion feature at the time of the two
extensions.  As of October 31, 2009 the unamortized debt discount was
zero.  On December 2, 2009, the unpaid note and accrued interest
($112,078.93) was cancelled and replaced with a new convertible note due June
30, 2010 which converts at the option of the holder, in whole or in part, into
restricted shares of the Company’s Common Stock at $0.38 per share and bears an
interest rate of Eight Percent (8%) per annum.  In accordance with
Codification topic 470-20, there is no beneficial conversion feature at the time
of the new convertible note.





Convertible
Notes 4 were a set of two individual notes with an aggregate face value of
$3,978,132 issued August 1, 2007 to Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, (50%) (the “TJ First
Note”) and Dr. Lee Johnson, the Company’s President, Chief Technology Officer,
and Chief Financial Officer, (50%) (the “LJ First Note”) issued in satisfaction
of unpaid accrued salary, including interest, from January, 2003 through June,
2007 by each of Mr. Thomas Johnson and Dr. Lee Johnson under their respective
employment agreements with the Company.  The notes were due August 1,
2008 and accrued interest monthly at Eight Percent (8%) per annum (see Note
10).  At the election of the holder, the amount due and owing pursuant
to such note may be converted in restricted shares of the Company’s Common Stock
at a per share price of $1.43 per share (the “Conversion Price”).  The
Conversion Price shall be adjusted downward in the event Dot VN issues common
stock (or securities exercisable for or convertible into common stock) at a
price below the Conversion Price, to a price equal to such issue
price.  The beneficial conversion feature was calculated to be an
aggregate of $1,446,594 at the time of issuance in accordance with Codification
topic 470-20; the Company recorded this amount as debt discount with a
corresponding credit to additional paid in capital.  On August 14,
2008, the unpaid notes and accrued interest ($343,401) were cancelled and
replaced with new convertible notes with materially the same terms and
conditions as Convertible Notes 4, with an aggregate face value of $4,321,533
issued to Mr. Thomas Johnson (50%) and Dr. Lee Johnson (50%) (see Convertible
Notes 5).




20





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





8.      Convertible
notes (continued)





Convertible
Notes 5 are a set of two individual notes with an aggregate face value of
$4,321,533 issued August 14, 2008 to Mr. Thomas Johnson (50%) (the “TJ Second
Note”) and Dr. Lee Johnson (50%) (the “LJ Second Note”) in exchange for the
unpaid balance owed under Convertible Notes 4 which were
cancelled.  The notes were due February 15, 2009 and accrued interest
monthly at Eight Percent (8%) per annum (see Note 10).  At the
election of the holder, the amount due and owing pursuant to such note may be
converted in restricted shares of the Company’s Common Stock at a per share
price of $1.43 per share (the “Conversion Price”).  The Conversion
Price shall be adjusted downward in the event Dot VN issues common





Convertible
Notes 6 are a set of two individual notes with an aggregate face value of
$5,769,316 issued April 20, 2009 to Mr. Thomas Johnson (50%) (the “TJ Third
Note”) and Dr. Lee Johnson (50%) (the “LJ Third Note”) issued (i) in exchange
for the unpaid balance owed under Convertible Notes 5 ($4,561,262) which were
cancelled and (ii) in satisfaction of unpaid accrued salary and interest
accruing since July 1, 2007 through January 31, 2009 by each of Mr. Thomas
Johnson ($604,027) and Dr. Lee Johnson ($604,027) under their respective
employment agreements with the Company.  The notes are due October 16,
2009 and accrued interest monthly at Eight Percent (8%) per annum (see Note
10).  At the election of the holder, the amount due and owing pursuant
to such note may be converted in restricted shares of the Company’s Common Stock
at a per share price of $0.30 per share (the “Conversion Price”).  The
Conversion Price shall be adjusted downward in the event Dot VN issues common
stock (or securities exercisable for or convertible into or exchangeable for
common stock) at a price (the “Subsequent Price”) below the Conversion Price
times Ninety percent (90%), to a price equal to such Subsequent Price times One
hundred Ten percent (110%)(the “Adjusted Conversion Price”).  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of issuance.  On October 12, 2009, the TJ Third
Note and the LJ Third Note were amended to extend the due date two and one-half
months to December 31, 2009 with no other change to the terms of the
notes.  The Company had accrued interest of $250,213 as of October 31,
2009.  On November 17, 2009, the Company agreed to a 50% conversion of
the outstanding balances held by Thomas Johnson ($1,510,489.50) and Lee Johnson
($1,510,489.50) at $0.30 per share and issued 5,034,965 restricted shares of the
Company’s Common Stock and a $1,510,489.50 convertible note due June 30, 2010
with materially the same terms as the cancelled notes each to Thomas Johnson and
Lee Johnson.





Convertible
Note 7 for $113,244 was issued on July 6, 2009 to Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary, in satisfaction of unpaid accrued salary,
including interest, from August 7, 2007 through July 6, 2009 under Mr. Huynh’s
employment agreement with the Company (the “Huynh Note”).  The note is
due October 16, 2009 and accrues interest monthly at Eight Percent (8%) per
annum.  The Company had accrued interest of $2,958 as of October 31,
2009.  The beneficial conversion feature was calculated to be zero at
the time of issuance in accordance with Codification topic 470-20.  At
the election of the holder, the amount due and owing pursuant to such note may
be converted in restricted shares of the Company’s Common Stock at a per share
price of $0.46 per share (the “Conversion Price”).  The Conversion
Price shall be adjusted downward in the event Dot VN issues common stock (or
securities exercisable for or convertible into or exchangeable for common stock)
at a price (the “Subsequent Price”) below the Conversion Price times Ninety
percent (90%), to a price equal to such Subsequent Price times One hundred Ten
percent (110%)(the “Adjusted Conversion Price”).  On October 12, 2009,
the Huynh Note was amended to extend the due date two and one-half months to
December 31, 2009 with no other change to the terms of the notes.  The
Company has accrued interest of $2,959 at October 31, 2009.


21





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





9.      Term
debt





As of
October 31 and April 30, 2009 term debt consists of the following:





October 31,
                  
                  
                  April 30,2009
                  
                  
                  2009Term
      Note 1
                  
                  $
                  772,382
                  
                  
                  $
                  734,055Term
      Notes 2, 3, 4, 9, 10, 11, and 14
                  
                  
                  1,582,448
                  
                  
                  
                  1,503,905Term
      Note 5
                  
                  
                  -
                  
                  
                  
                  266,797Term
      Note 6
                  
                  
                  -
                  
                  
                  
                  -Term
      Note 7
                  
                  
                  -
                  
                  
                  
                  76,649Term
      Note 8
                  
                  
                  -
                  
                  
                  
                  54,749Term
      Notes 12
                  
                  
                  675,046
                  
                  
                  
                  684,381Term
      Notes 13
                  
                  
                  282,167
                  
                  
                  
                  286,873Term
      Notes 15 and 16
                  
                  
                  185,719
                  
                  
                  
                  -Term
      Note 17
                  
                  
                  18,246
                  
                  
                  
                  -Term
      Note 18
                  
                  
                  10,120
                  
                  
                  
                  -Term
      Note 19
                  
                  
                  10,006
                  
                  
                  
                  -3,536,134
                  
                  
                  
                  3,607,409Less
      short-term debt and current portion of long-term debt:Short-term
      notes 2 through 11, notes 14 through 16 and note 18
                  
                  
                  1,778,287
                  
                  
                  
                  1,902,100Notes
      12
                  
                  
                  675,046
                  
                  
                  
                  684,381Current
      portion of notes 13
                  
                  
                  101,683
                  
                  
                  
                  96,9692,555,016
                  
                  
                  
                  2,683,450Less
      notes 1, 17 and 19 included in due to related parties (see Note
      10)
                  
                  
                  800,634
                  
                  
                  
                  734,055Long-term
      debt, net of current portion
                  
                  $
                  180,484
                  
                  
                  $
                  189,904





Term Note
1 executed by the Company on May 1, 2007 with Hi-Tek Private, previously a
related party (see Note 10), for $600,000; the short-term note was due November
1, 2007 with interest at Ten Percent (10%)  per annum (the “Hi-Tek IDC
Loan”).  Proceeds were used to fund general operations and the initial
design services for the Internet data center (“IDC”) in Vietnam.  On
April 30, 2008, the Hi-Tek IDC Loan was amended to extend the due date to
September 1, 2008 with no other change to the terms.  On September 2,
2008, the Hi-Tek IDC Loan was amended to extend the due date to June 30, 2009
with no other change to the terms.  Additional, on June 25, 2009, the
Hi-Tek IDC Loan was further amended to extend the due date to December 31, 2009
with no other change to the terms.





Term Note
2 executed by the Company on September 14, 2007 with Vina Mex Capital, a
California limited liability company, for $700,000; the  promissory
note was due November 14, 2007.  Interest accrues monthly at a rate of
Ten Percent (10%) per annum (the “Vina Mex 1st
Loan”).  Proceeds were used to fund general operations and the initial
design services for the first IDC in Vietnam.  On April 30, 2008, the
Vina Mex 1st Loan
was amended to extend the due date to September 1, 2008 with no other change to
the terms.  On September 2, 2008, the Vina Mex 1st Loan
was amended to extend the due date to June 30, 2009 with no other change to the
terms.  On February 3, 2009 Vina Mex Capital assigned, without
recourse, the Vina Mex 1st Loan to
IDCG SA de CV, a corporation established under the laws of the Country of
Mexico.  Additional, on June 25, 2009, the Vina Mex 1st Loan
was further amended to extend the due date to December 31, 2009 with no other
change to the terms.


22





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





9.      Term
debt (continued)





Term Note
3 executed by the Company on September 16, 2008 with Vina Mex Capital, for
$200,000; the promissory note was due March 31, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Vina Mex 2nd
Loan”).  Proceeds were primarily used to fund the initial Dot VN
Danang payment on the Land Sublease pursuant to which Dot VN Danang leases
approximately 8,768 square meters of land in the Danang Industrial Zone in
Danang City, Vietnam, for the express purpose of building an Internet data
center and related uses, for a term of approximately 35-years.  On
February 3, 2009 Vina Mex Capital assigned, without recourse, the Vina Mex
2nd
Loan to IDCG SA de CV.  On March 25, 2009, the Vina Mex 2nd Loan
was amended to extend the due date to September 30, 2009 with no other change to
the terms.  Additional, on October 8, 2009, the Vina Mex 2nd Loan
was further amended to extend the due date to December 31, 2009 with no other
change to the terms.





Term Note
4 executed by the Company on October 17, 2008 with Vina Mex Capital, for
$100,000; the promissory note was due September 17, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Vina Mex 3rd
Loan”).  Proceeds were used to fund general operations.  On
February 3, 2009 Vina Mex Capital assigned, without recourse, the Vina Mex
3rd
Loan to IDCG SA de CV.  On October 8, 2009, the Vina Mex 3rd Loan
was further amended to extend the due date to December 31, 2009 with no other
change to the terms.





Term Note
5 executed by the Company on March 29, 2008 with Ms. Aussy Manuhu for $250,000;
the promissory note was due March 30, 2009.  Interest accrues monthly
at a rate of Ten Percent (10%) per annum (the “Aussy Note”).  Proceeds
were used to fund general operations.  On October 31, 2008, the
Company issued 11,667 restricted shares of the Company’s Common Stock valued at
the market close and recorded as an $11,784 payment on the Aussy
Note.  On March 4, 2009, the Company and Ms. Manuhu modified the terms
of the Aussy Note to (i) extend the due date to September 30, 2009 and (ii)
allow the Company, at its option, to make partial payments of accrued interest
and/or principal during the term of the note without limitation or
penalty.  On May 20, 2009, the Aussy Note principal and accrued
interest ($266,797) was converted into 533,594 restricted shares of the
Company’s Common Stock and a warrant to purchase 106,719 restricted shares of
the Company’s Common Stock at an exercise price of One Dollar ($1.00) per share;
the warrant expires on April 30, 2011.





Term Note
6 executed by the Company on April 26, 2008 with Mr. Darron Raymond Rishwain,
trustee of the Darron Raymond Rishwain Living Trust for $250,000;
the  promissory note was due March 30, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Rishwain
Note”).  Proceeds were used to fund general operations.  On
March 26, 2009, the Rishwain Loan was amended to extend the due date to October
27, 2009 with no other change to the terms.  On April 30, 2009, the
Rishwain Note principal and accrued interest ($276,791) was converted into
553,582 restricted shares of the Company’s Common Stock and a warrant to
purchase 110,716 restricted shares of the Company’s Common Stock at an exercise
price of One Dollar ($1.00) per share; the warrant expires on April 30,
2011.





Term Note
7 executed by the Company on June 1, 2008 with the Equity Trust Company,
custodian FBO John T. Butler, IRA for $70,000; the  promissory note
was due June 1, 2009.  Interest accrues monthly at a rate of Ten
Percent (10%) per annum (the “Butler Note”).  Proceeds were used to
fund general operations.  On May 20, 2009, the Butler Note principal
and accrued interest ($76,649) was converted into 153,297 restricted shares of
the Company’s Common Stock and a warrant to purchase 30,659 restricted shares of
the Company’s Common Stock at an exercise price of One Dollar ($1.00) per share;
the warrant expires on April 30, 2011.





Term Note
8 executed by the Company on June 1, 2008 with the Equity Trust Company,
custodian FBO Tupou U. Kaho, IRA for $50,000; the  promissory note was
due June 1, 2009.  Interest accrues monthly at a rate of Ten Percent
(10%) per annum (the “Kaho Note”).  Proceeds were used to fund general
operations.  On May 20, 2009, the Kaho Note principal and accrued
interest ($54,749) was converted into 109,498 restricted shares of the Company’s
Common Stock and a warrant to purchase 21,900 restricted shares of the Company’s
Common Stock at an exercise price of One Dollar ($1.00) per share; the warrant
expires on April 30, 2011.


23





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





9.      Term
debt (continued)





Term Note
9 executed by the Company on December 1, 2008 with IDCG SA de CV, a corporation
established under the laws of the Country of Mexico, for $50,000; the promissory
note is due November 30, 2009 (the “IDCG 1st
Loan”).  Interest st





Term Note
10 executed by the Company on December 19, 2008 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “IDCG 2nd
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG 2nd Loan
was amended to extend the November 30, 2009 due date to February 28, 2010 with
no other change to the terms.





Term Note
11 executed by the Company on January 27, 2009 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “IDCG 3rd
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG 3rd Loan
was amended to extend the November 30, 2009 due date to February 28, 2010 with
no other change to the terms.





On
January 31 and February 9, 2007 the Company issued a set of convertible
debentures with an aggregate face value of $949,500, net of conversions, which
were due January 31, 2009 (the “February Debentures”).  On January 31,
2009 the February Debentures’ conversion feature expired.  The Company
did not repay the $949,500 due the sixteen (16) February Investors (see
Note 8) and is negotiating an extension of the due date and terms with the
February Investors.  Thirteen (13) February Investors, aggregating
$337,000, have agreed to extend the term of their February Debenture (the
“Extended Debentures”) (see Term Notes 13).  Three (3) February
Investors, aggregating $612,500, have not extended the due date of their
February Debenture (the “Defaulted Debentures”).  The Defaulted
Debentures are classified as short-term debt as Term Notes 12.  The
February Debentures were paid interest monthly at a rate of Ten Percent (10%)
per annum from July 1, 2007 to January 31, 2009.  The Company offered
to raise the interest rate to Twelve Percent (12%) per annum in part for an
extension of the due date; effective February 1, 2009 the Company accrues
interest on the Defaulted Debentures at the proposed rate of Twelve Percent
(12%) per annum.





Term
Notes 13 aggregate the obligations owed the thirteen (13) February Investors
that agreed to extend the term of their (i) February Debentures ($337,000) then
in default and (ii) accrued, but unpaid, liquidated damages
($29,205).  During March 2009, six (6) of the February Investors
agreed to modify the terms of their February Debentures aggregating $125,000 as
follows: (i) the February Debenture plus the unpaid liquidated damages ($10,125)
are combined into an amortized term notes for each of the six (6) February
Investors, (ii) interest accrues from February 1, 2009 at Twelve Percent (12%)
per annum, (iii) a one-time Fifteen Percent (15%) principal payment was paid in
March, and (iv) commencing April 1, 2009, the unpaid balance will be amortized
over thirty-five (35) equal monthly payments.  On April 13, 2009, one
(1) of the February Investors agreed to modify the terms of his $49,500 February
Debentures as follows: (i) the February Debenture plus the unpaid liquidated
damages ($4,455) are combined into a single amortized term note, (ii) interest
accrues from February 1, 2009 at Twelve Percent (12%) per annum, (iii) a
one-time Fifteen Percent (15%) principal payment was paid in April for March,
and (iv) commencing April 1, 2009, the unpaid balance will be amortized over
thirty-five (35) equal monthly payments.  During May 2009, three (3)
of the February Investors agreed to modify the terms of their February
Debentures aggregating $112,500 as follows: (i) the February Debenture plus the
unpaid liquidated damages ($10,125) are combined into an amortized term notes
for each of the three (3) February Investors, (ii) interest accrues from
February 1, 2009 at Twelve Percent (12%) per annum, (iii) a one-time Fifteen
Percent (15%) principal payment was paid in May, and (iv) commencing June 1,
2009, the unpaid balance will be amortized over thirty-six (36) equal monthly
payments.  On August 25, 2009, three (3) of the February Investors
agreed to modify the terms of their February Debentures aggregating $50,000 as
follows: (i) the February Debenture plus the unpaid liquidated damages ($4,500)
are combined into an amortized term notes for each of the three (3) February
Investors, (ii) interest accrues from February 1, 2009 at Twelve Percent (12%)
per annum, (iii) a one-time Fifteen Percent (15%) principal payment was paid in
September, and (iv) commencing October 1, 2009, the unpaid balance will be
amortized over thirty-nine (39) equal monthly payments.  In addition,
warrants aggregating 36,623 shares were issued to the thirteen (13) February
Investors, upon agreeing to modify the terms of their February Debentures, with
a $2 exercise price expiring on January 31, 2012.


24





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





9.      Term
debt (continued)





Term Note
14 executed by the Company on February 28, 2009 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “IDCG 4th
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG 4th Loan
was amended to extend the November 30, 2009 due date to February 28, 2010 with
no other change to the terms.





Term note
15 executed by the Dot VN Danang on May 5, 2009 with Mr. Diep Tai of Vietnam for
$101,500 (see Note 11); the promissory note is due on demand with thirty day
written notice.  Interest accrues and is paid in arrears monthly at a
rate of Twelve Percent (12%) per annum.  Proceeds were used to fund
the second installment of the Land Sublease (see Note 3).





Term Note
16 dated August 19, 2009 and executed by the Company on September 18, 2009 with
Mr. Diep Tai of Vietnam for an aggregate of $85,000 advanced between August 19,
2009 and September 18, 2009; the revolving credit agreement is due November 19,
2009.  Interest accrues monthly at a rate of Twelve Percent (12%) per
annum.  Proceeds were used to fund general operations.  On
November 13, 2009, $15,000 was repaid to Mr. Tai and the unpaid balance of
$70,000 was cancelled and replaced with a new convertible note due June 30, 2010
which converts at the option of the holder, in whole or in part, into restricted
shares of the Company’s Common Stock at $0.38 per share and bears an interest
rate of Twelve Percent (12%) per annum.  In accordance with
Codification topic 470-20, there is no beneficial conversion feature at the time
of the new convertible note.





Term Note
17 executed by the Company on September 12, 2009 with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$18,000; the promissory note is due December 12, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.  On December 3, 2009, the note
was amended to extend the December 12, 2009 due date to February 28, 2010 with
no other change to the terms.





Term Note
18 executed by the Company on September 18, 2009 with Ms. Ngoc Anh Ung for
$10,000; the promissory note is due December 18, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.





Term Note
19 executed by the Company on October 29, 2009 with Ms. Hue Tran Johnson for
$10,000; the revolving credit agreement is due January 29,
2010.  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  Ms.
Johnson is the wife of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.  The Company borrowed
an additional $5,000, $10,000, and $30,000 from Ms. Johnson under the revolving
credit agreement dated October 29, 2009 on November 16, November 17, and
December 2, 2009, respectively.





10.    Due
to related parties





The
Company’s historical cash requirements have been funded under a revolving credit
arrangement with Hi-Tek Private which previously was a related company (the
“Hi-Tek Revolver”).  Dr. Lee Johnson and Mr. Thomas Johnson, the
Company’s President and Chief Executive Officer were the Chief Executive Officer
and Chief Financial Officer of Hi-Tek Private, respectively, from October 2003
until their resignation August 8, 2007; neither held nor currently owns an
equity position in Hi-Tek Private.





Starting
in April 2002, Hi-Tek Private advanced funds to cover the Company’s operating
costs and capital requirements under the Hi-Tek Revolver which accrues interest
monthly at Ten Percent (10%) per annum with no fixed repayment
terms.  Hi-Tek Private is under no obligation to advance funds in the
future.  Changes in the carrying amount of the Hi-Tek Revolver for the
six months ended October 31, 2009 and the year ended April 30, 2009
are:


25





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





10.    Due
to related parties (continued)





October 31,
                        
                        
                        April 30,2009
                        
                        
                        2009Balance
      at beginning of year
                        
                        $
                        1,
      129,344
                        
                        
                        $
                        1,120,928Funds
      advanced
                        
                        
                        15,000
                        
                        
                        
                        -Repayments
                        
                        
                        (12,592
                        )
                        
                        
                        (102,708
                        )Interest
      accrued
                        
                        
                        57,384
                        
                        
                        
                        111,124Balance
      at end of year
                        
                        $
                        1,189,136
                        
                        
                        $
                        1,129,344





Due to
related parties at October 31 and April 30, 2009 consisted of the
following:





October 31,
                    
                    
                    April 30,2009
                    
                    
                    2009Hi-Tek
      Revolver
                    
                    $
                    1,189,136
                    
                    
                    $
                    1,129,344Hi-Tek
      Trademark Loan, net of zero and zero discount at October 31 and April 30,
      2009
                    
                    
                    487,614
                    
                    
                    
                    463,740Hi-Tek
      IDC Loan
                    
                    
                    772,382
                    
                    
                    
                    734,055TJ
      Notes, net of zero and zero discount at October 31 and April 30,
      2009
                    
                    
                    3,009,764
                    
                    
                    
                    2,891,156LJ
      Notes, net of zero and zero discount at October 31 and April 30,
      2009
                    
                    
                    3,009,765
                    
                    
                    
                    2,891,157Huynh
      Note, net of zero at October 31, 2009
                    
                    
                    116,202
                    
                    
                    
                    -Term
      Note 17, Thomas Johnson
                    
                    
                    18,246
                    
                    
                    
                    -Term
      Note 19, Hue Tran Johnson
                    
                    
                    10,006
                    
                    
                    
                    -8,613,115
                    
                    
                    
                    8,109,452Less
      current portion
                    
                    
                    8,613,115
                    
                    
                    
                    8,109,452Due
      to related parties, long-term
                    
                    $
                    -
                    
                    
                    $
                    -




On
October 16, 2006 the Company acquired the rights to the US trademark “Dot VN”
including its logo from Hi-Tek Private for $360,000 (see Note 6) upon the
issuance of a two year convertible note due October 16, 2008 (the “Hi-Tek
Trademark Loan”).  The Hi-Tek Trademark Loan converts at the option of
the holder into shares of the Company’s restricted Common Stock at $1.00 per
share and bears an interest rate of Ten Percent (10%) per annum.  The
Company has accrued interest of $127,614 at October 31, 2009 and unamortized
debt discount was zero.  On October 13, 2008, the Hi-Tek Trademark
Loan was amended to extend the due date to June 30, 2009, with no other change
to the terms of the note or conversion feature.  On June 25, 2009, the
Hi-Tek Trademark Loan was amended to extend the due date to December 31, 2009,
with no other change to the terms of the note or conversion feature (see Note
8).  On December 2, 2009, the unpaid note and accrued interest
($491,890.92) was cancelled and replaced with a new convertible note due June
30, 2010 which converts at the option of the holder, in whole or in part, into
restricted shares of the Company’s Common Stock at $0.38 per share and bears an
interest rate of Ten Percent (10%) per annum.  In accordance with
Codification topic 470-20, there is no beneficial conversion feature at the time
of the new convertible note.





On May 1,
2007, the Company executed a short-term note with Hi-Tek Private for $600,000
due November 1, 2007 with interest at Ten Percent (10%) per annum (the “Hi-Tek
IDC Loan”).  Proceeds were used to fund general operations and the
initial design services for the Internet data center (“IDC”) in
Vietnam.  On April 30, 2008, the Hi-Tek IDC Loan was amended to extend
the due date to September 1, 2008 with no other change to the
terms.  On September 2, 2008, the Hi-Tek IDC Loan
was amended to extend the due date to June 30, 2009 with no other change to the
terms.  Additional, on June 25, 2009, the Hi-Tek IDC Loan was further
amended to extend the due date to December 31, 2009 with no other change to the
terms (see Note 9).


26





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





10.    Due
to related parties (continued)





On August
1, 2007, the Company executed a convertible note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, in the
amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January, 2003 through June, 2007 under his employment agreement
with the Company (the “TJ First Note”).  The TJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at a per share price of $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price below the Conversion Price, to a price equal to such
issue price.  On August 14, 2008, the Company executed a convertible
promissory note for $2,160,766 due February 15, 2009 plus accrued interest at
Eight Percent (8%) per annum with Mr. Johnson (the “TJ Second Note”) in exchange
for the unpaid balance owed under the TJ First Note which was cancelled (see
Note 8) (collectively the “TJ Notes”).  The terms and conditions of
the TJ Second Note are materially the same as the TJ First Note that expired
August 1, 2008.  At the election of the holder, the amount due and
owing pursuant to such note may be converted into restricted shares of the
Company’s Common Stock at $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price (the “Subsequent Price”) below the Conversion Price, to
a price equal to such issue price.  On February 15, 2009, the TJ
Second Note was amended to extend the due date thirty days to March 17, 2009
with no other change to the terms of the note or the conversion
feature.  On March 17, 2009, the TJ Second Note was further amended to
extend the due date fourteen days to March 31, 2009 with no other change to the
terms of the note or the conversion feature.  On April 20, 2009, the
Company executed a convertible promissory note due October 16, 2009 plus accrued
interest at Eight Percent (8%) per annum (the “TJ Third Note”) issued (i) in
exchange for the unpaid balance owed under the TJ Second Note ($2,280,631) which
was cancelled and (ii) in satisfaction of unpaid accrued salary and interest
accruing since July 1, 2007 through January 31, 2009 under his employment
agreements with the Company ($604,027) (see Note 8).  The terms and
conditions of the TJ Third Note are materially the same as the TJ Second Note
that expired March 31, 2009 except that in the TJ Third Note the adjusted
Conversion Price is established as One hundred Ten percent (110%) of the
Subsequent Price where previously the Subsequent Price became the adjusted
Conversion Price   At the election of the holder, the amount due
and owing pursuant to such note may be converted in restricted shares of the
Company’s Common Stock at a per share price of $0.30 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock) at a price (the “Subsequent Price”) below the
Conversion Price times Ninety percent (90%), to a price equal to such Subsequent
Price times One hundred Ten percent (110%)(the “Adjusted Conversion
Price”).  On October 12, 2009, the TJ Third Note was amended to extend
the due date two and one-half months to December 31, 2009 with no other change
to the terms of the note.  The Company has accrued interest of
$125,106 at October 31, 2009 and unamortized debt discount was
zero.  On November 17, 2009, the Company agreed to a 50% conversion of
the outstanding balance ($1,510,489.50) at $0.30 per share and issued 5,034,965
restricted shares of the Company’s Common Stock and a $1,510,489.50 convertible
note due June 30, 2010 with materially the same terms as the cancelled note (the
“TJ Fourth Note”).


27





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





10.    Due
to related parties (continued)





On August
1, 2007, the Company executed a convertible note with Dr. Lee Johnson, the
Company’s President, Chief Technology Officer, and Chief Financial Officer, in
the amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January, 2003 through June, 2007 under his employment agreement
with the Company (the “LJ First Note”).  The LJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at a per share price of $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price below the Conversion Price, to a price equal to such
issue price.  On August 14, 2008, the Company executed a convertible
promissory note for $2,160,767 due February 15, 2009 plus accrued interest at
Eight Percent (8%) per annum with Dr. Lee Johnson (the “LJ Second Note”) in
exchange for the unpaid balance owed under the LJ First Note which





On July
6, 2009, the Company executed a convertible note with Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary, in satisfaction of unpaid accrued salary,
including interest, from August 7, 2007 through July 6, 2009 under Mr. Huynh’s
employment agreement with the Company (the “Huynh Note”).  The note is
due October 16, 2009 and accrues interest monthly at Eight Percent (8%) per
annum.  The Company had accrued interest of $2,958 as of October 31,
2009.  The beneficial conversion feature was calculated to be zero at
the time of issuance in accordance with Codification topic 470-20.  At
the election of the holder, the amount due and owing pursuant to such note may
be converted in restricted shares of the Company’s Common Stock at a per share
price of $0.46 per share (the “Conversion Price”).  The Conversion
Price shall be adjusted downward in the event Dot VN issues common stock (or
securities exercisable for or convertible into or exchangeable for common stock)
at a price (the “Subsequent Price”) below the Conversion Price times Ninety
percent (90%), to a price equal to such Subsequent Price times One hundred Ten
percent (110%)(the “Adjusted Conversion Price”).  On October 12, 2009,
the Huynh Note was amended to extend the due date two and one-half months to
December 31, 2009 with no other change to the terms of the notes.  The
Company has accrued interest of $2,959 at October 31, 2009.





On
September 12, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$18,000; the promissory note is due December 12, 2009 (see Note
9).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  On
December 3, 2009, the note was amended to extend the December 12, 2009 due date
to February 28, 2010 with no other change to the terms.


28





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





10.    Due
to related parties (continued)





On
October 29, 2009, the Company executed a promissory note with Ms. Hue Tran
Johnson for $10,000; the revolving credit agreement is due January 29, 2010 (see
Note 9).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  Ms.
Johnson is the wife of Dr. Lee Johnson, the Company’s President, Chief





11.    Accrued
and other liabilities





Accrued
and other liabilities at October 31, and April 30, 2009 consisted of the
following:





October 31,
                    
                    
                    April 30,2009
                    
                    
                    2009Officer
      salaries
                    
                    $
                    580,345
                    
                    
                    $
                    326,837Other
      payroll accruals
                    
                    
                    20,780
                    
                    
                    
                    16,540Liquidated
      damages
                    
                    
                    62,659
                    
                    
                    
                    67,159Other
      liabilities
                    
                    
                    -
                    
                    
                    
                    101,500Other
      accrued liabilities
                    
                    
                    30,528
                    
                    
                    
                    12,637Total
      accrued and other liabilities
                    
                    $
                    694,312
                    
                    
                    $
                    524,673





As of
October 31 and April 30, 2009, the Company has unpaid salaries and accrued
interest owed to officers of $580,385 and $326,837, respectively.  The
unpaid salaries bear interest at a rate of Ten Percent (10%) per
annum.  As of October 31 and April 30, 2009, accrued interest on the
salaries was $47,986 and $37,897, respectively.  On April 20, 2009,
the Company executed convertible notes with Mr. Thomas Johnson, the Company’s
Chief Executive Officer and Chairman of the Board of Directors, and Dr. Lee
Johnson, the Company’s President, Chief Technology Officer, and Chief Financial
Officer, each in the amount of $604,027 in satisfaction of unpaid salary,
including interest, accrued through January, 2009 (see Notes 8 and
10).  On July 6, 2009, the Company executed a convertible note for Mr.
Louis P. Huynh, the Company’s General Counsel, Executive Vice President of
Operations and Business Development, and Corporate Secretary in the amount of
$113,244 in satisfaction of unpaid salary, including interest, accrued through
June, 2009 (see Note 8).





On
February 9, 2007, in connection with the February Financing, the Company
executed an investor’s registration rights agreement (the “IRRA”) by and between
the February Investors participating in the February Financing and the Company
(see Note 8).  Pursuant to the terms of the IRRA as amended on August
10, 2007, the February Investors shall be entitled to liquidated damages equal
to One Percent (1%) of the outstanding convertible debentures issued in the
February Financing (the “Liquidated Damages”) for every thirty (30) day period
that the registration statement is not declared effective by December 14, 2007
(the “Effectiveness Deadline”), limited to a total of ten such 30-day
periods.  One such 30-day period was funded concurrent with the August
10, 2007 IRRA amendment and as of September, 2008 the remaining nine 30-day
periods were owed to the February Investors.  On January 31, 2009, an
aggregate of 15,300 shares of the Company’s Common Stock was issued to four
(4) February Investors in satisfaction of their Liquidated damages
($11,475).  Between March and August, 2009, an aggregate of thirteen
(13) February Investors (see Notes 8 and 9) agreed to modify the terms of their
February Debentures (the “Extended Debentures”) to include their unpaid
Liquidated Damages ($29,205).  As of October 31, 2009, Liquidated
Damages are owed to the three (3) holders of the Defaulted Debentures ($55,125)
and to three (3) February Investors who previously converted their February
Debenture into common stock of the Company ($7,534) are owed for nine such
30-day periods.





On March
11, 2009, Dot VN Danang received $100,000 USD from Mr. Diep Tai, the proceeds
were used to fund the 2nd lease
installment under the Land Sublease ($92,593 including VAT) and general
operations in the Danang City office.  On May 5, 2009, Dot VN Danang
agreed to compensate Mr. Tai $1,500 USD as interest for the period March 11 to
April 30, 2009 and executed a promissory note for $101,500 USD with interest
paid monthly, in arrears, at Twelve Percent (12%) per annum effective from May
1, 2009 (see Note 9).


29





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





12.    Related
party transactions





On
October 16, 2006, the Company entered into an agreement whereby it acquired
certain intellectual property from Hi-Tek Private (see Notes 6, 8 and
10).  Included within the assets acquired by the Company are the
rights to the trademark “Dot VN” in the United States including its logo and
certain related domain names (the “Dot VN US Trademark”).  Pursuant to
the acquisition of the Dot VN US Trademark, the Company executed a convertible
promissory note in the amount of $360,000 (the “Hi-Tek Trademark
Loan”).  The Hi-Tek Trademark Loan, at the election of the holder, may
convert the balance due and owing at the time of conversion into restricted
shares of the Company’s Common Stock at a per share price of $1.00 per
share.  The Hi-Tek Trademark Loan accrues interest at a rate of Ten
Percent (10%) per annum and was due two years from the date of
execution.  On October 13, 2008, the Hi-Tek Trademark Loan was amended
to extend the due date to June 30, 2009 and was further amended June 25, 2009 to
extend the due date to December 31, 2009, with no other change to the terms of
the note or the conversion feature (see Note 8).  On December 2, 2009,
the unpaid note and accrued interest ($491,890.92) was cancelled and replaced
with a new convertible note due June 30, 2010 which converts at the option of
the holder, in whole or in part, into restricted shares of the Company’s Common
Stock at $0.38 per share and bears an interest rate of Ten Percent (10%) per
annum.  In accordance with Codification topic 470-20, there is no
beneficial conversion feature at the time of the new convertible
note.





On May 1,
2007, the Company executed a short-term note with Hi-Tek Private for $600,000
due November 1, 2007 with interest at Ten Percent (10%) per annum (the “Hi-Tek
IDC Loan”).  Proceeds were used to fund general operations and the
initial design services for the Internet data center (“IDC”) in
Vietnam.  On April 30, 2008, the Hi-Tek IDC Loan was amended to extend
the due date to September 1, 2008 with no other change to the
terms.  On September 2, 2008, the Hi-Tek IDC Loan was amended to
extend the due date to June 30, 2009 with no other change to the
terms.  Additional, on June 25, 2009, the Hi-Tek IDC Loan was further
amended to extend the due date to December 31, 2009 with no other change to the
terms (see Note 9).





Employment
Agreements





On July
18, 2006, at the completion of the Malers Merger, Dr. Lee Johnson and Mr. Thomas
Johnson were appointed to the Board of Directors of the Company.  In
addition, Mr. Thomas Johnson was elected to serve as Chairman of the Board of
Directors





On
October 8, 2006, Dr. Lee Johnson’s employment agreement was approved by the
Board of Directors, making him the President, Chief Technical Officer, and Chief
Financial Officer.  Pursuant to the terms of the employment agreement,
Dr. Lee Johnson shall receive an annual salary of Three Hundred Sixty Thousand
Dollars ($360,000) and shall receive stock options totaling in the aggregate
3,600,000 shares and are exercisable, at a per share price of $0.50, into shares
of the Company’s Common Stock (the “LJ Employment Options”).  The LJ
Employment Options shall vest one third at the date of grant and one third at
the end of the first and second year from the date of grant and expire ten years
from the date of vesting.  Dr. Johnson is also eligible to receive
additional equity and cash bonuses in connection with the successful performance
of his duties.





As
President, CTO, and CFO, Dr. Lee Johnson shall serve as such until the earlier
of (i) his resignation, (ii) appointment of his successor or (iii) his
termination.  As a director of the Company, he shall serve until the
earlier of (i) his resignation, (ii) election of his successor or (iii) his
removal by the shareholders of the Company.





On
October 9, 2006, Mr. Thomas Johnson’s employment agreement was approved by the
Board of Directors, making him the Chief Executive Officer.  Pursuant
to the terms of the employment agreement, Mr. Johnson shall receive an annual
salary of Three Hundred Sixty Thousand Dollars ($360,000) and shall receive
stock options totaling in the aggregate 3,600,000 shares; such shares are
exercisable, at a per share price of $0.50, into shares of the Company’s Common
Stock (the “TJ Employment Options”).  The TJ Employment Options shall
vest one third at the date of grant and one third at the end of the first and
second year from the date of grant and expire ten years from the date of
vesting.  Mr. Johnson is also eligible to receive additional equity
and cash bonuses in connection with the successful performance of his
duties.


30





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





12.    Related
party transactions (continued)





As CEO,
Mr. Thomas Johnson shall serve as such until the earlier of (i) his resignation,
(ii) appointment of his successor or (iii) his termination.  As a
director of the Company, he shall serve until the earlier of (i) his
resignation, (ii) election of his successor or (iii) his removal by the
shareholders of the Company.





As stated
previously, the above referenced employment agreements contained an aggregate of
7,200,000 stock options, of which an aggregate 7,200,000 have vested and none
are exercised.  As the October 2006 employment agreements provided for
the options to be purchased at below the Company’s market price on the date of
grant, the Company has recorded Option bonus expense relating to these options
of zero and $1,299,900 for the six months ended October 31, 2009 and year ended
April 30, 2009, respectively, in accordance with Codification topic 718 (see
Note 13).





On August
1, 2007, the Company executed a convertible note with Dr. Lee Johnson, the
Company’s President, Chief Technology Officer, and Chief Financial Officer, in
the amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January 2003 through June, 2007 under his employment agreement
with the Company (the “LJ First Note”).  The LJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at a per share price of $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price below the Conversion Price, to a price equal to such
issue price.  On August 14, 2008, the Company executed a convertible
promissory note for $2,160,767 due February 15, 2009 plus accrued interest at
Eight Percent (8%) per annum with Dr. Lee Johnson (the “LJ Second Note”) in
exchange for the unpaid balance owed under the LJ First Note which was cancelled
(see Note 8).  The terms and conditions of the LJ Second Note are
materially the same as the LJ First Note that expired August 1,
2008.  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at $1.43 per share (the “Conversion Price”).  The
Conversion Price shall be adjusted downward in the event Dot VN issues common
stock (or securities exercisable for or convertible into common stock) at a
price (the “Subsequent Price”) below the Conversion Price, to a price equal to
such issue price.  On February 15, 2009, the LJ Second Note was
amended to extend the due date thirty days to March 17, 2009 with no other
change to the terms of the note or the conversion feature.  On March
17, 2009, the LJ Second Note was further amended to extend the due date fourteen
days to March 31, 2009 with no other change to the terms of the note or the
conversion feature.  On April 20, 2009, the Company executed a
convertible promissory note due October 16, 2009 plus accrued interest at Eight
Percent (8%) per annum (the “LJ Third Note”) issued (i) in exchange for the
unpaid balance owed under the LJ Second Note ($2,280,631) which was cancelled
and (ii) in satisfaction of unpaid accrued salary and interest accruing since
July 1, 2007 through January 31, 2009 under his employment agreements with the
Company ($604,027) (see Note 8).  The terms and conditions of the LJ
Third Note are materially the same as the LJ Second Note that expired March 31,
2009 except that in the LJ Third Note the adjusted Conversion Price is
established as One Hundred Ten percent (110%) of the Subsequent Price where
previously the Subsequent Price became the adjusted Conversion
Price   At the election of the holder, the amount due and owing
pursuant to such note may be converted in restricted shares of the Company’s
Common Stock at a per share price of $0.30 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock) at a price (the “Subsequent Price”) below the
Conversion Price times Ninety percent (90%), to a price equal to such Subsequent
Price times One Hundred Ten percent (110%)(the “Adjusted Conversion
Price”).  On October 16, 2009, the LJ Third Note was amended to extend
the due date two and one-half months to December 31, 2009 with no other change
to the terms of the note or the conversion feature.  On November 17,
2009, the Company agreed to a 50% conversion of the outstanding balance
($1,510,489.50) at $0.30 per share and issued 5,034,965 restricted shares of the
Company’s Common Stock and a $1,510,489.50 convertible note due June 30, 2010
with materially the same terms as the cancelled note (the “LJ Fourth
Note”).


31





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





12.    Related
party transactions (continued)





On August
1, 2007, the Company executed a convertible note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, in the
amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January 2003 through June, 2007 under his employment agreement
with the Company (the “TJ First Note”).  The TJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the





On July
6, 2009, the Company executed a convertible note with Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary, in satisfaction of unpaid accrued salary,
including interest, from August 7, 2007 through July 6, 2009 under Mr. Huynh’s
employment agreement with the Company (the “Huynh Note”).  The note is
due October 16, 2009 and accrues interest monthly at Eight Percent (8%) per
annum.  The Company had accrued interest of $2,958 as of October 31,
2009.  The beneficial conversion feature was calculated to be zero at
the time of issuance in accordance with Codification topic 470-20.  At
the election of the holder, the amount due and owing pursuant to such note may
be converted in restricted shares of the Company’s Common Stock at a per share
price of $0.46 per share (the “Conversion Price”).  The Conversion
Price shall be adjusted downward in the event Dot VN issues common stock (or
securities exercisable for or convertible into or exchangeable for common stock)
at a price (the “Subsequent Price”) below the Conversion Price times Ninety
percent (90%), to a price equal to such Subsequent Price times One Hundred Ten
percent (110%)(the “Adjusted Conversion Price”).  On October 12, 2009,
the Huynh Note was amended to extend the due date two and one-half months to
December 31, 2009 with no other change to the terms of the notes.  The
Company has accrued interest of $2,959 at October 31, 2009.





On July
6, 2009, the Company granted, under the newly adopted Dot VN, Inc. 2009 Stock
Option Plan, stock options to purchase an aggregate of 11,551,500 restricted
shares of the Company’s Common Stock to Dr. Lee Johnson, the Company’s
President, Chief Technology Officer, and Chief Financial Officer and Director
(5,400,000 shares), Mr. Thomas Johnson, the Company’s Chief Executive Officer
and Chairman of the Board of Directors (5,400,000 shares) and Mr. Louis P.
Huynh, the Company’s General Counsel, Executive Vice President of Operations and
Business Development, and Corporate Secretary and Director (751,500
shares).  The options have an exercise price of $0.46, a Ten Percent
(10%) premium, to the closing market
price, vest one third at the date of grant and one third at the end of the first
and second year from the date of grant.  An aggregate of 1,956,519
shares are issued as incentive stock options, as defined by U.S. treasury
regulations and expire five years (1,304,346) for 5% shareholders and ten years
(652,173) for all others from the date of grant for and 9,594,981 shares are
issued as non-qualified stock options and expire ten years from the date of
grant.  The Company has recorded Option bonus expense relating to
these options of $2,418,324 for the six months ended October 31, 2009 in
accordance with Codification topic 718 (see Note 13).


32





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





12.    Related
party transactions (continued)





On July
8, 2009, each of (i) Mr. Thomas Johnson, the Company’s Chief Executive Officer
and Chairman of the Board of Directors, (ii) Dr. Lee Johnson, the Company’s
President, Chief Technology Officer, Chief Financial Officer, and a Director and
iii) Mr. Louis P. Huynh, the Company’s General Counsel, Executive Vice President
of Operations and Business Development, and Corporate Secretary and Director
entered into a lock-up agreement with the Company pursuant to which each such
person agreed that he will not offer, sell, contract to sell, grant an option to
purchase, or otherwise dispose of any shares of the Company’s Common Stock
owned, acquirable or vested as of the date of the lock-up agreement until July
8, 2010





On
September 12, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$18,000; the promissory note is due December 12, 2009 (see Note
9).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  On
December 3, 2009, the note was amended to extend the December 12, 2009 due date
to February 28, 2010 with no other change to the terms.





On
October 29, 2009, the Company executed a promissory note with Ms. Hue Tran
Johnson for $10,000; the revolving credit agreement is due January 29, 2010 (see
Note 9).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  Ms.
Johnson is the wife of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.  The Company borrowed
an additional $5,000, $10,000, and $30,000 from Ms. Johnson under the revolving
credit agreement dated October 29, 2009 on November 16, November 17, and
December 2, 2009, respectively.





13.    Warrants,
options and stock based compensation





On
September 1, 2006, the Company issued two warrants exercisable into an aggregate
of 5,100,000 restricted shares of the Company’s Common Stock in exchange for and
cancellation of a like number of five cent warrants that would have expire on
December 31, 2006.  The new warrants had a three year term and an
exercise price of $2.00 per share.  The fair value of the warrant
modification was zero; the fair value of the modified warrants at the date of
grant was less than the fair value of the cancelled warrants immediately before
the terms were.  All of the warrants expired on September 1, 2009
unexercised.





On
October 9, 2006, the Company issued options to purchase an aggregate of
7,650,000 restricted shares of the Company’s Common Stock with an estimated fair
value of $19,886,786 to three officers (see Note 12) and an
employee.  The options have an exercise price of $0.50 per share, vest
one third at the date of grant and one third at the end of the first and second
year from the date of grant and expire ten years the date of
vesting.  As of October 31, 2009, 7,650,000 options have vested and no
options were exercised.  Compensation cost, using the graded vesting
attribute method in accordance with Codification topic 718, is recognized over
the requisite service period during which each tranche (one third) of shares is
earned (zero, one, and two years).  The value of each tranche is
amortized on a straight-line basis; zero and $1,381,145 were expensed during the
six months ended October 31, 2009 and the year ended April 30, 2009,
respectively.  As of October 31, 2009, no options were
exercised.





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 212.1%; risk-free interest rate of 4.70%; contractual life of ten
years; and a closing market price of $2.60.  Expected volatility is
calculated based on the historic Friday stock market closing price from the
first week the Company was publically traded over the counter on the Pink Sheets
to the date of grant, a seventy-three week period, in accordance with
Codification topic 718 implementation guidance.


33





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.    Warrants,
options and stock based compensation (continued)





In
connection with the February Financing (see Note 8), the Company issued
detachable warrants to the investors exercisable into an aggregate 344,465
restricted shares of the Company’s Common Stock at a per share price of $2.00,
with an estimated fair value of $901,632.  The warrants have a term of
five years from the date of issuance.  The combined fair value of the
warrants and the associated beneficial conversation feature of the Convertible
Debentures are limited to the proceeds of the debt; $259,954 was allocated to
the warrants.  These warrants have been recorded as a discount against
the Convertible Debentures and will be amortized to interest expense over the
term of the debt (generally two years) or upon the earlier conversion of the
debt; there is no unamortized balance at October 31, 2009.  As of
October 31, 2009, no warrants were exercised.





Additionally,
pursuant to its engagement of Pali Capital, Inc., the Company’s placement agent
in the February Financing, the Company issued three series of warrants: (i)
retainer warrants on January 31, 2007 totaling in the aggregate 250,000
restricted shares exercisable at a per share price of $0.001, with an estimated
fair value of $712,404; (ii) placement warrants A on February 9,
2007  totaling in the aggregate 229,600 restricted shares exercisable
at a per share price of $1.00, with an estimated fair value of $563,640; and
(iii) placement warrants B on February 9, 2007 totaling in the aggregate 68,880
restricted shares exercisable at a per share price of $2.00, with an estimated
fair value of $167,700 (collectively the “Placement Agent
Warrants”).  The Placement Agent Warrants have a term of five years
from the date of issuance.  The retainer warrants were expensed over
the one year engagement term and the two placement warrants were expensed over
the two year term of the February Financing or upon the earlier election to
exercise; there is no unamortized balance of the two placement warrants at
October 31, 2009.  As of October 31, 2009, 66,000 $0.001 Pali Retainer
Warrants and 42,180 $1.00 Pali Placement Warrants A have been
exercised.  In addition, the Company agreed to register the shares
associated with the Placement Agent Warrants in the registration statement
required in connection with the February Financing (see Notes 7 and
8).





The fair
value of these options was estimated at January 31 and February 9, 2007 (the
dates of grant) using the Black-Scholes option-pricing model with dividend yield
of 0%; expected volatility of 192.8% and 190.7%; risk-free interest rate of
4.82% and 4.78%; contractual life of five years; and a closing market price of
$2.85 and $2.50; respectively.  Expected volatility is calculated
based on the historic Friday stock market closing price of the preceding
eighty-nine and ninety-one week periods (from Pink Sheet
inception).





The
Company issued a series of six monthly warrants exercisable into 40,000
restricted shares of the Company’s Common Stock on July 5, August 5, September
5, October 5, November 5, and December 5, 2007 for an aggregate of 240,000
restricted shares to Double Barrel, LLC for monthly performance of services,
with an estimated fair value of $73,086, $58,021, $66,771, $77,954, $67,900, and
$63,845 respectively.  Each warrant is exercisable at $1.50 per share
and expires three years from the date of grant.  The warrants are
earned in the month of grant and the fair value is expensed in the month; there
is no unamortized balance at October 31, 2009.  As of October 31,
2009, no warrants were exercised.





The fair
value of these warrants were estimated at the dates of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 188.7%, 184.7%, 181.7%, 179.5%; 176.1%, and 174.9%, risk-free
interest rate of 5.00%, 4.45%, 4.05%, 4.16%, 3.71%, and 2.91%; contractual life
of three years; and a closing market price of $1.99, $1.61, $1.85, $2.15, $1.90,
and $1.80; respectively.  Expected volatility is calculated based on
the historic Friday stock market closing price of the preceding 111 week, 116
week, 120 week, 125 week, 130 week, 133 week periods (from Pink Sheet
inception).





On August
7, 2007, the Company issued options to purchase an aggregate of 350,000
restricted shares of the Company’s Common Stock with an estimated fair value of
$628,847 to an officer (Louis P. Huynh) and an employee.  The options
have an exercise price of $1.80 per share, vest one third at the date of grant
and one third at the end of the first and second year from the date of grant and
expire ten years the date of vesting.  On January 15, 2009, 150,000
options expired unexercised upon the employee’s termination.  As of
October 31, 2009, 133,334 options have vested and no options were
exercised.  Compensation cost, using the graded vesting attribute
method in accordance with Codification topic 718, is recognized over the
requisite service period during which each tranche (one third) of shares is
earned (zero, one, and two years).  The value of each tranche is
amortized on a straight-line basis; $14,984 was expensed in the six months ended
October 31, 2009.  Amortization for the years ending April 30, 2010
will be $14,984.


34




Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.    Warrants,
options and stock based compensation (continued)





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 184.7%; risk-free interest rate of 4.77%; contractual life of ten
years; and a closing market price of $1.80.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 116 week period (from Pink Sheet inception).





On
September 7, 2007, the Company issued options to purchase 10,000 restricted
shares of the Company’s Common Stock with an estimated fair value of $16,400 to
an employee.  The options have an exercise price of $2.00 per share,
vest at the date of grant and expire three years the grant date.  As
of October 31, 2009, 10,000 options have vested and no options were
exercised.  Compensation cost, in accordance with Codification topic
718, was recognized over the requisite service period (date of
grant).





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 181.2%; risk-free interest rate of 4.38%; contractual life of
three years; and a closing market price of $1.85.  Expected volatility
is calculated based on the historic Friday stock market closing price of the
preceding 121 week period (from Pink Sheet inception).





On
September 18, 2007, the Company issued a 200,000 share warrant pursuant to the
terms of a consulting agreement exercisable into restricted shares of the
Company’s Common Stock with an estimated fair value of $275,312 to IR.VN LLC
with a three year term and an exercise price of $2.00 per share.  The
value of the warrants was expensed over the one year term of service; there is
no unamortized balance at October 31, 2009.  As of October 31, 2009,
no warrants were exercised.





The fair
value of these warrants was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 181.5%; risk-free interest rate of 4.04%; contractual life of two
years; and a closing market price of $1.57.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 122 week period (from Pink Sheet inception).





On
October 14, 2007, the Company issued options to purchase 150,000 restricted
shares of the Company’s Common Stock with an estimated fair value of $306,777 to
Michael Weller, an officer of the Company.  The options had an
exercise price of $1.80 per share, vest one third at the end of the first,
second, and third year from the date of grant and expire three years the date of
vesting.  Compensation cost, using the graded vesting attribute method
in accordance with Codification topic 718, is recognized over the requisite
service period during which each tranche (one third) of shares is earned (one,
two, and three years), with the value of each tranche amortized on a
straight-line basis.  On May 15, 2008, the Company’s Employment
Agreement with Michael Weller was terminated; as a consequence, the unvested
options to purchase 150,000 common shares of the Company’s stock were
extinguished.  Prior to termination of the agreement, $6,394 was
expensed in the year ended April 30, 2009.





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 178.8%; risk-free interest rate of 4.70%; contractual life of ten
years; and a closing market price of $2.05.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 126 week period (from Pink Sheet inception).





On August
5, 2008, the Company issued options to purchase 75,000 restricted shares of the
Company’s Common Stock with an estimated fair value of $75,561 to an
employee.  The options have an exercise price of $1.80 per share, vest
one third at the date of grant and one third on February 14, 2009 and 2010 and
expire ten years from the date of vesting.  As of October 31, 2009,
50,000 options have vested and no options were
exercised.  Compensation cost, using the graded vesting attribute method in
accordance with Codification topic 718, is recognized over the requisite service
period during which each tranche (one third) of shares is earned (zero, seven,
and nineteen months).  The value of each tranche is amortized on a
straight-line basis; $7,962 was expensed during the six months ended October 31,
2009.  Amortization for the year ending April 30, 2010 will be
$13,271.




35


Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.
            Warrants,
      options and stock based compensation
(continued)





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 185.1%; risk-free interest rate of 4.04%; contractual life of ten
years; and a closing market price of $1.01.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding one hundred and sixty-seven week period (from Pink Sheet
inception).





Following
the January 31, 2009 maturity of the February Debentures (see Note 8) the
Company proposed an extension of the due date and a modification of the
terms.  Thirteen (13) February Investors (the “Extended
Debentures”) have agreed to the Company’s proposal (see Note 9) regarding their
(i) February Debentures and (ii) accrued, but unpaid, liquidated damages in
exchange, in part, for a warrant equal to Twenty Percent (20%) of the combined
amount due and owing on the same terms as the detachable warrants issued with
the original February Debentures.  The series of thirteen (13)
warrants expire January 31, 2012 and are exercisable into an aggregate 36,623
restricted shares of the Company’s Common Stock at a per share price of $2.00,
with an estimated fair value of $10,754 capitalized as a deferred charge
associated with the issuance of these debt instruments.  The deferred
charge is amortized on a straight-line basis over the approximate thirty-six
month term of the term debt.





The fair
value of these warrants was estimated at March 10, March 13, March 15, March 16,
March 18, March 25, April 13,May 4, May 7,and August 25 2009 (the dates of
acceptance) using the Black-Scholes option-pricing model with dividend yield of
0%; expected volatility of 188.4%, 187.9%, 187.9%, 187.9%, 187.9%, 204.1%,
210.7%, 209.7%, 209.7%% and 204.5%; risk-free interest rate of 1.46%, 1.36%,
1.39%, 1.39%, 1.14%, 1.35%, 1.27%, 1.40%, 1.46% and 1.56%; contractual life of
approximately three years; and a closing market price of $0.50, $0.50, $0.50,
$0.50, $1.12, $0.24, $0.25, $0.35, $0.40 and $0.47;
respectively.  Expected volatility is calculated based on the historic
Friday stock market closing price of the preceding one hundred eighty-nine to
two hundred twenty two week periods (from Pink Sheet inception).





On April
20 and April 21, 2009, pursuant to the terms of two stock subscription
agreements, the Company issued two warrants exercisable into an aggregate of
166,667 restricted shares of the Company’s Common Stock at a per share price of
$1.00 expiring April 30, 2011.





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 210.2% and 210.2%; risk-free interest rate of 0.93% and 0.96%;
contractual life of two years; and a closing market price of $0.23 and
$0.23.  Expected volatility is calculated based on the historic Friday
stock market closing price of the preceding two hundred and four week period
(from Pink Sheet inception).





On April
29, 2009, pursuant to the terms of a stock subscription agreement, the Company
issued a warrant exercisable into 110,716 restricted shares of the Company’s
Common Stock at a per share price of $1.50 expiring April 30, 2011.





The fair
value of this option was estimated at the date of grant using the Black-Scholes
option-pricing model with dividend yield of 0%; expected volatility of 210.2%;
risk-free interest rate of 0.91%; contractual life of two years; and a closing
market price of $0.30.  Expected volatility is calculated based on the
historic Friday stock market closing price of the preceding two hundred and five
week period (from Pink Sheet inception).





On May 4
and May 15, 2009, pursuant to the terms of four stock subscription agreements,
the Company issued four warrants exercisable into an aggregate of 173,278
restricted shares of the Company’s Common Stock at a per share price of $1.50
expiring May 4 and May 15, 2011.


36





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.
            Warrants,
      options and stock based compensation
(continued)





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 209.7%, 209.7%, 209.7% and 210.2%; risk-free interest rate of
0.94%, 0.94%, 0.94% and 0.88%; contractual life of two years; and a closing
market price of $0.35, $0.35, $0.35 and $0.35.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding two hundred and six week and two hundred and eight week periods (from
Pink Sheet inception).





On June 5
and June 18, 2009, pursuant to the terms of two stock subscription agreements,
the Company issued two warrants exercisable into an aggregate of 150,000
restricted shares of the Company’s Common Stock at a per share price of $1.00
expiring June 8 and June 18, 2011.





The fair
value of this option was estimated at the date of grant using the Black-Scholes
option-pricing model with dividend yield of 0%; expected volatility of 208.8%
and 208.5%; risk-free interest rate of 1.32% and 1.28%; contractual life of two
years; and a closing market price of $0.43 and $0.40.  Expected
volatility is calculated based on the historic Friday stock market closing price
of the preceding two hundred and eleven week and two hundred and twelve week
periods (from Pink Sheet inception).





On July
6, 2009, the Company’s Board of Directors approved the Company’s 2009 Stock
Option Plan (the “Option Plan”).  The Option Plan is administered by a
two (2) or more persons committee appointed by the Board of Directors or the
Board of Directors (the “Plan Administrator”) and provides for the issuance of
up to twenty-five million shares of the Company’s Common Stock.  Under
the Option Plan incentive stock options (“ISO”) may be granted to employees of
the Company or its subsidiary companies and non-qualified stock options may be
granted to employees and non-employees of the Company or its subsidiary
companies.  Options are exercisable at such times and subject to such
terms and conditions as the Plan Administrator determines at the time of grant,
except in the case of an ISO for which the exercise price shall not be less than
100% of the fair market value per share at the date of grant or for options
granted to a greater-than-ten percent shareholder 110% of the fair market value
per share at the date of grant and for a term not to exceed five
years.  Generally, options vest one third at the date of grant and one
third at the end of the first and second year from the date of grant, expire ten
years from the date of issue or upon the option holders termination of
employment or contractual relationship with the Company or its subsidiary for
unvested options and ninety-days for vested options except in the case of death
or disability then vested options expire one year from
termination.  Shares of common stock allocated to outstanding options
unexercised which expire or are terminated may again be subject to an option
grant.  On July 9, 2009, the Company filed a registration statement on
form S-8 for the twenty-five million shares of the Company’s Common Stock
allocated to the Option Plan.





On July
6, 2009, the Company granted under the newly adopted Option Plan stock options
to purchase an aggregate of 12,460,500 shares of the Company’s Common Stock with
an estimated fair value of $5,218,093 to three officers (11,551,500 shares with
an estimated fair value of $4,836,647) and twelve employees (909,000 shares with
an estimated fair value of $381,446).  The employee options, granted
as incentive stock options, have an exercise price of $0.42 per share, generally
vest one third at the date of grant and one third at the end of the first and
second year from the date of grant and expire ten years the date of
issue.  The officers options, granted as incentive stock options
(1,956,519 shares) and non-qualified stock options (9,594,981 shares), have an
exercise price of $0.46 per share, a Ten Percent (10%) premium on the market
closing price, vest one third at the date of grant and one third at the end of
the first and second year from the date of grant and expire in ten years from
the date of issue except for ISO grants to Mr. Johnson and Dr. Johnson which
expire in five years from the date of issue (see Note 12).  As of
October 31, 2009, 4,153,500 options have vested and no options were
exercised.  Compensation cost, using the graded vesting attribute
method in accordance with Codification topic 718, is recognized over the
requisite service period during which each tranche (one third) of shares is
earned (zero, one, and two years).  The value of each tranche is
amortized on a straight-line basis; $2,608,417 was expensed during the six
months ended October 31, 2009.  Amortization for the years ending
April 30, 2010, 2011, and 2012 will be $3,909,164, $1,156,220, and $144,527,
respectively.  On October 9, 2009, an employee terminated their
employment with the Company; as a consequence, the unvested options to purchase
24,000 common shares of the Company’s stock were extinguished.  Prior
to termination of the agreement, $6,924 was expensed in the six months ended
October 31, 2009.


37





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.
            Warrants,
      options and stock based compensation
(continued)





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 207.3%; risk-free interest rate of 3.52%; contractual life of ten
years; and a closing market price of $0.42 except for the five year ISO grants
which used a risk-free interest rate of 2.4%; contractual life of five
years.  Expected volatility is calculated based on the historic Friday
stock market closing price of the preceding 215 week period (from Pink Sheet
inception).





On July
6, 2009, the Company issued a 10,000 share warrant pursuant to the terms of a
consulting agreement exercisable into restricted shares of the Company’s Common
Stock with an estimated fair value of $3,718 with a two year term and an
exercise price of $1.00 per share.  The value of the warrants was
expensed in the month; there is no unamortized balance at October 31,
2009.  As of October 31, 2009, no warrants were
exercised.





The fair
value of these warrants was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 204.7%; risk-free interest rate of 1.03%; contractual life of two
years; and a closing market price of $0.47.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 221 week period (from Pink Sheet inception).





On July
8, 2009, pursuant to the terms of a stock subscription agreement, the Company
issued a warrant exercisable into 100,000 restricted shares of the Company’s
Common Stock at a per share price of $1.50 expiring July 8, 2011.





The fair
value of this option was estimated at the date of grant using the Black-Scholes
option-pricing model with dividend yield of 0%; expected volatility of 207.4%;
risk-free interest rate of 0.91%; contractual life of two years; and a closing
market price of $0.43.  Expected volatility is calculated based on the
historic Friday stock market closing price of the preceding two hundred and
fifteen week period (from Pink Sheet inception).





On August
5, August 14, and August 24, 2009, pursuant to the terms of four stock
subscription agreements, the Company issued four warrants exercisable into an
aggregate of 260,000 restricted shares of the Company’s Common Stock at a per
share price of $1.50 expiring August 5, August 14, and August 24,
2011.





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 205.8%, 204.9%, 204.9% and 204.5%; risk-free interest rate of
1.23%, 1.07%, 1.07% and 1.05%; contractual life of two years; and a closing
market price of $0.45, $0.45, $0.45 and $0.40.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 219 week, 221 week, 221 week, 222 week periods (from Pink Sheet
inception).





On
September 25, 2009, pursuant to the terms of a stock subscription agreement, the
Company issued a warrant exercisable into 100,000 restricted shares of the
Company’s Common Stock at a per share price of $1.50 expiring September 25,
2011.





The fair
value of this option was estimated at the date of grant using the Black-Scholes
option-pricing model with dividend yield of 0%; expected volatility of 202.4%;
risk-free interest rate of 0.98%; contractual life of two years; and a closing
market price of $0.50.  Expected volatility is calculated based on the
historic Friday stock market closing price of the preceding two hundred twenty
seven week period (from Pink Sheet inception).





On
October 7, 2009, pursuant to the terms of a stock subscription agreement, the
Company issued a warrant exercisable into 110,000 restricted shares of the
Company’s Common Stock at a per share price of $1.50 expiring October 7,
2011.





The fair
value of this option was estimated at the date of grant using the Black-Scholes
option-pricing model with dividend yield of 0%; expected volatility of 202.0%;
risk-free interest rate of 0.87%; contractual life of two years; and a closing
market price of $0.45.  Expected volatility is calculated based on the
historic Friday stock market closing price of the preceding two hundred twenty
eight week period (from Pink Sheet inception).


38





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.
            Warrants,
      options and stock based compensation
(continued)





A summary
of the Company’s stock options as of October 31 and April 30, 2009 and changes
during the periods is as follows:





Period endedOctober 31, 2009
                                      
                                      
                                      April 30, 2009Options
                                      
                                      
                                      Weighted
                                        average
                                        exercise
                                        price
                                      
                                      
                                      Weighted
                                        average
                                        intrinsic
                                        value
                                        per share
                                      
                                      
                                      Options
                                      
                                      
                                      Weighted
                                        average
                                        exercise
                                        price
                                      
                                      
                                      Weighted
                                        average
                                        intrinsic
                                        value
                                        per shareOutstanding
      at the beginning of the period
                                      
                                      
                                      7,935,000
                                      
                                      
                                      $
                                      0.547
                                      
                                      
                                      
                                      
                                      
                                      
                                      8,160,000
                                      
                                      
                                      $
                                      0.581Granted
                                      
                                      
                                      12,460,500
                                      
                                      
                                      $
                                      0.457
                                      
                                      
                                      
                                      
                                      
                                      
                                      75,000
                                      
                                      
                                      $
                                      1.800Exercised
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      -Cancelled
                                      
                                      
                                      24,000
                                      
                                      
                                      $
                                      0.420
                                      
                                      
                                      
                                      
                                      
                                      
                                      300,000
                                      
                                      
                                      $
                                      1.800Outstanding
      at the end of the period
                                      
                                      
                                      20,371,500
                                      
                                      
                                      $
                                      0.492
                                      
                                      
                                      $
                                      0.789
                                      
                                      
                                      
                                      7,935,000
                                      
                                      
                                      $
                                      0.547
                                      
                                      
                                      $
                                      2.025Vested
      at the end of the period
                                      
                                      
                                      12,063,500
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      7,843,334Exercisable
      at the end of period
                                      
                                      
                                      12,063,500
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      1.333
                                      
                                      
                                      
                                      7,843,334
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      2.050Weighted
      average fair value per share of options granted during the
      period
                                      
                                      
                                      
                                      
                                      
                                      $
                                      0.409
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      1.007





The
following table summarizes information regarding employee stock options
outstanding at October 31, 2009:





Options Outstanding
                                    
                                    
                                    Options ExercisableExercise prices
                                    
                                    Number
                                      Outstanding
                                    
                                    
                                    Weighted
                                      average
                                      remaining
                                      contractual
                                      life (years)
                                    
                                    
                                    Weighted
                                      average
                                      exercise
                                      price
                                    
                                    
                                    Number
                                      exercisable
                                    
                                    Weighted
                                      average
                                      remaining
                                      contractual
                                      life (years)
                                    
                                    Weighted
                                      average
                                      exercise
                                      price$
                                    0.42 to 0.46
                                    
                                    
                                    12,436,500
                                    
                                    
                                    
                                    9.7
                                    
                                    
                                    $
                                    0.457
                                    
                                    
                                    
                                    4,153,500
                                    
                                    
                                    
                                    $
                                    0.457$
                                    0.500
                                    
                                    
                                    7,650,000
                                    
                                    
                                    
                                    7.7
                                    
                                    
                                    $
                                    0.500
                                    
                                    
                                    
                                    7,650,000
                                    
                                    
                                    
                                    $
                                    0.500$
                                    1.80 to 2.00
                                    
                                    
                                    285,000
                                    
                                    
                                    
                                    8.7
                                    
                                    
                                    $
                                    1.807
                                    
                                    
                                    
                                    260,000
                                    
                                    
                                    
                                    $
                                    1.80820,371,500
                                    
                                    
                                    
                                    8.9
                                    
                                    
                                    $
                                    0.492
                                    
                                    
                                    
                                    12,063,500
                                    
                                    8.9
                                    
                                    $
                                    0.513


39





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





13.
            Warrants,
      options and stock based compensation
(continued)





The
following table summarizes information regarding the 2009 Stock Option Plan,
adopted July 6, 2009, at October 31, 2009:





October 31,2009Balance,
      beginning of the period
                  
                  
                  -Shares
      authorized for grant
                  
                  
                  25,000,000Shares
      granted
                  
                  
                  (12,460,500
                  )Shares
      cancelled
                  
                  
                  24,000Balance,
      end of the period
                  
                  
                  12,563,500





A summary
of the Company’s warrants as of October 31 and April 30, 2009 and changes during
the periods is as follows:





Period endedOctober 31, 2009
                          
                          
                          April 30, 2009Warrants
                          
                          
                          Weighted
                            average
                            exercise
                            price
                          
                          
                          Warrants
                          
                          
                          Weighted
                            average
                            exercise
                            priceOutstanding
      at the beginning of the period
                          
                          
                          6,635,822
                          
                          
                          $
                          1.864
                          
                          
                          
                          6,932,945
                          
                          
                          $
                          1.914Granted
                          
                          
                          908,728
                          
                          
                          $
                          1.101
                          
                          
                          
                          308,557
                          
                          
                          $
                          1.280Exercised
                          
                          
                          10,250
                          
                          
                          $
                          0.001
                          
                          
                          
                          105,680
                          
                          
                          $
                          0.400Cancelled
                          
                          
                          5,100,000
                          
                          
                          $
                          2.000
                          
                          
                          
                          500,000
                          
                          
                          $
                          2.500Outstanding
      at the end of the period
                          
                          
                          2,434,300
                          
                          
                          $
                          1.302
                          
                          
                          
                          6,635,822
                          
                          
                          $
                          1.864Vest
      and exercisable at the end of period
                          
                          
                          2,434,300
                          
                          
                          
                          
                          
                          
                          
                          6, 635,822Weighted
      average fair value per share of warrants granted during the
      period
                          
                          
                          
                          
                          
                          $
                          0.373
                          
                          
                          
                          
                          
                          
                          $
                          0.198





The
following table summarizes information regarding stock purchase warrants
outstanding at October 31, 2009:





Warrants Outstanding
                                    
                                    
                                    Warrants ExercisableExercise prices
                                    
                                    Number
                                      Outstanding
                                    
                                    
                                    Weighted
                                      average
                                      remaining
                                      contractual
                                      life (years)
                                    
                                    
                                    Weighted
                                      average
                                      exercise
                                      price
                                    
                                    
                                    Number
                                      exercisable
                                    
                                    Weighted
                                      average
                                      remaining
                                      contractual
                                      life (years)
                                    
                                    Weighted
                                      average
                                      exercise
                                      price$
                                    0.001
                                    
                                    
                                    176,250
                                    
                                    
                                    
                                    2.5
                                    
                                    
                                    $
                                    0.001
                                    
                                    
                                    
                                    176,250
                                    
                                    
                                    
                                    $
                                    0.001$
                                    1.000
                                    
                                    
                                    1,136,150
                                    
                                    
                                    
                                    2.1
                                    
                                    
                                    $
                                    1.000
                                    
                                    
                                    
                                    1,136,150
                                    
                                    
                                    
                                    $
                                    1.000$
                                    1.500
                                    
                                    
                                    523,994
                                    
                                    
                                    
                                    1.5
                                    
                                    
                                    $
                                    1.500
                                    
                                    
                                    
                                    523,994
                                    
                                    
                                    
                                    $
                                    1.500$
                                    2.000
                                    
                                    
                                    649,968
                                    
                                    
                                    
                                    0.3
                                    
                                    
                                    $
                                    2.000
                                    
                                    
                                    
                                    649,968
                                    
                                    
                                    
                                    $
                                    2.0002,434,300
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1.855
                                    
                                    
                                    
                                    2,434,300
                                    
                                    
                                    
                                    $
                                    1.855


40





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





14.
            Going
      concern





To date
the Company has had limited revenues from the marketing and registration of
‘.vn’ domain names as
it operates in this single industry segment.  Consequently, the
Company has incurred recurring losses from operations.  In addition,
the Company has defaulted on three (3) convertible debentures aggregating
$612,500 that were due January 31, 2009 (see Notes 8 and 9) and currently has
not negotiated new terms or an extension of the due date on the Defaulted
Debentures.  These factors, as well as the risks associated with
raising capital through the issuance of equity and/or debt securities creates
uncertainty as to the Company’s ability to continue as a going
concern.





The
Company’s plans to address its going concern issues include:


·
            Increasing
      revenues of its services, specifically within its domain names
      registration business segment
through:


·
            the
      development and deployment of an Application Programming Interface which
      the Company anticipates will increase its reseller network and
      international distribution
channels,


·
            through
      direct marketing to existing customers both online, via e-mail and direct
      mailings,


·
            the
      commercialize of a pay-per-click (“PPC”) parking page program for ‘.vn’ domain
      registrations, and


·
            the
      anticipated launch of our Info.VN web
portal;


·
            Completion
      and operation of the IDCs and revenue derived from the IDC
      services;


·
            Commercialization
      and Deployment of certain new
technologies:


·
            multi-gigabit
      capacity virtual fiber systems, a wireless point-to-point layer one
      solution, and


·
            rack-level
      data center solutions meeting Tier III standards;
  and


·
            Raising
      capital through the sale of debt and/or equity
  securities.





There can
be no assurance that the Company will be successful in its efforts to increase
revenues, issue debt and/or equity securities for cash or as payment for
outstanding obligations.  Capital raising efforts may be influenced by
factors outside of the control of the Company, including, but not limited to,
capital market conditions.





The
Company is in various stages of finalizing implementation strategies on a number
of services and is actively attempting to market its services nationally in
Vietnam.  As a result of capital constraints it is uncertain when it
will be able to deploy the Application Programming Interface or construction of
the IDCs.





15.
            Stock
      issuances





On May
20, 2009, pursuant to the terms of three stock subscription agreements, the
Company issued an aggregate of 796,389 restricted shares of the Company’s Common
Stock at $0.50 per unit as full and final payment of three term notes (see Note
9) recorded as a $397,661 aggregate payment of short term debt as follows: (i)
Ms. Aussy Manuhu, an accredited investor, 533,594 restricted shares as full and
final payment ($266,263) of that term note issued March 29, 2008, as amended,
(ii) Equity Trust Company, custodian FBO John T. Butler, IRA, an accredited
investor, 153,297 restricted shares as full and final payment ($76,649) of that
term note issued June 1, 2008, and (iii) Equity Trust Company, custodian FBO
Tupou U. Kaho, IRA, an accredited investor, 109,498 restricted shares as full
and final payment ($54,749) of that term note issued June 1,
2008.  The subscription units consists of one restricted share of the
Company’s Common Stock and a warrant to purchase 1/5 of a restricted share of
the Company’s Common Stock at an exercise price of $1.50 expiring April 30,
2011; a series of three warrants were issued as follows: (i) Ms. Manuhu 106,719
shares, (ii) Butler IRA 30,659 shares, and (iii) Kaho IRA 21,900
shares





On May
20, 2009, pursuant to the terms of a stock subscription agreement, the Company
issued to Equity Trust Company, custodian FBO John T. Butler, IRA, an accredited
investor, 70,000 restricted shares of the Company’s Common Stock at $0.50 per
unit for cash consideration of $35,000.  The subscription unit
consists of one restricted share of the Company’s Common Stock and a warrant to
purchase 1/5 of a restricted share (14,000 shares) of the Company’s Common Stock
at an exercise price of $1.50 expiring April 30, 2011.





On June
12, 2009, pursuant to the terms of two strategic advisory board agreements and
pursuant to their participation at a Company event, the Company issued to Dr.
Mai Liem Truc and Mr. Kenneth Le, both a sophisticated purchaser, each 1,000
restricted shares of the Company’s Common Stock for services valued at the
market closing price and recorded as an aggregate $1,000 in consulting
fees.


41





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





15.
            Stock
      issuances (continued)





On June
12, 2009, pursuant to the terms of a Pali Placement Agent Warrants, the Company
issued to Matthew Pilkington, an accredited investor, 2,500 shares of the
Company’s Common Stock exempt from registration pursuant to Rule 506 of
Regulation D, as amended, upon the exercise of 2,500 $0.001 Pali Retainer
Warrants for $3.





On July
27, 2009, pursuant to the terms of a three stock subscription agreements, each
entered into with an accredited investor, the Company issued an aggregate of
250,000 restricted shares of the Company’s Common Stock at $0.50 per unit for
cash consideration of $125,000.  Each unit consists of one restricted
share of the Company’s Common Stock and a warrant to purchase one restricted
share of the Company’s Common Stock at an exercise price of $1.00 expiring two
years from the date of subscription.





On
October 30, 2009, pursuant to the terms of a five stock subscription agreements,
each entered into with an accredited investor, the Company issued an aggregate
of 360,000 restricted shares of the Company’s Common Stock at $0.50 per unit for
cash consideration of $180,000.  Each unit consists of one restricted
share of the Company’s Common Stock and a warrant to purchase one restricted
share of the Company’s Common Stock at an exercise price of $1.00 expiring two
years from the date of subscription.  The Company paid a finder a
finder’s fee equal to Ten Percent (10%) of the aggregate amount received in cash
and apart from the payment of a finder’s fee; no commissions were incurred by
the Company in connection with the transaction.





Additionally
on October 30, 2009, pursuant to the terms of a stock subscription agreement the
Company issued, an accredited investor, 110,000 restricted shares of the
Company’s Common Stock at $0.50 per unit for cash consideration of
$55,000.  Each unit consists of one restricted share of the Company’s
Common Stock and a warrant to purchase one restricted share of the Company’s
Common Stock at an exercise price of $1.00 expiring two years from the date of
subscription.





Also on
October 30, 2009, pursuant to the terms of a consulting agreement dated
September 1, 2009, the Company issued to Vista Partners, LLC, a California
limited liability corporation, a sophisticated purchaser, 47,872 restricted
shares of the Company’s Common Stock for investor relation services during the
following six months valued at the market closing price and recorded as $22,500
in prepaid expenses.





16.
            Subsequent
      events





On
November 5, 2009, the IDCG 1st Loan
(Term Note 9), IDCG 2nd Loan
(Term Note 10), IDCG 3rd Loan
(Term Note 11), and IDCG 4th Loan
(Term Note 14) were each amended to extend the November 30, 2009 due date to
February 28, 2010 with no other change to the terms of the notes (see Note
9).





On
November 13, 2009, the Company executed a $45,000 promissory note to Lan T.
Tran, due February 13, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Tran of i) $15,000
to Diep Tai as a partial payment on his revolving credit agreement (Term Note
16) due November 19, 2009 (see Note 9) and ii) $30,000 to Hi-Tek Private as a
partial payment on their revolving credit arrangement (see Note
10).





Also on
November 13, 2009, the Company executed a $70,000 promissory note with Diep Tai
in exchange for the $70,000 balance outstanding under his revolving credit
agreement (Term Note 16), due November 19, 2009 (see Note 9), which was
cancelled.  The promissory note is due June 30, 2010 and bears an
interest rate of Twelve Percent (12%) per annum.





On
November 16 and November 17, 2009, the Company borrowed an additional $5,000 and
$10,000, respectively, from Hue Tran Johnson under the revolving credit
agreement dated October 29, 2009.  The revolving credit agreement, due
January 29, 2010, accrues interest monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  Ms.
Johnson is the wife of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.


42





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2009





16.
            Subsequent events
      (continued)





On
November 17, 2009, the Company agreed to a 50% conversion of the outstanding
balances held by Thomas Johnson ($1,510,489.50) and Lee Johnson ($1,510,489.50)
at $0.30 per share and issued 5,034,965 restricted shares of the Company’s
Common Stock and a $1,510,489.50 convertible note due June 30, 2010 with
materially the same terms as the cancelled notes each to Thomas Johnson and Lee
Johnson.





On
November 18, 2009, the Company executed a $50,000 promissory note to Nguyen Yen
Crogan, due February 18, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Crogan of $50,000
to Hi-Tek Private as a partial payment on their revolving credit arrangement
(see Note 10).





Also on
November 18, 2009, the Company executed a $50,000 promissory note to Nga T.
Tran, due February 18, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Tran of $50,000 to
Hi-Tek Private as a partial payment on their revolving credit arrangement (see
Note 10).





On
November 30, 2009, in connection with the receipt of a Thirty Thousand Dollar
($30,000) cash loan from Mr. Thomas Johnson, the Company’s Chief Executive
Officer and Chairman of the Board of Directors, the Company executed a $30,000
promissory note to Mr. Johnson, due February 28, 2010 with interest accruing
monthly at a rate of Ten Percent (10%) per annum.  Proceeds were used
to fund general operations.





On
December 2, 2009, the Hi-Tek Trademark Loan (see Note 8) unpaid note and Ten
Percent (10%) accrued interest ($491,890.92) was cancelled and replaced with a
convertible note due June 30, 2010 which converts at the option of the holder,
in whole or in part, into restricted shares of the Company’s Common Stock at
$0.38 per share and bears an interest rate of Ten Percent (10%) per
annum.  In accordance with Codification topic 470-20, there is no
beneficial conversion feature at the time of the new convertible
note.





On
December 2, 2009, the Business.com.VN Loan (see Note 8) unpaid note and Eight
Percent (8%) accrued interest ($112,078.93) was cancelled and replaced with a
new convertible note due June 30, 2010 which converts at the option of the
holder, in whole or in part, into restricted shares of the Company’s Common
Stock at $0.38 per share and bears an interest rate of Eight Percent (8%) per
annum.  In accordance with Codification topic 470-20, there is no
beneficial conversion feature at the time of the new convertible
note.





On
December 2, 2009, the Company borrowed an additional $30,000 from Hue Tran
Johnson under the revolving credit agreement dated October 29,
2009.  The revolving credit agreement, due January 29, 2010, accrues
interest monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.  Ms. Johnson is the wife of Dr.
Lee Johnson, the Company’s President, Chief Technology Officer, and Chief
Financial Officer.





On
December 3, 2009, the $18,000 promissory note due Thomas Johnson (Term Note 17)
(see Note 9) was amended to extend the December 12, 2009 due date to February
28, 2010 with no other change to the terms.





On
December 11, 2009, in connection with the receipt of a Twenty-Five Thousand
Dollar ($25,000) cash loan from Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, the Company executed a
$25,000 promissory note to Mr. Johnson, due March 11, 2010 with interest
accruing monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.


43





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





The
following information should be read in conjunction with (i) the condensed
consolidated financial statements of Dot VN, Inc. and the notes thereto
appearing elsewhere in this Form 10-Q together with (ii) the more detailed
business information and the April 30, 2009 and 2008 audited consolidated
financial statements and related notes included in the Company’s most recent
Form 10-K as filed with the Securities and Exchange
Commission.  Statements in this section and elsewhere in this Form
10-Q that are not statements of historical or current fact constitute
“forward-looking” statements.





OVERVIEW





Dot VN,
Inc. (“Dot VN” or the “Company”) was incorporated in the State of Delaware on
May 27, 1998, under the name Trincomali Ltd. (“Trincomali”).  Over the
course of its history, Trincomali underwent additional name changes until being
renamed Malers, Inc. on April 28, 2005.  On July 17, 2006, Malers,
Inc. effected a transaction by and among (i) Dot VN, Inc., a California
corporation (“Dot VN CA”), (ii) Malers, Inc., a Delaware corporation (“Malers”)
and (iii) Malers Acquisition Corp. (“MAC”), a Washington corporation and wholly
owned subsidiary of Malers, the completion of which transaction resulted in (w)
MAC merging with and into Dot VN CA there by ending MAC’s corporate existence;
(x) Dot VN CA becoming a wholly owned subsidiary of Malers a Delaware
corporation; (y) Dot VN CA being renamed “Hi-Tek Multimedia, Inc.” a California
corporation; and (z) Malers being renamed “Dot VN, Inc.” a Delaware
corporation.  Final state regulatory approval was received on August
17, 2006.





For
accounting purposes, the acquisition has been treated as a recapitalization of
Dot VN CA with Dot VN CA as the acquirer (reverse acquisition).  Dot
VN CA was treated as the acquirer for accounting purposes because after the
acquisition the shareholders of Dot VN CA controlled Malers and the officers and
directors of Dot VN CA assumed the same positions at Malers; Malers is the
surviving entity for legal purposes.  The historical financial
statements prior to July 17, 2006 are those of Dot VN CA.





Dot VN,
Inc., its predecessors, and its subsidiaries (the “Company” or “Dot VN”), is an
Internet and telecommunications company focused on the Vietnamese market and is
a leading domain name registrar of Vietnam’s country code Top Level Domain
(“ccTLD”) ‘.vn’ and a
leading provider of services that enable businesses and individuals to
establish, maintain and evolve an online presence in Vietnam.  The
Company intends to apply the benefits of best of breed technology through
strategic partnerships to deploy hardware, software and wireless solutions in
Vietnam.  In order to maximize the benefits the Company can derive
from the technology, the Company also intends:





·
            to
      drive growth in registrations of the Vietnamese ccTLD ‘.vn’;


·
            to
      build and operate Internet data centers in major city centers in
      Vietnam;


·
            to
      commercialize the use of multi-gigabit capacity virtual fiber systems, a
      wireless point-to-point layer one
solution;


·
            to
      commercialize the use of rack-level data center solutions meeting
      Tier III standards; and


·
            to
      identify, deploy and commercialize best of breed technologies and
      applications in Vietnam.





Dot VN
has signed agreements with the Vietnamese Internet Network Information Center
(“VNNIC”) to serve as the only domain name registrar empowered with independent
authority to approve domain names, in real time, online which provides Dot VN
with a competitive advantage vis-à-vis other domain name registrars (the “VNNIC
Registrars Agreement”).  The current VNNIC Registrars Agreement has no
fixed term.  On May 25, 2009, the Company signed an exclusive rights
agreement with VNNIC to promote and advertise the registration of the ‘.vn’ ccTLD with the
commercialization of a pay-per-click (“PPC”) parking page program for ‘.vn’ domain registrations
(the “Domain Monetization Agreement”).  In connection with the
implementation of the Domain Monetization Agreement Dot VN has executed an
agreement with Name Drive, LLC, a Maryland Limited Liability Company, to provide
consulting and domain parking services for registered domain names (the “Name
Drive Agreement”).  In connection with the Name Drive Agreement, Name
Drive will provide technical support, including business development, marketing
and co-branding support to raise awareness of the Dot VN brand in Vietnam and
worldwide and the Company will provide governmental policy support,
infrastructure and technological access in furtherance of the creation and
commercialization of Domain Registry Monetization Programs.





Dot VN is
currently in the process of designing an Internet data centers (“IDC” in the
singular or “IDCs” in the plural) which will serve as an internal data and
telecommunications network within the country of Vietnam.  The IDCs
will provide web hosting, collocation and disaster recovery services as well as
serves as the basic infrastructure for additional Internet and data technologies
such as wireless broad brand connectivity, distance e-learning and e-government
projects.  The Company has secured a 35-year lease, ending September
21, 2043, for approximately 8,768 square meters of land in the Danang Industrial
Zone in Danang City, Vietnam upon which it intends to construct a dedicated IDC
building.  The IDC developments are anticipated to occur in the near
to mid-term.  In the long term, the Company intends to develop
additional IDCs in the rest of the Country of Vietnam.


44





On August
15, 2008, Dot VN has signed distribution agreement with E-Band Communications
Corp. providing the Company the exclusive right to distribute E-Band’s
multi-gigabit capacity wireless point-to-point systems and related E-Band
technology and services (the “E-Band Products”) in Vietnam, and the
non-exclusive right to distribute E-Band Products in Cambodia, Thailand and
Laos.  The distribution agreement was a term of three (3)
years.





On August
26, 2009, Dot VN has signed a distribution agreement with Elliptical Mobile
Solutions, LLC (“EMS”) providing the Company the exclusive right to distribute
EMS’s rack-level data center solutions and related technology and services (the
“EMS Products”) in Vietnam, and the non-exclusive right to distribute EMS
Products in Asia.  The distribution agreement was a term of five (5)
years.





Dot VN
will continue to explore and test, and analyze, new and best of breed
technologies and applications for deployment in Vietnam.





Going
Concern





To date
the Company has had limited revenues from the marketing and registration of
‘.vn’ domain names as
it operates in this single business segment.  Consequently, the
Company has incurred recurring losses from operations.  In addition,
the Company has defaulted on three (3) convertible debentures aggregating
$612,500 that were due January 31, 2009 and currently has not negotiated new
terms or an extension of the due date with the holders of these convertible
debentures.  These factors, as well as the risks associated with
raising capital through the issuance of equity and/or debt securities creates
uncertainty as to the Company’s ability to continue as a going
concern.





The
Company’s plans to address its going concern issues include:


·
            Increasing
      revenues of its services, specifically within its domain names
      registration business segment
through:


·
            the
      development and deployment of an Application Programming Interface which
      the Company anticipates will increase its reseller network and
      international distribution
channels,


·
            through
      direct marketing to existing customers both online, via e-mail and direct
      mailings,


·
            the
      commercialize of a pay-per-click (“PPC”) parking page program for ‘.vn’ domain
      registrations, and


·
            the
      anticipated launch of our Info.VN web
portal;


·
            Completion
      and operation of the IDCs and revenue derived from the IDC
      services;


·
            Commercialization
      and Deployment of certain new
technologies:


·
            Multi-gigabit
      capacity virtual fiber systems, a wireless point-to-point layer one
      solution, and


·
            rack-level
      data center solutions meeting Tier III standards;
  and


·
            Raising
      capital through the sale of debt and/or equity
  securities.





There can
be no assurance that the Company will be successful in its efforts to increase
revenues, issue debt and/or equity securities for cash or as payment for
outstanding obligations.  Capital raising efforts may be influenced by
factors outside of the control of the Company, including, but not limited to,
capital market conditions.





The
Company is in various stages of finalizing implementation strategies on a number
of services and is actively attempting to market its services nationally in
Vietnam.  As a result of capital constraints it is uncertain when it
will be able to deploy the Application Programming Interface or construction of
the IDCs.





CRITICAL
ACCOUNTING POLICIES





The
discussion and analysis of our financial condition and results of operations are
based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”).  The preparation of these condensed
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities.  On an
ongoing basis, we evaluate our estimates based 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.  Actual results may differ from these estimates under
different assumptions or conditions.  We have identified the policies
below as critical to our business operations and to the understanding of our
financial results:


45





Basis of
Presentation





The
Company’s consolidated financial statements are prepared using the accrual
method of accounting and include its wholly-owned subsidiaries, which conforms
to US GAAP.  All significant intercompany accounts and transactions
have been eliminated in consolidation.





Cash and Cash
Equivalent





The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.





Revenue
Recognition





We
recognize revenue in accordance with Security and Exchange Commission (“SEC”)
Codification of Staff Accounting Bulletin (“CSAB”) topic 13 “Revenue
Recognition” and Codification topic 605-45 (reporting revenue gross as a
principal versus net as an agent).  Accordingly, we recognize revenue
and the related costs when: (1) persuasive evidence of an arrangement exists;
(2) delivery and acceptance has occurred or service has been rendered; (3) the
fee is fixed or determinable; and (4) collectability of the resulting receivable
is reasonably assured.





The
Company principally generates revenues from the sale of ‘.vn’ccTLD domain names for
the government of Vietnam.  These revenues consist primarily of
registration and renewal fees, which are recorded gross in accordance with
Codification topic 605-45.





Amounts
invoiced or collected in advance of delivery or providing service are recorded
as a deferred revenue liability; revenue is recognized when the domain names are
authorized and released to the customer.





Fair Value of Financial
Instruments





Codification
topic 825, “Financial Instruments”, requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value.  The carrying amounts of the Company’s financial instruments as
of October 31, and April 30, 2009 approximate their respective fair values
because of the short-term nature of these instruments.  Such
instruments consist of cash, accounts receivable, accounts payable, due to
related parties, short-term convertible and term debt, and accrued and other
liabilities.





Foreign Currency
Translation





The
functional currency of the Company’s Vietnam subsidiaries is the applicable
local currency.  The functional currency is translated into U.S.
dollars for balance sheet accounts using current exchange rates in effect as of
the balance sheet date and for revenue and expense accounts and cash flow items
using a weighted-average exchange rate during the reporting
period.  Adjustments resulting from translation are included in
accumulated comprehensive income (loss), a separate component of shareholders’
equity (deficit).  Gains or losses resulting from transactions
denominated in foreign currencies are included in other income and expense, net
in the consolidated statements of operations.





Comprehensive Income
(Loss)





Comprehensive
income (loss) is defined as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, and is comprised of “net income (loss)” and “other
comprehensive income (loss).”  The Company’s other comprehensive
income is comprised exclusively of changes in the Company’s currency translation
adjustment account.





Equipment





Equipment,
leasehold improvements, and additions thereto, including capitalized interest,
are carried at cost.  Depreciation is computed using the straight-line
method over the estimated useful lives of the depreciable property generally
three to five years for assets purchased new and two to three years for assets
purchased used.  Leasehold improvements are amortized over the shorter
of the lease term or the estimated lives.  Management evaluates useful
lives regularly in order to determine recoverability taking into consideration
current technological conditions.  Maintenance and repairs are charged
to expense as incurred; additions and betterments are
capitalized.  Fully depreciated assets are retained in equipment and
accumulated depreciation accounts until retirement or disposal.  Upon
retirement or disposal of an asset, the cost and related accumulated
depreciation are removed, and any resulting gain or loss, net of proceeds, is
credited or charged to operations.


46





Interest
on borrowings related to eligible capital expenditures is capitalized as part of
the cost of the qualified asset and amortized over the estimated useful life of
the asset in accordance with Codification topic 835-20 “Capitalization of
Interest”.





Goodwill and Other
Intangible Assets





Goodwill
and acquired intangible assets determined to have an indefinite useful lives are
not amortized, but instead are evaluated for impairment annually and if events
or changes in circumstances indicate that the carrying amount may not be
recoverable in accordance with Codification topic 350 “Intangible – Goodwill and
Other”.  The impairment test consists of a comparison of the fair
value of an intangible asset with its carrying amount.  If the
carrying amount of an intangible asset exceeds its fair value, an impairment
loss is recognized in an amount equal to that excess.  After an
impairment loss is recognized, the adjusted carrying amount of the intangible
asset is its new accounting basis.  Subsequent reversal of a
previously recognized impairment loss is prohibited.  Intangible
assets with estimable useful lives are amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with Codification topic 360.





Long-Lived
Assets





Long-Lived
assets, such as property and equipment and purchased intangibles with finite
lives (subject to amortization), are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable in accordance with Codification topic 360 “Property, Plant, and
Equipment”.  Circumstances which could trigger a review include, but
are not limited to: significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount originally expected
for the acquisition or construction of the asset; current period cash flow or
operating losses combined with a history of losses or a forecast of continuing
losses associated with the use of the asset; and current expectation that the
asset will more likely than not be sold or disposed significantly before the end
of its estimated useful life.





Recoverability
of assets is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by an
asset.  If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized as the amount by which the
carrying amount exceeds the estimated fair value of the asset.  The
estimated fair value is determined using a discounted cash flow
analysis.  Any impairment in value is recognized as an expense in the
period when the impairment occurs.





Deferred
Charges





The
Company capitalizes costs associated with the issuance of debt instruments as a
non-current asset.  These costs are amortized on a straight-line basis
over the term of the debt instruments.





Convertible
Debt





In
accordance with Codifications topic 470-20 ”Debt with conversion and Other
Options” the Company evaluates debt securities (“Debt”) for beneficial
conversion features.  A beneficial conversion feature is present when
the conversion price per share is less than the market value of the common stock
at the commitment date.  The intrinsic value of the feature is then
measured as the difference between the conversion price and the market value
(the “Spread”) multiplied by the number of shares into which the Debt is
convertible and is recorded as debt discount with an offsetting amount
increasing additional paid-in-capital.  The debt discount is accreted
to interest expense over the term of the Debt with any unamortized discount
recognized as interest expense upon conversion of the Debt.  If a debt
security contains terms that change upon the occurrence of a future event the
incremental intrinsic value is measured as the additional number of issuable
shares multiplied by the commitment date market value and is recognized as
additional debt discount with an offsetting amount increasing additional
paid-in-capital upon the future event occurrence.  The total intrinsic
value of the feature is limited to the proceeds allocated to the Debt
instrument.





Income
Taxes





Income
taxes are provided in accordance with Codifications topic 740, “Income Taxes”,
which requires an asset and liability approach for the financial accounting and
reporting of income taxes.  Current income tax expense (benefit) is
the amount of income taxes expected to be payable (receivable) for the current
year.  A deferred tax asset and/or liability is computed for both the
expected future impact of differences between the financial statement and tax
bases of assets and liabilities and for the expected future tax benefit to be
derived from tax loss and tax credit carry forwards.  Deferred income
tax expense is generally the net change during the year in the deferred income
tax asset and liability.  Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be “more
likely than not” realized in future tax returns.  Tax rate changes and
changes in tax laws are reflected in income in the period such changes are
enacted.


47





Uncertain Tax
Positions





Codifications
topic 740 addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements.  Accounting for uncertainty in income taxes is addressed
by a two-step method of first evaluating whether a tax position has met a
more-likely-than-not recognition threshold and second, measuring that tax
position to determine the amount of benefit to be recognized in the financial
statements.





Guarantees of
Others





Codifications
topic 460, “Guarantees” requires an initial recognition and measurement of
guarantees in which the guarantor obligation represents a liability, as
defined.  Excluded from recognition are guarantees which may be
settled in equity shares of the guarantor, at its option, and instead
establishes minimum disclosure requirements.  The Company currently
has no guarantees which require recognition of a liability.





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods presented.  The Company is
required to make judgments and estimates about the effect of matters that are
inherently uncertain.  Although, we believe our judgments and
estimates are appropriate, actual future results may be different; if different
assumptions or conditions were to prevail, the results could be materially
different from our reported results.





Significant
estimates made by management are, realizability of fixed assets and long-lived
assets, income taxes, stock option and warrant valuation, and accounts
receivable.  The Company bases our estimates on our limited historical
experience and various other assumptions we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources and, where necessary, makes adjustments
prospectively.





As the
Company is entering into a new market it is difficult to estimate if its
investments in long term assets will be realizable in the future.  The
Company’s assumptions, in part, include an evaluation of Internet growth within
Vietnam and its acceptance and availability to the population (less than 4% of
the population in December 2003 to over 24% by December 2008), the country’s
economic growth rate at over 6.5% per year, and the increasing capital
investment from foreign companies.





The
Company estimates the useful life of its fixed assets to be generally three to
five years for assets purchased new and two to three years for assets purchased
used and has made no changes to the depreciation life of its fixed
assets.  Leasehold improvements are amortized over the shorter of the
lease term or the estimated lives.  At October 31, 2009 net fixed
assets to be recovered in the future are $777,115.





The
Company at this time estimates it will be able to fully recover its investment
in intangible assets and has not recognized a charge for
impairment.  The Company’s intangible assets consist of its US
trademark ($360,000) and Vietnam trademark ($662,336) which could be subject to
impairment in the future if the assumptions noted above change
adversely.





At this
time, the Company has suffered losses so it has not recorded any deferred tax
assets.





The
Company estimates the fair value of stock-based transactions (options and
warrants) using a Black-Sholes option pricing model which requires the Company
to estimate the market volatility of our common stock among other input
variables.  The Company calculates market volatility based on the
historic Friday stock market closing price from the first week the Company was
publically traded over the counter on the Pink Sheets to the specific date of
the grant in accordance with Codification topic 718 implementation
guidance.  Based on the Pink Sheet and more recently the
Over-The-Counter Bulletin Board trading history of our common stock the market
volatility has ranged from 230% (61 weekly data points) to 174% (133 weekly data
points) and averaged 206% and 199% during the six months ended October 31, 2009
and our fiscal year ended April 30, 2009, respectively.  The future
market volatility of our common stock could continue to fluctuate which will
impact the fair value of future stock-based transactions.


48





Management
reviews its estimates on a quarterly basis and, where necessary, makes
adjustments prospectively.





Stock-Based
Compensation





Codifications
topic 718 requires that the cost resulting from all share-based transactions be
recorded in the financial statements and establishes fair value as the
measurement objective for share-based payment transactions with employees and
acquired goods or services from non-employees.  Prior to the May 1,
2005 (fiscal year 2006) adoption of Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standard (“SFAS”) 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), the Company applied SFAS 123 “Accounting
for Stock-Based Compensation” (“SFAS 123”), which provided for the use of a fair
value based method of accounting for stock-based
compensation.  However, SFAS 123 allowed the measurement of
compensation cost for stock options granted to employees using the intrinsic
value method of accounting prescribed by Accounting Principles Board (“APB”)
Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”), which only
required charges to compensation expense for the excess, if any, of the fair
value of the underlying stock at the date a stock option is granted (or at an
appropriate subsequent measurement date) over the amount the employee must pay
to acquire the stock.  Prior to fiscal year 2006, the Company had
elected to account for employee stock options using the intrinsic value method
under APB 25 and provided, as required by SFAS 123, pro forma footnote
disclosures of net loss as if a fair value based method of accounting had been
applied.





The
Company adopted SFAS 123R in accordance with the modified retrospective
application and has restated the consolidated financial statements from the
beginning of fiscal year 2006 for the impact of SFAS 123R.  Under this
transition method, stock-based compensation expense in fiscal year 2006 included
stock-based compensation expense for all share-based payment awards granted
prior to, but not yet vested as of May 1, 2005, based on the grant-date fair
value estimated in accordance with the original provision of SFAS
123.  Stock-based compensation expense for all share-based payment
awards granted after May 1, 2005 is based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123R.  The Company
recognizes these compensation costs using the graded vesting attribute method
over the requisite service period during which each tranche of shares is earned
(generally one third at zero, one, and two years) with the value of each tranche
is amortized on a straight-line basis.





Segment
Information





Codifications
topic 280, “Segment Information” provides the requirements for companies to
report financial and descriptive information about their reportable operating
segments.  Operating segments, as defined, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by a Company in deciding how to allocate resources and in
assessing performance.  It also establishes standards for related
disclosures about products and services, geographic areas and major
customers.  The Company evaluated Codifications topic 280 and
determined that the Company currently operates in one segment, domain name
registration, and will operate in additional segments when it commences future
operation of Internet data centers or wireless point-to-point
systems.





Concentration of
Risks





The
Company derives the majority of its revenues from the registration of country
code top level domain names (“ccTLD”) for the Vietnamese Ministry of Information
and Communications under a contract with the Vietnam Internet Network
Information Center (“VNNIC”).  The Company signed its first contract
with VNNIC on September 18, 2003 which was renewed annually.  On
January 3, 2006, the Company and VNNIC signed a new contract for registration of
top level country domain names with no fixed term; on May 25, 2009, the Company
and VNNIC signed an updated contract, with no fixed term, which revised the
Company’s incentive goals effective January 2, 2009.





On
September 28, 2006, the Company and VNNIC signed a procedural agreement, with a
profit sharing component, for the design, construction, and operation of an IDC
in Hanoi, Vietnam with a fifty year term.  VNNIC will provide four
finished floors (approximately 10,000 square feet) rent free for ten years
within a facility under construction.  In exchange the Company will
design and construction the IDC, acquire the equipment (hardware and software),
and manage the operation.





On May
25, 2009, the Company signed an exclusive rights agreement with VNNIC to promote
and advertise the registration of the ‘.vn’ ccTLD through the
commercialization of a pay-per-click (“PPC”) parking page program for ‘.vn’ domain
registrations.


49





In the
event of a change in the business conditions within Vietnam; enactment,
application or interpretation of any law in Vietnam the effect of which is to
nationalize or expropriate or enforce disposal the Company’s assets within
Vietnam; or a change in the Company’s contractual relationship with VNNIC the
Company could be adversely affected.





On
January 31 and February 9, 2007 the Company issued a series of convertible
debentures for an aggregate of $1,148,212 due January 31, 2009 (the “February
Debentures”).  The debentures convert at the option of each individual
noteholder (the “February Investors”) into restricted shares of the Company’s
Common Stock at $1.00 per share.  The February Debentures was funded
in conjunction with a like amount of convertible debentures issued concurrently
by Spot-On Networks, LLC (“Spot-On”) to the February Investors (the “Spot-On
Debenture”).  The February Debentures terms required that the
convertible debentures issued by Spot-On be convertible into either membership
units of Spot-On or common stock of the Company (the “Spot-On Conversion”), at
the option of the February Investors.  Upon the February Investors’
election to convert a Spot-On Debenture into the Company’s Common Stock the
Spot-On Debenture is assigned and transferred into the name of the Company (the
“Assigned Spot-On Debentures”) at which time the Company issues the Common Stock
and records a note receivable.  Future monthly interest payments, at
Ten Percent (10%) per annum, are accrued and on January 31, 2009, at maturity,
the Assigned Spot-On Debentures principal and accrued interest was to be paid to
the Company by Spot-On.





Spot-On
participated in the February Debentures because, at the time, the Company and
Spot-On contemplated consummating a business combination transaction, such as a
merger, share exchange or acquisition, provided that the Company could obtain a
larger amount of financing, contemplated by the parties to be approximately
$10,000,000.  The Company never obtained a larger amount of financing
and, as a consequence, terms and conditions of the contemplated business
combination transaction by and between the Company and Spot-On were never
negotiated.  The holders of the Spot-On Debentures are the same
persons as the Company’s February Debentures.  No holder of a Spot-On
Debenture, on an as-converted basis, is a beneficial holder of 5% or more of
common stock of the Company.





Prior to
the January 31, 2009 expiration of the Spot-On Debenture conversion right, a
total of eight (8) February Investors’ election to convert their Spot-On
Debentures, aggregating $236,213 into 236,213 restricted shares of the Company’s
Common Stock.  The Company’s ability to collect the Assigned Spot-On
Debentures principal and subsequent accrued interest is dependent on the cash
reserves of Spot-On and/or their ability to raise additional
financing.  On January 30, 2009, the Company received a request from
Spot-On to (i) extend the maturity date of the Assigned Spot-On Debentures to
March 31, 2009 and (ii) waive any defaults under the Assigned Spot-On Debentures
or any of the related documents or events of default which are outstanding or
have occurred (the “Spot-On Offer”).  The Company did not accept the
Spot-On Offer and continues discussing options to receive the full amount due,
with accrued interest.  To date the Company has not received any
payment from Spot-On on the Assigned Spot-On Debentures and Spot-On is unable to
provide the Company with a firm repayment date as they negotiated to raise funds
to satisfy their obligation under the Spot-On Debentures.





Basic and Diluted Net Loss
Per Share





Net loss
per share is calculated in accordance with Codifications topic 260, “Earnings
Per Share” for the periods presented.  Basic net loss per share is
computed using the weighted average number of common shares
outstanding.  Diluted loss per share has not been presented because
the assumed exercise of the Company’s outstanding options and warrants would be
antidilutive during periods of net loss.  Diluted earnings loss per
share is based on the assumption that all dilutive stock options, warrants, and
convertible debt are converted or exercised by applying the treasury stock
method.  Under this method, options and warrants are assumed exercised
at the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.  Options and/or warrants will have a dilutive
effect, during periods of net profit, only when the average market price of the
common stock during the period exceeds the exercise price of the options and/or
warrants.  There were options to purchase 20,371,500 shares of common
stock and 2,434,300 warrants potentially issuable at October 31, 2009 which were
not included in the computation of net loss per share.





RESULTS
OF OPERATIONS





Three
months ended October 31, 2009 compared to three months ended October 31,
2008.





REVENUES





Revenues
of $290,228 for the three months ended October 31, 2009 (the “Current Quarter”)
increased 27.5% or $62,557 as compared to $227,671 for the three months ended
October 31, 2008 (the “Prior Quarter”).  During the Current Quarter
revenue from domain name registration activity was $248,027, an increase of
$43,606 or 21.3% compared to $204,421 for the Prior Quarter.  For the
Current Quarter the volume of domain name registration activity from all sources
(new, renewal, and registration changes) in the aggregate increased 20.3% over
the Prior Quarter.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) increased $11,444 of 31.2% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
increased $32,162 or 19.25%; the Domestic Network registration rates are lower
than the International Network due to competitive pressures within Vietnam
resulting in the 21.3% increase in revenue.


50





In
addition, the Company earns commissions from VNNIC based on semi-annually
contract benchmarks (January through June and July through December) for new
registrations, renewals and registration changes; commissions of $29,273 for the
Current Quarter increased $6,023 or 25.9% as compared to $23,240 for the Prior
Quarter.  The increase in commission revenue results from favorable
contract renewal terms effective January 2, 2009.  Total domain names
under management during the Current Qauter increased 473 to 11,599 at October
31, 2009 compared to a Prior Quarter increase of 778 to 10,210 total domain
names under management at October 31, 2008.





On July
22, 2009, the Company commenced generating revenue under its first domain
registry monetization initiative whereby an Internet user who types in a domain
name that does not exist or that has expired is redirected to a Company web page
(the “Landing Page”) with targeted pay-per-click advertising
links.  The Company is tailoring the Landing Page look and developing
specific advertising links for the Asian market to improve both the number of
clicks (pay-per-click rate) and the resulting revenue.  During the
Current Quarter Landing Page revenue was $12,280.





COST OF
REVENUES





For the
three months ended October 31, 2009, cost of revenues increased 13.7% to
$127,261 compared to $111,975 for the three months ended October 31, 2008, an
increase of $15,286.  Gross profit was $162,967 or 56.2% (as a
percentage of revenues) for the three months ended October 31, 2009 compared to
$115,696 or 50.8% for the three months ended October 31, 2008.  The
increase in gross profit (5.4%) was principally due to an increase in renewal
(19.5%) and registration change (16.3%) activity which yields a higher gross
margin rate.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
three months ended October 31, 2009, general and administrative expenses, which
includes consulting and professional fees, marketing and promotion, option
bonus, bad debt expense, and other general and administrative, were $1,244,493
compared to $1,204,391 for the three months ended October 31, 2008, an increase
of $40,102 or 3.3%.  The increase in total general and administrative
expenses was primarily attributable to the following offsetting
factors:





·
            Option
      Bonus expenses increased to $658,971 for the three months ended October
      31, 2009, from $618,614 for the three months ended October 31, 2008, an
      increase of $40,357 or 6.5%.  The increase results from the
      Company’s application of the graded vesting attribute method, in
      accordance with Codification topic 718, to record compensation costs for
      stock options.  Under this method the Company records
      compensation costs for one third of the fair value at the first vesting
      date (generally the date of grant) and one third during the one year
      service period of the second vesting and the remaining third during the
      two year service period of the final vesting.  The increased
      expense is the net result the following
items:


o
            In
      October 2006, the Company issued options for an aggregate of 7,650,000
      shares with an estimated fair value of $19,886,786; during the Current
      Quarter zero was expensed compared to $552,458 during the Prior Quarter,
      for a decrease of $552,458 in the Current
  Quarter.


o
            During
      the quarter ending October 31, 2007 the Company issued options for an
      aggregate of 510,000 shares with an estimated fair value of $952,025;
      during the Current Quarter zero was expensed compared to $26,223 during
      the Prior Quarter, for a decrease of $26,223 in the Current
      Quarter.


o
            In
      August 2008, the Company issued options for an aggregate of 75,000 shares
      with an estimated fair value of $75,561; during the Current Quarter $3,981
      was expensed compared to $39,933 during the Prior Quarter, for a decrease
      of $35,952 in the Current Quarter.


o
            In
      July 2009, the Company issued options for an aggregate of 12,460,500
      shares with an estimated fair value of $5,218,093; during the Current
      Quarter $654,990 was expensed compared to zero during the Prior Quarter,
      for an increase of $654,990 in the Current
  Quarter.





·
            Consulting
      and professional fees decreased to $29,046 for the three months ended
      October 31, 2009, from $57,708 for the three months ended October 31,
      2008, a decrease of $28,662 or 49.7%.  The decreased expense is
      primarily attributable to decreased amortization expense ($22,943) of the
      fair value of stock warrants issued for investor relation services of
      $22,943 for the Prior Quarter compared to the Current Quarter expense of
      zero.


51





·
            Bad
      debt expense increased to $5,600 for the three months ended October 31,
      2009 from $1,185 for the three months ended October 31, 2008, an increase
      of $4,415 or 372%.  The increase in bad debt expense results
      from credit card chargeback’s for domain registrations and renewals
      processed on our web site.





·
            Other
      general and administrative expenses increased to $538,876 for the three
      months ended October 31, 2009 from $514,884 for the three months ended
      October 31, 2008, an increase of $23,992 or 4.7%.  The increased
      expense is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes increased to $330,860 for the Current Quarter from
      $319,453 for the Prior Quarter, an increase of $11,407 or
      3.6%.


o
            Travel
      and related expenses increased to $42,389 for the Current Quarter from
      $27,107 for the Prior Quarter, an increase of $15,282 or
      56.4%.  The Current Quarter increase included additional costs
      for a second trip to Vietnam for two officers of the Company, a New York
      trip to present at the Rodman & Renshaw investment
      conference.


o
            Employee
      wages paid with shares of the Company’s restricted common stock decreased
      to zero for the Current Quarter from $6,500 for the Prior Quarter, a
      decrease of $6,500.


o
            IRRA
      liquidated damages associated with the February Debentures decreased to
      zero for the Current Quarter from $11,483 for the Prior Quarter, a
      decrease of $11,483.


o
            Investor
      relations and press release expense increased to $29,470 for the Current
      Quarter from $11,260 for the Prior Quarter, an increase of $18,210 or
      162%.


o
            Repair
      and maintenance expense decreased to $58 for the Current Quarter from
      $10,238 for the Prior Quarter, a decrease of $10,180 or
    99.4%.


o
            All
      other general and administrative expenses increased to $136,099 for the
      Current Quarter from $128,843 for the Prior Quarter, an increase of $7,256
      or 5.6%.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $1,081,526 for the three months ended October
31, 2009 as compared to a loss from operations of $1,088,695 for the three
months ended October 31, 2008, a decrease of $7,169 or 0.7%.  The
decrease is primarily attributed to increased option bonus expense ($40,357),
bad debt expense ($4,415) and other general and administrative expenses
($23,992) offset by improved gross profit ($47,271) and decreased consulting and
professional fees ($28,662).





OTHER
INCOME AND EXPENSES





Total
other income and expense decreased to a net expense of $265,085 for three months
ended October 31, 2009 as compared to a net expense of $500,777 for the three
months ended October 31, 2008.  Included in this net expense decrease
of $235,692 or 47.1% are:





·
            Interest
      income was $215 for the three months ended October 31, 2009 as compared to
      interest income of $738 for the three months ended October 31, 2008; the
      decrease of $523 or 70.9% was attributable to a decrease in average cash
      balances.





·
            The
      finance expense was $1,054 for the three months ended October 31, 2009 as
      compared to finance expense of $129,736 for the three months ended October
      31, 2008, a decrease of $128,682 or 99.2%.  The net decreased
      expense is the result of the amortization of both cash fees paid and the
      fair value of stock warrants issued to obtain equity and/or debt financing
      for the Company, the significant items
were:





o
            Pursuant
      to the Extended Debentures, the Company issued warrants to thirteen
      (13) February Investors totaling in the aggregate 36,623 shares
      exercisable at a per share price of $2.00, with an estimated fair value of
      $10,754.  The warrants will be expensed over the approximate
      forty month average term of the Extended
      Debentures.  Amortization of the warrants for the three months
      ended October 31, 2009 was $1,054 compared to zero in the Prior
      Quarter.


o
            Pursuant
      to its engagement of Pali Capital, Inc. (“Pali”), the Company’s placement
      agent in the February Financing, the Company paid a cash fee equal to Ten
      Percent (10%)  of the proceeds from the February Financing
      ($141,821) which was recorded as a deferred debt issuance cost (other
      noncurrent assets).  The fees were amortized over the
      approximate two year term of the February Financing with zero amortized in
      the Current Quarter and $14,353 amortized in the Prior
      Quarter.


52


o
            Additionally,
      pursuant to its engagement of Pali, the Company issued three series of
      warrants: (i) retainer warrants totaling in the aggregate 250,000 shares
      exercisable at a per share price of $0.001, with an estimated fair value
      of $712,404; (ii) placement warrants “A” totaling in the aggregate 229,600
      shares exercisable at a per share price of $1.00, with an estimated fair
      value of $563,640; and (iii) placement warrants “B” totaling in the
      aggregate 68,880 shares exercisable at a per share price of $2.00, with an
      aggregate estimated fair value of $167,700 (the “Placement Agent
      Warrants”) recorded as a deferred debt issuance cost.  The
      Placement Agent Warrants have a term of 5 years from the date of
      issuance.  The retainer warrants were expensed over the one year
      engagement term and the two placement warrants were expensed over the
      approximate two year term of the February Financing.  The
      Company had no expense for two placement warrants in the Current Quarter
      compared to $78,474 expensed in the Prior
  Quarter.


o
            Warrants
      for an aggregate of 344,465 shares exercisable at a per share price of
      $2.00, with an estimated fair value of $259,954, as allocated, were issued
      to the February Financing investors which are amortized over the
      approximate two year term of the convertible debt or upon
      conversion.  During the three months ended October 31, 2009, the
      Company expensed zero compared to $36,909 expensed in the Prior
      Quarter.





·
            Interest
      expense decreased to $257,794 for the three months ended October 31, 2009
      from $374,359 for the three months ended October 31, 2008, a decrease of
      $116,565 or 31.1%.  The decreased expense is the net result the
      following significant items:


o
            accretion
      of the debt discount associated with the February Financing and other
      convertible notes decreased to zero for the Current Quarter from $163,644
      for the Prior Quarter, a decrease of $163,644; the accretion of debt
      discount results from:


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $1,148,212 which were convertible into 1,148,212 shares of the
      Company’s restricted Common Stock at a per share price of $1.00 which
      represented a beneficial conversion feature with an estimated fair value
      at inception of $888,258, as allocated, which was recorded as a discount
      against the convertible debentures and was expensed over the term of the
      debt or upon conversion.  The convertible feature expired at
      maturity on January 31, 2009.  For the three months ended
      October 31, 2009 the Company had no expensed for the beneficial conversion
      feature as compared to $126,144 for the three months ended October 31,
      2008.


§
            Other
      convertible notes issued by the Company with a beneficial conversion
      feature had no expense for the beneficial conversion feature during the
      three months ended October 31, 2009 as compared to $37,500 for the three
      months ended October 31, 2008.


o
            interest
      expense on unpaid accrued wages decreased to $12,142 for the Current
      Quarter from $23,585 for the Prior Quarter, a decrease of $11,443 or
      48.5%.  On April 17, 2009, an aggregate of $1,208,054 of unpaid
      accrued wages was satisfied with the issuance of two convertible notes to
      Mr. Thomas Johnson (50%) and Dr. Lee Johnson (50%).  In
      addition, on July 6, 2009, $113,244 of unpaid accrued wages to Louis
      Huynh, an officer, was satisfied with the issuance of a convertible
      note.


o
            interest
      expense on convertible notes increased to $136,448 for the Current Quarter
      from $100,524 for the Prior Quarter, an increase of $35,924 or 35.7% is
      primarily attributable to the compounding of interest and the satisfaction
      of unpaid accrued salaries with convertible
  notes.


o
            interest
      expense on term debt, to include the Extended Debentures and Defaulted
      Debentures, increased to $89,700 for the Current Quarter from $74,540 for
      the Prior Quarter, an increase of $13,649 or 24.1% is primarily
      attributable to net additional borrowings outstanding at October 31, 2009
      ($3,536,134) compared to October 31, 2008
  ($2,584,393).





·
            Foreign
      exchange gain (loss) decreased to a loss of $6,452 for the three months
      ended October 31, 2009 from a gain of $660 for the three months ended
      October 31, 2008, an loss of $7,112 from unfavorable changes in the U.S.
      dollar to Vietnamese dong exchange
rates.





OVERALL





We
reported a net loss for the three months ended October 31, 2009 of $1,346,611
compared to a net loss for the three months ended October 31, 2008 of
$1,589,472.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.05 for the three months ended October 31,
2009 and $0.06 for the three months ended October 31, 2008 based on 29,548,760
and 27,323,505 weighted average common shares outstanding,
respectively.


53


Six
months ended October 31, 2009 compared to six months ended October 31,
2008.





REVENUES





Revenues
of $653,340 for the six months ended October 31, 2009 (the “Current Period”)
increased 8.1% or $48,989 as compared to $604,351 for the six months ended
October 31, 2008 (the “Prior Period”).  During the Current Period
revenue from domain name registration activity was $575,378, an increase of
$22,263 or 4.0% compared to $553,115 for the Prior Period.  For the
Current Period the volume of domain name registration activity from all sources
(new, renewal, and registration changes) in the aggregate increased 9.1% over
the Prior Period.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) increased $17,295 of 27.0% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
increase $4,968 or 1.0%; the Domestic Network registration rates are lower than
the International Network due to competitive pressures within Vietnam resulting
in the 4.0% decrease in revenue.





In
addition, the Company earns commissions from VNNIC based on semi-annually
contract benchmarks (January through June and July through December) for new
registrations, renewals and registration changes; commissions of $62,828 for the
Current Period increased $11,592 or 22.6% as compared to $51,236 for the Prior
Period.  The increase in commission revenue results from favorable
contract renewal terms effective January 2, 2009.  Total domain names
under management during the Current Period increased 854 to 11,599 at October
31, 2009 compared to a Prior Quarter increase of 1,078 to 10,210 total domain
names under management at October 31, 2008.





On July
22, 2009, the Company commenced generating revenue under its first domain
registry monetization initiative whereby an Internet user who types in a domain
name that does not exist or that has expired is redirected to a Company web page
(the “Landing Page”) with targeted pay-per-click advertising
links.  The Company is tailoring the Landing Page look and developing
specific advertising links for the Asian market to improve both the number of
clicks (pay-per-click rate) and the resulting revenue.  During the
Current Period Landing Page revenue was $14,486.





COST OF
REVENUES





For the
six months ended October 31, 2009, cost of revenues increased 1.0% to $257,858
compared to $255,381 for the six months ended October 31, 2008, an increase of
$2,477.  Gross profit was $395,482 or 60.5% (as a percentage of
revenues) for the six months ended October 31, 2009 compared to $348,970 or
57.7% for the six months ended October 31, 2008.  The increase in
gross profit (2.8%) was principally due to an increase in renewal (10.8%) and
registration change (8.7%) activity which yields a higher gross margin
rate.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
six months ended October 31, 2009, general and administrative expenses, which
includes consulting and professional fees, marketing and promotion, option
bonus, bad debt expense, and other general and administrative, were $3,832,577
compared to $2,873,037 for the six months ended October 31, 2008, an increase of
$959,540 or 33.4%.  The increase in total general and administrative
expenses was primarily attributable to the following offsetting
factors:





·
            Option
      Bonus expenses increased to $2,631,364 for the six months ended October
      31, 2009, from $1,532,329 for the six months ended October 31, 2008, an
      increase of $1,099,035 or 71.7%.  The increase results from the
      Company’s application of the graded vesting attribute method, in
      accordance with Codification topic 718, to record compensation costs for
      stock options.  Under this method the Company records
      compensation costs for one third of the fair value at the first vesting
      date (generally the date of grant) and one third during the one year
      service period of the second vesting and the remaining third during the
      two year service period of the final vesting.  The increased
      expense is the net result the following
items:


o
            In
      October 2006, the Company issued options for an aggregate of 7,650,000
      shares with an estimated fair value of $19,886,786; during the Current
      Period zero was expensed compared to $1,381,145 during the Prior Period,
      for a decrease of $1,381,145 in the Current
  Period.


o
            During
      the six months ending October 31, 2007 the Company issued options for an
      aggregate of 510,000 shares with an estimated fair value of $952,025;
      during the Current Period $14,985 was expensed compared to $111,251 during
      the Prior Period, for a decrease of $96,266 in the Current
      Period.


o
            In
      August 2008, the Company issued options for an aggregate of 75,000 shares
      with an estimated fair value of $75,561; during the Current Period $7,962
      was expensed compared to zero during the Prior Period, for an increase of
      $7,962 in the Current Period.


54





o
            In
      July 2009, the Company issued options for an aggregate of 12,460,500
      shares with an estimated fair value of $5,218,093; during the Current
      Period $2,608,417 was expensed compared to zero during the Prior Period,
      for an increase of $2,608,417 in the Current
  Period.





·
            Consulting
      and professional fees decreased to $90,900 for the six months ended
      October 31, 2009, from $182,964 for the six months ended October 31, 2008,
      a decrease of $92,064 or 50.3%.  The decreased expense is
      primarily attributable to decreased amortization expense ($88,050) of the
      fair value of stock warrants issued for investor relation services of
      $91,771 for the Prior Period compared to the Current Period expense of
      $3,721.





·
            Bad
      debt expense decreased to $8,200 for the six months ended October 31, 2009
      from $27,185 for the six months ended October 31, 2008, a decrease of
      $18,985 or 69.8%.  The decrease in bad debt expense primarily
      results from the Company’s 100% bad debt reserve applied to an additional
      $25,000 in note receivable from Spot-On (“Spot-On”) recorded in the Prior
      Period offset by credit card chargeback’s for domain registrations and
      renewals processed on our web site in the Current Period.  The
      Prior Period note receivable results from the assignment by one individual
      of the convertible debentures originally issued to him by Spot-On and
      assigned to the Company as his full consideration for an aggregate of
      25,000 restricted shares of the Company’s Common Stock (the “Assigned
      Spot-On Debentures”).  Spot-On is a private company and does not
      furnish the Company with financial statements to evaluate their ability to
      pay the Assigned Spot-On Debentures principal and accrued interest on
      January 31, 2009 at maturity.  The Company’s ability to collect
      the Assigned Spot-On Debentures is dependent on the cash reserves held by
      Spot-On and/or their ability to raise additional financing.  Due
      to the uncertainty of collection the Company has recorded a bad debt
      expense for the full amount of the Assigned Spot-On
      Debentures.  On January 30, 2009, the Company received a request
      from Spot-On to (i) extend the maturity date of the Assigned Spot-On
      Debentures to March 31, 2009 and (ii) waive any defaults under the
      Assigned Spot-On Debentures or any of the related documents or events of
      default which are outstanding or have occurred (the “Spot-On
      Offer”).  The Company did not accept the Spot-On Offer and
      continues discussing options to receive the full amount due, with accrued
      interest.  To date the Company has not received any payment from
      Spot-On on the Assigned Spot-On Debentures and Spot-On is unable to
      provide the Company with a firm repayment date as they negotiated to raise
      funds to satisfy their obligation under the Spot-On
      Debentures.





·
            Other
      general and administrative expenses decreased to $1,077,973 for the six
      months ended October 31, 2009 from $1,106,559 for the six months ended
      October 31, 2008, a decrease of $28,586 or 2.6%.  The decreased
      expense is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes materially increased to $663,944 for the Current
      Period from $657,491 for the Prior Period, an increase of $6,453 or
      1.0%.


o
            Travel
      and related expenses increased to $82,634 for the Current Period from
      $45,697 for the Prior Period, an increase of $36,937 or
    80.8%.


o
            New
      product testing decreased to zero for the Current Period from $25,185 for
      the Prior Period (virtual fiber system), a decrease of
      $25,185.


o
            Employee
      wages paid with shares of the Company’s restricted common stock decreased
      to zero for the Current Period from $18,100 for the Prior Period, a
      decrease of $18,100.


o
            IRRA
      liquidated damages associated with the February Debentures decreased to
      zero for the Current Period from $45,932 for the Prior Period, a decrease
      of $45,932`.


o
            Investor
      relations and press release expense increased to $63,360 for the Current
      Period from $41,260 for the Prior Period, an increase of $22,100 or
      53.6%.


o
            Repair
      and maintenance expense decreased to $756 for the Current Period from
      $10,633 for the Prior Period, a decrease of $9,877 or
    92.9%.


o
            All
      other general and administrative expenses increased to $267,279 for the
      Current Period from $262,261 for the Prior Period, an increase of $5,018
      or 1.9%.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $3,437,095 for the six months ended October
31, 2009 as compared to a loss from operations of $2,524,067 for the six months
ended October 31, 2008, an increase of $913,028 or 36.2%.  The
increase is primarily attributed to increased option bonus expense ($1,099,035)
offset by improved gross profit ($46,512) and decreased consulting and
professional fees ($92,064), bad debt expense ($18,985) and other general and
administrative expenses ($28,586).


55





OTHER
INCOME AND EXPENSES





Total
other income and expense decreased to a net expense of $507,458 for six months
ended October 31, 2009 as compared to a net expense of $1,397,433 for the six
months ended October 31, 2008.  Included in this net expense decrease
of $889,975 or 63.7% are:





·
            Interest
      income was $429 for the six months ended October 31, 2009 as compared to
      interest income of $2,382 for the six months ended October 31, 2008; the
      decrease of $1,953 or 82.0% was attributable to a decrease in average cash
      balances.





·
            The
      finance expense was $1,754 for the six months ended October 31, 2009 as
      compared to finance expense of $294,099 for the six months ended October
      31, 2008, a decrease of $292,345 or 99.4%.  The net decreased
      expense is the result of the amortization of both cash fees paid and the
      fair value of stock warrants issued to obtain equity and/or debt financing
      for the Company, the significant items
were:





o
            Pursuant
      to the Extended Debentures, the Company issued warrants to thirteen
      (13) February Investors totaling in the aggregate 36,623 shares
      exercisable at a per share price of $2.00, with an estimated fair value of
      $10,754.  The warrants will be expensed over the approximate
      forty month average term of the Extended
      Debentures.  Amortization of the warrants for the six months
      ended October 31, 2009 was $1,754 compared to zero in the Prior
      Period.


o
            Pursuant
      to its engagement of Pali Capital, Inc. (“Pali”), the Company’s placement
      agent in the February Financing, the Company paid a cash fee equal to Ten
      Percent (10%)  of the proceeds from the February Financing
      ($141,821) which was recorded as a deferred debt issuance cost (other
      noncurrent assets).  The fees were amortized over the
      approximate two year term of the February Financing with zero amortized in
      the Current Period and $28,705 amortized in the Prior
    Period.


o
            Additionally,
      pursuant to its engagement of Pali, the Company issued three series of
      warrants: (i) retainer warrants totaling in the aggregate 250,000 shares
      exercisable at a per share price of $0.001, with an estimated fair value
      of $712,404; (ii) placement warrants “A” totaling in the aggregate 229,600
      shares exercisable at a per share price of $1.00, with an estimated fair
      value of $563,640; and (iii) placement warrants “B” totaling in the
      aggregate 68,880 shares exercisable at a per share price of $2.00, with an
      aggregate estimated fair value of $167,700 (the “Placement Agent
      Warrants”) recorded as a deferred debt issuance cost.  The
      Placement Agent Warrants have a term of 5 years from the date of
      issuance.  The retainer warrants were expensed over the one year
      engagement term and the two placement warrants were expensed over the
      approximate two year term of the February Financing.  The
      Company had no expense for two placement warrants in the Current Period
      compared to $195,778 expensed in the Prior
  Period.


o
            Warrants
      for an aggregate of 344,465 shares exercisable at a per share price of
      $2.00, with an estimated fair value of $259,954, as allocated, were issued
      to the February Financing investors which are amortized over the
      approximate two year term of the convertible debt or upon
      conversion.  During the six months ended October 31, 2009, the
      Company expensed zero compared to $69,616 expensed in the Prior
      Period.





·
            Interest
      expense decreased to $505,113 for the six months ended October 31, 2009
      from $1,105,776 for the six months ended October 31, 2008, a decrease of
      $600,663 or 54.3%.  The decreased expense is the net result the
      following significant items:


o
            accretion
      of the debt discount associated with the February Financing and other
      convertible notes decreased to zero for the Current Period from $688,693
      for the Prior Period, a decrease of $688,693 or 100%; the accretion of
      debt discount results from:


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $1,148,212 which were convertible into 1,148,212 shares of the
      Company’s restricted Common Stock at a per share price of $1.00 which
      represented a beneficial conversion feature with an estimated fair value
      at inception of $888,258, as allocated, which was recorded as a discount
      against the convertible debentures and was expensed over the term of the
      debt or upon conversion.  The convertible feature expired at
      maturity on January 31, 2009.  For the six months ended October
      31, 2009 the Company had no expensed for the beneficial conversion feature
      as compared to $237,901 for the six months ended October 31,
      2008.


§
            On
      August 1, 2007, the Company issued a convertible note in satisfaction of
      unpaid accrued salaries to Mr. Thomas Johnson ($1,989,066) and Dr. Lee
      Johnson ($1,989,066) which were convertible into shares of the Company’s
      restricted Common Stock at a per share price of $1.43 which represented a
      beneficial conversion feature with an estimated aggregate fair value at
      inception of $1,446,594 which was recorded as a discount against the
      convertible notes and was expensed over the term of the
      debt.  The convertible notes were due August 1, 2008 and were
      cancelled August 14, 2008 and were replaced with new convertible notes
      with materially the same terms and conditions.  The new
      convertible notes did not contain beneficial conversion
      feature.  For the six months ended October 31, 2009, the Company
      had no expense for a beneficial conversion feature as compared to $361,649
      for the six months ended October 31,
2008.


56





§
            Other
      convertible notes issued by the Company with a beneficial conversion
      feature had no expense for the beneficial conversion feature during the
      six months ended October 31, 2009 as compared to $89,143 for the six
      months ended October 31, 2008.


o
            interest
      expense on unpaid accrued wages decreased to $9,650 for the Current Period
      from $20,035 for the Prior Period, a decrease of $10,385 or
      51.8%.  On April 17, 2009, an aggregate of $1,208,054 of unpaid
      accrued wages was satisfied with the issuance of two convertible notes to
      Mr. Thomas Johnson (50%) and Dr. Lee Johnson (50%).  In
      addition, on July 6, 2009, $113,244 of unpaid accrued wages to Louis
      Huynh, an officer, was satisfied with the issuance of a convertible
      note.


o
            interest
      expense on convertible notes increased to $131,985 for the Current Period
      from $121,210 for the Prior Period, an increase of $10,775 or 8.9% is
      primarily attributable to the compounding of interest and the satisfaction
      of unpaid accrued salaries with convertible
  notes.


o
            interest
      expense on term debt, to include the Extended Debentures and Defaulted
      Debentures, increased to $91,341 for the Current Period from $51,235 for
      the Prior Period, an increase of $40,106 or 78.3% is primarily
      attributable to net additional borrowings outstanding at October 31, 2009
      ($3,536,134) compared to October 31, 2008
  ($2,584,393).





·
            Foreign
      exchange gain (loss) decreased to a loss of $1,020 for the six months
      ended October 31, 2009 from a loss of $1,860 for the six months ended
      October 31, 2008, an improvement of $840 from favorable changes in the
      U.S. dollar to Vietnamese dong exchange
rates.





OVERALL





We
reported a net loss for the six months ended October 31, 2009 of $3,944,553
compared to a net loss for the six months ended October 31, 2008 of
$3,921,500.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.13 for the six months ended October 31,
2009 and $0.14 for the six months ended October 31, 2008 based on 29,315,214 and
27,214,497 weighted average common shares outstanding,
respectively.





LIQUIDITY
AND CAPITAL RESOURCES





The
Company has financed its operations primarily through the deferral of salary by
its two executive officers Thomas Johnson (CEO) and Lee Johnson (President, CTO,
and CFO), the sale of equity securities, to include convertible notes, other
private party loans, loans from the forenamed executive officers or their
spouse, and previously by the advance of funds by a former related party
(Hi-Tek, Inc. a California corporation (“Hi-Tek Private”)).  Overall,
our liquidity and access to capital is very limited; we have not received any
commitment for additional financing and given the size of our company we may be
limited to (i) additional loans from Hi-Tek Private and continued deferral of
salaries by our officers, (ii) the sale of the Company’s Common Stock or the
issuance of convertible notes, or (iii) other debt instruments.  The
Company does not have a written agreement with Hi-Tek Private; $15,000 and zero
funds were advanced during the six months ended October 31, 2009 or
2008.





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing
basis.  During the six months ended October 31, 2009 and 2008 cash
used in our operating activities was $534,574 and $659,320, and cash used in
investing activities was $11,337 and $14,550, respectively.  We funded
our operating activities and investing activities during the six months ended
October 31, 2009 and 2008 with cash reserves in addition to the following
resources:


57





October
      31,
                        
                        
                        October
      31,2009
                        
                        
                        2008Funds
      advanced by Hi-Tek Private under revolving credit arrangement, net of
      $12,592 and  $62,101 repayments
                        
                        $
                        2,408
                        
                        
                        $
                        (62,101
                        )Funds
      advanced by Diep Tai under revolving credit agreement due November 19,
      2009
                        
                        
                        85,000
                        
                        
                        
                        -Funds
      advanced by Hue Tran Johnson under revolving credit agreement due
      November 19, 2009
                        
                        
                        10,000
                        
                        
                        
                        -Three
      month term loan from Thomas Johnson, due December 12, 2009
                        
                        
                        18,000
                        
                        
                        
                        -Twelve
      month term loan from John T. Butler, due June 1, 2009
                        
                        
                        -
                        
                        
                        
                        70,000Twelve
      month term loan from Tupou U. Kaho, due June 1, 2009
                        
                        
                        -
                        
                        
                        
                        50,000Six
      and one half month term loan from Vina Mex Capital, assigned February 3,
      2009 to IDCG SA de CV, due March 31, 2009
                        
                        
                        -
                        
                        
                        
                        200,000Eleven
      month term loan from Vina Mex Capital, assigned February 3, 2009 to IDCG
      SA de CV, due September 17, 2009
                        
                        
                        -
                        
                        
                        
                        100,000Principal
      and interest payments on Extended Debentures
                        
                        
                        (59,206
                        )
                        
                        
                        -Proceeds
      from stock issuances
                        
                        
                        377,003
                        
                        
                        
                        53Other
      short term borrowings
                        
                        
                        10,000
                        
                        
                        
                        -Total
                        
                        $
                        443,205
                        
                        
                        $
                        357,952





At
October 31, 2009, we had a cash balance of $43,245 compared to $144,842 at April
30, 2009, a decrease of $101,597.  At October 31, 2009, our working
capital deficit was $11,859,209 as compared to $11,246,046 at April 30,
2009.  Our current assets, other than cash, consist of $157,985 in
accounts receivable, $15,000 in unearned stock based compensation, $17,661 in
other prepaid expenses, $9,480 in fees on deposit for ‘.vn’ domain registrations,
and $37,088 in miscellaneous and VAT receivables.





Our
current liabilities consisted primarily of $2,449,132 due to Hi-Tek Private
under three credit arrangements, $3,028,010 due Thomas Johnson (our CEO) under
two notes, $3,009,765 due Lee Johnson (our President, CTO, and CFO), $116,202
due Louis Huynh (our General Counsel, Executive Vice President of Operations and
Business Development, and Corporate Secretary) $101,683 for the current portion
due on the Extended Debentures, $675,046 due on the Defaulted Debentures,
$1,582,448 due IDCG SA de CV under seven term notes, $111,298 due
Business.com.VN, $185,719 due Diep Tai, $10,000 due Hue Tran Johnson (our
President’s wife), $580,345 in accrued officer salaries, $62,659 in liquidated
damages to the February Investors, and $156,209 in accounts
payable.





If we are
to implement our business plan, we will need to raise significant amounts of
additional capital during the period ending October 31, 2010.  We have
not received any commitment that any such additional financing would be
forthcoming.  Accordingly, there can be no assurance that the Company
will be successful in selling equity or securing debt financing, or that any
combination thereof will be sufficient to meet our capital needs or, if it could
be obtained, that it can be obtained on reasonable terms in light of our
circumstances at that time.  In addition, if any financing should be
obtained, existing shareholders will likely incur substantial, immediate, and
permanent dilution of their existing investment.  (See also "PLAN OF
OPERATION")





RECENT
ACCOUNTING PRONOUNCEMENTS





In August
2009 the FASB issued Accounting Standards Update (“ASU”) No. 2009-05 “Fair Value
Measurements and Disclosures (Topic 820)” (“ASU 2009-05”).  ASU
2009-05 provides clarification that the fair value measurement of liabilities in
which a quoted price in an active market for the identical liability is not
available should be developed based on a valuation technique that uses the
quoted price of the identical liability when traded as an asset or quoted prices
for similar liabilities when traded as assets or another valuation technique
that is consistent with the principles of Topic 820 “Fair Value Measurements and
Disclosures”.  ASU 2009-05 also clarifies that there is no requirement
to adjust the fair value related to the existence of a restriction that prevents
the transfer of the liability and that both a quoted price in an active market
for the identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements.  This guidance was effective for the Company as of
October 31, 2009 and did not have a significant impact on the Company’s
consolidated financial statements.


58





In June
2009, FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162” (“SFAS No. 168”).  SFAS No. 168 establishes the
FASB Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with US GAAP.  Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative US
GAAP for SEC registrants.  SFAS No. 168 is effective for financial
statements issued for fiscal periods (interim and annual) ending after September
15, 2009.  On the effective date of SFAS No. 168, all then-existing
non-SEC accounting and reporting standards are superseded, with the exception of
certain promulgations listed in SFAS No. 168.  The Company currently
does not expect adoption of this statement to have a material effect on its
consolidated financial statements as the purpose of the Codification is not to
create new accounting and reporting guidance.  Rather, the
Codification is meant to simplify user access to all authoritative US
GAAP.  Notes to Consolidated Financial Statements are now presented as
references to the corresponding Topic in the Codification.





In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (SFAS No. 166).  SFAS
No. 166 clarifies the information that an entity must provide in its financial
statements surrounding a transfer of financial assets and the effect of the
transfer on its financial position, financial performance, and cash
flows.  The statement eliminates the concept of a qualifying
special-purpose entity and changes the requirements for the derecognition of
financial assets.  SFAS No. 166 is effective for fiscal years
beginning after November 15, 2009.  The Company is currently
evaluating the impact adoption of this statement could have in its consolidated
financial statements.





Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial
statements upon adoption.





PLAN
OF OPERATION FOR THE NEXT 12 MONTHS





We
anticipate five major operational events will occur in the next 12
months.  They are:





1)
            the
      completion of an Application Programming Interface
  (“API”),





2)
            the
      commercialization of domain monetization services (such as parking page
      advertising and the Info.VN web
portal),





3)
            completion
      of the design for the Danang City Internet data
  center,





4)
            commercialization
      of the E-Band multi-gigabit capacity virtual fiber systems, a wireless
      point-to-point layer one solution,
and





5)           commercialization
of the EMS rack-level data center solution meeting Tier III
standards.





The
implementation of this five-component plan that includes (i) the development and
implementation of an Application Programming Interface (“API”) to expand our
reseller network; (ii) the implementation and commercialization of domain
monetization services (such as parking page advertising); (iii) the construction
of an Internet data center located in Danang City, Vietnam; (iv)
commercialization of the E-Band virtual fiber equipment; and (v)
commercialization of the EMS rack-level data center solutions will provide
revenue-generating opportunities to the Company throughout the development
process, and leads to a complete operational demonstration of the
technology.





The plan
includes:





PHASE I:
CY Q4 2009 through CY Q1 2010:  This phase is in
process.  During this period, the Company, will focus on the design of
the Danang City Internet data center and receipt of all necessary permits and
licenses related to the construction of the Internet data
center.  Further, the Company is in the process of identifying service
providers and contractors in anticipation of the construction of the Internet
data center.  During this same time period, Dot VN will collaborate
with various consultants and VNNIC to design and test an API which will allow
the Company to substantially increase its reseller network.  Dot VN
also expects to continue to market and expand its domain monetization program
both locally in Vietnam as well as the larger international
market.


59





PHASE II:
CY Q2/Q3 2010:  During this period the Company expects to begin
construction of the IDC located in Danang City and begin deployment of the API
to our reseller network and beyond.  Dot VN also expects to begin wide
spread commercial demonstrations of the E-Band virtual fiber equipment and EMS
rack-level data center solutions.





PHASE
III: CY Q4 2010/Q1 2011 – Begin design and construction of an Internet data
center located in Ho Chi Minh City, Vietnam.





Subsequent
to the successful demonstration of the first IDC facility or the virtual fiber
system, the Company may elect to solicit standard bank financing and/or other
financing methods to secure funding to drive the growth of the Vietnamese ccTLD,
construct additional IDCs or to expand its wireless point-to-point
network.  In conjunction with this, the Company may also elect to
enter into joint ventures, licensing, and/or production sharing agreements with
other companies to maximize the value of the technologies to the Company’s
shareholders.  Management’s analysis suggests that following this
direction provides the highest potential, lowest risk path to high profits from
our new technologies.





SUBSEQUENT
EVENTS





On November 5, 2009, the IDCG 1st Loan
dated December 1, 2008 (Term Note 9), IDCG 2nd Loan
dated December 19, 2008 (Term Note 10), IDCG 3rd Loan
dated January 29, 2009 (Term Note 11), and IDCG 4th Loan
dated February 25, 2009 (Term Note 14) were each amended to extend the November
30, 2009 due date to February 28, 2010 with no other change to the terms of the
notes.





On
November 13, 2009, the Company executed a $45,000 promissory note to Lan T.
Tran, due February 13, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Tran of i) $15,000
to Diep Tai as a partial payment on his revolving credit agreement (Term Note
16) due November 19, 2009 (see Note 9) and ii) $30,000 to Hi-Tek Private as a
partial payment on their revolving credit arrangement (see Note
10).





Also on
November 13, 2009, the Company executed a $70,000 convertible note with Diep Tai
in exchange for the $70,000 balance outstanding under his revolving credit
agreement (Term Note 16), due November 19, 2009 (see Note 9), which was
cancelled.  The convertible note is due June 30, 2010 and converts at
the option of the holder, in whole or in part, into restricted shares of the
Company’s Common Stock at $0.38 per share and bears an interest rate of Twelve
Percent (12%) per annum.  In accordance with Codification topic
470-20, there is no beneficial conversion feature at the time of the new
convertible note.





On
November 16 and November 17, 2009, the Company borrowed an additional $5,000 and
$10,000, respectively, from Hue Tran Johnson under the revolving credit
agreement dated October 29, 2009.  The revolving credit agreement, due
January 29, 2010, accrues interest monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  Ms.
Johnson is the wife of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.





On
November 17, 2009, the Company agreed to a 50% conversion of the outstanding
balances held by Thomas Johnson ($1,510,489.50) and Lee Johnson ($1,510,489.50)
at $0.30 per share and issued 5,034,965 restricted shares of the Company’s
Common Stock and a $1,510,489.50 convertible note due June 30, 2010 with
materially the same terms as the cancelled notes each to Thomas Johnson and Lee
Johnson.





On
November 18, 2009, the Company executed a $50,000 promissory note to Nguyen Yen
Crogan, due February 18, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Crogan of $50,000
to Hi-Tek Private as a partial payment on their revolving credit arrangement
(see Note 10).





Also on
November 18, 2009, the Company executed a $50,000 promissory note to Nga T.
Tran, due February 18, 2010 with interest accruing monthly at a rate of Twelve
Percent (12%) per annum, in exchange for cash payments by Ms. Tran of $50,000 to
Hi-Tek Private as a partial payment on their revolving credit arrangement (see
Note 10).





On
November 30, 2009, in connection with the receipt of a Thirty Thousand Dollar
($30,000) cash loan from Mr. Thomas Johnson, the Company’s Chief Executive
Officer and Chairman of the Board of Directors, the Company executed a $30,000
promissory note to Mr. Johnson, due February 28, 2010 with interest accruing
monthly at a rate of Ten Percent (10%) per annum.  Proceeds were used
to fund general operations.


60





On
December 2, 2009, the Hi-Tek Trademark Loan (see Note 8) unpaid note and accrued
interest ($491,890.92) was cancelled and replaced with a convertible note due
June 30, 2010 which converts at the option of the holder, in whole or in part,
into restricted shares of the Company’s Common Stock at $0.38 per share and
bears an interest rate of Ten Percent (10%) per annum.  In accordance
with Codification topic 470-20, there is no beneficial conversion feature at the
time of the new convertible note.





On
December 2, 2009, the Business.com.VN Loan (see Note 8) unpaid note and accrued
interest ($112,078.93) was cancelled and replaced with a new convertible note
due June 30, 2010 which converts at the option of the holder, in whole or in
part, into restricted shares of the Company’s Common Stock at $0.38 per share
and bears an interest rate of Eight Percent (8%) per annum.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the new convertible note.





On
December 2, 2009, the Company borrowed an additional $30,000 from Hue Tran
Johnson under the revolving credit agreement dated October 29,
2009.  The revolving credit agreement, due January 29, 2010, accrues
interest monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.  Ms. Johnson is the wife of Dr.
Lee Johnson, the Company’s President, Chief Technology Officer, and Chief
Financial Officer.





On
December 3, 2009, the $18,000 promissory note due Thomas Johnson (Term Note 17)
(see Note 9) was amended to extend the December 12, 2009 due date to February
28, 2010 with no other change to the terms.





On
December 11, 2009, in connection with the receipt of a Twenty-Five Thousand
Dollar ($25,000) cash loan from Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, the Company executed a
$25,000 promissory note to Mr. Johnson, due March 11, 2010 with interest
accruing monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.





ITEM
      4.
            CONTROLS
      AND PROCEDURES.





EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





As of
October 31, 2009, management assessed the effectiveness of our internal control
over financial reporting.  The Company's management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company.  Internal control over financial reporting is defined
in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended, as a process designed by, or under the supervision of, the
Company’s Chief Executive Officer and Chief Financial Officer (who also serves
as our President) and effected by the Company’s Board of Directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP in the United States of America and includes
those policies and procedures that:





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





·
            Provide
      reasonable assurance our transactions are recorded as necessary to permit
      preparation of our financial statements in accordance with GAAP, and that
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and





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





In
evaluating the effectiveness of our internal control over financial reporting,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control –
Integrated Framework.  Based on that evaluation, they concluded that,
during the period covered by this report, such internal controls and procedures
were not effective to detect the inappropriate application of US GAAP rules as
more fully described below.


61





This was
due to deficiencies that existed in the design or operation of our internal
controls over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.





The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes.  The aforementioned material weaknesses were
identified by our Chief Executive Officer and Chief Financial Officer in
connection with the review of our financial statements as of October 31,
2009.





Management
believes that the material weaknesses set forth in items (2) and (3) above did
not have an effect on our financial results.  However, management
believes that the lack of a functioning audit committee and the lack of a
majority of outside directors on our board of directors results in ineffective
oversight in the establishment and monitoring of required internal controls and
procedures, which could result in a material misstatement in our financial
statements in future periods.





CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There
were no changes in the Company’s internal controls over financial reporting
during the most recently completed fiscal quarter that have materially affected
or are reasonably likely to materially affect the Company’s internal control
over financial reporting.


62





PART
II.  OTHER INFORMATION





ITEM 1.
            LEGAL
      PROCEEDINGS.





The
Company is not currently subject to any legal proceedings.  From time
to time, the Company may become subject to litigation or proceedings in
connection with its business, as either a plaintiff or
defendant.  There are no such pending legal proceedings to which the
Company is a party that, in the opinion of management, is likely to have a
material adverse effect on the Company’s business, financial condition or
results of operations.





ITEM
      1A.
            RISK
      FACTORS





As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.





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





On
October 30, 2009, pursuant to the terms of five (5) stock subscription
agreements, each entered into with an accredited investor, the Company issued an
aggregate of 360,000 restricted shares of the Company’s Common Stock at $0.50
per unit for cash consideration of $180,000.  Each unit consists of
one share of the Company’s Common Stock and a warrant to purchase one share of
the Company’s Common Stock at an exercise price of $1.00 expiring two years from
the date of subscription.  The offer and sale was made, in a
non-public offering, where each offeree had access to the kind of information
that registration would disclose, in reliance on the exemption from registration
afforded by Section 4(2), promulgated pursuant to the Securities Act and Rule
506 of Regulation D, promulgated thereunder.  The Company paid a
finder a finder’s fee equal to Ten Percent (10%) of the amount received in cash
and apart from the payment of a finder’s fee; no commissions were incurred by
the Company in connection with the transaction.





Additionally
on October 30, 2009, pursuant to the terms of a stock subscription agreement the
Company, issued an accredited investor, 110,000 shares of the Company’s Common
Stock at $0.50 per unit for cash consideration of $55,000.  Each unit
consists of one share of the Company’s Common Stock and a warrant to purchase
one share of the Company’s Common Stock at an exercise price of $1.00 expiring
two years from the date of subscription.  The offer and sale was made,
in a non-public offering, where the offeree had access to the kind of
information that registration would disclose, in reliance on the exemption from
registration afforded by Section 4(2), promulgated pursuant to the Securities
Act and Rule 506 of Regulation D, promulgated thereunder.





Also on
October 30, 2009, pursuant to the terms of a consulting agreement dated
September 1, 2009, the Company issued to Vista Partners, LLC, a California
limited liability corporation, a sophisticated purchaser, 47,872 shares of the
Company’s Common Stock for investor relation services during the following six
months valued at the market closing price and recorded as $22,500 in prepaid
expenses.  The offer and sale was made, in a non-public offering,
where each offeree had access to the kind of information that registration would
disclose, in reliance on the exemption from registration afforded by Section
4(2), promulgated pursuant to the Securities Act and Rule 506 of Regulation D,
promulgated thereunder.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





None.





ITEM
      5.
            OTHER
      INFORMATION.





On
September 9, 2009, Dot VN, Inc. entered into a Land Lease Agreement with Saigon
Hi-Tech Park, an entity existing under the laws of the Country of Vietnam,
pursuant to which the Company has the right to lease approximately 6,040 square
meters of land identified as lot T1-1 in the Saigon Hi-Tech Park, District 9, Ho
Chi Minh City, Vietnam, for the purpose of building an Internet data center and
related uses.  The Company was to have submitted its investment
application (business license request) by October 9, 2009 and within thirty days
of receipt of its investment license the Company was to sign a material
definitive land lease contract (the “Land Lease”).  The Land Lease was
to have a term of 50 years with base rent of $4/square meter, excluding value
added taxes and other possible fees and costs, per year.  The total
amount due and owing under the Land Lease would have been $1,208,000 and was to
be payable as follows: (i) 10% by October 9, 2009, (ii) 40% within thirty days
of signing a definitive land lease contract, (iii) 25% six months from receipt
of the certification of land use rights, and (iv) 25% twelve months from receipt
of the certification of land use rights.


63





On
October 9, 2009, the Company elected to allow the Land Lease Agreement to expire
without submitting its investment application for an Internet data center and
related uses within the Saigon Hi-Tech Park.  The Company is studying
the cost saving to be achieved by utilizing EMS’s rack-level data center
solutions and related technology to build the Internet data center to Tier III
industry standards.  The Company is continuing discussions with Saigon
Hi-Tech Park and will seek to reestablish the land lease agreement for an
Internet data center and related uses utilizing EMS’s rack-level data center
solutions and related technology.





ITEM 6.
            EXHIBITS.





(a)  Exhibits
required by Item 601 of Regulation SK.





Number
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation*3.2
                
                Bylaws*10.52
                
                Revolving
      Credit Agreement dated October 29, 2009 made by the Company to Hue
      Tran Johnson10.53
                
                Promissory
      Note dated November 30, 2009 made by the Company to Thomas
      Johnson10.54
                
                Convertible
      Note dated December 2, 2009 made by the Company to Hi-Tek Inc which
      replaces 10-16-2007 Convertible Note10.55
                
                Convertible
      Note dated December 2, 2009 made by the Company to B5s5ness.c60.VN which
      replaces 6-29-2007 Convertible Note10.56
                
                December
      3, 2009 Amendment to Promissory Note dated September 12, 2009 made by the
      Company to Thomas Johnson10.57
                
                Promissory
      Note dated December 11, 2009 made by the Company to Thomas
      Johnson23.1
                
                Auditor’s
      Consent31.1
                
                Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                
                Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.





*
            Filed
      as an Exhibit to the Company’s Registration Statement on Form SB-2 (File
      No. 333-146129), as amended on Form S-1,
      as filed with the Securities and Exchange Commission on September 17,
      2007.







64





SIGNATURES





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





DOT VN, INC.(Name of Registrant)Date:  December 15, 2009
                            
                            By:
                            /s/  
      Louis P. HuynhName: Louis P. HuynhTitle: General Counsel, Executive Vice President of Operations
                              and Business Development, and Corporate Secretary




65





EXHIBIT
INDEX





Number
            
            Description3.1
            
            Amended
      and Restated Articles of Incorporation*3.2
            
            Bylaws*10.52
            
            Revolving
      Credit Agreement dated October 29, 2009 made by the Company to Hue Tran
      Johnson10.53
            
            Promissory
      Note dated November 30, 2009 made by the Company to Thomas
      Johnson10.54
            
            Convertible
      Note dated December 2, 2009 made by the Company to Hi-Tek Inc which
      replaces 10-16-2007 Convertible Note10.55
            
            Convertible
      Note dated December 2, 2009 made by the Company to Business.com.VN which
      replaces 6-29-2007 Convertible Note10.56
            
            December
      3, 2009 Amendment to Promissory Note dated September 12, 2009 made by the
      Company to Thomas Johnson10.57
            
            Promissory
      Note dated December 11, 2009 made by the Company to Thomas
      Johnson23.1
            
            Auditor’s
      Consent31.1
            
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





*
            Filed
      as an Exhibit to the Company’s Registration Statement on Form SB-2 (File
      No. 333-146129), as amended on Form S-1,
      as filed with the Securities and Exchange Commission on September 17,
      2007.





66