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 January 31, 2010





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
March 10, 2010, there were 40,135,513 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 JANUARY 31, 2010





INDEX





Index
                  
                  PagePart
      I.
                  Financial
      InformationItem
      1.
                  Financial StatementsBasis
      of Presentation.
                  4Report
      of Independent Registered Public Accounting Firm.
                  5Condensed
      Consolidated Balance Sheets as of January 31, 2010 (unaudited) and April
      30, 2009.
                  6Condensed
      Consolidated Statements of Operations for the Three Months ended January
      31, 2010 and 2009 (unaudited).
                  7Condensed
      Consolidated Statements of Operations for the Nine Months ended January
      31, 2010 and 2009 (unaudited).
                  8Condensed
      Consolidated Statements of Changes in Stockholders Equity for the Nine
      Months ended January 31, 2010 (unaudited) and Year ended April 30,
      2009.
                  9Condensed
      Consolidated Statements of Cash Flows for the Nine Months ended January
      31, 2010 and 2009 (unaudited).
                  11Notes
      to Condensed Consolidated Financial Statements
(unaudited).
                  13Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                  51Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk.
                  70Item
      4.
                  Controls
      and Procedures.
                  70Part
      II.
                  Other
      InformationItem
      1.
                  Legal
      Proceedings.
                  72Item
      1A.
                  Risk
      Factors.
                  72Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds.
                  72Item
      3.
                  Defaults
      Upon Senior Securities.
                  72Item
      4.
                  Submission
      of Matters to a Vote of Security Holders.
                  72Item
      5.
                  Other
      Information.
                  72Item
      6.
                  Exhibits.
                  73Signatures
                  74Certifications




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 49.3% 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 47.6% 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 January 31,
2010, 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 nine months ended January 31, 2010 and January 31, 2009 and
the condensed consolidated statement of stockholders equity for the period of
April 30, 2008 to January 31, 2010 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 nine months ended January 31, 2010 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 January 31, 2010, the related condensed consolidated
statements of operations for the three months and nine months ended January 31,
2010 and 2009, and the condensed consolidated statements of changes in
stockholders’ equity (deficit) and condensed consolidated cash flows for the
nine months ended January 31, 2010 and 2009.  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 16 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




March 17,
2010





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





January
      31,
                                                      
                                                      
                                                      April
      30,2010
                                                      
                                                      
                                                      2009(unaudited)ASSETSCurrent
      assets:Cash
                                                      
                                                      $
                                                      41,641
                                                      
                                                      
                                                      $
                                                      144,842Accounts
      receivable
                                                      
                                                      
                                                      164,143
                                                      
                                                      
                                                      
                                                      103,833Inventories
                                                      
                                                      
                                                      179,250
                                                      
                                                      
                                                      
                                                      -Prepaid
      expenses and other current assets
                                                      
                                                      
                                                      54,825
                                                      
                                                      
                                                      
                                                      47,561Notes
      receivable, net
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Total
      current assets
                                                      
                                                      
                                                      439,859
                                                      
                                                      
                                                      
                                                      296,236Equipment,
      net
                                                      
                                                      
                                                      790,169
                                                      
                                                      
                                                      
                                                      740,816Intangible
      assets
                                                      
                                                      
                                                      1,022,661
                                                      
                                                      
                                                      
                                                      1,022,336Other
      noncurrent assets
                                                      
                                                      
                                                      260,547
                                                      
                                                      
                                                      
                                                      221,321Total
      assets
                                                      
                                                      $
                                                      2,513,236
                                                      
                                                      
                                                      $
                                                      2,280,709LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                                      
                                                      $
                                                      375,210
                                                      
                                                      
                                                      $
                                                      96,323Customer
      deposits
                                                      
                                                      
                                                      10,166
                                                      
                                                      
                                                      
                                                      21,471Due
      to related party, net of $37,029 and zero discount
                                                      
                                                      
                                                      5,676,937
                                                      
                                                      
                                                      
                                                      8,109,452Short-term
      convertible debt, net of $72,706 and zero discount
                                                      
                                                      
                                                      71,115
                                                      
                                                      
                                                      
                                                      106,913Short-term
      debt and current portion of long-term debt
                                                      
                                                      
                                                      2,797,104
                                                      
                                                      
                                                      
                                                      2,683,450Accrued
      and other liabilities
                                                      
                                                      
                                                      934,577
                                                      
                                                      
                                                      
                                                      524,673Total
      current liabilities
                                                      
                                                      
                                                      9,865,109
                                                      
                                                      
                                                      
                                                      11,542,282Long-term
      liabilities:Long-term
      debt, net of current portion
                                                      
                                                      
                                                      153,109
                                                      
                                                      
                                                      
                                                      189,904Total
      long-term liabilities
                                                      
                                                      
                                                      153,109
                                                      
                                                      
                                                      
                                                      189,904Total
      Liabilities
                                                      
                                                      
                                                      10,018,218
                                                      
                                                      
                                                      
                                                      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
      outstandingas
      of January 31, 2010 and April 30, 2009
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Common
      stock: 250,000,000 shares  authorized of $0.001 par
      value;40,135,513
      and 28,360,322 shares issued and outstanding as of January
    31,2010
      and April 30, 2009
                                                      
                                                      
                                                      40,135
                                                      
                                                      
                                                      
                                                      28,360Additional
      paid-in capital
                                                      
                                                      
                                                      37,647,689
                                                      
                                                      
                                                      
                                                      30,344,251Accumulated
      deficit
                                                      
                                                      
                                                      (45,198,551
                                                      )
                                                      
                                                      
                                                      (39,825,769
                                                      )Accumulated
      comprehensive income
                                                      
                                                      
                                                      5,745
                                                      
                                                      
                                                      
                                                      1,681Total
      shareholders' equity (deficit)
                                                      
                                                      
                                                      (7,504,982
                                                      )
                                                      
                                                      
                                                      (9,451,477
                                                      )Total
      liabilities and shareholders' equity (deficit)
                                                      
                                                      $
                                                      2,513,236
                                                      
                                                      
                                                      $
                                                      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 January 31,2010
                                                  
                                                  
                                                  2009Revenues
                                                  
                                                  $
                                                  225,311
                                                  
                                                  
                                                  $
                                                  190,985Cost
      of revenues
                                                  
                                                  
                                                  95,944
                                                  
                                                  
                                                  
                                                  80,108Gross
      profit
                                                  
                                                  
                                                  129,367
                                                  
                                                  
                                                  
                                                  110,877General
      and administrative expenses:Consulting
      and professional fees
                                                  
                                                  
                                                  81,189
                                                  
                                                  
                                                  
                                                  48,888Marketing
      and promotion
                                                  
                                                  
                                                  12,000
                                                  
                                                  
                                                  
                                                  12,357Option
      bonus
                                                  
                                                  
                                                  654,354
                                                  
                                                  
                                                  
                                                  39,127Bad
      debt expense
                                                  
                                                  
                                                  2,450
                                                  
                                                  
                                                  
                                                  329Other
      general & administrative expenses
                                                  
                                                  
                                                  556,839
                                                  
                                                  
                                                  
                                                  482,779Total
      general and administrative expenses
                                                  
                                                  
                                                  1,306,832
                                                  
                                                  
                                                  
                                                  583,480(Loss)
      from operations
                                                  
                                                  
                                                  (1,177,465
                                                  )
                                                  
                                                  
                                                  (472,603
                                                  )Other
      income (expenses)Interest
      income
                                                  
                                                  
                                                  273
                                                  
                                                  
                                                  
                                                  262Finance
      expense
                                                  
                                                  
                                                  (3,480
                                                  )
                                                  
                                                  
                                                  (120,058
                                                  )Interest
      expense
                                                  
                                                  
                                                  (230,920
                                                  )
                                                  
                                                  
                                                  (317,865
                                                  )Foreign
      exchange (loss) gain
                                                  
                                                  
                                                  (16,637
                                                  )
                                                  
                                                  
                                                  (8,606
                                                  )Other
      income and (expense)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Total
      other income (expenses)
                                                  
                                                  
                                                  (250,764
                                                  )
                                                  
                                                  
                                                  (446,267
                                                  )Net
      loss
                                                  
                                                  $
                                                  (1,428,229
                                                  )
                                                  
                                                  $
                                                  (918,870
                                                  )Loss
      per common share:Basic
      and diluted
                                                  
                                                  $
                                                  (0.04
                                                  )
                                                  
                                                  $
                                                  (0.03
                                                  )Weighted
      average common shares outstanding:Basic
      and diluted
                                                  
                                                  
                                                  37,588,367
                                                  
                                                  
                                                  
                                                  27,358,671Comprehensive
      loss:Net
      loss
                                                  
                                                  $
                                                  (1,
      428,229
                                                  )
                                                  
                                                  $
                                                  (918,870
                                                  )Other
      comprehensive loss:Foreign
      currency translation
                                                  
                                                  
                                                  3,879
                                                  
                                                  
                                                  
                                                  1,008Comprehensive
      loss
                                                  
                                                  $
                                                  (1,424,350
                                                  )
                                                  
                                                  $
                                                  (917,862
                                                  )





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)





Nine Months Ended January 31,2010
                                              
                                              
                                              2009Revenues
                                              
                                              $
                                              878,651
                                              
                                              
                                              $
                                              795,336Cost
      of revenues
                                              
                                              
                                              353,802
                                              
                                              
                                              
                                              335,489Gross
      profit
                                              
                                              
                                              524,849
                                              
                                              
                                              
                                              459,847General
      and administrative expenses:Consulting
      and professional fees
                                              
                                              
                                              172,089
                                              
                                              
                                              
                                              231,852Marketing
      and promotion
                                              
                                              
                                              36,140
                                              
                                              
                                              
                                              36,357Option
      bonus
                                              
                                              
                                              3,285,718
                                              
                                              
                                              
                                              1,571,456Bad
      debt expense
                                              
                                              
                                              10,650
                                              
                                              
                                              
                                              27,514Other
      general & administrative expenses
                                              
                                              
                                              1,634,812
                                              
                                              
                                              
                                              1,589,338Total
      general and administrative expenses
                                              
                                              
                                              5,139,409
                                              
                                              
                                              
                                              3,456,517(Loss)
      from operations
                                              
                                              
                                              (4,614,560
                                              )
                                              
                                              
                                              (2,996,670
                                              )Other
      income (expenses)Interest
      income
                                              
                                              
                                              702
                                              
                                              
                                              
                                              2,644Finance
      expense
                                              
                                              
                                              (5,234
                                              )
                                              
                                              
                                              (414,157
                                              )Interest
      expense
                                              
                                              
                                              (736,033
                                              )
                                              
                                              
                                              (1,423,641
                                              )Foreign
      exchange (loss)
                                              
                                              
                                              (17,657
                                              )
                                              
                                              
                                              (10,466
                                              )Other
      income and (expense)
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,920Total
      other income (expenses)
                                              
                                              
                                              (758,222
                                              )
                                              
                                              
                                              (1,843,700
                                              )Net
      loss
                                              
                                              $
                                              (5,372,782
                                              )
                                              
                                              $
                                              (4,840,370
                                              )Loss
      per common share:Basic
      and diluted
                                              
                                              $
                                              (0.17
                                              )
                                              
                                              $
                                              (0.18
                                              )Weighted
      average common shares outstanding:Basic
      and diluted
                                              
                                              
                                              32,072,932
                                              
                                              
                                              
                                              27,262,555Comprehensive
      loss:Net
      loss
                                              
                                              $
                                              (5,372,782
                                              )
                                              
                                              $
                                              (4,840,370
                                              )Other
      comprehensive loss:Foreign
      currency translation
                                              
                                              
                                              4,064
                                              
                                              
                                              
                                              1,066Comprehensive
      loss
                                              
                                              $
                                              (5,368,718
                                              )
                                              
                                              $
                                              (4,839,304
                                              )





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 to employees
                        
                        
                        44,500
                        
                        
                        
                        44
                        
                        
                        
                        15,531
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        15,575Shares
      issued for services
                        
                        
                        71,872
                        
                        
                        
                        72
                        
                        
                        
                        31,788
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        31,860Shares
      issued upon conversion of convertible note
                        
                        
                        10,069,930
                        
                        
                        
                        10,070
                        
                        
                        
                        3,010,909
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,020,979Shares
      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
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        60,840
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        60,840Discount
      on convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        110,235
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        110,235Detachable
      warrants issued with convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        12,973
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        12,973Warrants
      issued for debt issuance costs
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,836
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,836Stock
      options expensed
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,285,718
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,285,718Comprehensive
      loss, January 31, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (5,372,782
                        )
                        
                        
                        4,064
                        
                        
                        
                        (5,368,718
                        )Balance,
      January 31, 2010
                        
                        
                        40,135,513
                        
                        
                        $
                        40,135
                        
                        
                        $
                        37,647,689
                        
                        
                        $
                        (45,198,551
                        )
                        
                        $
                        5,745
                        
                        
                        $
                        (7,504,982
                        )





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 Nine Months Ended
                                          January 31,2010
                                        
                                        
                                        2009Cash
      flows from operating activities:Net
      loss
                                        
                                        $
                                        (5,372,782
                                        )
                                        
                                        $
                                        (4,840,370
                                        )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
                                        
                                        
                                        15,792
                                        
                                        
                                        
                                        8,666Accrued
      interest expense
                                        
                                        
                                        673,713
                                        
                                        
                                        
                                        565,935Accrued
      bad debt expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        25,000Amortization
      of debt issuance costs
                                        
                                        
                                        2,572
                                        
                                        
                                        
                                        274,252Amortization
      of service warrants
                                        
                                        
                                        60,840
                                        
                                        
                                        
                                        91,771Amortization
      of debt discounts
                                        
                                        
                                        13,473
                                        
                                        
                                        
                                        878,559Stock
      issued to convertible debentures holders for liquidating
      damages
                                        
                                        
                                        -
                                        
                                        
                                        
                                        13,617Stock
      options expensed
                                        
                                        
                                        3,285,718
                                        
                                        
                                        
                                        1,571,456Stock
      issued to employees
                                        
                                        
                                        15,575
                                        
                                        
                                        
                                        36,350Stock
      issued for services
                                        
                                        
                                        40,610
                                        
                                        
                                        
                                        37,379Changes
      in operating assets and liabilities:(Increase)
      in accounts receivable
                                        
                                        
                                        (60,310
                                        )
                                        
                                        
                                        (81,264
                                        )(Increase)
      in inventories
                                        
                                        
                                        (179,250
                                        )
                                        
                                        
                                        -(Increase)
      in prepaid expenses and other current assets
                                        
                                        
                                        (16,534
                                        )
                                        
                                        
                                        (30,807
                                        )(Increase)
      in other noncurrent assets
                                        
                                        
                                        (48,372
                                        )
                                        
                                        
                                        (98,061
                                        )Increase
      in accounts payable
                                        
                                        
                                        278,898
                                        
                                        
                                        
                                        27,578(Decrease)
      increase in customer deposits
                                        
                                        
                                        (11,305
                                        )
                                        
                                        
                                        19,601Increase
      in accrued and other liabilities
                                        
                                        
                                        591,012
                                        
                                        
                                        
                                        571,527Net
      cash (used in) operating activities
                                        
                                        
                                        (710,350
                                        )
                                        
                                        
                                        (928,811
                                        )Cash
      flows from investing activities:Purchase
      of equipment
                                        
                                        
                                        (11,624
                                        )
                                        
                                        
                                        (17,120
                                        )Purchase
      of leasehold improvements
                                        
                                        
                                        (774
                                        )
                                        
                                        
                                        -Purchase
      of intangible asset
                                        
                                        
                                        (325
                                        )
                                        
                                        
                                        -Proceeds
      from equipment sale
                                        
                                        
                                        -
                                        
                                        
                                        
                                        870Payment
      of landlord deposit
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,949
                                        )Net
      cash (used in) investing activities
                                        
                                        
                                        (12,723
                                        )
                                        
                                        
                                        (19,199
                                        )Cash
      flows from financing activities:Proceeds
      from convertible debentures
                                        
                                        
                                        30,000
                                        
                                        
                                        
                                        -Payment
      of debt issuance costs
                                        
                                        
                                        (3,000
                                        )
                                        
                                        
                                        -Proceeds
      from term notes
                                        
                                        
                                        264,000
                                        
                                        
                                        
                                        670,000Repayments
      on term notes
                                        
                                        
                                        (79,982
                                        )
                                        
                                        
                                        -Proceeds
      from related parties
                                        
                                        
                                        163,000
                                        
                                        
                                        
                                        -Repayments
      to related parties
                                        
                                        
                                        (147,460
                                        )
                                        
                                        
                                        (68,650
                                        )Proceeds
      from stock issuances
                                        
                                        
                                        377,003
                                        
                                        
                                        
                                        53Net
      cash provided by financing activities
                                        
                                        
                                        603,561
                                        
                                        
                                        
                                        601,403Effect
      of exchange rate changes on cash
                                        
                                        
                                        16,311
                                        
                                        
                                        
                                        9,830Net
      increase (decrease) in cash
                                        
                                        
                                        (103,201
                                        )
                                        
                                        
                                        (336,777
                                        )Cash,
      beginning of the period
                                        
                                        
                                        144,842
                                        
                                        
                                        
                                        480,350Cash,
      end of the period
                                        
                                        $
                                        41,641
                                        
                                        
                                        $
                                        143,573




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 Nine Months Ended
                      January 31,2010
                    
                    
                    2009Non-cash
      investing and financing activities:Increase in construction in
      progress from accrued interest
                    
                    $
                    53,340
                    
                    
                    $
                    48,246Common stock issued in exchange
      for convertible debentures
                    
                    $
                    -
                    
                    
                    $
                    191,213Common stock issued in exchange
      for convertible note
                    
                    $
                    3,020,979
                    
                    
                    $
                    -Common stock issued to
      employees
                    
                    $
                    15,575
                    
                    
                    $
                    16,850Common stock issued for
      services
                    
                    $
                    31,860
                    
                    
                    $
                    11,213Common stock issued for note
      receivable
                    
                    $
                    -
                    
                    
                    $
                    25,000Common stock issued to convertible
      debentures holders for liquidating damages
                    
                    $
                    -
                    
                    
                    $
                    13,617Common stock issued as payment on
      term debt
                    
                    $
                    398,194
                    
                    
                    $
                    11,784Supplemental
      cash flow disclosure:Interest paid
                    
                    $
                    40,817
                    
                    
                    $
                    73,566Taxes paid
                    
                    $
                    5,200
                    
                    
                    $
                    -





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 January 31, 2010





1.      Condensed
consolidated financial statements





The
accompanying January 31, 2010 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 January 31, 2010 and 2009 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
January 31, 2010 and 2009 are not necessarily indicative of the operating
results for the full years.





The
Company has evaluated subsequent events as at March 17, 2010 for potential
recognition and disclosure in the financial statements.  This date
represents the date the financial statements are issued.





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 a
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 micro modular data center solutions;
      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 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, as well as, the 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 micro modular data
center (“MMDC”) 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 January 31, 2010





2.      Organization
(continued)





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





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.      Inventories





Inventories
at January 31, 2010 and April 30, 2009 consisted of the following:





January
      31,
                        
                        
                        April
      30,2010
                        
                        
                        2009Products,
      held in Vietnam
                        
                        $
                        179,250
                        
                        
                        $
                        -Total
      inventories
                        
                        $
                        179,250
                        
                        
                        $
                        -





Inventories
consists of MMDC units manufactured by Elliptical Mobile Solutions, LLC (“EMS”)
stated at the lower of cost, using the first-in first-out method, or
market.




14







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





4.      Prepaid
expenses and other current assets





Prepaid
expenses and other current assets at January 31, 2010 and April 30, 2009
consisted of the following:





January
      31,
                          
                          
                          April
      30,2010
                          
                          
                          2009Prepaid
      expenses
                          
                          $
                          12,287
                          
                          
                          $
                          22,743Prepaid
      land lease, Danang City, Vietnam
                          
                          
                          246,214
                          
                          
                          
                          207,718Vietnam
      value added tax (“VAT”) receivable
                          
                          
                          698
                          
                          
                          
                          9,147VNNIC
      Deposit
                          
                          
                          7,000
                          
                          
                          
                          4,130Miscellaneous
      receivable
                          
                          
                          27,523
                          
                          
                          
                          3,909293,722
                          
                          
                          
                          247,647Less
      prepaid land lease included in othernoncurrent
      assets  (see Note 9)
                          
                          
                          238,897
                          
                          
                          
                          200,086Total
      prepaid expenses and other current assets
                          
                          $
                          54,825
                          
                          
                          $
                          47,561





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 $5,759 and $5,530 for the nine months ended January
31, 2010 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 received a $16,276 refund of VAT paid,
principally on the second and final payments of the Land Sublease.  In
addition, Dot VN Danang has paid $698 of VAT during the four month period ending
January 31, 2010, for which it will request a future 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
January 31, 2010 and April 30, 2009 was $7,000 and $4,130,
respectively.





During
the nine months ended January 31, 2010 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 12).  The balance owed
the Company as of January 31, 2010 and April 30, 2009 was $22,500 and
zero.




15







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (unaudited)


As
of January 31, 2010





5.      Prepaid
warrant expense





The
Company has issued warrants for the purchase of shares of the Company’s
restricted common stock in connection with raising equity and debt financing and
for other professional services.  The fair value of warrants issued is
determined in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (the “Codification”) topic 470-20 (see Note
15).  The Company recognizes these costs on a straight-line basis; (i)
detachable warrants issued in connection with debt instruments are recorded as
debt discount (see Note 10) and amortized over the life of the debt to interest
expense, (ii) warrants issued as debt issuance costs are recorded as deferred
charges (see Note 9) and (iii) warrants issued for services are recorded as a
prepaid warrant expense and amortized over the requisite service period to
consulting fees.  Changes in the carrying amounts of prepaid service
warrants are as follows:





January
      31,
                        
                        
                        April
      30,2010
                        
                        
                        2009Balance,
      beginning of period
                        
                        $
                        -
                        
                        
                        $
                        91,771Warrants
issued
                        
                        
                        60,840
                        
                        
                        
                        -Amortization of
      warrants
                        
                        
                        (60,840
                        )
                        
                        
                        (91,771
                        )Balance,
      end of period
                        
                        $
                        -
                        
                        
                        $
                        -





6.      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 10) 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 nine months ended January 31, 2010 and the year ended April
30, 2009 interest of $17,862 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.





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 ($45,060) will be recognized upon
collection from Spot-On.




16







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (unaudited)


As
of January 31, 2010





6.      Notes
receivable (continued)





January
      31,
                        
                        
                        April
      30,2010
                        
                        
                        2009Notes
      receivable
                        
                        $
                        236,213
                        
                        
                        $
                        236,213Less
      allowance
                        
                        
                        236,213
                        
                        
                        
                        236,213Notes
      receivable, net
                        
                        $
                        -
                        
                        
                        $
                        -





7.      Equipment





Equipment
at January 31, 2010 and April 30, 2009 consisted of the following:





January
      31,
                          
                          
                          April
      30,2010
                          
                          
                          2009Computer
      equipment
                          
                          $
                          66,209
                          
                          
                          $
                          57,374Other
      furniture and equipment
                          
                          
                          17,324
                          
                          
                          
                          15,167Leasehold
      improvements
                          
                          
                          4,451
                          
                          
                          
                          3,853Internet
      data center, construction in progress
                          
                          
                          741,255
                          
                          
                          
                          687,915829,239
                          
                          
                          
                          764,309Less
      accumulated depreciation and amortization
                          
                          
                          39,070
                          
                          
                          
                          23,493Equipment,
      net
                          
                          $
                          790,169
                          
                          
                          $
                          740,816





Depreciation expense charged to operations was
$14,081 and $12,419 for the nine months ended January 31, 2010 and the year
ended April 30, 2009, respectively.  Amortization expense charged to
operations was $1,711 and $193 for the nine months ended January 31, 2010 and
the year ended April 30, 2009, respectively.  Capitalized interest on
borrowings related to the Internet data center was $53,340 and $64,620 for the
nine months ended January 31, 2010 and the year ended April 30, 2009,
respectively.





8.      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 10) from Hi-Tek Private, previously a
related party (see Note 14).  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 10) 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.





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 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.  During the nine months ended January 31, 2010 the
Company filed a U.S. trademark application on “Info.VN” and paid $325 in filing
fees, there was no change in the carrying amount of intangible assets during the
year ended April 30, 2009.




17







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





9.      Other
noncurrent assets





Other
noncurrent assets at January 31, 2010 and April 30, 2009 consisted of the
following:





January
      31,
                        
                        
                        April
      30,2010
                        
                        
                        2009Deposits
                        
                        $
                        11,515
                        
                        
                        $
                        12,241Deferred
      debt issuance cost
                        
                        
                        9,982
                        
                        
                        
                        8,218Prepaid
      land lease Danang City, Vietnam (see Note 5)
                        
                        
                        238,897
                        
                        
                        
                        200,086Other
      noncurrent assets
                        
                        
                        153
                        
                        
                        
                        776Total
      other noncurrent assets
                        
                        $
                        260,547
                        
                        
                        $
                        221,321





In
connection with the January 31 and February 9, 2007 issuance of a series of
convertible debentures (see Note 10) the Company paid the placement agent a Ten
Percent (10%) cash fee ($114,821) and issued warrants (see Note 15) 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
nine months ended January 31, 2010 and the year ended April 30, 2009,
respectively.





Following
the January 31, 2009 maturity of the convertible debentures (see Note 10) 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 11) 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 15) 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 $2,572 and
$700 expensed in the nine months ended January 31, 2010 and the year ended April
30, 2009, respectively.  Amortization for the year ended April 30,
2010 will be $3,390.





In
connection with the December 30, 2009, issuance of a series of convertible
debentures (see Note10) the Company paid the placement agent a Ten Percent (10%)
cash fee ($3000).  The Company capitalized the fee as a deferred
charge associated with the issuance of these debt instruments.  The
deferred charge is amortized on a straight-line basis over the six month term of
the debt with $500 expensed in the nine months ended January 31,
2010.  Amortization for the year ended April 30, 2010 will be
$2,000.




18







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.      Convertible
notes





As of
January 31, 2010, convertible notes consist of the following:





Issued date
                                      
                                      Maturity
                                      
                                      Conversion
                                        price
                                      
                                      
                                      Amount
                                      
                                      
                                      Debt
                                        discount
                                      
                                      
                                      Accrued
                                        interest
                                      
                                      
                                      Net amountConvertible
      Note 1
                                      
                                      Oct.
      16, 2006
                                      
                                      June
      30, 2010
                                      
                                      $
                                      0.30
                                      
                                      
                                      $
                                      360,000
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      140,010
                                      
                                      
                                      $
                                      500,010Convertible
      Notes 2
                                      
                                      Feb.
      9, 2007
                                      
                                      Jan.
      31, 2009
                                      
                                      $
                                      1.00
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Convertible
      Note 3
                                      
                                      June
      29, 2007
                                      
                                      June
      30, 2010
                                      
                                      $
                                      0.30
                                      
                                      
                                      
                                      92,336
                                      
                                      
                                      
                                      (47,706
                                      )
                                      
                                      
                                      21,222
                                      
                                      
                                      
                                      65,852Convertible
      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
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Convertible
      Note 7
                                      
                                      July
      6, 2009
                                      
                                      June
      30, 2010
                                      
                                      $
                                      0.33
                                      
                                      
                                      
                                      113,244
                                      
                                      
                                      
                                      (37,029
                                      )
                                      
                                      
                                      5,317
                                      
                                      
                                      
                                      81,532Convertible
      Notes 8
                                      
                                      Nov.
      17, 2009
                                      
                                      June
      30, 2010
                                      
                                      $
                                      0.30
                                      
                                      
                                      
                                      3,020,979
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      49,917
                                      
                                      
                                      
                                      3,070,896Convertible
      Notes 9
                                      
                                      Dec.
      30, 2009
                                      
                                      June
      30, 2010
                                      
                                      $
                                      0.30
                                      
                                      
                                      
                                      30,000
                                      
                                      
                                      
                                      (25,000
                                      )
                                      
                                      
                                      263
                                      
                                      
                                      
                                      5,2633,616,559
                                      
                                      
                                      
                                      (109,735
                                      )
                                      
                                      
                                      216,729
                                      
                                      
                                      
                                      3,723,553Less
      notes 1, 6, and 7 included in due to related parties, current(see
      Note 12)
                                      
                                      
                                      
                                      3,494,223
                                      
                                      
                                      
                                      (37,029
                                      )
                                      
                                      
                                      195,244
                                      
                                      
                                      
                                      3,652,438Less
      note 3 included in short-term convertible debt
                                      
                                      
                                      
                                      122,336
                                      
                                      
                                      
                                      (72,706
                                      )
                                      
                                      
                                      21,485
                                      
                                      
                                      
                                      71,115Long-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 (the “Conversion Price”) and bears an interest
rate of Ten Percent (10%) per annum.  The Conversion Price shall be
adjusted downward in the event the Company issues common stock (or securities
exercisable for or convertible into or exchangeable for common stock) at a price
below the Conversion Price, to a price equal to such issue price.  The
note is payable to Hi-Tek Private, a former related party (see Note 12), (the
“Hi-Tek Trademark Loan”) (see Note 8), had accrued interest of $140,010 at
January 31, 2010.  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.  Additionally, on December 4, 2009, the Hi-Tek Trademark Loan
was further amended to extend the due date to June 30, 2010, 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 three extensions.  On January 14, 2010, the Company closed
an offering of convertible debentures (see Convertible Notes 9) which at the
option of the holder converts into restricted shares of the Company’s Common
Stock at $0.30 per share (the “December Debentures”).  Accordingly,
the Conversion Price of the Hi-Tek Trademark Loan is reduced to $0.30 per share
consistent with the December Debentures.  The additional beneficial
conversion feature was calculated to be zero on January 14, 2010 in accordance
with Codification topic 470-20.  As of January 31, 2010, the
unamortized debt discount was zero.  On March 12, 2010, the Company
closed an offering of convertible debentures (see Note 18) which at the option
of the holder converts into restricted shares of the Company’s Common Stock at
$0.20 per share (the “March Debentures”).  Accordingly, the Conversion
Price of the Hi-Tek Trademark Loan is reduced to $0.20 per share consistent with
the March Debentures.  The additional beneficial conversion feature
was calculated to be zero on March 12, 2010 in accordance with Codification
topic 470-20.




19







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.           Convertible
notes (continued)




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.  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.





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 11).





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
6).  The Spot-On Conversion right expired on January 31,
2009.




20




Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.
            Convertible
      notes (continued)





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 15).  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
9).  Upon exercise of a Pali Placement Agent Warrants the unamortized
deferred debt issuance costs was expensed.





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 Company’s Common Stock (the “Liquidated Damages”) for
every thirty (30) day period that the registration statement is not filed,
limited to a total of ten such 30-day periods.  On August 10, 2007, in
accordance with the requirements of Section 9 of the IRRA, the Company and
certain February Debentures Investors representing two-thirds (2/3) of the
amount invested executed an amendment to the IRRA whereby (i) the Registration
Deadline was extended to September 15, 2007 (the “New Registration Deadline”);
(ii) the February Investors received the Liquidated Damages for one month; and
(iii) the registration statement must be declared effective within sixty (60)
days if there are no comments by the SEC or within in ninety (90) days if SEC
comments are received (the “Effectiveness Deadline”).  In the event
that either the New Registration Deadline or the Effectiveness Deadline is not
met, then the February Investors shall be entitled to the Liquidated Damages for
every thirty (30) day period that the New Registration Deadline or the
Effectiveness Deadline are not met, limited to a total of ten such 30-day
periods (see Note 13).





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 (the “Conversion Price”) 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 8) (the “Business.com.VN Loan”).  The Conversion Price shall be
adjusted downward in the event the Company issues common stock (or securities
exercisable for or convertible into or exchangeable for common stock) at a price
below the Conversion Price, to a price equal to such issue price.  The
Company has accrued interest of $21,222 at January 31, 2010.  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.  Additionally, on December 4, 2009,
the Business.com.VN Loan was further amended to extend the due date to June 30,
2010, 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 three extensions.  On
January 14, 2010, the Company closed an offering of convertible debentures (see
Convertible Notes 9) which at the option of the holder converts into restricted
shares of the Company’s Common Stock at $0.30 per share (the “December
Debentures”).  Accordingly, the Conversion Price of the
Business.com.VN Loan is reduced to $0.30 per share consistent with the December
Debentures.  The additional beneficial conversion feature was
calculated to be $52,476 on January 14, 2010 in accordance with Codification
topic 470-20; the Company recorded this amount as debt discount with a
corresponding credit to additional paid in capital.  As of January 31,
2010 the unamortized debt discount was $47,706.  On March 12, 2010,
the Company closed an offering of convertible debentures (see Note 18) which at
the option of the holder converts into restricted shares of the Company’s Common
Stock at $0.20 per share (the “March Debentures”).  Accordingly, the
Conversion Price of the Business.com.VN Loan is reduced to $0.20 per share
consistent with the March Debentures.  The additional beneficial
conversion feature was calculated to be zero on March 12, 2010 in accordance
with Codification topic 470-20.


21


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.
            Convertible
      notes (continued)





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
12).  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).





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 12).  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 (the
“Subsequent Price”) below the Conversion Price, to a price equal to the
Subsequent Price.  In accordance with Codification topic 470-20, there
is no beneficial conversion feature at the time of issuance.  On
February 15, 2009, the TJ Second Note and the LJ Second Note were amended to
extend the due date thirty days to March 17, 2009 with no other change to the
terms of the notes.  On March 17, 2009, the TJ Second Note and the LJ
Second Note were further amended to extend the due date fourteen days to March
31, 2009 with no other change to the terms of the notes.  On April 20,
2009, the unpaid notes and accrued interest ($239,729) were cancelled and
replaced with new convertible notes with materially the same terms and
conditions as Convertible Notes 5, issued to Mr. Thomas Johnson (50%) and Dr.
Lee Johnson (50%), except that in the new notes 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 (see
Convertible Notes 6).





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”) (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 12).  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.  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
$1,510,489.41 convertible note due June 30, 2010 with materially the same terms
as the cancelled notes each to Thomas Johnson and Lee Johnson, except that in
the new notes the amount due and owing pursuant to such note may be converted,
or any portion thereof, into restricted shares of the Company’s Common Stock
(see Convertible Notes 8).


22


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.
            Convertible
      notes (continued)





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 (see Note 12).  The Company has accrued interest of $5,317 at
January 31, 2010.  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.  Additionally, on December 29, 2009, the
Huynh Note was further amended to extend the due date six months to June 30,
2010 with no other change to the terms of the notes.  On January 14,
2010, the Company closed an offering of convertible debentures (see Convertible
Notes 9) which at the option of the holder converts into restricted shares of
the Company’s Common Stock at $0.30 per share (the “December
Debentures”).  Accordingly, the Adjusted Conversion Price of the Huynh
Loan is reduced to $0.33 per share (the December Debentures conversion price of
$0.30 times 110%).  The beneficial conversion feature was calculated
to be $40,732 on January 14, 2010 in accordance with Codification topic 470-20;
the Company recorded this amount as debt discount with a corresponding credit to
additional paid in capital.  As of January 31, 2010 the unamortized
debt discount was $37,029.  On March 12, 2010, the Company closed an
offering of convertible debentures (see Note 18) which at the option of the
holder converts into restricted shares of the Company’s Common Stock at $0.20
per share (the “March Debentures”).  Accordingly, the Conversion Price
of the Huynh Loan is reduced to $0.22 per share (the March Debentures conversion
price of $0.20 times 110%).  The additional beneficial conversion
feature was calculated to be $56,622 on March 12, 2010 in accordance with
Codification topic 470-20.





Convertible
Notes 8 are a set of two individual notes with an aggregate face value of
$3,020,979 issued November 17, 2009 to Mr. Thomas Johnson (50%) (the “TJ Fourth
Note”) and Dr. Lee Johnson (50%) (the “LJ Fourth Note”) in exchange for the
unpaid balance owed under Convertible Notes 6, which were cancelled, following
the 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 to each to Thomas
Johnson and Lee Johnson.  The notes are due June 30, 2010 and accrued
interest monthly at Eight Percent (8%) per annum (see Note 12).  At
the election of the holder, the amount due and owing pursuant to such note, or
any portion thereof, 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.  The Company
has accrued interest of $49,917 at January 31, 2010.  On March 12,
2010, the Company closed an offering of convertible debentures (see Note 18)
which at the option of the holder converts into restricted shares of the
Company’s Common Stock at $0.20 per share (the “March
Debentures”).  Accordingly, the Conversion Price of the TJ Fourth Note
and the LJ Fourth Note are reduced to $0.22 per share (the March Debentures
conversion price of $0.20 times 110%).  The additional beneficial
conversion feature was calculated to be an aggregate of $804,208 ($402,104 each
TJ Fourth Note and the LJ Fourth Note) on March 12, 2010 in accordance with
Codification topic 470-20.


23


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





10.
            Convertible
      notes (continued)





Convertible
Notes 9 are a set of three (3) convertible debentures with an aggregate face
value of $30,000 issued December 30, 2009 (the “December
Debentures”).  The December Debentures have a six month term and are
due June 30, 2010. Interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The Company has accrued interest of $263 at January 31,
2010.  The debentures convert, in whole or in part, at the option of
each individual noteholder (the “December Investors”) into restricted shares of
the Company’s Common Stock at $0.30 per share; representing a beneficial
conversion feature.  In addition, the December Investor received a
detachable warrant for restricted shares of the Company’s Common Stock; the
number of shares of each warrant is equal to 100% of the number of shares
issuable pursuant to conversion of the debenture for an aggregate of 100,001
shares.  The detachable warrants have an exercise price of $0.80 per
share, a term of two years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrants, calculated in accordance
with Codification topic 470-20, was allocated between the beneficial conversion
feature and detachable warrants as $17,027 and $12,973,
respectively.  The beneficial conversion feature and detachable
warrants are recorded as debt discount with a corresponding credit to additional
paid in capital and are amortized over the life of the December Debentures (six
months).  As of January 31, 2010 the unamortized debt discount was
$25,000.





11.
            Term
      debt





As of
January 31, 2010 and April 30, 2009 term debt consists of the
following:





January 31,
                              
                              
                              April 30,2010
                              
                              
                              2009Term
      Note 1
                              
                              $
                              792,289
                              
                              
                              $
                              734,055Term
      Notes 2, 3, 4, 9, 10, 11, and 14
                              
                              
                              1,623,234
                              
                              
                              
                              1,503,905Term
      Note 5
                              
                              
                              -
                              
                              
                              
                              266,797Term
      Note 6
                              
                              
                              -
                              
                              
                              
                              -Term
      Note 7
                              
                              
                              -
                              
                              
                              
                              76,649Term
      Note 8
                              
                              
                              -
                              
                              
                              
                              54,749Term
      Notes 12
                              
                              
                              694,960
                              
                              
                              
                              684,381Term
      Notes 13
                              
                              
                              290,390
                              
                              
                              
                              286,873Term
      Note 15, 16 and 21
                              
                              
                              172,567
                              
                              
                              
                              -Term
      Note 17, 24 and 25
                              
                              
                              74,569
                              
                              
                              
                              -Term
      Note 18 and 26
                              
                              
                              20,432
                              
                              
                              
                              -Term
      Note 19
                              
                              
                              76,183
                              
                              
                              
                              -Term
      Note 20
                              
                              
                              46,179
                              
                              
                              
                              -Term
      Notes 22 and 23
                              
                              
                              102,451
                              
                              
                              
                              -3,893,254
                              
                              
                              
                              3,607,409Less
      short-term debt and current portion of long-term debt:Short-term
      notes 2, 3, 4, 9, 10, 11, 12, 14, 15, 16, 18, 20, 21,22 and
    25
                              
                              
                              1,964,863
                              
                              
                              
                              1,902,100Notes
      12
                              
                              
                              694,960
                              
                              
                              
                              684,381Current
      portion of notes 13
                              
                              
                              137,281
                              
                              
                              
                              96,9692,797,104
                              
                              
                              
                              2,683,450Less
      notes 1, 17, 19, 24 and 25 included in due to relatedparties
      (see Note 12)
                              
                              
                              943,041
                              
                              
                              
                              734,055Long-term
      debt, net of current portion
                              
                              $
                              153,109
                              
                              
                              $
                              189,904


24


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





11.
            Term
      debt (continued)





Term Note
1 executed by the Company on May 1, 2007 with Hi-Tek Private, previously a
related party (see Note 12), 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.  On June 25, 2009, the Hi-Tek IDC
Loan was amended to extend the due date to December 31, 2009 with no other
change to the terms.  Additionally, on December 31, 2009, the Hi-Tek
IDC Loan was further amended to extend the due date to March 31, 2010 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 First 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 First 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 First 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 First Loan to IDCG SA de CV, a corporation established
under the laws of the Country of Mexico (“IDCG SA”).  On June 25,
2009, the Vina Mex First Loan was amended to extend the due date to December 31,
2009 with no other change to the terms.  On December 31, 2009, the
Vina Mex First Loan was amended to extend the due date to March 31, 2010 with no
other change to the terms.  Additionally, on February 26, 2010, the
Vina Mex First Loan was further amended to i) convert $108,475.39 into a
convertible debenture due in three years being offered by the Company, which
offering closed on March 12, 2010 (see Note 18) and ii) extend the due date of
the remaining balance ($788,695.49) under the Vina Mex First Loan to May 31,
2010 with no other change to the terms.





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 Second
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
Second Loan to IDCG SA de CV.  On March 25, 2009, the Vina Mex Second
Loan was amended to extend the due date to September 30, 2009 with no other
change to the terms.  On October 8, 2009, the Vina Mex Second Loan was
amended to extend the due date to December 31, 2009 with no other change to the
terms.  On December 31, 2009, the Vina Mex Second Loan was amended to
extend the due date to March 31, 2010 with no other change to the
terms.  Additionally, on February 26, 2010, the Vina Mex Second Loan
was further amended to extend the due date to May 31, 2010 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 Third
Loan”).  Proceeds were used to fund general operations.  On
February 3, 2009 Vina Mex Capital assigned, without recourse, the Vina Mex Third
Loan to IDCG SA de CV.  On October 8, 2009, the Vina Mex Third Loan
was amended to extend the due date to December 31, 2009 with no other change to
the terms.  On December 31, 2009, the Vina Mex Third Loan was amended
to extend the due date to March 31, 2010 with no other change to the
terms.  Additionally, on February 26, 2010, the Vina Mex Third Loan
was further amended to extend the due date to May 31, 2010 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.


25


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





11.
            Term
      debt (continued)





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.





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 (“IDCG SA”), for $50,000;
the promissory note is due November 30, 2009 (the “IDCG First
Loan”).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum.  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG First Loan was amended to extend the November 30,
2009 due date to February 28, 2010 with no other change to the
terms.  On February 26, 2010, the IDCG First Loan balance owed
($56,659.23) was cancelled in exchange for a convertible debenture due in three
years being offered by the Company, which offering closed on March 12, 2010 (see
Note 18).





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 Second
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG Second Loan was amended to extend the November 30,
2009 due date to February 28, 2010 with no other change to the
terms.  On February 26, 2010, the IDCG Second Loan balance owed
($112,756.54) was cancelled in exchange for a convertible debenture due in three
years being offered by the Company, which offering closed on March 12, 2010 (see
Note 18).





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 Third
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG Third Loan was amended to extend the November 30,
2009 due date to February 28, 2010 with no other change to the
terms.  On February 26, 2010, the IDCG Third Loan balance owed
($111,546.30) was cancelled in exchange for a convertible debenture due in three
years being offered by the Company, which offering closed on March 12, 2010 (see
Note 18).


26


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





11.
            Term
      debt (continued)





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 10) 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.  The fair value
($10,754) of the warrants (see Note 15) was 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 (see Note 10).





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 Fourth
Loan”).  Proceeds were used to fund general operations.  On
November 5, 2009, the IDCG Fourth Loan was amended to extend the November 30,
2009 due date to February 28, 2010 with no other change to the
terms.  On February 26, 2010, the IDCG Fourth Loan balance owed
($110,562.54) was cancelled in exchange for a convertible debenture due in three
years being offered by the Company, which offering closed on March 12, 2010 (see
Note 18).





Term note
15 executed by the Dot VN Danang on May 5, 2009 with Mr. Diep Tai of Vietnam for
$101,500 (see Note 13); 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 4).





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 term note due February 13, 2010 (Term
Note 21).


27


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





11.
            Term
      debt (continued)





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 (the “Thomas First
Loan”).  Proceeds were used to fund general operations.  On
December 3, 2009, the Thomas First Loan was amended to extend the December 12,
2009 due date to February 28, 2010 with no other change to the
terms.  Additionally, on February 25, 2010, the Thomas First Loan was
further amended to extend the due date to May 31, 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 (the “Ung First
Loan”).  Proceeds were used to fund general operations.  On
December 15, 2009, the Ung First Loan was amended to extend the December 18,
2009 due date to March 18, 2010 with no other change to the
terms.  Additionally, on February 12, 2010, the Ung First Loan was
further amended to extend the due date to June 18, 2010 with no other change to
the terms.





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 (the “Hue Revolver”).  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, $30,000, $15,000, and $5,000
from Ms. Johnson under the Hue Revolver on November 16, November 17, December 2,
2009, January 8, and January 28, 2010, respectively.  On January 21,
2010, the Hue Revolver was amended to extend the January 29, 2010 due date to
April 30, 2010 with no other change to the terms.





Term Note
20 executed by the Company on November 13, 2009 with Lan T. Tran for $45,000;
the promissory note is due February 13, 2010.  Interest accrues
monthly at a rate of Twelve Percent (12%) per annum.  Proceeds were
paid directly by Ms. Lan Tran to i) Diep Tai as a $15,000 partial payment on his
revolving credit agreement (Term Note 16) due November 19, 2009 and ii) Hi-Tek
Private as a $30,000 partial payment on their revolving credit arrangement (see
Note 12).  On February 12, 2010, the balance owed ($46,360.77) on the
term note was cancelled in exchange for a convertible debenture due in three
years being offered by the Company, which offering closed on March 12, 2010 (see
Note 18).





Term Note
21 executed by the Company on November 13, 2009 with Diep Tai for $70,000 in
exchange for the $70,000 balance outstanding under his revolving credit
agreement due November 19, 2009 (Term Note 16) which was cancelled; the
promissory note is due February 13, 2010,  Interest accrues monthly at
a rate of Twelve Percent (12%) per annum.  On February 12, 2010, the
balance owed ($72,116.76) on the term note was cancelled in exchange for a
convertible debenture due in three years being offered by the Company, which
offering closed on March 12, 2010 (see Note 18).





Term Note
22 executed by the Company on November 18, 2009 with Nguyen Yen Crogan for
$50,000; the promissory note is due February 18, 2010.  Interest
accrues monthly at a rate of Twelve Percent (12%) per annum.  Proceeds
were paid directly by Ms. Crogan to Hi-Tek Private as a $50,000 partial payment
on their revolving credit arrangement (see Note 12).  On February 12,
2010, the balance owed ($51,427.77) on the term note was cancelled in exchange
for a convertible debenture due in three years being offered by the Company,
which offering closed on March 12, 2010 (see Note 18).





Term Note
23 executed by the Company on November 18, 2009 with Nga T. Tran for $50,000;
the promissory note is due February 18, 2010.  Interest accrues
monthly at a rate of Twelve Percent (12%) per annum.  Proceeds were
paid directly by Ms. Nga Tran to Hi-Tek Private as a $50,000 partial payment on
their revolving credit arrangement (see Note 12).  On February 12,
2010, the balance owed ($51,427.77) on the term note was cancelled in exchange
for a convertible debenture due in three years being offered by the Company,
which offering closed on March 12, 2010 (see Note 18).





Term Note
24 executed by the Company on November 30, 2009, with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$30,000; the promissory note is due February 28, 2010.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Thomas Second
Loan”).  Proceeds were used to fund general
operations.  Additionally, on February 25, 2010, the Thomas Second
Loan was further amended to extend the due date to May 31, 2010 with no other
change to the terms.


28


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





11.
            Term
      debt (continued)





Term Note
25 executed by the Company on December 11, 2009, with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$25,000; the promissory note is due March 11, 2010.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “Thomas Third
Loan”).  Proceeds were used to fund general operations.  On
March 10, 2010, the Company repaid in full ($25,615) the Thomas Third
Loan.





Term Note
26 executed by the Company on January 19, 2010 with Ms. Ngoc Anh Ung for
$24,000; the promissory note is due February 18, 2010.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Ung Second
Loan”).  Proceeds were used to fund general operations.  On
January 25, 2010, an aggregate of $14,000 was repaid on the Ung Second
Loan.  On February 10, 2010, an additional $10,000 was repaid on the
Ung Second Loan.





12.
            Due
      to related parties





The
Company’s historical cash requirements have been funded under a revolving credit
arrangement with Hi-Tek Private (the “Hi-Tek Revolver”) which previously was a
related company.  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
nine months ended January 31, 2010 and the year ended April 30, 2009
are:





January 31,
                      
                      
                      April 30,2010
                      
                      
                      2009Balance
      at beginning of year
                      
                      $
                      1,
      129,344
                      
                      
                      $
                      1,120,928Funds
      advanced
                      
                      
                      15,000
                      
                      
                      
                      -Repayments
                      
                      
                      147,460
                      
                      
                      
                      102,708Interest
      accrued
                      
                      
                      84,574
                      
                      
                      
                      111,124Balance
      at end of period
                      
                      $
                      1,081,458
                      
                      
                      $
                      1,129,344


29


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





12.
            Due
      to related parties (continued)





Due to
related parties at January 31, 2010 and April 30, 2009 consisted of the
following:





January 31,
                    
                    
                    April 30,2010
                    
                    
                    2009Hi-Tek
      Revolver
                    
                    $
                    1,081,458
                    
                    
                    $
                    1,129,344Hi-Tek
      Trademark Loan, net of zero and zero discount at January 31, 2010 and
      April 30, 2009
                    
                    
                    500,010
                    
                    
                    
                    463,740Hi-Tek
      IDC Loan
                    
                    
                    792,289
                    
                    
                    
                    734,055TJ
      Notes, net of zero and zero discount at January 31, 2010 and April 30,
      2009
                    
                    
                    1,535,448
                    
                    
                    
                    2,891,156LJ
      Notes, net of zero and zero discount at January 31, 2010 and April 30,
      2009
                    
                    
                    1,535,448
                    
                    
                    
                    2,891,157Huynh
      Note, net of $37,029 at January 31, 2010
                    
                    
                    81,532
                    
                    
                    
                    -Term
      Note 17, 24, and 25, Thomas Johnson
                    
                    
                    74,569
                    
                    
                    
                    -Term
      Note 19, Hue Tran Johnson
                    
                    
                    76,183
                    
                    
                    
                    -5,676,937
                    
                    
                    
                    8,109,452Less
      current portion
                    
                    
                    5,676,937
                    
                    
                    
                    8,109,452Due
      to related parties, long-term
                    
                    $
                    -
                    
                    
                    $
                    -





On
February 12, 2010, the Company converted $85,000 of the Hi-Tek Revolver into a
convertible debenture due in three years being offered by the Company, which
offering closed on March 12, 2010 (see Note 18).  The convertible
debenture has a three year term and is due February 12,
2013.  Interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debenture convert, in whole or in part, at the option
of the noteholder into restricted shares of the Company’s Common Stock at $0.20
per share; representing a beneficial conversion feature.  In addition,
Hi-Tek Private received a detachable warrant for restricted shares of the
Company’s Common Stock; the number of warrant shares is equal to 100% of the
number of shares issuable pursuant to conversion of the debenture (425,000
shares).  The detachable warrant has an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.





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 8) 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 (the “Conversion Price”) and bears an interest rate of Ten Percent (10%)
per annum.  The Company has accrued interest of $140,010 at January
31, 2010.  The Conversion Price shall be adjusted downward in the
event the Company issues common stock (or securities exercisable for or
convertible into or exchangeable for common stock) at a price below the
Conversion Price, to a price equal to such issue price.  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.  Additionally, on December 4, 2009,
the Hi-Tek Trademark Loan was further amended to extend the due date to June 30,
2010, with no other change to the terms of the note or conversion feature (see
Note 10).  On January 14, 2010, the Company closed an offering of
convertible debentures (see Note 10) which at the option of the holder converts
into restricted shares of the Company’s Common Stock at $0.30 per share (the
“December Debentures”).  Accordingly, the Conversion Price of the
Hi-Tek Trademark Loan is reduced to $0.30 per share consistent with the December
Debentures.  The additional beneficial conversion feature was
calculated to be zero on January 14, 2010 in accordance with Codification topic
470-20; the Company recorded this amount as debt discount with a corresponding
credit to additional paid in capital.  As of January 31, 2010, the
unamortized debt discount was zero. On March
12, 2010, the Company closed an offering of convertible debentures (see Note 18)
which at the option of the holder converts into restricted shares of the
Company’s Common Stock at $0.20 per share (the “March
Debentures”).  Accordingly, the Conversion Price of the Hi-Tek
Trademark Loan is reduced to $0.20 per share consistent with the March
Debentures.  The additional beneficial conversion feature was
calculated to be zero on March 12, 2010 in accordance with Codification topic
470-20.


30


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





12.
            Due
      to related parties (continued)





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.  On June 25, 2009, the Hi-Tek IDC Loan was amended to extend
the due date to December 31, 2009 with no other change to the
terms.  Additionally, on December 31, 2009, the Hi-Tek IDC Loan was
further amended to extend the due date to March 31, 2010 with no other change to
the terms (see Note 11).





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 10).  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 10).  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 10).  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.  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
$1,510,489.41 convertible note due June 30, 2010 plus accrued interest at Eight
Percent (8%) per annum (the “TJ Fourth Note”) (see Note 10).  The
terms and conditions of the TJ Fourth Note are materially the same as the TJ
Third Note, except that in the new note the amount due and owing pursuant to
such note may be converted in whole or any portion thereof, into restricted
shares of the Company’s Common Stock.  At the election of the holder,
the amount due and owing pursuant to such note, or any portion thereof, 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”). The Company has accrued
interest of $49,917 at January 31, 2010 and unamortized debt discount was
zero.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Note 18) which at the option of the holder converts
into restricted shares of the Company’s Common Stock at $0.20 per share (the
“March Debentures”).  Accordingly, the Conversion Price of the TJ
Fourth Note and the LJ Fourth Note are reduced to $0.22 per share (the March
Debentures conversion price of $0.20 times 110%).  The additional
beneficial conversion feature was calculated to be $402,104 on March 12, 2010 in
accordance with Codification topic 470-20.


31


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





12.
            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 10).  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 10).  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 10).  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 12, 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.  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
$1,510,489.41 convertible note due June 30, 2010 plus accrued interest at Eight
Percent (8%) per annum (the “LJ Fourth Note”) (see Note 10).  The
terms and conditions of the LJ Fourth Note are materially the same as the LJ
Third Note, except that in the new note the amount due and owing pursuant to
such note may be converted in whole or any portion thereof, into restricted
shares of the Company’s Common Stock.  At the election of the holder,
the amount due and owing pursuant to such note, or any portion thereof, 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”).  The Company has
accrued interest of $49,917 at January 31, 2010 and unamortized debt discount
was zero.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Note 18) which at the option of the holder converts
into restricted shares of the Company’s Common Stock at $0.20 per share (the
“March Debentures”).  Accordingly, the Conversion Price of the TJ
Fourth Note and the LJ Fourth Note are reduced to $0.22 per share (the March
Debentures conversion price of $0.20 times 110%).  The additional
beneficial conversion feature was calculated to be $402,104 on March 12, 2010 in
accordance with Codification topic 470-20.


32


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





12.
            Due
      to related parties (continued)





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”) (see Note
10).  The note is due October 16, 2009 and accrues interest monthly at
Eight Percent (8%) per annum.  The Company has accrued interest of
$5,317 at January 31, 2010.  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.  Additionally, on December 29, 2009, the
Huynh Note was further amended to extend the due date six months to June 30,
2010 with no other change to the terms of the notes.  On January 14,
2010, the Company closed an offering of convertible debentures (see Note 10)
which at the option of the holder converts into restricted shares of the
Company’s Common Stock at $0.30 per share (the “December
Debentures”).  Accordingly, the Adjusted Conversion Price of the Huynh
Loan is reduced to $0.33 per share (December Debentures conversion price of
$0.30 times 110%).  The beneficial conversion feature was calculated
to be $40,732 on January 14, 2010 in accordance with Codification topic 470-20;
the Company recorded this amount as debt discount with a corresponding credit to
additional paid in capital.  As of January 31, 2010 the unamortized
debt discount was $37,029.  On March 12, 2010, the Company closed an
offering of convertible debentures (see Note 18) which at the option of the
holder converts into restricted shares of the Company’s Common Stock at $0.20
per share (the “March Debentures”).  Accordingly, the Conversion Price
of the Huynh Loan is reduced to $0.22 per share (the March Debentures conversion
price of $0.20 times 110%).  The additional beneficial conversion
feature was calculated to be $56,622 on March 12, 2010 in accordance with
Codification topic 470-20.





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
11).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum (the “Thomas First Loan”).  Proceeds were used to fund general
operations.  On December 3, 2009, the Thomas First Loan was amended to
extend the December 12, 2009 due date to February 28, 2010 with no other change
to the terms.  Additionally, on February 25, 2010, the Thomas First
Loan was further amended to extend the due date to May 31, 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 11).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum (the “Hue Revolver”).  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, $30,000, $15,000, and $5,000
from Ms. Johnson under the Hue Revolver on November 16, November 17, December 2,
2009, January 8, and January 28, 2010, respectively.  On January 21,
2010, the Hue Revolver was amended to extend the January 29, 2010 due date to
April 30, 2010 with no other change to the terms.





On
November 30, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$30,000; the promissory note is due February 28, 2010.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Thomas Second
Loan”).  Proceeds were used to fund general
operations.  Additionally, on February 25, 2010, the Thomas Second
Loan was further amended to extend the due date to May 31, 2010 with no other
change to the terms.


33


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





12.
            Due
      to related parties (continued)





On
December 11, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$25,000; the promissory note is due March 11, 2010.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “Thomas Third
Loan”).  Proceeds were used to fund general operations.  On
March 10, 2010, the Company repaid in full ($25,615.35) the Thomas Third
Loan.





On March
12, 2010, the Company converted an aggregate of $668,666.93 of unpaid salaries
and accrued interest owed to its three officers into convertible debentures due
in three years being offered by the Company, which offering closed on March 12,
2010 (see Note 18).  The $668,666.93 aggregate (Thomas Johnson
$329,510.48, Lee Johnson $329,510.48, and Louis P. Huynh $9,645.97) is
approximately 87% of the January 31, 2010 accrued liability.  The
convertible debentures have a three year term and are due March 12,
2013.  Interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debenture convert, in whole or in part, at the option
of the noteholder (the “March Investor”) into restricted shares of the Company’s
Common Stock at $0.20 per share; representing a beneficial conversion
feature.  In addition, the March Investor received a detachable
warrant for restricted shares of the Company’s Common Stock; the number of
warrant shares is equal to 100% of the number of shares issuable pursuant to
conversion of the debenture (aggregate 3,343,336 shares).  The
detachable warrants have an exercise price of $0.30 per share, a term of three
years from the date of issuance, and vest upon the conversion of the debenture
with a partial debenture conversion vesting a proportional number of warrant
shares.





13.
            Accrued
      and other current liabilities





Accrued
and other liabilities at January 31, 2010 and April 30, 2009 consisted of the
following:





January 31,
                  
                  
                  April 30,2010
                  
                  
                  2009Officer
      salaries
                  
                  $
                  769,641
                  
                  
                  $
                  326,837Other
      payroll accruals
                  
                  
                  23,198
                  
                  
                  
                  16,540Liquidated
      damages
                  
                  
                  62,659
                  
                  
                  
                  67,159Convertible
      debenture subscription liability
                  
                  
                  50,000
                  
                  
                  
                  -Other
      liabilities
                  
                  
                  -
                  
                  
                  
                  101,500Other
      accrued liabilities
                  
                  
                  29,079
                  
                  
                  
                  12,637Total
      accrued and other current liabilities
                  
                  $
                  934,577
                  
                  
                  $
                  524,673





As of
January 31, 2010 and April 30, 2009, the Company has unpaid salaries and accrued
interest owed to officers of $769,641 and $326,837, respectively.  The
unpaid salaries bear interest at a rate of Ten Percent (10%) per
annum.  As of January 31, 2010 and April 30, 2009, accrued interest on
the salaries was $64,781 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 10 and
12).  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 Notes 10 and 12).  On March 12, 2010, the Company
converted an aggregate of $668,666.93 of unpaid salaries and accrued interest
owed to its three officers into convertible debentures due in three years under
the same terms as the January Debenture (see Note10).  The $668,666.93
aggregate (Thomas Johnson $329,510.48, Lee Johnson $329,510.48, and Louis P.
Huynh $9,645.97) is approximately 87% of the January 31, 2010 accrued
liability.


34


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





13.
            Accrued
      and other current liabilities
(continued)





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 10).  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 10 and 11) agreed to modify the terms of
their February Debentures (the “Extended Debentures”) to include their unpaid
Liquidated Damages ($29,205).  As of January 31, 2010, 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
January 22, 2010, the Company received a $50,000 cash subscription to purchase a
$50,000 convertible debenture due in three years being offered by the
Company.  The subscription was accepted and the offering was closed on
March 12, 2010 (see Note 18)





On March
11, 2009, Dot VN Danang received $100,000 USD from Mr. Diep Tai, the proceeds
were used to fund the second 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 11).





14.
            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 8, 10 and
12).  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 10).  Additionally, on
December 4, 2009, the Hi-Tek Trademark Loan was further amended to extend the
due date to June 30, 2010, 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 three
extensions.  On January 14, 2010, the Company closed an offering of
convertible debentures (see Note 10) which at the option of the holder converts
into restricted shares of the Company’s Common Stock at $0.30 per share (the
“December Debentures”).  Accordingly, the Conversion Price of the
Hi-Tek Trademark Loan is reduced to $0.30 per share consistent with the December
Debentures.  The additional beneficial conversion feature was
calculated to be zero on January 14, 2010 in accordance with Codification topic
470-20; the Company recorded this amount as debt discount with a corresponding
credit to additional paid in capital.  As of January 31, 2010, the
unamortized debt discount was zero.





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.  On June 25, 2009, the Hi- Tek IDC Loan was amended to extend
the due date to December 31, 2009 with no other change to the
terms.  Additionally, on December 31, 2009, the Hi-Tek IDC Loan was
further amended to extend the due date to March 31, 2010 with no other change to
the terms (see Note 11).


35


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





14.
            Related
      party transactions (continued)





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.





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 nine months ended January 31, 2010 and year ended
April 30, 2009, respectively, in accordance with Codification topic 718 (see
Note 15).


36


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





14.
            Related
      party transactions (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 10).  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 10).  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 10).  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.  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
$1,510,489.41 convertible note due June 30, 2010 plus accrued interest at Eight
Percent (8%) per annum (the “LJ Fourth Note”) (see Note 10).  The
terms and conditions of the LJ Fourth Note are materially the same as the LJ
Third Note, except that in the new note the amount due and owing pursuant to
such note may be converted in whole or any portion thereof, into restricted
shares of the Company’s Common Stock.  At the election of the holder,
the amount due and owing pursuant to such note, or any portion thereof, 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”).


37


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





14.
            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 10).  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 Mr. Johnson (the “TJ Second Note”) in exchange
for the unpaid balance owed under the TJ First Note which was cancelled (see
Note 10).  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 10).  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 16, 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.  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
$1,510,489.41 convertible note due June 30, 2010 plus accrued interest at Eight
Percent (8%) per annum (the “TJ Fourth Note”) (see Note 10).  The
terms and conditions of the TJ Fourth Note are materially the same as the TJ
Third Note, except that in the new note the amount due and owing pursuant to
such note may be converted in whole or any portion thereof, into restricted
shares of the Company’s Common Stock.  At the election of the holder,
the amount due and owing pursuant to such note, or any portion thereof, 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 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”) (see Note
10).  The note is due October 16, 2009 and accrues interest monthly at
Eight Percent (8%) per annum.  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.  Additionally, on December 29, 2009, the
Huynh Note was further amended to extend the due date six months to June 30,
2010 with no other change to the terms of the notes.  On January 14,
2010, the Company closed an offering of convertible debentures (see Note 10)
which at the option of the holder converts into restricted shares of the
Company’s Common Stock at $0.30 per share (the “December
Debentures”).  Accordingly, the Adjusted Conversion Price of the Huynh
Loan is reduced to $0.33 per share (December Debentures conversion price of
$0.30 times 110%).  The beneficial conversion feature was calculated
to be $40,732 on January 14, 2010 in accordance with Codification topic 470-20;
the Company recorded this amount as debt discount with a corresponding credit to
additional paid in capital.  As of January 31, 2010 the unamortized
debt discount was $37,029.


38


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





14.
            Related
      party transactions (continued)





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 shares) for 5% shareholders and ten years (652,173 shares) for all
others from the date of grant for and an aggregate of 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 $3,022,905 for the nine months ended January 31, 2010 in
accordance with Codification topic 718 (see Note 15).





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
11).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum (the “Thomas First Loan”).  Proceeds were used to fund general
operations.  On December 3, 2009, the Thomas First Loan was amended to
extend the December 12, 2009 due date to February 28, 2010 with no other change
to the terms.  Additionally, on February 25, 2010, the Thomas First
Loan was further amended to extend the due date to May 31, 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 11).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum (the “Hue Revolver”).  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, $30,000, $15,000, and $5,000
from Ms. Johnson under the Hue Revolver on November 16, November 17, December 2,
2009, January 8, and January 28, 2010, respectively.  On January 21,
2010, the Hue Revolver was amended to extend the January 29, 2010 due date to
April 30, 2010 with no other change to the terms.





On
November 30, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$30,000; the promissory note is due February 28, 2010.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Thomas Second
Loan”).  Proceeds were used to fund general
operations.  Additionally, on February 25, 2010, the Thomas Second
Loan was further amended to extend the due date to May 31, 2010 with no other
change to the terms.





On
December 11, 2009, the Company executed a note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$25,000; the promissory note is due March 11, 2010.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “Thomas Third
Loan”).  Proceeds were used to fund general operations.  On
March 10, 2010, the Company repaid in full ($25,615.35) the Thomas Third
Loan.





On March
12, 2010, the Company converted an aggregate of $668,666.93 of unpaid salaries
and accrued interest owed to its three officers into convertible debentures due
in three years being offered by the Company, which offering closed on March 12,
2010 (see Note 18).  The $668,666.93 aggregate (Thomas Johnson
$329,510.48, Lee Johnson $329,510.48, and Louis P. Huynh $9,645.97) is
approximately 87% of the January 31, 2010 accrued liability.  The
convertible debentures have a three year term and are due March 12,
2013.  Interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debenture convert, in whole or in part, at the option
of the noteholder (the “March Investor”) into restricted shares of the Company’s
Common Stock at $0.20 per share; representing a beneficial conversion
feature.  In addition, the March Investor received a detachable
warrant for restricted shares of the Company’s Common Stock; the number of
warrant shares is equal to 100% of the number of shares issuable pursuant to
conversion of the debenture (aggregate 3,343,336 shares).  The
detachable warrants have an exercise price of $0.30 per share, a term of three
years from the date of issuance, and vest upon the conversion of the debenture
with a partial debenture conversion vesting a proportional number of warrant
shares.


39


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15.
            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 14) 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 January 31, 2010, 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
nine months ended January 31, 2010 and the year ended April 30, 2009,
respectively.  As of January 31, 2010, 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.





In
connection with the February Financing (see Note 10), 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 January 31, 2010.  As of
January 31, 2010, 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
January 31, 2010.  As of January 31, 2010, 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 9 and
10).


40





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15. 
Warrants, options and stock based compensation (continued)





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 January 31, 2010.  As of January 31,
2010, 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
January 31, 2010, 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 nine months
ended January 31, 2010.  Amortization for the years ending April 30,
2010 will be $14,984.





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 January 31, 2010, 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 January 31, 2010.  As of January 31, 2010,
no warrants were exercised.


41





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15. 
Warrants, options and stock based compensation (continued)





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 January 31, 2010,
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; $11,944 was expensed during the nine
months ended January 31, 2010.  Amortization for the year ending April
30, 2010 will be $13,271.





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 10) 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 11) 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).


42




Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010


15. 
Warrants, options and stock based compensation (continued)





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.





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.





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.





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.





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
(“ISO”) (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 14).  As
of January 31, 2010, 4,141,500 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; $3,258,790 was expensed during the nine
months ended January 31, 2010.  Amortization for the years ending
April 30, 2010, 2011, and 2012 will be $3,909,164, $1,156,220, and $144,527,
respectively.  As of January 31, 2010, 36,000 options have been
terminated as a consequence of an employee termination.  Prior to
termination of the option agreement, $6,924 was expensed in the nine months
ended January 31, 2010.


43







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15. 
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 warrant was
expensed in the month of grant; there is no unamortized balance at January 31,
2010.  As of January 31, 2010, 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.





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.





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.





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.





On
December 1, 2009, 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 $57,119 with a two year
term and an exercise price of $1.00 per share.  The value of the
warrants is expensed over the six month agreement term; $19,040 was expensed
during the nine months ended January 31, 2010.  Amortization for the
year ending April 30, 2010 will be $47,599.  As of January 31, 2010,
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 198.7%; risk-free interest rate of 0.67%; contractual life of two
years; and a closing market price of $0.38.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 236 week period (from Pink Sheet inception).





In
connection with the December Debentures (see Note 10), the Company issued
detachable warrants to the investors exercisable into an aggregate 100,001
restricted shares of the Company’s Common Stock at a per share price of $0.80,
with an estimated fair value of $26,669.  The warrants have a term of
two years from the date of issuance and vests upon the conversion of the
debenture with a partial debenture conversion vesting a proportional number of
warrant shares.  The combined fair value of the warrants and the
associated beneficial conversation feature of the December Debentures are
limited to the proceeds of the debt; $12,973 was allocated to the
warrants.  These warrants have been recorded as a discount against the
December Debentures and will be amortized to interest expense over the six month
term of the debt or upon the earlier conversion of the debt; the unamortized
balance at January 31, 2010 is $10,811.  As of January 31, 2010, no
warrants were exercised.





The fair
value of these options was estimated at December 30, 2009 using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 197.1%; risk-free interest rate of 1.08%; contractual life of two
years; and a closing market price of $0.35; respectively.  Expected
volatility is calculated based on the historic Friday stock market closing price
of the preceding 240 week period (from Pink Sheet inception).


44





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15. 
Warrants, options and stock based compensation (continued)





A summary
of the Company’s stock options as of January 31, 2010 and April 30, 2009 and
changes during the periods is as follows:





Period endedJanuary 31, 2010
                            
                            
                            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
                            
                            
                            36,000
                            
                            
                            $
                            0.420
                            
                            
                            
                            
                            
                            
                            300,000
                            
                            
                            $
                            1.800Outstanding
      at the end of the period
                            
                            
                            20,359,500
                            
                            
                            $
                            0.492
                            
                            
                            $
                            0.789
                            
                            
                            
                            7,935,000
                            
                            
                            $
                            0.547
                            
                            
                            $
                            2.025Vested
      at the end of the period
                            
                            
                            12,051,500
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            7,843,334Exercisable
      at the end of period
                            
                            
                            12,051,500
                            
                            
                            
                            
                            
                            
                            $
                            1.334
                            
                            
                            
                            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 January 31, 2010:





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
                                        
                                        
                                        12,424,500
                                        
                                        
                                        
                                        9.4
                                        
                                        
                                        $
                                        0.457
                                        
                                        
                                        
                                        4,141,500
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        0.457$
                                        0.500
                                        
                                        
                                        7,650,000
                                        
                                        
                                        
                                        7.4
                                        
                                        
                                        $
                                        0.500
                                        
                                        
                                        
                                        7,650,000
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        0.500$
                                        1.80
      to 2.00
                                        
                                        
                                        285,000
                                        
                                        
                                        
                                        8.4
                                        
                                        
                                        $
                                        1.807
                                        
                                        
                                        
                                        260,000
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1.80820,359,500
                                        
                                        
                                        
                                        8.7
                                        
                                        
                                        $
                                        0.492
                                        
                                        
                                        
                                        12,051,500
                                        
                                        
                                        
                                        8.7
                                        
                                        
                                        $
                                        0.514


45








Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





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





The
following table summarizes information regarding the 2009 Stock Option Plan,
adopted July 6, 2009, at January 31, 2010:





January 31,2010Balance,
      beginning of the period
                            
                            
                            -Shares authorized for
      grant
                            
                            
                            25,000,000Shares granted
                            
                            
                            12,460,500Shares
    cancelled
                            
                            
                            36,000Balance,
      end of the period
                            
                            
                            12,575,500





A summary
of the Company’s warrants as of January 31, 2010 and April 30, 2009 and changes
during the periods is as follows:





Period endedJanuary 31, 2010
                                
                                
                                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
                                
                                
                                1,208,729
                                
                                
                                $
                                1.060
                                
                                
                                
                                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
                                
                                
                                2,734,301
                                
                                
                                $
                                1.262
                                
                                
                                
                                6,635,822
                                
                                
                                $
                                1.864Vest
      and exercisable at the end of period
                                
                                
                                2,
      734,301
                                
                                
                                
                                
                                
                                
                                
                                6,
      635,822Weighted
      average fair value per share of warrants granted during the
      period
                                
                                
                                
                                
                                
                                $
                                0.309
                                
                                
                                
                                
                                
                                
                                $
                                0.198


46





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





15. 
Warrants, options and stock based compensation (continued)





The
following table summarizes information regarding stock purchase warrants
outstanding at January 31, 2010:





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
                                    
                                    
                                    
                                    2.0
                                    
                                    
                                    $
                                    0.001
                                    
                                    
                                    
                                    176,250
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.001$
                                    0.800
                                    
                                    
                                    100,001
                                    
                                    
                                    
                                    1.9
                                    
                                    
                                    $
                                    0.800
                                    
                                    
                                    
                                    100,001
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.800$
                                    1.000
                                    
                                    
                                    1,284,088
                                    
                                    
                                    
                                    1.3
                                    
                                    
                                    $
                                    1.000
                                    
                                    
                                    
                                    1,284,0880
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1.000$
                                    1.500
                                    
                                    
                                    523,994
                                    
                                    
                                    
                                    1.0
                                    
                                    
                                    $
                                    1.500
                                    
                                    
                                    
                                    523,994
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1.500$
                                    2.000
                                    
                                    
                                    649,968
                                    
                                    
                                    
                                    1.6
                                    
                                    
                                    $
                                    2.000
                                    
                                    
                                    
                                    649,968
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    2.0002,
      984,301
                                    
                                    
                                    
                                    1.1
                                    
                                    
                                    $
                                    1.157
                                    
                                    
                                    
                                    2,
      984,301
                                    
                                    
                                    
                                    1.1
                                    
                                    
                                    $
                                    1.157





16. 
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 10 and 11) 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


·
            MMDC
      solutions; 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.


47





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





17. 
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
11) 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.





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 transactions.





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.


48


Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





17. 
Stock issuances (continued)





On
November 17, 2009, pursuant to the request of Thomas Johnson, the Company’s
Chief Executive Officer and Chairman of the Board of Directors, and Lee Johnson,
the Company’s President, Chief Technology Officer, and Chief Financial Officer,
to each convert 50% of the outstanding balance under their individual
convertible note (see Note 10) the Company issued an aggregate of 10,069,930
restricted shares of the Company’s Common Stock to Thomas Johnson (5,034,965)
and Lee Johnson (5,034,965), each an accredited investor.





On
December 1, 2009, pursuant to the terms of a consulting agreement dated December
1, 2009, the Company issued to Tomasovich Development Company, a California
corporation, an accredited investor, 22,000 restricted shares of the Company’s
Common Stock for business development, operations and strategic planning
services during the following six months valued at the market closing price and
recorded as $8,360 in consulting expenses.





On
December 16, 2009, the Company issued to Louis Huynh, an officer, eight US based
employees and three VN based employees, each a sophisticated purchaser, for
yearend bonuses 7,500 and an aggregate of 24,500 and 12,500 restricted shares of
the Company’s Common Stock valued at the market close and recorded as $2,625,
$8,575 and $4,375 in bonuses, respectively.





18. 
Subsequent events





On
February 10, 2010, $10,000 was repaid to Ms. Ngoc Anh Ung paying the balance
owed on the Ung Second Loan which was due February 18, 2010 (see Note
11).





On
February 12, 2010, the Company converted an aggregate of $221,333.07 of term
debt held by 4 individuals (Term Notes 20, 21, 22, and 23) (see Note 11) and
$85,000 of the Hi-Tek Revolver (see Note 12) into convertible debentures, being
offered by the Company, which offering closed on March 12, 2010, with a three
year term; interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debentures convert, in whole or in part, at the option
of the noteholder into restricted shares of the Company’s Common Stock at $0.20
per share; representing a beneficial conversion feature.  In addition,
the investor received a detachable warrant for restricted shares of the
Company’s Common Stock; the number of warrant shares is equal to 100% of the
number of shares issuable pursuant to conversion of the debenture, for an
aggregate of 1,531,666 shares.  The detachable warrants have an
exercise price of $0.30 per share, a term of three years from the date of
issuance, and vest upon the conversion of the debenture with a partial debenture
conversion vesting a proportional number of warrant shares.  The
combined fair value of the beneficial conversion feature and detachable warrant,
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 warrant as $160,398 and $145,935, respectively.  The
beneficial conversion feature and detachable warrant will be recorded as debt
discount with a corresponding credit to additional paid in capital and are
amortized over the life of the convertible debentures (three
years).





On
February 12, 2010, the Company executed a $9,000 promissory note to Ms. Ngoc Anh
Ung due March 12, 2010.  Interest accrues monthly at a rate of Ten
Percent (10%) per annum (the “Ung Third Loan”) (see Note
11).  Proceeds were used to fund general operations.  On
March 3, 2010 the $9,000 was repaid to Ms. Ung.  Also on February 12,
2010, the Ung First Loan was amended to extend the March 18, 2010 due date to
June 18, 2010 with no other change to the terms (see Note 11).





On
February 25, 2010, the $18,000 promissory note due Thomas Johnson (Term Note 17)
and the $30,000 promissory note due Thomas Johnson (Term Note 24) were amended
to extend the February 28, 2010 due dates to May 31, 2010 with no other change
to the terms (see Note 11).





49





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of January 31, 2010





18. 
Subsequent events (continued)





On
February 26, 2010, the Company converted an aggregate of $500,000 of term debt
held by IDCG (Term Notes 9, 10, 11, and 14 in their entirety and a portion of
Term Note 2) (see Note 11) into a convertible debenture, being offered by the
Company, which offering closed on March 12, 2010, with a three year term;
interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debenture converts, in whole or in part, at the option
of the noteholder into restricted shares of the Company’s Common Stock at $0.20
per share; representing a beneficial conversion feature.  In addition,
the investor received a detachable warrant for restricted shares of the
Company’s Common Stock; the number of warrant shares is equal to 100% of the
number of shares issuable pursuant to conversion of the debenture (2,500,000
shares).  The detachable warrant has an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$262,016 and $237,984, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).





On March
10, 2010, $25,615 was repaid to Thomas Johnson, paying in full with interest the
balance owed under the Thomas Third Loan which was due that day.





On March
12, 2010, the Company accepted ten cash subscriptions for convertible debentures
aggregating $525,000, with a three year term; interest accrues at Ten Percent
(10%) per annum and is paid quarterly.  The debenture convert, in
whole or in part, at the option of the noteholder (the “March Investors”) into
restricted shares of the Company’s Common Stock at $0.20 per share; representing
a beneficial conversion feature.  In addition, the March Investors
received detachable warrants for restricted shares of the Company’s Common
Stock; the number of warrant shares is equal to 100% of the number of shares
issuable pursuant to conversion of the debenture, for an aggregate of 2,625,000
shares.  The detachable warrants have an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$275,506 and $249,494, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).  The Company paid a
finder a finder’s fee equal to Ten Percent (10%) of $380,000, which is comprised
of six subscriptions, and apart from the payment of a finder’s fee; no
commissions were incurred by the Company in connection with the
transactions.





Also on
March 12, 2010, the Company converted an aggregate of $668,666.93 of unpaid
salaries and accrued interest owed to its three officers into convertible
debentures due in three years and closed the convertible
offering.  The $668,666.93 aggregate (Thomas Johnson $329,510.48, Lee
Johnson $329,510.48, and Louis P. Huynh $9,645.97) is approximately 87% of the
January 31, 2010 accrued liability.  The convertible debentures have a
three year term and are due March 12, 2013.  Interest accrues at Ten
Percent (10%) per annum and is paid quarterly.  The debenture convert,
in whole or in part, at the option of the noteholder (the “March Investor”) into
restricted shares of the Company’s Common Stock at $0.20 per share; representing
a beneficial conversion feature.  In addition, the March Investor
received a detachable warrant for restricted shares of the Company’s Common
Stock; the number of warrant shares is equal to 100% of the number of shares
issuable pursuant to conversion of the debenture (aggregate 3,343,336
shares).  The detachable warrants have an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$350,897 and $317,770, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).


50


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 micro modular data center (“MMDC”) solutions;
      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.


51





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 MMDC 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


·
            MMDC
      solutions; 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:


52


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 January 31, 2010 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.





Inventories





Inventories
are stated at the lower of cost using the first-in first-out method or
market.


53


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.





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.


54





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.





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 January 31, 2010 net fixed
assets to be recovered in the future are $790,169.





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 significant 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.


55





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 202% and 199% during the nine months ended January 31, 2010
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.





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.


56





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.





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 20,359,500 shares of common
stock and 2,984,301 warrants potentially issuable at January 31, 2010 which were
not included in the computation of net loss per share.


57





RESULTS
OF OPERATIONS





Three
months ended January 31, 2010 compared to three months ended January 31,
2009.





REVENUES





Revenues
of $225,311 for the three months ended January 31, 2010 (the “Current Quarter”)
increased 18.0% or $34,326 as compared to $190,985 for the three months ended
January 31, 2009 (the “Prior Quarter”).  During the Current Quarter
revenue from domain name registration activity was $200,832, an increase of
$25,075 or 14.3% compared to $175,757 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 31.1% over
the Prior Quarter.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) increased $2,906 of 7.6% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
increased $22,169 or 16.1%; the Domestic Network registration rates are lower
than the International Network due to competitive pressures within Vietnam
resulting in the 14.3% increase 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 $19,868 for the
Current Quarter increased $4,640 or 30.5% as compared to $15,228 for the Prior
Quarter.  The increase in commission revenue results from increased
domain name registration activity from all sources and favorable contract
renewal terms effective January 2, 2009.  Total domain names under
management during the Current Quarter decreased 189 to 11,410 at January 31,
2010 compared to a Prior Quarter increase of 139 to 10,349 total domain names
under management at January 31, 2009.





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 $3,430.  In addition, the
Company intends to offer domain parking services whereby a domain name that
does not have a developed web site can receive advertising content with
pay-per-click links (a “Parking Page”).  During the Current Quarter
Parking Page revenue was $1,181.





COST OF
REVENUES





For the
three months ended January 31, 2010, cost of revenues increased 19.8% to $95,944
compared to $80,108 for the three months ended January 31, 2009, an increase of
$15,836.  Gross profit was $129,367 or 57.4% (as a percentage of
revenues) for the three months ended January 31, 2010 compared to $110,877 or
58.1% for the three months ended January 31, 2009.  The nominal
decrease in gross profit (0.7%) is not statistically significant.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
three months ended January 31, 2010, general and administrative expenses, which
includes consulting and professional fees, marketing and promotion, option
bonus, bad debt expense, and other general and administrative, were $1,306,832
compared to $583,480 for the three months ended January 31, 2009, an increase of
$723,352 or 124%.  The increase in total general and administrative
expenses was primarily attributable to the following offsetting
factors:





·
            Option
      Bonus expenses increased to $654,354 for the three months ended January
      31, 2010, from $39,127 for the three months ended January 31, 2009, an
      increase of $615,227 or 1572%.  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
            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 $24,350 during
      the Prior Quarter, for a decrease of $24,350 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 $14,777 during the Prior Quarter, for a decrease
      of $10,796 in the Current
Quarter.


58





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 $650,373 was expensed compared to zero during the Prior Quarter,
      for an increase of $650,373 in the Current
  Quarter.





·
            Consulting
      and professional fees increased to $81,189 for the three months ended
      January 31, 2010, from $48,888 for the three months ended January 31,
      2009, an increase of $32,301 or 66.1%.  The increased expense is
      primarily attributable to the following offsetting
  factors;


o
            Consulting
      fees decreased $22,156 or 64.4% to $12,269 in the Current Quarter from
      $34,425 in the Prior Quarter as out-sourced services were
      reduced.


o
            The
      amortization expense of the fair value of stock warrants issued for
      business development, operations and strategic planning services in the
      Current Quarter increased to $57,119 compared to the Prior Quarter expense
      of zero.





·
            Bad
      debt expense increased to $2,450 for the three months ended January 31,
      2010 from $329 for the three months ended January 31, 2009, an increase of
      $2,121 or 645%.  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 $556,839 for the three
      months ended January 31, 2010 from $482,779 for the three months ended
      January 31, 2009, an increase of $74,060 or 15.3%.  The
      increased expense is the net result the following significant
      items:





o
            Employee
      wages and payroll taxes increased to $326,766 for the Current Quarter from
      $319,561 for the Prior Quarter, an increase of $7,205 or
    2.3%.


o
            Travel
      and related expenses increased to $32,506 for the Current Quarter from
      $15,200 for the Prior Quarter, an increase of $17,306 or
      114%.  The Current Quarter increase included additional costs
      for a second trip to Vietnam for two officers of the Company and lodging
      and associated costs incurred to host two VNNIC administrators at the
      Company’s headquarters for planning and business development meetings
      during a two weeks period.


o
            Employee
      wages and other fees paid with shares of the Company’s restricted common
      stock increased to $35,185 for the Current Quarter from $27,050 for the
      Prior Quarter, an increase of $8,135 or
30.1%.


o
            IRRA
      liquidated damages associated with the February Debentures decreased to
      zero for the Current Quarter from $2,117 for the Prior Quarter, a decrease
      of $2,117.


o
            Investor
      relations and press release expense increased to $16,590 for the Current
      Quarter from $1,945 for the Prior Quarter, an increase of $14,645 or
      753%.  The Current Quarter includes costs for professional
      assistance with investor relations, public relations and corporate
      presentations.


o
            Franchise
      tax expense increased to $5,686 for the Current Quarter from $2,001 for
      the Prior Quarter, an increase of $3,685 or 184%.  The increase
      relates to both increased domestic rates (Delaware) and Vietnamese fees
      which currently are based on a portion of gross
  revenue.


o
            Rent
      expense increased to $34,965 for the Current Quarter from $26,003 for the
      Prior Quarter, an increase of $8,962 or 34.5%.  The principal
      increase is $9,000 for new office space in Hanoi effective September 1,
      2009.


o
            Minor
      furniture and equipment expense increased to $17,816 for the Current
      Quarter from $250 for the Prior Quarter, an increase of $17,566 or
      7026%.  The principal increase is associated with the new Hanoi
      office space.


o
            All
      other general and administrative expenses decreased to $87,325 for the
      Current Quarter from $88,652 for the Prior Quarter, a decrease of $1,327
      or 1.5%; is not attributed to any significant
  items.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $1,177,465 for the three months ended January
31, 2010 as compared to a loss from operations of $472,603 for the three months
ended January 31, 2009, an increase of $704,862 or 149%.  The increase
is primarily attributed to increased option bonus expense ($615,227), consulting
and professional fees ($32,301) and other general and administrative expenses
($74,060) offset by improved gross profit ($18,490).





OTHER
INCOME AND EXPENSES





Total
other income and expense decreased to a net expense of $250,764 for three months
ended January 31, 2010 as compared to a net expense of $446,267 for the three
months ended January 31, 2009.  Included in this net expense decrease
of $195,503 or 43.8% are:


59





·
            Interest
      income was $273 for the three months ended January 31, 2010 as compared to
      interest income of $262 for the three months ended January 31, 2009; the
      increase of $11 or 4.2% is not
significant.





·
            The
      finance expense was $3,480 for the three months ended January 31, 2010 as
      compared to finance expense of $120,058 for the three months ended January
      31, 2009, a decrease of $116,578 or 97.1%.  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
            Warrants
      for an aggregate of 100,001 shares exercisable at a per share price of
      $0.80, with an estimated fair value of $12,973, as allocated, were issued
      to the December Investors which are amortized over the six month term of
      the convertible debt or upon conversion.  During the three
      months ended January 31, 2010, the Company expensed $2,162 compared to
      zero expensed in the Prior Quarter.


o
            Pursuant
      to the Company’s engagement of a placement agent in the December
      Debentures, the Company paid a cash fee equal to Ten Percent
      (10%)  of the proceeds from the December Debentures ($3,000)
      which was recorded as a deferred debt issuance cost (other noncurrent
      assets).  The fees are amortized over the six month term of the
      December Debentures with $500 amortized in the Current Quarter and zero
      amortized in the Prior Quarter.


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 January 31, 2010 was $818 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.


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 January 31, 2010, the
      Company expensed zero compared to $27,231 expensed in the Prior
      Quarter.





·
            Interest
      expense decreased to $230,920 for the three months ended January 31, 2010
      from $317,865 for the three months ended January 31, 2009, a decrease of
      $86,945 or 27.4%.  The decreased expense is the net result the
      following significant items:


o
            accretion
      of the debt discount associated with the December Debentures and February
      Financing decreased to $2,838 for the Current Quarter from $93,019 for the
      Prior Quarter, a decrease of $90,181 or 96.9%; the accretion of debt
      discount results from:


§
            The
      Company issued a series of convertible debentures (the December
      Debentures) in the aggregate amount of $30,000 which are convertible into
      100,001 shares of the Company’s restricted Common Stock at a per share
      price of $0.30 which represented a beneficial conversion feature with an
      estimated fair value at inception of $17,027, as allocated, which was
      recorded as a discount against the convertible debentures and is expensed
      over the six month term of the debt or upon conversion.  For the
      three months ended January 31, 2010 the Company expensed $2,838 for the
      beneficial conversion feature as compared to zero for the three months
      ended January 31, 2009.


60


§
            In
      connection with the January 14, 2010, closed an offering of convertible
      debentures (noted above) the conversion price of three previous
      convertible notes was reduced; additional debt discount for the revised
      beneficial conversion feature was calculated to be $93,208.  For
      the three months ended January 31, 2010 the Company expensed $8,473 for
      the beneficial conversion feature as compared to zero for the three months
      ended January 31, 2009.


§
            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
      January 31, 2010 the Company had no expensed for the beneficial conversion
      feature as compared to $93,019 for the three months ended January 31,
      2009.


o
            interest
      expense on unpaid accrued wages decreased to $16,796 for the Current
      Quarter from $27,198 for the Prior Quarter, a decrease of $10,402 or
      38.2%.  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 decreased to $89,361 for the Current Quarter
      from $102,561 for the Prior Quarter, a decrease of $13,200 or 12.9% is
      primarily attributable to the November 17, 2009, 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 offset in part by 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 $96,315 for the Current Quarter from $84,118 for
      the Prior Quarter, an increase of $12,197 or 14.4% is primarily
      attributable to net additional borrowings outstanding at January 31, 2010
      ($3,893,254) compared to January 31, 2009
  ($3,081,571).





·
            Foreign
      exchange gain (loss) increased to a loss of $16,637 for the three months
      ended January 31, 2010 from a loss of $8,606 for the three months ended
      January 31, 2009, a loss of $8,031 from unfavorable changes in the U.S.
      dollar to Vietnamese dong exchange
rates.





OVERALL





We
reported a net loss for the three months ended January 31, 2010 of $1,428,229
compared to a net loss for the three months ended January 31, 2009 of
$918,870.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.04 for the three months ended January 31,
2010 and $0.03 for the three months ended January 31, 2009 based on 37,588,367
and 27,358,671 weighted average common shares outstanding,
respectively.





Nine
months ended January 31, 2010 compared to nine months ended January 31,
2009.





REVENUES





Revenues
of $878,651 for the nine months ended January 31, 2010 (the “Current Period”)
increased 10.5% or $83,315 as compared to $795,336 for the nine months ended
January 31, 2009 (the “Prior Period”).  During the Current Period
revenue from domain name registration activity was $776,210, an increase of
$47,338 or 6.5% compared to $728,872 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 14.3% over
the Prior Period.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) increased $20,201 of 19.7% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
increase $27,137 or 4.3%; the Domestic Network registration rates are lower than
the International Network due to competitive pressures within Vietnam resulting
in a the net 6.5% increase 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 $82,696 for the
Current Period increased $16,232 or 24.4% as compared to $66,464 for the Prior
Period.  The increase in commission revenue results from increased
domain name registration activity from all sources and favorable contract
renewal terms effective January 2, 2009.  Total domain names under
management during the Current Period increased 665 to 11,410 at January 31, 2010
compared to a Prior Quarter increase of 1,217 to 10,349 total domain names under
management at January 31, 2009.


61


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 $17,916.  In addition, the
Company intends to offer domain parking services whereby a domain name that does
not have a developed web site can receive advertising content with pay-per-click
links (a “Parking Page”).  During the Current Period Parking Page
revenue was $1,830.





COST OF
REVENUES





For the
nine months ended January 31, 2010, cost of revenues increased 5.5% to $353,802
compared to $335,489 for the nine months ended January 31, 2009, an increase of
$18,313.  Gross profit was $524,849 or 59.7% (as a percentage of
revenues) for the nine months ended January 31, 2010 compared to $459,847 or
57.8% for the nine months ended January 31, 2009.  The increase in
gross profit (1.9%) was principally due to an increase in renewal (15.7%) and
registration change (30.0%) activity which yields a higher gross margin
rate.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
nine months ended January 31, 2010, general and administrative expenses, which
includes consulting and professional fees, marketing and promotion, option
bonus, bad debt expense, and other general and administrative, were $5,139,409
compared to $3,456,517 for the nine months ended January 31, 2009, an increase
of $1,682,892 or 48.7%.  The increase in total general and
administrative expenses was primarily attributable to the following offsetting
factors:





·
            Option
      Bonus expenses increased to $3,285,718 for the nine months ended January
      31, 2010, from $1,571,456 for the nine months ended January 31, 2009, an
      increase of $1,714,262 or 109%.  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 nine 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 $135,601 during
      the Prior Period, for a decrease of $120,616 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 $11,943
      was expensed compared to zero during the Prior Period, for an increase of
      $11,943 in the Current Period.


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 $3,258,790 was expensed compared to zero during the Prior Period,
      for an increase of $3,258,790 in the Current
  Period.





·
            Consulting
      and professional fees decreased to $172,089 for the nine months ended
      January 31, 2010, from $231,852 for the nine months ended January 31,
      2009, a decrease of $59,763 or 25.8%.  The decreased expense is
      primarily attributable to the following offsetting
  factors:


o
            Consulting
      fees decreased $36,492 or 46.1% to $42,613 in the Current Period from
      $79,105 in the Prior Period as out-sourced services were
      reduced.


o
            Amortization
      expense of the fair value of stock warrants issued for investor relation
      services decreased $88,050 from $91,771 for the Prior Period compared to
      the Current Period expense of
$3,721.


o
            Amortization
      expense of the fair value of stock warrants issued for business
      development, operations and strategic planning services in the Current
      Period increased to $57,119 compared to the Prior Period expense of
      zero.


62





·
            Bad
      debt expense decreased to $10,650 for the nine months ended January 31,
      2010 from $27,514 for the nine months ended January 31, 2009, a decrease
      of $16,864 or 61.3%.  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 $1,634,812 for the nine
      months ended January 31, 2010 from $1,589,338 for the nine months ended
      January 31, 2009, an increase of $45,474 or 2.9%.  The increased
      expense is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes materially increased to $990,710 for the Current
      Period from $977,052 for the Prior Period, an increase of $13,658 or
      1.4%.


o
            Travel
      and related expenses increased to $115,946 for the Current Period from
      $60,897 for the Prior Period, an increase of $55,049 or
      90.4%.  The Current Period increase includes costs associated
      with increased travel to and within Vietnam, lodging and associated costs
      incurred to host two VNNIC administrators at the Company’s headquarters
      for planning and business development meetings during a two weeks period
      and a New York trip to present at the Rodman & Renshaw investment
      conference.


o
            New
      product testing decreased to $1,567 for the Current Period from $25,185
      for the Prior Period (virtual fiber system), a decrease of $23,618 or
      93.8%.


o
            Employee
      wages and other fees paid with shares of the Company’s restricted common
      stock decreased to $56,185 for the Current Period from $73,729 for the
      Prior Period, a decrease of $17,544 or
23.8%.


o
            IRRA
      liquidated damages associated with the February Debentures decreased to
      zero for the Current Period from $48,049 for the Prior Period, a decrease
      of $48,049`.


o
            Investor
      relations and press release expense increased to $79,950 for the Current
      Period from $43,205 for the Prior Period, an increase of $36,745 or
      85.0%.  The Current Period includes costs for professional
      assistance with investor relations, public relations and corporate
      presentations.


o
            Repair
      and maintenance expense decreased to $1,039 for the Current Period from
      $10,717 for the Prior Period, a decrease of $9,678 or
    90.3%.


o
            All
      other general and administrative expenses decreased to $257,607 for the
      Current Period from $272,107 for the Prior Period, a decrease of $14,500
      or 5.3%.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $4,614,560 for the nine months ended January
31, 2010 as compared to a loss from operations of $2,996,670 for the nine months
ended January 31, 2009, an increase of $1,617,890 or 54.0%.  The
increase is primarily attributed to increased option bonus expense ($1,714,262)
and other general and administrative expenses ($45,474) offset by improved gross
profit ($65,002) and decreased consulting and professional fees ($59,763) and
bad debt expense ($16,864).





OTHER
INCOME AND EXPENSES





Total
other income and expense decreased to a net expense of $758,222 for nine months
ended January 31, 2010 as compared to a net expense of $1,843,700 for the nine
months ended January 31, 2009.  Included in this net expense decrease
of $1,085,478 or 58.9% are:





·
            Interest
      income was $702 for the nine months ended January 31, 2010 as compared to
      interest income of $2,644 for the nine months ended January 31, 2009; the
      decrease of $1,942 or 73.4% was attributable to a decrease in average cash
      balances.


63





·
            The
      finance expense was $5,234 for the nine months ended January 31, 2010 as
      compared to finance expense of $414,157 for the nine months ended January
      31, 2009, a decrease of $408,923 or 98.7%.  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
            Warrants
      for an aggregate of 100,001 shares exercisable at a per share price of
      $0.80, with an estimated fair value of $12,973, as allocated, were issued
      to the December Investors which are amortized over the six month term of
      the convertible debt or upon conversion.  During the three
      months ended January 31, 2010, the Company expensed $2,162 compared to
      zero expensed in the Prior Quarter.


o
            Pursuant
      to the Company’s engagement of a placement agent in the December
      Debentures, the Company paid a cash fee equal to Ten Percent
      (10%)  of the proceeds from the December Debentures ($3,000)
      which was recorded as a deferred debt issuance cost (other noncurrent
      assets).  The fees are amortized over the six month term of the
      December Debentures with $500 amortized in the Current Quarter and zero
      amortized in the Prior Quarter.


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 nine months
      ended January 31, 2010 was $2,572 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 $43,058 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 $274,252 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 nine months ended January 31, 2010, the
      Company expensed zero compared to $96,847 expensed in the Prior
      Period.





·
            Interest
      expense decreased to $727,683 for the nine months ended January 31, 2010
      from $1,423,641 for the nine months ended January 31, 2009, a decrease of
      $695,958 or 48.9%.  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 $2,838 for the Current Period from $781,712
      for the Prior Period, a decrease of $778,874 or 99.6%; the accretion of
      debt discount results from:


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $30,000 which are convertible into 100,001 shares of the Company’s
      restricted Common Stock at a per share price of $0.30 which represented a
      beneficial conversion feature with an estimated fair value at inception of
      $17,027, as allocated, which was recorded as a discount against the
      convertible debentures and is expensed over the six month term of the debt
      or upon conversion.  For the three months ended January 31, 2010
      the Company expensed $2,838 for the beneficial conversion feature as
      compared to zero for the three months ended January 31,
    2009.


§
            In
      connection with the January 14, 2010, closed an offering of convertible
      debentures (noted above) the conversion price of three previous
      convertible notes was reduced; additional debt discount for the revised
      beneficial conversion feature was calculated to be $93,208.  For
      the nine months ended January 31, 2010 the Company expensed $8,473 for the
      beneficial conversion feature as compared to zero for the nine months
      ended January 31, 2009.


64





§
            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 nine months ended January
      31, 2010 the Company had no expensed for the beneficial conversion feature
      as compared to $330,920 for the nine months ended January 31,
      2009.


§
            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 nine months ended January 31, 2010, the
      Company had no expense for a beneficial conversion feature as compared to
      $361,649 for the nine months ended January 31,
  2009.


§
            Other
      convertible notes issued by the Company with a beneficial conversion
      feature had no expense for the beneficial conversion feature during the
      nine months ended January 31, 2010 as compared to $89,143 for the nine
      months ended January 31, 2009.


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 January 31, 2010
      ($3,536,134) compared to January 31, 2009
  ($2,584,393).





·
            Foreign
      exchange gain (loss) increased to a loss of $17,657 for the nine months
      ended January 31, 2010 from a loss of $10,466 for the nine months ended
      January 31, 2009, a loss of $7,191 from unfavorable changes in the U.S.
      dollar to Vietnamese dong exchange
rates.





OVERALL





We
reported a net loss for the nine months ended January 31, 2010 of $5,372,782
compared to a net loss for the nine months ended January 31, 2009 of
$4,840,370.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.17 for the nine months ended January 31,
2010 and $0.18 for the nine months ended January 31, 2009 based on 32,072932 and
27,262,555 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 debentures and
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 and $147,460 and $68,650 were repaid during the nine months
ended January 31, 2010 or 2009, respectively.


65


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 nine months ended January 31, 2010 and 2009 cash
used in our operating activities was $710,350 and $928,811, and cash used in
investing activities was $12,723 and $19,199, respectively.  We funded
our operating activities and investing activities during the nine months ended
January 31, 2010 and 2009 with cash reserves in addition to the following net
resources:





January 31,
                                                                                            
                                                                                            
                                                                                            January 31,2010
                                                                                            
                                                                                            
                                                                                            2009Three
      month term loans, due February 13 and 18, 2010
                                                                                            
                                                                                            $
                                                                                            145,000
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -Six
      month debenture convertible at $0.30, due June 30, 2010, net of $3,000
      debt issuance costs
                                                                                            
                                                                                            
                                                                                            27,000
                                                                                            
                                                                                            
                                                                                            
                                                                                            -Funds
      advanced by Diep Tai under revolving credit agreement due November 19,
      2009, net of $15,000 repayment
                                                                                            
                                                                                            
                                                                                            70,000
                                                                                            
                                                                                            
                                                                                            
                                                                                            -Funds
      advanced by Hue Tran Johnson under revolving credit agreement due November
      19, 2009
                                                                                            
                                                                                            
                                                                                            75,000
                                                                                            
                                                                                            
                                                                                            
                                                                                            -Three
      short term loans from Thomas Johnson, due December 12, 2009, February 28,
      and March 10, 2010
                                                                                            
                                                                                            
                                                                                            73,000
                                                                                            
                                                                                            
                                                                                            
                                                                                            -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
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            100,000Twelve
      month term loan from IDCG SA de CV, due November 30, 2009
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            50,000Eleven
      month term loan from IDCG SA de CV, due November 30, 2009
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            100,000Ten
      month term loan from IDCG SA de CV, due November 30, 2009
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            100,000Principal
      and interest payments on Extended Debentures
                                                                                            
                                                                                            
                                                                                            (50,982
                                                                                            )
                                                                                            
                                                                                            
                                                                                            -Proceeds
      from stock issuances
                                                                                            
                                                                                            
                                                                                            377,003
                                                                                            
                                                                                            
                                                                                            
                                                                                            53Funds
      (repaid) to Hi-Tek Private under revolving credit arrangement, net of
      $15,000 and zero advances
                                                                                            
                                                                                            
                                                                                            (132,460
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (68,650
                                                                                            )Other
      short term borrowings
                                                                                            
                                                                                            
                                                                                            20,000
                                                                                            
                                                                                            
                                                                                            
                                                                                            -Total
                                                                                            
                                                                                            $
                                                                                            603,561
                                                                                            
                                                                                            
                                                                                            $
                                                                                            601,403





At
January 31, 2010, we had a cash balance of $41,641 compared to $144,842 at April
30, 2009, a decrease of $103,201.  At January 31, 2010, our working
capital deficit was $9,425,250 as compared to $11,246,046 at April 30, 2009, an
improvement of $1,820,796.  Our current assets, other than cash,
consist of $164,143 in accounts receivable, $179,250 in inventories, $7,000 in
fees on deposit for ‘.vn’ domain registrations,
$15,854 in other prepaid expenses, $28,221 in miscellaneous and VAT receivables,
and $3,750 in unearned stock based compensation.





Our
current liabilities consisted primarily of $2,373,757 due to Hi-Tek Private
under three credit arrangements, $1,610,017 due Thomas Johnson (our CEO) under
two notes, $1,535,448 due Lee Johnson (our President, CTO, and CFO), $81,532 due
Louis Huynh (our General Counsel, Executive Vice President of Operations and
Business Development, and Corporate Secretary) $137,281 for the current portion
due on the Extended Debentures, $694,960 due on the Defaulted Debentures,
$1,623,234 due IDCG SA de CV under seven term notes, $65,852 due
Business.com.VN, $172,567 due Diep Tai, $76,183 due Hue Tran Johnson (our
President’s wife) , $148,630 due on three term notes, $769,641 in accrued
officer salaries, $62,659 in liquidated damages to the February Investors,
$50,000 convertible debenture subscription liability and $375,210 in accounts
payable.


66


If we are
to implement our business plan, we will need to raise significant amounts of
additional capital during the period ending January 31, 2011.  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
February 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-09,
“Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”),
which is included in the FASB Accounting Standards CodificationTM ( the
“ASC”) Topic 855 (Subsequent Events).  ASU 2010-09 clarifies that an
SEC filer is required to evaluate subsequent events through the date that the
financial statements are issued.  ASU 2010-09 is effective upon the
issuance of the final update and did not have a significant impact on the
Company’s consolidated financial statements.





In
January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair
Value Measurements” (“ASU 2010-06”), which is included in the ASC Topic 820
(Fair Value Measurements and Disclosures).  ASU 2010-06 requires new
disclosures on the amount and reason for transfers in and out of Level 1 and 2
fair value measurements.  ASU 2010-06 also requires disclosure of
activities, including purchases, sales, issuances, and settlements within the
Level 3 fair value measurements and clarifies existing disclosure requirements
on levels of disaggregation and disclosures about inputs and valuation
techniques.  ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009.  The Company is currently
assessing the impact of adoption of ASU 2009-14 and does not currently plan to
early adopt.





In August
2009 the FASB issued Accounting Standards Update (“ASU”) No. 2009-05 “Amendments
to Certain Recognition and Disclosure Requirements”, (“ASU 2009-05”) which is
included in the ASC Topic 820 (Fair Value Measurements and
Disclosures).  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.  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.  ASU 2009-05 was effective for the Company as of October
31, 2009 and did not have a significant impact on the Company’s consolidated
financial statements.





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.


67


In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”).  SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  It
requires the disclosure of the date through which an entity has evaluated
subsequent events for potential recognition or disclosure in the financial
statements and whether that date represents the date the financial statements
were issued or were available to be issued.  This disclosure should
alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented.  SFAS 165 was in effect for the Company’s interim and
annual periods beginning with the interim three month period ended July 31,
2009.  The adoption of this standard did not have a significant impact
on the Company’s 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
      launch of our 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 micro modular data center (“MMDC”)
  solution.





The
implementation of this five-component plan that includes (i) the 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 MMDC solutions
will provide revenue-generating opportunities to the Company throughout the
development process, and leads to a complete operational demonstration of these
technology.





The plan
includes:





PHASE I:
CY Q2 2010 through CY Q3 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 implement 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.





PHASE II:
CY Q4 2010 through Q1 2011:  During this period the Company expects to
begin construction of the IDC located in Danang City and begin utilization 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 MMDC solutions.





PHASE
III: CY Q2 through Q3 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.


68


SUBSEQUENT
EVENTS





On
February 10, 2010, $10,000 was repaid to Ms. Ngoc Anh Ung paying the balance
owed on the Ung Second Loan which was due February 18, 2010 (see Note
11).





On
February 12, 2010, the Company converted an aggregate of $221,333.07 of term
debt held by 4 individuals (Term Notes 20, 21, 22, and 23) (see Note 11) and
$85,000 of the Hi-Tek Revolver (see Note 12) into convertible debentures, being
offered by the Company, which offering closed on March 12, 2010, with a three
year term; interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debentures convert, in whole or in part, at the option
of the noteholder into restricted shares of the Company’s Common Stock at $0.20
per share; representing a beneficial conversion feature.  In addition,
the investor received a detachable warrant for restricted shares of the
Company’s Common Stock; the number of warrant shares is equal to 100% of the
number of shares issuable pursuant to conversion of the debenture, for an
aggregate of 1,531,666 shares.  The detachable warrants have an
exercise price of $0.30 per share, a term of three years from the date of
issuance, and vest upon the conversion of the debenture with a partial debenture
conversion vesting a proportional number of warrant shares.  The
combined fair value of the beneficial conversion feature and detachable warrant,
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 warrant as $160,398 and $145,935, respectively.  The
beneficial conversion feature and detachable warrant will be recorded as debt
discount with a corresponding credit to additional paid in capital and are
amortized over the life of the convertible debentures (three
years).





On
February 12, 2010, the Company executed a $9,000 promissory note to Ms. Ngoc Anh
Ung due March 12, 2010.  Interest accrues monthly at a rate of Ten
Percent (10%) per annum (the “Ung Third Loan”) (see Note
11).  Proceeds were used to fund general operations.  On
March 3, 2010 the $9,000 was repaid to Ms. Ung.  Also on February 12,
2010, the Ung First Loan was amended to extend the March 18, 2010 due date to
June 18, 2010 with no other change to the terms (see Note 11).





On
February 25, 2010, the $18,000 promissory note due Thomas Johnson (Term Note 17)
and the $30,000 promissory note due Thomas Johnson (Term Note 24) were amended
to extend the February 28, 2010 due dates to May 31, 2010 with no other change
to the terms (see Note 11).





On
February 26, 2010, the Company converted an aggregate of $500,000 of term debt
held by IDCG (Term Notes 9, 10, 11, and 14 in their entirety and a portion of
Term Note 2) (see Note 11) into a convertible debenture, being offered by the
Company, which offering closed on March 12, 2010, with a three year term;
interest accrues at Ten Percent (10%) per annum and is paid
quarterly.  The debenture converts, in whole or in part, at the option
of the noteholder into restricted shares of the Company’s Common Stock at $0.20
per share; representing a beneficial conversion feature.  In addition,
the investor received a detachable warrant for restricted shares of the
Company’s Common Stock; the number of warrant shares is equal to 100% of the
number of shares issuable pursuant to conversion of the debenture (2,500,000
shares).  The detachable warrant has an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$262,016 and $237,984, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).





On March
10, 2010, $25,615 was repaid to Thomas Johnson, paying in full with interest the
balance owed under the Thomas Third Loan which was due that day.





On March
12, 2010, the Company accepted ten cash subscriptions for convertible debentures
aggregating $525,000, with a three year term; interest accrues at Ten Percent
(10%) per annum and is paid quarterly.  The debenture convert, in
whole or in part, at the option of the noteholder (the “March Investors”) into
restricted shares of the Company’s Common Stock at $0.20 per share; representing
a beneficial conversion feature.  In addition, the March Investors
received detachable warrants for restricted shares of the Company’s Common
Stock; the number of warrant shares is equal to 100% of the number of shares
issuable pursuant to conversion of the debenture, for an aggregate of 2,625,000
shares.  The detachable warrants have an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$275,506 and $249,494, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).  The Company paid a
finder a finder’s fee equal to Ten Percent (10%) of  $380,000, which is
comprised of six subscriptions, and apart from the payment of a finder’s
fee; no commissions were incurred by the Company in connection with the
transactions.


69


Also on
March 12, 2010, the Company converted an aggregate of $668,666.93 of unpaid
salaries and accrued interest owed to its three officers into convertible
debentures due in three years and closed the convertible
offering.  The $668,666.93 aggregate (Thomas Johnson $329,510.48, Lee
Johnson $329,510.48, and Louis P. Huynh $9,645.97) is approximately 87% of the
January 31, 2010 accrued liability.  The convertible debentures have a
three year term and are due March 12, 2013.  Interest accrues at Ten
Percent (10%) per annum and is paid quarterly.  The debenture convert,
in whole or in part, at the option of the noteholder (the “March Investor”) into
restricted shares of the Company’s Common Stock at $0.20 per share; representing
a beneficial conversion feature.  In addition, the March Investor
received a detachable warrant for restricted shares of the Company’s Common
Stock; the number of warrant shares is equal to 100% of the number of shares
issuable pursuant to conversion of the debenture (aggregate 3,343,336
shares).  The detachable warrants have an exercise price of $0.30 per
share, a term of three years from the date of issuance, and vest upon the
conversion of the debenture with a partial debenture conversion vesting a
proportional number of warrant shares.  The combined fair value of the
beneficial conversion feature and detachable warrant, 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 warrant as
$350,897 and $317,770, respectively.  The beneficial conversion
feature and detachable warrant will be recorded as debt discount with a
corresponding credit to additional paid in capital and are amortized over the
life of the convertible debentures (three years).





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
January 31, 2010, 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.





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.


70





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 January 31,
2010.





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.


71





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
November 17, 2009, pursuant to the request of Thomas Johnson, the Company’s
Chief Executive Officer and Chairman of the Board of Directors, and Lee Johnson,
the Company’s President, Chief Technology Officer, and Chief Financial Officer,
to each convert 50% of the outstanding balance under their individual
convertible note the Company issued an aggregate of 10,069,930 restricted shares
of the Company’s Common Stock to Thomas Johnson (5,034,965) and Lee Johnson
(5,034,965), each an accredited investor.  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.





On
December 1, 2009, pursuant to the terms of a consulting agreement dated December
1, 2009, the Company issued to Tomasovich Development Company, a California
corporation, an accredited investor, 22,000 restricted shares of the Company’s
Common Stock for business development, operations and strategic planning
services during the following six months valued at the market closing price and
recorded as $8,360 in prepaid expenses.  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.





On
December 16, 2009, the Company issued to Louis Huynh, an officer, eight US based
employees and three VN based employees, each a sophisticated purchaser, for
yearend bonuses 7,500 and an aggregate of 24,500 and 12,500 restricted shares of
the Company’s Common Stock valued at the market close and recorded as a $2,625,
$8,575 and $4,375 bonuses, respectively.  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.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





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





None.





ITEM
      5.
            OTHER
      INFORMATION.





None.


72





ITEM
      6.
            EXHIBITS.





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





Number
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation*3.2
                
                Bylaws*23.1
                
                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.


73





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:  March 17, 2010
                By:
                /s/
                Louis P. HuynhName:
                Louis
      P. HuynhTitle:
                General
      Counsel, Executive Vice President of Operations and Business Development,
      and Corporate Secretary


74





EXHIBIT
INDEX





Number
              
              Description3.1
              
              Amended
      and Restated Articles of Incorporation*3.2
              
              Bylaws*23.1
              
              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 FormS-1,
      as filed with the Securities and Exchange Commission on September 17,
      2007.


75