UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(MARK
ONE)





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


ACT
OF 1934





For the
quarterly period ended October 31, 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 smaller


reporting
company)





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





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





As of
December 14, 2010, there were 45,392,187 shares of the issuer’s common stock,
par value $0.001 per share, outstanding.









DOT
VN, INC.


QUARTERLY
REPORT ON FORM 10-Q


FOR
THE PERIOD ENDED OCTOBER 31, 2010





INDEX





Index
                                      
                                      
                                      PagePart
      I.
                                      Financial
      InformationItem
      1.
                                      Financial Statements
                                      4Basis
      of Presentation.
                                      4Report
      of Independent Registered Public Accounting Firm.
                                      5Condensed
      Consolidated Balance Sheets as of October 31, 2010 (unaudited) and April
      30, 2010.
                                      6Condensed
      Consolidated Statements of Operations for the Three months ended October
      31, 2010 and 2009 (unaudited).
                                      7Condensed
      Consolidated Statements of Operations for the Six months ended October 31,
      2010 and 2009 (unaudited).
                                      8Condensed
      Consolidated Statements of Changes in Stockholders Equity for the Six
      months ended October 31, 2010 (unaudited) and Year ended April 30,
      2010.
                                      9Condensed
      Consolidated Statements of Cash Flows for the Six months ended October 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.
                                      58Item
      3.
                                      Quantitative
      and Qualitative Disclosures About Market Risk.
                                      74Item
      4.
                                      Controls
      and Procedures.
                                      74Part
      II.
                                      Other
      InformationItem
      1.
                                      Legal
      Proceedings.
                                      76Item
      1A.
                                      Risk
      Factors.
                                      76Item
      2.
                                      Unregistered
      Sales of Equity Securities and Use of Proceeds.
                                      76Item
      3.
                                      Defaults
      Upon Senior Securities.
                                      77Item
      4.
                                      (Removed
      and Reserved).
                                      77Item
      5.
                                      Other
      Information.
                                      77Item
      6.
                                      Exhibits.
                                      77Signatures
                                      78Certifications




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 50.18% 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 48.62% control Lee Johnson,
the Company’s President, Chief Technology Officer, and Chief Financial Officer
and a Director, holds of the Company’s voting securities, (x) other factors over
which we have little or no control; and (xii) other factors discussed in the
Company’s filings with the Securities and Exchange Commission
(“SEC”).





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




3









Dot
      VN, INC. AND SUBSIDIARIES





PART
I.  FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS.





BASIS
OF PRESENTATION





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





The
unaudited condensed consolidated balance sheet of the Company as of October 31,
2010, and the related consolidated balance sheet of the Company as of April 30,
2010, which is derived from the Company's audited consolidated financial
statements, the un-audited condensed consolidated statement of operations and
cash flows for the six months ended October 31, 2010 and 2009 and the condensed
consolidated statement of stockholders equity for the period of April 30, 2009
to October 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 six months ended October 31, 2010 are not necessarily indicative
of the results that can be expected for the year ending April 30,
2011.




4





Chang
      G. Park, CPA, Ph. D.t
      2667
      CAMINO DEL RIO S. SUITE B t
      SAN
      DIEGO t
      CALIFORNIA
      92108 tt
      TELEPHONE
      (858)722-5953 t
      FAX
      (858) 761-0341 t
      FAX
      (858) 764-5480t
      E-MAIL
      changgpark@gmail.com
      t





Report of Independent
Registered Public Accounting Firm





To the
Board of Directors of


Dot VN,
Inc.


9449
Balboa Avenue, Suite 114


San
Diego, CA 92123





We have
reviewed the accompanying condensed consolidated balance sheet of Dot VN, Inc.
(the “Company”) as of October 31, 2010, the related condensed consolidated
statements of operations for the three months and six months ended October 31,
2010 and 2009, condensed consolidated statements of changes in stockholders’
equity (deficit) and condensed consolidated cash flows for the six months ended
October 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





December
15, 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 SUBSIDIARIESCondensed
      Consolidated Balance Sheets





October 31,
                                          
                                          
                                          April 30,2010
                                          
                                          
                                          2010(unaudited)ASSETSCurrent
      assets:Cash
                                          
                                          $
                                          25,865
                                          
                                          
                                          $
                                          135,664Accounts
      receivable, net of $9,990 and zero allowance for doubtful
      accounts
                                          
                                          
                                          177,800
                                          
                                          
                                          
                                          162,132Inventories
                                          
                                          
                                          22,688
                                          
                                          
                                          
                                          79,688Prepaid
      expenses and other current assets
                                          
                                          
                                          33,827
                                          
                                          
                                          
                                          65,985Prepaid
      warrant expense, current
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Notes
      receivable, net
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      current assets
                                          
                                          
                                          260,180
                                          
                                          
                                          
                                          443,469Equipment,
      net
                                          
                                          
                                          844,338
                                          
                                          
                                          
                                          807,407Intangible
      assets
                                          
                                          
                                          1,022,661
                                          
                                          
                                          
                                          1,022,661Other
      noncurrent assets
                                          
                                          
                                          305,326
                                          
                                          
                                          
                                          286,019Total
      assets
                                          
                                          $
                                          2,432,505
                                          
                                          
                                          $
                                          2,559,556LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                          
                                          $
                                          241,045
                                          
                                          
                                          $
                                          245,789Customer
      deposits
                                          
                                          
                                          19,151
                                          
                                          
                                          
                                          21,127Due
      to related parties, net of zero and $506,715 discount
                                          
                                          
                                          3,947,848
                                          
                                          
                                          
                                          2,896,981Short-term
      convertible debt, net of zero and $29,082 discount
                                          
                                          
                                          476,475
                                          
                                          
                                          
                                          637,550Short-term
      debt and current portion of long-term debt
                                          
                                          
                                          3,513,745
                                          
                                          
                                          
                                          3,303,334Accrued
      and other liabilities
                                          
                                          
                                          742,235
                                          
                                          
                                          
                                          344,456Total
      current liabilities
                                          
                                          
                                          8,940,499
                                          
                                          
                                          
                                          7,449,237Long-term
      liabilities:Due
      to related parties, net of $241,183 and $292,167 discount
                                          
                                          
                                          480,711
                                          
                                          
                                          
                                          395,516Long-term
      convertible debt, net of $413,737 and $527,862 discount
                                          
                                          
                                          1,212,106
                                          
                                          
                                          
                                          1,281,216Long-term
      debt, net of current portion
                                          
                                          
                                          193,934
                                          
                                          
                                          
                                          187,831Total
      long-term liabilities
                                          
                                          
                                          1,886,751
                                          
                                          
                                          
                                          1,864,563Total
      Liabilities
                                          
                                          
                                          10,827,250
                                          
                                          
                                          
                                          9,313,800Commitments
      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 October 31, and April 30, 2010
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Common
      stock: 250,000,000 shares  authorized of $0.001 par
      value;42,656,592
      and 41,039,263 shares issued and outstanding as of October
    31,and
      April 30, 2010
                                          
                                          
                                          42,657
                                          
                                          
                                          
                                          41,039Additional
      paid-in capital
                                          
                                          
                                          41,655,714
                                          
                                          
                                          
                                          40,342,899Accumulated
      deficit
                                          
                                          
                                          (50,103,747
                                          )
                                          
                                          
                                          (47,146,271
                                          )Accumulated
      comprehensive income
                                          
                                          
                                          10,631
                                          
                                          
                                          
                                          8,089Total
      shareholders' equity (deficit)
                                          
                                          
                                          (8,394,745
                                          )
                                          
                                          
                                          (6,754,244
                                          )Total
      liabilities and shareholders' equity (deficit)
                                          
                                          $
                                          2,432,505
                                          
                                          
                                          $
                                          2,559,556





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


6





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Operations
  (Unaudited)





Three Months Ended October 31,2010
                                    
                                    
                                    2009Revenues
                                    
                                    $
                                    244,802
                                    
                                    
                                    $
                                    290,228Cost
      of revenues
                                    
                                    
                                    107,664
                                    
                                    
                                    
                                    127,261Gross
      profit
                                    
                                    
                                    137,138
                                    
                                    
                                    
                                    162,967General
      and administrative expenses:Consulting
      and professional fees
                                    
                                    
                                    22,856
                                    
                                    
                                    
                                    29,046Marketing
      and promotion
                                    
                                    
                                    12,000
                                    
                                    
                                    
                                    12,000Option
      bonus
                                    
                                    
                                    216,162
                                    
                                    
                                    
                                    658,971Bad
      debt expense
                                    
                                    
                                    585
                                    
                                    
                                    
                                    5,600Other
      general & administrative expenses
                                    
                                    
                                    537,119
                                    
                                    
                                    
                                    538,876Equity
      in loss of IT.VN
                                    
                                    
                                    24,207
                                    
                                    
                                    
                                    -Total
      general and administrative expenses
                                    
                                    
                                    812,929
                                    
                                    
                                    
                                    1,244,493(Loss)
      from operations
                                    
                                    
                                    (675,791
                                    )
                                    
                                    
                                    (1,081,526
                                    )Other
      income (expenses):Interest
      income
                                    
                                    
                                    250
                                    
                                    
                                    
                                    215Finance
      (expense)
                                    
                                    
                                    (3,777
                                    )
                                    
                                    
                                    (1,054
                                    )Interest
      (expense)
                                    
                                    
                                    (307,968
                                    )
                                    
                                    
                                    (257,794
                                    )Foreign
      exchange (loss) gain
                                    
                                    
                                    (9,877
                                    )
                                    
                                    
                                    (6,452
                                    )Other
      income and (expense)
                                    
                                    
                                    (172
                                    )
                                    
                                    
                                    -Total
      other income (expenses)
                                    
                                    
                                    (321,544
                                    )
                                    
                                    
                                    (265,085
                                    )Net
      loss
                                    
                                    $
                                    (997,335
                                    )
                                    
                                    $
                                    (1,346,611
                                    )Loss
      per common share:Basic
      and diluted
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.05
                                    )Weighted
      average common shares outstanding:Basic
      and diluted
                                    
                                    
                                    42,656,527
                                    
                                    
                                    
                                    29,548,760Comprehensive
      income (loss):Net
      loss
                                    
                                    $
                                    (997,335
                                    )
                                    
                                    $
                                    (1,346,611
                                    )Other
      comprehensive income:Foreign
      currency translation
                                    
                                    
                                    2,494
                                    
                                    
                                    
                                    779Comprehensive
      loss
                                    
                                    $
                                    (994,841
                                    )
                                    
                                    $
                                    (1,345,832
                                    )





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


7





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Operations
  (Unaudited)





Six Months Ended October 31,2010
                                    
                                    
                                    2009Revenues
                                    
                                    $
                                    578,310
                                    
                                    
                                    $
                                    653,340Cost
      of revenues
                                    
                                    
                                    222,499
                                    
                                    
                                    
                                    257,858Gross
      profit
                                    
                                    
                                    355,811
                                    
                                    
                                    
                                    395,482General
      and administrative expenses:Consulting
      and professional fees
                                    
                                    
                                    77,079
                                    
                                    
                                    
                                    90,900Marketing
      and promotion
                                    
                                    
                                    24,000
                                    
                                    
                                    
                                    24,140Option
      bonus
                                    
                                    
                                    720,539
                                    
                                    
                                    
                                    2,631,364Bad
      debt expense
                                    
                                    
                                    3,872
                                    
                                    
                                    
                                    8,200Other
      general & administrative expenses
                                    
                                    
                                    1,057,837
                                    
                                    
                                    
                                    1,077,973Equity
      in loss of IT.VN
                                    
                                    
                                    24,207
                                    
                                    
                                    
                                    -Total
      general and administrative expenses
                                    
                                    
                                    1,907,534
                                    
                                    
                                    
                                    3,832,577(Loss)
      from operations
                                    
                                    
                                    (1,551,723
                                    )
                                    
                                    
                                    (3,437,095
                                    )Other
      income (expenses):Interest
      income
                                    
                                    
                                    476
                                    
                                    
                                    
                                    429Finance
      (expense)
                                    
                                    
                                    (141,324
                                    )
                                    
                                    
                                    (1,754
                                    )Interest
      (expense)
                                    
                                    
                                    (1,250,759
                                    )
                                    
                                    
                                    (505,113
                                    )Foreign
      exchange (loss) gain
                                    
                                    
                                    (14,539
                                    )
                                    
                                    
                                    (1,020
                                    )Other
      income and (expense)
                                    
                                    
                                    393
                                    
                                    
                                    
                                    -Total
      other income (expenses)
                                    
                                    
                                    (1,405,753
                                    )
                                    
                                    
                                    (507,458
                                    )Net
      loss
                                    
                                    $
                                    (2,957,476
                                    )
                                    
                                    $
                                    (3,944,553
                                    )Loss
      per common share:Basic
      and diluted
                                    
                                    $
                                    (0.07
                                    )
                                    
                                    $
                                    (0.13
                                    )Weighted
      average common shares outstanding:Basic
      and diluted
                                    
                                    
                                    42,296,843
                                    
                                    
                                    
                                    29,315,214Comprehensive
      income (loss):Net
      loss
                                    
                                    $
                                    (2,957,476
                                    )
                                    
                                    $
                                    (3,944,553
                                    )Other
      comprehensive income:Foreign
      currency translation
                                    
                                    
                                    2,542
                                    
                                    
                                    
                                    185Comprehensive
      loss
                                    
                                    $
                                    (2,954,934
                                    )
                                    
                                    $
                                    (3,944,368
                                    )





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


8





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      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
                        
                        
                        225,622
                        
                        
                        
                        226
                        
                        
                        
                        79,134
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        79,360Shares
      issued upon conversion of convertible debenture
                        
                        
                        10,819,930
                        
                        
                        
                        10,820
                        
                        
                        
                        3,160,159
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,170,979Shares
      issued as payment on term debt
                        
                        
                        796,389
                        
                        
                        
                        796
                        
                        
                        
                        397,398
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        398,194Shares
      issued upon exercise of warrants
                        
                        
                        2,500
                        
                        
                        
                        3
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3Discount
      on convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,899,356
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,899,356Detachable
      warrants vested upon conversion of convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        71,395
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        71,395Warrants
      issued for debt issuance costs
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,836
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,836Warrants
      issued for services
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        60,840
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        60,840Stock
      options expensed
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,936,789
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,936,789Comprehensive
      loss, April 30, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7,320,502
                        )
                        
                        
                        6,408
                        
                        
                        
                        (7,314,094
                        )Balance,
      April 30, 2010
                        
                        
                        41,039,263
                        
                        
                        $
                        41,039
                        
                        
                        $
                        40,342,899
                        
                        
                        $
                        (47,146,271
                        )
                        
                        $
                        8,089
                        
                        
                        $
                        (6,754,244
                        )





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


9





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Changes in Stockholders' Equity (Deficit)
      (Unaudited)





Common
                        
                        
                        Additional
                        
                        
                        
                        
                        
                        AccumulatedCommon
                        
                        
                        stock
                        
                        
                        paid-in
                        
                        
                        Accumulated
                        
                        
                        comprehensivestock
                        
                        
                        amount
                        
                        
                        capital
                        
                        
                        deficit
                        
                        
                        income
                        
                        
                        TotalBalance,
      April 30, 2010
                        
                        
                        41,039,263
                        
                        
                        
                        41,039
                        
                        
                        
                        40,342,899
                        
                        
                        
                        (47,146,271
                        )
                        
                        
                        8,089
                        
                        
                        
                        (6,754,244
                        )Shares
      issued for cash
                        
                        
                        303,715
                        
                        
                        
                        304
                        
                        
                        
                        105,996
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        106,300Shares
      issued to employees
                        
                        
                        3,000
                        
                        
                        
                        3
                        
                        
                        
                        987
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        990Shares
      issued upon conversion of convertible debenture
                        
                        
                        1,310,614
                        
                        
                        
                        1,311
                        
                        
                        
                        262,258
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        263,569Discount
      on convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        90,264
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        90,264Detachable
      warrants vested upon conversion of convertible debentures
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        132,771
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        132,771Stock
      options expensed
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        720,539
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        720,539Comprehensive
      loss, October 31, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,957,476
                        )
                        
                        
                        2,542
                        
                        
                        
                        (2,954,934
                        )Balance,
      October 31, 2010
                        
                        
                        42,656,592
                        
                        
                        $
                        42,657
                        
                        
                        $
                        41,655,714
                        
                        
                        $
                        (50,103,747
                        )
                        
                        $
                        10,631
                        
                        
                        $
                        (8,394,745
                        )





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


10





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Cash Flows
  (Unaudited)





For the Six Months Ended
                                      October 31,2010
                                    
                                    
                                    2009Cash
      flows from operating activities:Net
      loss
                                    
                                    $
                                    (2,957,476
                                    )
                                    
                                    $
                                    (3,944,553
                                    )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    12,372
                                    
                                    
                                    
                                    10,104Accrued
      interest expense
                                    
                                    
                                    424,682
                                    
                                    
                                    
                                    469,428Equity
      in loss of IT.VN
                                    
                                    
                                    24,207
                                    
                                    
                                    
                                    -Amortization
      of debt issuance costs
                                    
                                    
                                    1,636
                                    
                                    
                                    
                                    1,754Amortization
      of service warrants
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,721Amortization
      of debt discounts
                                    
                                    
                                    915,607
                                    
                                    
                                    
                                    -Stock
      options expensed
                                    
                                    
                                    720,539
                                    
                                    
                                    
                                    2,631,364Stock
      issued to employees
                                    
                                    
                                    990
                                    
                                    
                                    
                                    -Stock
      issued for services
                                    
                                    
                                    -
                                    
                                    
                                    
                                    21,000Changes
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable
                                    
                                    
                                    (14,613
                                    )
                                    
                                    
                                    (54,152
                                    )Decrease
      in inventory
                                    
                                    
                                    57,000
                                    
                                    
                                    
                                    -Decrease
      (increase) in prepaid expenses and other current assets
                                    
                                    
                                    (3,021
                                    )
                                    
                                    
                                    (29,253
                                    )(Increase)
      decrease in other noncurrent assets
                                    
                                    
                                    10,353
                                    
                                    
                                    
                                    (59,424
                                    )Increase
      in accounts payable
                                    
                                    
                                    (4,722
                                    )
                                    
                                    
                                    59,886(Decrease)
      increase  in customer deposits
                                    
                                    
                                    (1,976
                                    )
                                    
                                    
                                    (11,753
                                    )Increase
      in accrued liabilities
                                    
                                    
                                    373,487
                                    
                                    
                                    
                                    367,304Net
      cash (used in) operating activities
                                    
                                    
                                    (440,935
                                    )
                                    
                                    
                                    (534,574
                                    )Cash
      flows from investing activities:Purchase
      of equipment
                                    
                                    
                                    (10,713
                                    )
                                    
                                    
                                    (10,563
                                    )Purchase
      of leasehold improvements
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (774
                                    )Cash
      advanced to IT.VN
                                    
                                    
                                    (60,000
                                    )
                                    
                                    
                                    -Net
      cash (used in) investing activities
                                    
                                    
                                    (70,713
                                    )
                                    
                                    
                                    (11,337
                                    )Cash
      flows from financing activities:Proceeds
      from term notes
                                    
                                    
                                    117,531
                                    
                                    
                                    
                                    110,000Repayment
      of term notes
                                    
                                    
                                    (26,194
                                    )
                                    
                                    
                                    (71,798
                                    )Advances
      from related parties
                                    
                                    
                                    196,976
                                    
                                    
                                    
                                    28,000Repayments
      to related parties
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Proceeds
      from stock issuances
                                    
                                    
                                    106,300
                                    
                                    
                                    
                                    377,003Net
      cash provided by financing activities
                                    
                                    
                                    394,613
                                    
                                    
                                    
                                    443,205Effect
      of exchange rate changes on cash
                                    
                                    
                                    7,236
                                    
                                    
                                    
                                    1,109Net
      (decrease) in cash
                                    
                                    
                                    (109,799
                                    )
                                    
                                    
                                    (101,597
                                    )Cash,
      beginning of the period
                                    
                                    
                                    135,664
                                    
                                    
                                    
                                    144,842Cash,
      end of the period
                                    
                                    $
                                    25,865
                                    
                                    
                                    $
                                    43,245





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


11





Dot
      VN, INC. AND SUBSIDIARIESCondensed
      Consolidated Statements of Cash Flows (Unaudited)
    (continued)





For the Six Months Ended
                      October 31,2010
                    
                    
                    2009Non-cash
      investing and financing activities:Increase
      in construction in progress from accrued interest
                    
                    $
                    38,761
                    
                    
                    $
                    35,116Common
      stock issued in exchange for convertible debentures
                    
                    $
                    263,569
                    
                    
                    $
                    -Common
      stock issued to employees
                    
                    $
                    990
                    
                    
                    $
                    -Common
      stock issued for services
                    
                    $
                    -
                    
                    
                    $
                    23,500Common
      stock issued as payment on term debt
                    
                    $
                    -
                    
                    
                    $
                    398,194Supplemental
      cash flow disclosure:Interest
      paid
                    
                    $
                    28,785
                    
                    
                    $
                    29,001Taxes
      paid
                    
                    $
                    6,050
                    
                    
                    $
                    3,900





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


12





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





1.
            Condensed
      consolidated financial statements





The
accompanying October 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 October 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, 2010 audited consolidated financial statements and related notes
included in the Company’s most recent Form 10-K as filed with the Securities and
Exchange Commission.  The results of operations for periods ended
October 31, 2010 and 2009 are not necessarily indicative of the operating
results for the full years.





2.
            Organization





Dot VN,
Inc., its subsidiaries, and its predecessors (the “Company” or “Dot VN”), is a
leading technology company deploying cutting edge infrastructure solutions and
innovative online services and solutions focused on the Vietnamese and South
East Asian markets.  Dot VN provides first class internet related
services including domain name registration, web hosting and through its
management of the INFO.VN platform and web portal offers internet
advertising.  Dot VN is also focused on commercializing cutting edge
infrastructure technology in the South East Asian region.  Dot VN has
signed agreements with industry leaders in the data center and wireless sectors
to develop a market for their products in the region.  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
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 July 17, 2006, Malers completed an
Agreement and Plan of Merger with Dot VN, Inc., a California corporation (“Dot
VN CA”), the completion of which transaction resulted in Malers being renamed
“Dot VN, Inc.” and Dot VN CA was renamed Hi-Tech Multimedia, Inc. becoming a
wholly owned subsidiary of the Company.  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
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;
VNNIC directs all internet traffic requesting a non-existent or expired domain
name to a web page managed by the Company.





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.




13





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





2.
            Organization
      (continued)





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
centers (“MMDC”) solutions and related technology and services (the “EMS
Products”) in Vietnam, and the non-exclusive right to distribute EMS Products in
Asia.





Dot VN
will continue to explore and test, and analyze, new and best of breed
technologies and applications for deployment in Vietnamese and South East Asian
markets.





3.
            Inventories





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





October 31,
                      
                      
                      April 30,2010
                      
                      
                      2010Products,
      held in Vietnam
                      
                      $
                      22,688
                      
                      
                      $
                      79,688Total
      inventories
                      
                      $
                      22,688
                      
                      
                      $
                      79,688





Inventories
consist of MMDC units manufactured by Elliptical Mobile Solutions, LLC stated at
the lower of cost, using the first-in first-out method, or market.





4.
            Prepaid
      expenses and other current assets





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





October 31,
                          
                          
                          April 30,2010
                          
                          
                          2010Prepaid
      expenses and other advances
                          
                          $
                          9,124
                          
                          
                          $
                          15,651Prepaid
      land lease, Danang City, Vietnam
                          
                          
                          231,955
                          
                          
                          
                          240,114Domain
      Registration Deposits
                          
                          
                          3,155
                          
                          
                          
                          4,934Vietnam
      value added tax (“VAT”) receivable
                          
                          
                          1,463
                          
                          
                          
                          1,032Miscellaneous
      receivable
                          
                          
                          13,034
                          
                          
                          
                          37,178258,731
                          
                          
                          
                          298,909Less
      prepaid land lease included in other noncurrent assets  (see
      Note 9)
                          
                          
                          224,904
                          
                          
                          
                          232,924Total
      prepaid expenses and other current assets
                          
                          $
                          33,827
                          
                          
                          $
                          65,985




14





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





4.
            Prepaid
      expenses and other current assets
(continued)





On August
21, 2008, Dot VN Company, Ltd. (Danang City), an entity existing under the laws
of the Country of Vietnam (“Dot VN Danang”), a wholly owned subsidiary of the
Dot VN, Inc., entered into a Land Sublease Agreement (the “Land Sublease”) with
Massda Land Company Limited, an entity existing under the laws of the Country of
Vietnam.  Pursuant to the Land Sublease, Dot VN Danang leases
approximately 8,768 square meters of land known as Lot 47, Danang Industrial
Zone, Son Tra District, Danang City, Vietnam, for the express purpose of
building an Internet data center and related uses, for a term of approximately
35 years expiring September 21, 2043.  Base rent is $32/square meter,
excluding value added taxes (“VAT”) and other possible fees and costs, for the
term is payable in three installments of 50%, 30% and 20%.  Base rent
(excluding VAT) of $140,293, $84,175 and $56,118 was paid September 22, 2008,
March 16, 2009 and August 27, 2009, respectively.  Lease expense
charged to operations was $3,573 and $7,623 for the six months ended October 31,
2010 and the year ended April 30, 2010.





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
net amount overpaid/collected is greater than 200,000,000 VND (approximately
$10,500).  On April 22, 2009, 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.  On November 4,
2009, 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
$1,463 of VAT during the thirteen month period ending October 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
October 31 and April 30, 2010 was $3,096 and $4,934, respectively.  In
addition, the Company maintains nominal deposits with other
registrars.





During
the six months ended October 31, 2010 and the year ended April 30, 2010, the
Company provided administrative and technical support and office space to
Business.VN, Inc., a Nevada corporation, for an aggregate fee of $2,500 per
month from May 2009 through June 2010 and $1,500 per month from July through
October 2010.  The monthly charge was reduced, effective July 1, 2010,
to reflect the reduced level of services and office space being provided to
Business.VN.  Business.VN, which develops travel related Internet
applications focused on 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 11).  On July 25, 2010, Hi-Tek Private
instructed the Company to reduce the debt it owes to Hi-Tek Private (see Note
11) by $35,000 in satisfaction of the June 30, 2010 balance owed by Business.VN
to the Company.  The balance owed the Company as of October 31 and
April 30, 2010 was $6,000 and $30,000, respectively.





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 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:




15





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





5.
            Prepaid
      warrant expense (continued)





October 31,
                      
                      
                      April 30,2010
                      
                      
                      2010Balance,
      beginning of the year
                      
                      $
                      -
                      
                      
                      $
                      -Warrants
      issued
                      
                      
                      -
                      
                      
                      
                      60,840Less
      amortization of warrants
                      
                      
                      -
                      
                      
                      
                      60,840Balance,
      end of period
                      
                      $
                      -
                      
                      
                      $
                      -





6.
            Notes
      receivable





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 Networks, LLC (“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, prior to the
debenture’s January 31, 2009 maturity, 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.  As of January 31, 2009, eight Spot-On Debentures holders
elected to convert debentures aggregating $236,213 into common stock of the
Company.  Future monthly interest payments, at Ten Percent (10%) per
annum, accrue for the benefit of the Company to be paid at maturity; during the
six months ended October 31, 2010 and the year ended April 30, 2010 interest of
$11,908 and $23,621 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 ($62,727) will be recognized upon
collection from Spot-On.





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




16





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





7.
            Equipment





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





October 31,
                          
                          
                          April 30,2010
                          
                          
                          2010Computer
      equipment
                          
                          $
                          83,171
                          
                          
                          $
                          72,573Other
      furniture and equipment
                          
                          
                          16,217
                          
                          
                          
                          16,354Leasehold
      improvements
                          
                          
                          3,543
                          
                          
                          
                          3,613Internet
      data center, construction in progress
                          
                          
                          798,091
                          
                          
                          
                          759,330901,022
                          
                          
                          
                          851,870Less
      accumulated depreciation and amortization
                          
                          
                          56,684
                          
                          
                          
                          44,463Equipment,
      net
                          
                          $
                          844,338
                          
                          
                          $
                          807,407





Depreciation
expense charged to operations was $11,346 and $19,135 for the six months ended
October 31, 2010 and the year ended April 30, 2010,
respectively.  Amortization expense charged to operations was $1,026
and $2,182 for the six months ended October 31, 2010 and the year ended April
30, 2010, respectively.  Capitalized interest on borrowings related to
the Internet data center was $38,761 and $71,415 for the six months ended
October 31, 2010 and the year ended April 30, 2010, 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 11).  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 restricted 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 one year term, was recorded at its present value based on an
8% interest rate assumption.  The aggregate consideration of $662,336
was recorded as an indefinite lived intangible asset and is not
amortized.





On
December 21, 2009, the Company filed a U.S. trademark application on “INFO.VN”
and paid $325 in filing fees.  The application is still
pending.





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.  The change in the carrying amount of intangible assets
is as follows:





October 31,
                        
                        
                        April 30,2010
                        
                        
                        2010Balance,
      beginning of the year
                        
                        $
                        1,022,661
                        
                        
                        $
                        1,022,336INFO.VN
      trademark application
                        
                        
                        -
                        
                        
                        
                        325Balance,
      end of period
                        
                        $
                        1,022,661
                        
                        
                        $
                        1,022,661




17





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





9.
            Other
      noncurrent assets





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





October 31,
                        
                        
                        April 30,2010
                        
                        
                        2010Deposits
                        
                        $
                        11,595
                        
                        
                        $
                        11,469Deferred
      debt issuance cost
                        
                        
                        33,034
                        
                        
                        
                        41,586Equity
      method investment in IT.VN, net
                        
                        
                        35,793
                        
                        
                        
                        -Prepaid
      land lease Danang City, Vietnam (see Note 4)
                        
                        
                        224,904
                        
                        
                        
                        232,924Other
      noncurrent assets
                        
                        
                        -
                        
                        
                        
                        40Total
      other noncurrent assets
                        
                        $
                        305,326
                        
                        
                        $
                        286,019





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 $1,636 and
$3,390 expensed in the six months ended October 31, 2010 and the year ended
April 30, 2010, respectively.





In
connection with the December 30, 2009, issuance of a series of convertible
debentures (see Note 10) the Company paid the placement agent a Ten Percent
(10%) cash fee ($3,000).  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 $1,000 and $2,000 expensed in the
six months ended October, 2010 and the year ended April 30, 2010,
respectively.





In
connection with the March 12, 2010, issuance of a series of convertible
debentures (see Note 10) the Company paid the placement agent a Ten Percent
(10%) cash fee ($35,500).  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 thirty-six month term of the debt with $5,917 and $1,578 expensed
in the six months ended October, 2010 and the year ended April 30, 2010,
respectively.





On, May
25, 2010, the Company advanced $60,000 in furtherance of the development of
INFO.VN, a super web portal which employees the Company’s unregistered domain
monetization rights, to IT.VN, a joint stock company, (“IT.VN”), existing under
the laws of the country of Vietnam.  The Company is the direct
beneficiary of all economic and legal benefit derived from the ownership of
IT.VN and IT.VN is managed by Dot VN staff at the direction of the Company’s
officers and directors.  Under the arrangement, IT.VN will facilitate
the sales of online advertising within Vietnam, manage and develop content for
INFO.VN and perform such other functions as may be required by the Company’s
management from time to time.  Ownership of IT.VN is held by three (3)
nominees of the Company, Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer; Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary and Ms. Ngoc Anh Ung, the Company’s Vice
President of Operations and Business Development, Asia.  The nominees
have executed agreements with the Company which provide that (i) the nominees
shall represent the Company in the management and operation of IT.VN, subject to
the direction of the Company’s Board of Directors, until the earlier of his or
her resignation, termination or replacement and (ii) all legal and economic
benefit in IT.VN is irrevocably assigned to Dot VN by such
nominees.  The arrangement involves nominee participation for the
purpose of complying with Vietnam law and policy.  The definitive
agreement




18









Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





9.
            Other
      noncurrent assets (continued)








October 31,2010Balance,
      beginning of the year
                        
                        $
                        -Funds
      advanced
                        
                        
                        60,000Less
      equity in loss
                        
                        
                        24,207Balance,
      end of period
                        
                        $
                        35,793





10.
            Convertible
      notes





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





Issued date
                                          
                                          Maturity
                                          
                                          Conversion
                                            price
                                          
                                          
                                          Amount
                                          
                                          
                                          Debt
                                            discount
                                          
                                          
                                          Accrued
                                            interest
                                          
                                          
                                          Net amountConvertible
      Notes 1
                                          
                                          Oct.
      16, 2006
                                          
                                          Dec.
      31, 2010
                                          
                                          $
                                          0.20
                                          
                                          
                                          $
                                          360,000
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          171,186
                                          
                                          
                                          $
                                          531,186Convertible
      Notes 2
                                          
                                          Feb.
      9, 2007
                                          
                                          Jan.
      31, 2009
                                          
                                          $
                                          1.00
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Convertible
      Note 3
                                          
                                          June
      29, 2007
                                          
                                          Dec.
      31, 2010
                                          
                                          $
                                          0.20
                                          
                                          
                                          
                                          92,336
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          28,200
                                          
                                          
                                          
                                          120,536Convertible
      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
                                          
                                          Dec.
      31, 2010
                                          
                                          $
                                          0.22
                                          
                                          
                                          
                                          113,244
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          12,603
                                          
                                          
                                          
                                          125,847Convertible
      Notes 8
                                          
                                          Nov.
      17, 2009
                                          
                                          Dec.
      31, 2010
                                          
                                          $
                                          0.22
                                          
                                          
                                          
                                          3,020,979
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          238,647
                                          
                                          
                                          
                                          3,259,626Convertible
      Notes 9
                                          
                                          Dec.
      30, 2009
                                          
                                          June
      30, 2010
                                          
                                          $
                                          0.28
                                          
                                          
                                          
                                          25,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,466
                                          
                                          
                                          
                                          26,466Convertible
      Notes 10
                                          
                                          Mar.
      12, 2010
                                          
                                          Mar.
      12, 2013
                                          
                                          $
                                          0.20
                                          
                                          
                                          
                                          931,333
                                          
                                          
                                          
                                          (337,855
                                          )
                                          
                                          
                                          55,590
                                          
                                          
                                          
                                          639,068Convertible
      Notes 11
                                          
                                          Mar.
      12, 2010
                                          
                                          Mar.
      12, 2013
                                          
                                          $
                                          0.20
                                          
                                          
                                          
                                          668,667
                                          
                                          
                                          
                                          (241,183
                                          )
                                          
                                          
                                          43,227
                                          
                                          
                                          
                                          480,711Convertible
      Notes 12
                                          
                                          June
      17, 2010
                                          
                                          June
      17, 2013
                                          
                                          $
                                          0.25
                                          
                                          
                                          
                                          617,246
                                          
                                          
                                          
                                          (75,882
                                          )
                                          
                                          
                                          31,674
                                          
                                          
                                          
                                          573,0385,828,805
                                          
                                          
                                          
                                          (654,920
                                          )
                                          
                                          
                                          582,593
                                          
                                          
                                          
                                          5,756,478Less
      notes 1 (in part), 7, 8, and 11 included in due to related parties (see
      Note 12)
                                          
                                          
                                          
                                          4,012,890
                                          
                                          
                                          
                                          (241,183
                                          )
                                          
                                          
                                          296,190
                                          
                                          
                                          
                                          4,067,897Less
      note 1 (in part), 3 and 9 included in short-term convertible
      debt
                                          
                                          
                                          
                                          277,336
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          199,139
                                          
                                          
                                          
                                          476,475Long-term
      convertible notes, net of current portion
                                          
                                          
                                          $
                                          1,538,579
                                          
                                          
                                          $
                                          (413,737
                                          )
                                          
                                          $
                                          87,264
                                          
                                          
                                          $
                                          1,212,106








19





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





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 the conversion
feature.  On December 4, 2009, the Hi-Tek Trademark Loan was amended
to extend the due date to June 30, 2010, with no other change to the terms of
the note or the conversion feature.  Additionally, on May 19, 2010,
the Hi-Tek Trademark Loan was further amended to extend the due date to December
31, 2010 and split the note in two separate convertible notes.  The
first note for $200,000 includes a new provision for the monthly payment of
interest, in arrears, effective July 1, 2010; there were no other change to the
terms of the original note or the conversion feature (the “Hi-Tek Trademark Loan
One”).  The second note for $314,968 did not change the interest
accrual or payment terms; there were no other change to the terms of the
original note or the conversion feature (the “Hi-Tek Trademark Loan
Two”).  Also on May 19, 2010, Hi-Tek Private assigned the Hi-Tek
Trademark Loan One to Mr. Howard Johnson, a related party.  Mr.
Johnson is the father of 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.  Accrued interest was $1,713 and $169,473 on the Hi-Tek
Trademark Loan One and the Hi-Tek Trademark Loan Two at October 31, 2010,
respectively.  In accordance with Codification topic 470-20, there is
no beneficial conversion feature at the time of the four
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.  On March 12, 2010, the Company closed an
offering of convertible debentures (see Convertible Notes 10 and 11) 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 January 14, 2010 and March 12,
2010 in accordance with Codification topic 470-20.  As of October 31,
2010, the unamortized debt discount was zero.  On December 13, 2010,
Hi-Tek Private elected to convert the full amount due on the Hi-Tek Trademark
Loan Two ($333,365) into 1,666,825 restricted shares of the Company’s Common
Stock at $0.20 per share.





Convertible
Notes 2 are a set of sixteen (16) convertible debentures with an aggregate face
value, net of conversions, of $949,500 issued January 31 and February 9, 2007
(the “February Debentures”) 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 converted 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 restricted
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 were recorded as debt discount with a corresponding credit to
additional paid in capital and were amortized over the life of the February
Debentures.




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




20





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





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 restricted 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 Notes”).





On June
17, 2010, one (1) February Investor agreed to modify the terms of their February
Debenture aggregating $500,000 as follows: (i) the unpaid February Debenture
plus accrued interest at Ten Percent (10%) per annum for the period February 1,
2009 through May 31, 2010 was exchanged for a new $570,999.85 convertible
debenture ($566,280.84 as of April 30, 2010) and (ii) the unpaid $45,000 in
liquidated damages plus accrued interest at Ten Percent (10%) per annum for the
period February 1, 2009 through May 31, 2010 was exchanged for a new $51,390.00
convertible debenture ($50,965.29 as of April 30, 2010) (collectively the
“Vision Debentures”) (see Convertible Notes 12).  Unless otherwise
converted into common stock of the Company, the Vision Debentures shall accrue
interest at a rate of 10% per annum, interest payable in full, each calendar
month starting with December 2010 to be paid on the first of the month and
monthly thereafter on the first day of each month, in arrears for the prior
month, in cash.  All outstanding principal and accrued and unpaid
interest shall become due June 17, 2013.  At any time prior to or at
the due date all principal and accrued interest due may be converted, in whole
or in part at any time and from time to time, into common stock of the Company
at $0.25 per share (the “Vision Conversion Price”) at the option of the holder;
representing a beneficial conversion feature.  The fair value of the
beneficial conversion feature, calculated in accordance with Codification topic
470-20, is $88,121.  The beneficial conversion feature is recorded as
debt discount with a corresponding credit to additional paid in capital and is
amortized over the life of the Vision Debentures (three years).  If
the Company, at any time while the amount of a debenture outstanding is equal to
or greater than fifty percent (50%) of the debenture principal, shall issue
securities or convertible securities, as defined, entitling the recipient to
shares or the right to convert into shares of Common Stock at a price per share
less than the Vision Conversion Price (the “New Securities Price”), then the
Vision Conversion Price, of the so affected Vision Debenture, shall be reduced
to the New Securities Price (the “New Vision Conversion Price”), as
defined.





Two (2)
February Investors holding February Debentures aggregating $112,500 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.





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).


21





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





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 $28,200 at October 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 the conversion feature.  On December 4, 2009, the
Business.com.VN Loan was amended to extend the due date to June 30, 2010, with
no other change to the terms of the note or the conversion
feature.  Additionally, on June 25, 2010, the Business.com.VN Loan was
further amended to extend the due date to December 31, 2010, with no other
change to the terms of the note or the conversion feature.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the four 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; representing a beneficial conversion feature.  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.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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; representing a beneficial conversion
feature.  In accordance with Codification topic 470-20, there is no
additional beneficial conversion feature on March 12, 2010.  The
additional January 14, 2010 beneficial conversion feature is amortized over the
remaining term (June 30, 2010) of the Business.com.VN Loan.  As of
October 31, 2010, the unamortized debt discount was zero.  On December
13, 2010, Business.com.VN elected to convert the full amount due on the
Business.com.VN Loan ($121,674) into 608,372 restricted shares of the Company’s
Common Stock at $0.20 per share.





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).




22





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





Convertible
Notes 5 are a set of two individual notes with an aggregate face value of
$4,321,533 issued August 14, 2008 to Mr. Thomas Johnson (50%) (the “TJ Second
Note”) and Dr. Lee Johnson (50%) (the “LJ Second Note”) in exchange for the
unpaid balance owed under Convertible Notes 4 which were
cancelled.  The notes were due February 15, 2009 and accrued interest
monthly at Eight Percent (8%) per annum (see Note 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 or the conversion feature.  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 or the conversion feature.  In accordance with Codification
topic 470-20, there is no beneficial conversion feature at the time of the two
extensions.  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 were 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 to December 31, 2009 with no other
change to the terms of the notes or the conversion feature.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the extension.  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).




23





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 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
was due October 16, 2009 and accrues interest monthly at Eight Percent (8%) per
annum (see Note 12).  The Company has accrued interest of $12,603 at
October 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 to December 31, 2009 with no other change to the terms of the note
or the conversion feature.  On December 29, 2009, the Huynh Note was
amended to extend the due date to June 30, 2010 with no other change to the
terms of the note or the conversion feature.  On June 29, 2010, the
Huynh Note was amended to extend the due date to December 31, 2010 with no other
change to the terms of the note or the conversion
feature.  Additionally, on December 13, 2010, the Huynh Note was
further amended to extend the due date to September 30, 2011 with no other
change to the terms of the note or the conversion feature.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the four 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 Adjusted Conversion Price of the Huynh
Note is reduced to $0.33 per share (the December Debentures conversion price of
$0.30 times 110%); representing a beneficial conversion feature.  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.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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 Adjusted
Conversion Price of the Huynh Note is reduced to $0.22 per share (the March
Debentures conversion price of $0.20 times 110%); representing a beneficial
conversion feature.  The beneficial conversion feature was calculated
to be $56,622 on March 12, 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.  The additional beneficial conversion
features are amortized over the remaining term (June 30, 2010) of the Huynh
Note.  As of October 31, 2010, the unamortized debt discount was
zero.





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 were due June 30, 2010 and accrued
interest monthly at Eight Percent (8%) per annum (see Note 12).  The
Company has accrued interest of $238,647 at October 31, 2010.  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.  On June 29,
2010, the TJ Fourth Note and the LJ Fourth Note were amended to extend the due
date to December 31, 2010 with no other change to the terms of the notes or the
conversion feature.  Additionally, on December 13, 2010, the TJ Fourth
Note and the LJ Fourth Note were further amended to extend the due date to
September 30, 2011 with no other change to the terms of the notes or the
conversion feature.  In accordance with Codification topic 470-20,
there is no beneficial conversion feature at the time of the two
extensions.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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 Adjusted
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%);
representing a beneficial conversion feature.  The 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; the Company recorded this amount as debt discount
with a corresponding credit to additional paid in capital.  The
additional beneficial conversion features are amortized over the remaining term
(June 30, 2010) of the TJ Fourth Note and the LJ Fourth Note.  As of
October 31, 2010, the unamortized debt discount was zero.


24





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





Convertible
Notes 9 are a set of three (3) convertible debentures issued with an aggregate
face value of $30,000 on December 30, 2009 (the “December
Debentures”).  The December Debentures have a six month term and were
due June 30, 2010.  Interest accrues at Ten Percent (10%) per annum
and is due quarterly.  The Company has accrued interest from April 1,
2010 to October 31, 2010 of $1,466.  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 (the “Conversion Price”); 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 restricted
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.  In the event the Company
issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock), as defined, at a price below the Conversion
Price then the Conversion Price shall be subject to a “broad-based” weighted
average adjustment (the “BBWA”), as defined.  The fair value of the
beneficial conversion feature, calculated in accordance with Codification topic
470-20, is $5,000; excluding the unvested detachable warrants.  The
beneficial conversion feature is recorded as debt discount with a corresponding
credit to additional paid in capital and is amortized over the life of the
December Debentures (six months).  On March 12, 2010, the Company
closed an offering of convertible debentures (see Convertible Notes 10 and 11)
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 December
Debentures is reduced to $0.28 per share, consistent with the BBWA, as
defined.  The additional beneficial conversion feature was calculated
to be $2,143 on March 12, 2010 in accordance with Codification topic
470-20.  As of October 31, 2010, the unamortized debt discount was
zero.  On June 10, 2010 one (1) December Investor exercised the
conversion option on a $5,000 debenture plus $62 of accrued interest and
received 18,079 restricted shares of the Company’s Common Stock and the 16,667
share detachable warrant vested.  The fair value of the vested
detachable warrant, calculated in accordance with Codification topic 470-20, is
$4,167 and was recorded as debt discount, fully expensed when record, with a
corresponding credit to additional paid in capital.





Convertible
Notes 10 are a set of fifteen (15) convertible debentures with an aggregate face
value, net of conversions, of $931,333 issued February 12, February 26, and
March 12 2010 (the “March Debentures”).  The debentures issued
February 12, 2010 were issued (i) in satisfaction of three (3) term notes due
February 18, 2010 aggregating $149,216 and one term note due February 28, 2010
for $72,117, with interest accrued through February 12, 2010 (see Note 11) and
(ii) as an $85,000.00 partial payment on the revolving credit arrangement with
Hi-Tek Private, previously a related party (see Note 11).  The single
debenture issued February 26, 2010 was issued (i) in satisfaction of four (4)
term notes due February 28, 2010 aggregating $391,525 and (ii) as a $108,475
partial payment on a fifth term note due March 31, 2010, with interest accrued
through February 26, 2010 (see Note 11).  The March 12, 2010
debentures were issued in exchange for cash payments aggregating $525,000.00
from nine (9) investors.  The March Debentures have a three year term
and are due February 12, February 26, and March 12, 2013.  Interest
accrues at Ten Percent (10%) per annum and is due quarterly.  The
debentures convert, in whole or in part, at the option of each individual
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 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 6,656,666 restricted
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.  In the event the Company
issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock), as defined, at a price below the Conversion
Price then the Conversion Price shall be subject to a BBWA adjustment, as
defined.  The fair value of the beneficial conversion feature,
calculated in accordance with Codification topic 470-20, is $639,417; excluding
the unvested detachable warrants.  The beneficial conversion feature
is recorded as debt discount with a corresponding credit to additional paid in
capital and is amortized over the life of the March Debentures (three
years).  On March 22, 2010, one (1) March Investor exercised the
conversion option on $150,000 of principal, a portion of their March Debenture,
and received 750,000 restricted shares of the Company’s Common Stock and 750,000
share of the detachable warrant vested.  The fair value of the vested
detachable warrant, calculated in accordance with Codification topic 470-20, is
$71,395 and was


25





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)




recorded
as debt discount, fully expensed when record, with a corresponding credit to
additional paid in capital.  Upon conversion, $74,729 of unamortized
debt discount, from the beneficial conversion feature, was also
expensed.  On May 28, 2010, the same March Investor exercised the
conversion option on $250,000 of principal, a portion of their March Debenture,
and received 1,250,000 restricted shares of the Company’s Common Stock and
1,250,000 share of the detachable warrant vested.  The fair value of
the vested detachable warrant, calculated in accordance with Codification topic
470-20, is $128,605 and was recorded as debt discount, fully expensed when
record, with a corresponding credit to additional paid in
capital.  Upon conversion, $117,604 of unamortized debt discount, from
the beneficial conversion feature, was also expensed.  Additionally,
on June 10, 2010, the same March Investor exercised the conversion option on
$8,507 of accrued interest and received 42,535 restricted shares of the
Company’s Common Stock.  On December 13, 2010, one (1) March Investor
(Hi-Tek Private) elected to convert the full amount due on the March Debenture
plus accrued interest ($92,079) into 460,398 restricted shares of the Company’s
Common Stock and the 425,000 share detachable warrant vested.  The
fair value of the vested detachable warrant, calculated in accordance with
Codification topic 470-20, is $42,500 and was recorded as debt discount, fully
expensed when record, with a corresponding credit to additional paid in
capital.  Upon conversion, $31,167 of unamortized debt discount, from
the beneficial conversion feature, was also expensed.  On April 16,
2010, in a private assignment of a $50,000 March Debenture an aggregate of
$10,000 was assigned to Ms. Tran Johnson ($5,000) and Ms. Lee Tran Johnson
($5,000), both a related party.  Ms. Tran Johnson and Ms. Lee Tran
Johnson are the daughters of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.  The two $5,000
assigned March Debentures have been reclassified as a related party obligation
and are included in Convertible Notes 11 below.  The Company has
accrued interest, from inception, of $55,590 at October 31, 2010.  As
of October 31, 2010, the unamortized debt discount was $337,855.




Convertible
Notes 11 are a set of three (3) convertible debentures with an aggregate face
value of $668,667 issued March 12, 2010 with the same terms and conditions as
the March Debentures in satisfaction of unpaid accrued salary and interest for
(i) Mr. Thomas Johnson, the Company’s Chief Executive Officer and Chairman of
the Board of Directors from February 1, 2009 through December 12, 2009
($329,510), (ii) Dr. Lee Johnson, the Company’s President, Chief Technology
Officer, and Chief Financial Officer, from February 1, 2009 through December 12,
2009 ($329,511), and (iii) Mr. Louis P. Huynh, the Company’s General Counsel,
Executive Vice President of Operations and Business Development, and Corporate
Secretary from July 8, 2009 to January 9, 2010 ($9,646) under their respective
employment agreements with the Company (the “March Officer
Debentures”).  Interest accrues at Ten Percent (10%) per annum and is
due quarterly.  The debentures convert, in whole or in part, at the
option of each individual noteholder (the “March Officer Investors”) into
restricted shares of the Company’s Common Stock at $0.20 per share; representing
a beneficial conversion feature.  In addition, the March Officer
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 3,346,336 restricted 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.  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 then the Conversion Price shall be subject to a BBWA
adjustment, as defined.  The fair value of the beneficial conversion
feature, calculated in accordance with Codification topic 470-20, is $300,900;
excluding the unvested detachable warrants.  The beneficial conversion
feature is recorded as debt discount with a corresponding credit to additional
paid in capital and is amortized over the life of the March Officer Debentures
(three years).  On April 16, 2010, in a private assignment of a
$50,000 March Debenture (see convertible notes 11 above) an aggregate of $10,000
was assigned to Ms. Tran Johnson ($5,000) and Ms. Lee Tran Johnson ($5,000),
both a related party.  Ms. Tran Johnson and Ms. Lee Tran Johnson are
the daughters of Dr. Lee Johnson, the Company’s President, Chief Technology
Officer, and Chief Financial Officer.  The two $5,000 assigned March
Debentures have been reclassified as a related party obligation from Convertible
Notes 10 and are included in these convertible notes.  The Company has
accrued interest, from inception, of $43,227 at October 31, 2010.  As
of October 31, 2010, the unamortized debt discount was $241,183.




26









Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





10.
            Convertible
      notes (continued)





Convertible
Notes 12 are a set of two (2) convertible debentures issued June 17, 2010, to
one (1) February Investor who agreed to modify the terms of their February
Debenture aggregating $500,000 as follows: (i) the unpaid February Debenture
plus accrued interest at Ten Percent (10%) per annum for the period February 1,
2009 through May 31, 2010 was cancelled in exchanged for a new $571,000
convertible debenture ($566,281 as of April 30, 2010) and (ii) the unpaid
$45,000 in liquidated damages plus accrued interest at Ten Percent (10%) per
annum for the period February 1, 2009 through May 31, 2010 was exchanged for a
new $51,390 convertible debenture ($50,965 as of April 30, 2010) (collectively
the “Vision Debentures”).  Unless otherwise converted into common
stock of the Company, the Vision Debentures shall accrue interest at a rate of
10% per annum, interest payable in full, each calendar month starting with
December 2010 to be paid on the first of the month and monthly thereafter on the
first day of each month, in arrears for the prior month, in cash.  All
outstanding principal and accrued and unpaid interest shall become due June 17,
2013.  The Company has accrued interest of $31,674 at October 31,
2010.  At any time prior to or at the due date all principal and
accrued interest due may be converted, in whole or in part at any time and from
time to time, into common stock of the Company at $0.25 per share (the “Vision
Conversion Price”) at the option of the holder; representing a beneficial
conversion feature.  The fair value of the beneficial conversion
feature, calculated in accordance with Codification topic 470-20, is
$88,121.  The beneficial conversion feature is recorded as debt
discount with a corresponding credit to additional paid in capital and is
amortized over the life of the Vision Debentures (three years).  If
the Company, at any time while the amount of a debenture outstanding is equal to
or greater than fifty percent (50%) of the debenture principal, shall issue
securities or convertible securities, as defined, entitling the recipient to
shares or the right to convert into shares of Common Stock at a price per share
less than the Vision Conversion Price (the “New Securities Price”), then the
Vision Conversion Price, of the so affected Vision Debenture, shall be reduced
to the New Securities Price (the “New Vision Conversion Price”), as
defined.  If, at any time, the Company proposes to file a registration
statement, as defined, with the Securities and Exchange Commission the Company
shall include the shares issuable under the debentures for resale in such
Registration Statement.  As of October 31, 2010, the unamortized debt
discount was $75,882.





11.
            Term
      debt





The
Company’s historical cash requirements were funded under a revolving credit
arrangement with Hi-Tek Private (the “Hi-Tek Revolver”) which previously was a
related company.  Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer, and Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, 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.  On February 12, 2010, the Company converted $85,000 of the
Hi-Tek Revolver into a convertible debenture due in three years offered by the
Company, which offering closed on March 12, 2010 (see Note 10).  On
July 25, 2010, Hi-Tek Private instructed the Company to reduce the debt owed to
Hi-Tek Private by $35,000 in satisfaction of the June 30, 2010 balance owed by
Business.VN (see Note 4).





Changes
in the carrying amount of the Hi-Tek Revolver for the six months ended October
31, 2010 and the year ended April 30, 2010 are:





October 31,
                                
                                
                                April 30,2010
                                
                                
                                2010Balance,
      beginning of the year
                                
                                $
                                990,792
                                
                                
                                $
                                1,129,344Funds
      advanced
                                
                                
                                77,531
                                
                                
                                
                                15,000Repayments
                                
                                
                                55,877
                                
                                
                                
                                263,217Interest
      accrued
                                
                                
                                49,218
                                
                                
                                
                                109,665Balance,
      end of period
                                
                                $
                                1,061,664
                                
                                
                                $
                                990,792




27





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





11.
            Term
      debt (continued)





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





October 31,
                                
                                
                                April 30,2010
                                
                                
                                2010Hi-Tek
      Revolver
                                
                                $
                                1,061,664
                                
                                
                                $
                                990,792Term
      Note 1
                                
                                
                                854,436
                                
                                
                                
                                812,038Term
      Notes 2, 3, 4, 8, 9, 10, 13 and 30
                                
                                
                                1,240,211
                                
                                
                                
                                1,154,911Term
      Note 5
                                
                                
                                -
                                
                                
                                
                                -Term
      Note 6
                                
                                
                                -
                                
                                
                                
                                -Term
      Note 7
                                
                                
                                -
                                
                                
                                
                                -Term
      Notes 11
                                
                                
                                140,997
                                
                                
                                
                                132,239Term
      Notes 12
                                
                                
                                283,371
                                
                                
                                
                                288,687Term
      Note 14, 15 and 20
                                
                                
                                100,500
                                
                                
                                
                                101,734Term
      Note 16, 23, 24, 28 and 29
                                
                                
                                83,538
                                
                                
                                
                                50,430Term
      Note 17, 25 and 26
                                
                                
                                26,500
                                
                                
                                
                                10,764Term
      Note 18
                                
                                
                                256,274
                                
                                
                                
                                101,187Term
      Note 19
                                
                                
                                -
                                
                                
                                
                                -Term
      Notes 21 and 22
                                
                                
                                -
                                
                                
                                
                                -Term
      Note 27
                                
                                
                                20,850
                                
                                
                                
                                -4,068,341
                                
                                
                                
                                3,642,782Less
      short-term debt and current portion of long-term debt:Hi-Tek
      Revolver  and notes 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 13, 14, 15,
      17, 19, 20, 21, 22, 25 and 26
                                
                                
                                3,283,311
                                
                                
                                
                                3,070,239Notes
      11 classified as short-term
                                
                                
                                140,997
                                
                                
                                
                                132,239Current
      portion of notes 12
                                
                                
                                89,437
                                
                                
                                
                                100,8563,513,745
                                
                                
                                
                                3,303,334Less
      notes 16, 18, 23, 24, 27 and 28 included in due to
      related  parties (see Note 12)
                                
                                
                                360,662
                                
                                
                                
                                151,617Long-term
      debt, net of current portion
                                
                                $
                                193,934
                                
                                
                                $
                                187,831





Term Note
1 executed by the Company on May 1, 2007 with Hi-Tek Private, a former related
party, 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.  On December 31, 2009, the Hi-Tek IDC Loan was
amended to extend the due date to March 31, 2010 with no other change to the
terms.  On March 30, 2010, the Hi-Tek IDC Loan was further amended to
extend the due date to September 30, 2010 with no other change to the
terms.  On September 30, 2010, the Hi-Tek IDC Loan was amended to
extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Hi-Tek IDC Loan was
further amended to extend the due date to September 30, 2011 with no other
change to the terms.




28









Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





11.
            Term
      debt (continued)





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.  On February 26, 2010, $108,475 of accrued
interest was cancelled and exchanged for a convertible debenture due in three
years offered by the Company, which offering closed on March 12, 2010 (see Note
10).  On March 30, 2010, the Vina Mex First Loan was further amended
to extend the due date of the Vina Mex First Loan to September 30, 2010 with no
other change to the terms.  On September 30, 2010, the Vina Mex First
Loan was amended to extend the due date of the Vina Mex First Loan to December
31, 2010 with no other change to the terms.  Additionally, on December
10, 2010, the Vina Mex First Loan was further amended to extend the due date of
the Vina Mex First Loan to September 30, 2011 with no other change to the terms
of the note in exchange for a warrant for the purchase of 700,000 restricted
shares of the Company’s common stock at $0.25 valid for a term of three years
with an estimated fair value of $110,060 capitalized as a deferred charge
associated with the loan extension.





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.  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.  On March 30, 2010, the Vina Mex Second Loan was further
amended to extend the due date to September 30, 2010 with no other change to the
terms.  On September 30, 2010, the Vina Mex Second Loan was amended to
extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 10, 2010, the Vina Mex Second Loan
was further amended to extend the due date to September 30, 2011 with no other
change to the terms of the note in exchange for a warrant for the purchase of
200,000 restricted shares of the Company’s common stock at $0.25 valid for a
term of three years with an estimated fair value of $31,446 capitalized as a
deferred charge associated with the loan extension.





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.  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.  On March 30, 2010, the Vina Mex Third Loan was further amended
to extend the due date to September 30, 2010 with no other change to the
terms.  On September 30, 2010, the Vina Mex Third Loan was amended to
extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 10, 2010, the Vina Mex Third Loan
was further amended to extend the due date to September 30, 2011 with no other
change to the terms of the note in exchange for a warrant for the purchase of
100,000 restricted shares of the Company’s common stock at $0.25 valid for a
term of three years with an estimated fair value of $15,723 capitalized as a
deferred charge associated with the loan extension.




29





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





11.
            Term
      debt (continued)





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 7, 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 ($1.50) per share;
the warrant expires on May 7, 2011.





Term Note
6 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 4, 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 ($1.50) per share;
the warrant expires on May 4, 2011.





Term Note
7 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 4, 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 ($1.50) per share; the warrant
expires on May 4, 2011.





Term Note
8 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 was 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) was cancelled in exchange for a convertible debenture due in three
years offered by the Company, which offering closed on March 12, 2010 (see Note
10).





Term Note
9 executed by the Company on December 19, 2008 with IDCG SA for $100,000; the
promissory note was 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
($112,757) was cancelled in exchange for a convertible debenture due in three
years offered by the Company, which offering closed on March 12, 2010 (see Note
10).





Term Note
10 executed by the Company on January 27, 2009 with IDCG SA for $100,000; the
promissory note was 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) was cancelled in exchange for a convertible debenture due in three
years offered by the Company, which offering closed on March 12, 2010 (see Note
10).





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 Notes”) (see Term Notes 12).  One February Investor of
$500,000 has agreed to cancel the February Debenture in exchange for a three (3)
year convertible debenture (see Note 10).  Two (2) February Investors,
aggregating $112,500, 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 11.  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.


30





Dot
      VN, INC. AND SUBSIDIARIESNotes
      to Condensed Consolidated Financial Statements
  (Unaudited)As
      of October 31, 2010





11.
            Term
      debt (continued)





Term
Notes 12 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) (the
“Extended February Debt”).  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 restricted 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
9).





Term Note
13 executed by the Company on February 28, 2009 with IDCG SA for $100,000; the
promissory note was 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
($110,563) was cancelled in exchange for a convertible debenture due in three
years offered by the Company, which offering closed on March 12, 2010 (see Note
10).





Term note
14 executed by the Dot VN Danang on May 5, 2009 with Mr. Diep Tai of Vietnam for
$101,500; 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
15 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 was 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 (see
Term Note 21).




31





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




11.  Term
debt (continued)





Term Note
16 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 was 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.  On February 25, 2010, the Thomas First Loan was amended to
extend the due date to May 31, 2010 with no other change to the
terms.  On May 27, 2010, the Thomas First Loan was amended to extend
the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Thomas First Loan was
further amended to extend the due date to September 30, 2011 with no other
change to the terms.





Term Note
17 executed by the Company on September 18, 2009 with Ms. Ngoc Anh Ung for
$10,000; the promissory note was 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.  On
February 12, 2010, the Ung First Loan was amended to extend the due date to June
18, 2010 with no other change to the terms.  On June 10, 2010, the Ung
First Loan was amended to extend the due date to December 31, 2010 with no other
change to the terms.  Additionally, on December 13, 2010, the Ung
First Loan was further amended to extend the due date to September 30, 2011 with
no other change to the terms.





Term Note
18 executed by the Company on October 29, 2009 with Ms. Hue Tran Johnson for
$10,000; the revolving credit agreement was 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, $5,000,
$23,000, $10,000, $20,000, $15,000, $5,000, $30,000, $10,000, and $10,000 from
Ms. Johnson under the Hue Revolver on November 16, November 17, December 2,
2009, January 8, January 28, April 14, July 19, July 20, July 27, August 9,
August 30, September 14, and September 16, 2010, respectively.  In
addition, the Company borrowed additional funds advanced in Hanoi, Vietnam in
Vietnamese Dong of 200,000,000 VND ($10,471), and 700,000,000 VND ($36,005) on
June 23, and August 16, 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 April 29, 2010, the Hue
Revolver was amended to extend the due date to December 31, 2010 with no other
change to the terms.  Additionally, on December 13, 2010, the Hue
Revolver was further amended to extend the due date to September 30, 2011 with
no other change to the terms.





Term Note
19 executed by the Company on November 13, 2009 with Lan T. Tran for $45,000;
the promissory note was 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 15) due November 19, 2009 and ii) Hi-Tek
Private as a $30,000 partial payment on the Hi-Tek Revolver.  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 offered by the
Company, which offering closed on March 12, 2010 (see Note 10).





Term Note
20 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 was 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 offered by the Company, which offering
closed on March 12, 2010 (see Note 10).





Term Note
21 executed by the Company on November 18, 2009 with Nguyen Yen Crogan for
$50,000; the promissory note was 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 the Hi-Tek Revolver.  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 offered by the Company, which offering closed on
March 12, 2010 (see Note 10).


32









Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




11.  Term
debt (continued)





Term Note
22 executed by the Company on November 18, 2009 with Nga T. Tran for $50,000;
the promissory note was 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
the Hi-Tek Revolver.  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 offered by the Company, which offering closed on
March 12, 2010 (see Note 10).





Term Note
23 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 was 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.  On
February 25, 2010, the Thomas Second Loan was amended to extend the due date to
May 31, 2010 with no other change to the terms.  On May 27, 2010, the
Thomas Second Loan was amended to extend the due date to December 31, 2010 with
no other change to the terms.  Additionally, on December 13, 2010, the
Thomas Second Loan was further amended to extend the due date to September 30,
2011 with no other change to the terms.





Term Note
24 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 was 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
25 executed by the Company on January 19, 2010 with Ms. Ngoc Anh Ung for
$24,000; the promissory note was 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.  At October 31, 2010, the Company owes $90 of accrued
interest on the Ung Second Loan.





Term Note
26 executed by the Company on February 12, 2010 with Ms. Ngoc Anh Ung for
$9,000; the promissory note was due March 12, 2010.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “Ung Third
Loan”).  Proceeds were used to fund general operations.  On
March 3, 2010, $9,000 was repaid on the Ung Third Loan.  At October
31, 2010, the Company owes $50 of accrued interest on the Ung Third
Loan.





Term Note
27 executed by the Company on August 30, 2010 with Mr. Louis Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary, for $20,500; the promissory note was due
September 30, 2010 and interest accrues monthly at a rate of Ten Percent (10%)
per annum (the “Huynh Loan”).  Proceeds were used to fund general
operations.  On September 30, 2010, the Huynh Loan was amended to
extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Huynh Loan was further
amended to extend the due date to September 30, 2011 with no other change to the
terms.





Term Note
28 executed by the Company on August 30, 2010 with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, for
$30,000; the promissory note was due November 30, 2010 and interest accrues
monthly at a rate of Ten Percent (10%) per annum (the “Thomas Fourth
Loan”).  Proceeds were used to fund general operations.  On
November 10, 2010, the Thomas Fourth Loan was amended to extend the due date to
December 31, 2010 with no other change to the terms.  Additionally, on
December 13, 2010, the Thomas Fourth Loan was further amended to extend the due
date to September 30, 2011 with no other change to the terms.





Term Note
29 executed by the Company on September 17, 2010 with Ms. Ngoc Anh Ung for
$15,000; the promissory note is due December 17, 2010.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Ung Fourth
Loan”).  Proceeds were used to fund general operations.  On
December 13, 2010, the Ung Fourth Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms.




33





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





11.  Term
debt (continued)





Term Note
30 executed by the Company on October 1, 2010 with IDCG SA for $25,000; the
promissory note is due on demand with written notice and bears no interest (the
“IDCG Fifth Loan”).  Proceeds were used to fund general
operations.  The Company repaid $10,000 and $5,000 on the IDCG
Fifth Loan on December 3 and December 14, 2010 respectively.





12.  Due
to related parties





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





October 31,
                    
                    
                    April 30,2010
                    
                    
                    2010TJ
      Notes, net of zero and $229,774 discount at October 31, and April 30,
      2010
                    
                    $
                    1,629,813
                    
                    
                    $
                    1,335,821LJ
      Notes, net of zero and $229,774 discount at October 31, and April 30,
      2010
                    
                    
                    1,629,813
                    
                    
                    
                    1,335,821Huynh
      Note, net of zero and $47,167 discount at October  31, and April
      30, 2010
                    
                    
                    125,847
                    
                    
                    
                    73,722Term
      Notes 16, 23, 24, and 28, Thomas Johnson
                    
                    
                    83,538
                    
                    
                    
                    50,430Term
      Note 18, Hue Tran Johnson
                    
                    
                    256,274
                    
                    
                    
                    101,187March
      Officer Debenture (Thomas Johnson), net of  $116,976 and
      $141,690 discount at October 31, and April 30, 2010
                    
                    
                    233,569
                    
                    
                    
                    192,244March
      Officer Debenture (Lee Johnson), net of  $116,976 and $141,690
      discount at October 31, and April 30, 2010
                    
                    
                    233,569
                    
                    
                    
                    192,244March
      Officer Debenture (Louis Huynh), net of  $3,426 and $4,148
      discount at October 31, and April 30, 2010
                    
                    
                    6,836
                    
                    
                    
                    5,628March
      Officer Debentures (Tran Johnson and Lee Tran  Johnson),net of
      $3,805 and $4,639 discount at October  31, and April 30,
      2010
                    
                    
                    6,737
                    
                    
                    
                    5,400Hi-Tek
      Trademark Loan One (Howard Johnson), net of zero discount at October 31,
      and April 30, 2010
                    
                    
                    201,713
                    
                    
                    
                    -Term
      Note 27, Louis Huynh
                    
                    
                    20,850
                    
                    
                    
                    -4,428,559
                    
                    
                    
                    3,292,497Less
      current portion
                    
                    
                    3,947,848
                    
                    
                    
                    2,896,981Due
      to related parties, long-term
                    
                    $
                    480,711
                    
                    
                    $
                    395,516








34





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




12.  Due
to related parties (continued)





(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 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 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 to December 31, 2009
with no other change to the terms of the note or the conversion
feature.  On November 17, 2009, the Company agreed to a 50% conversion
of the outstanding balance ($1,510,489.50) at $0.30 per share and issued
5,034,965 restricted shares of the Company’s Common Stock and a $1,510,489.41
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 $119,323 at October 31, 2010.  On June 29, 2010, the TJ Fourth Note
was amended to extend the due date to December 31, 2010 with no other change to
the terms of the note or the conversion feature.  Additionally, on
December 13, 2010, the TJ Fourth Note was further amended to extend the due date
to September 30, 2011 with no other change to the terms of the notes or the
conversion feature.  In accordance with Codification topic 470-20,
there is no beneficial conversion feature at the time of the two
extensions.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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 Adjusted
Conversion Price of the TJ Fourth Note 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 $402,104 on March 12, 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 October 31, 2010, the unamortized debt discount was
zero.
  be
adjusted downward in the event Dot VN issues


35





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





12.  Due
to related parties (continued)




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 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 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 to December 31, 2009
with no other change to the terms of the note or the conversion
feature.  On November 17, 2009, the Company agreed to a 50% conversion
of the outstanding balance ($1,510,489.50) at $0.30 per share and issued
5,034,965 restricted shares of the Company’s Common Stock and a $1,510,489.41
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 $119,324 at October 31, 2010.  On June 29, 2010, the LJ Fourth Note
was amended to extend the due date to December 31, 2010 with no other change to
the terms of the note or the conversion feature.  Additionally, on
December 13, 2010, the LJ Fourth Note was further amended to extend the due date
to September 30, 2011 with no other change to the terms of the notes or the
conversion feature.  In accordance with Codification topic 470-20,
there is no beneficial conversion feature at the time of the two
extensions.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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 Adjusted
Conversion Price of the LJ Fourth Note 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 $402,104 on March 12, 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 October 31, 2010, the unamortized debt discount was
zero.




36





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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, for $113,244 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 was due
October 16, 2009 and accrues interest monthly at Eight Percent (8%) per
annum.  The Company has accrued interest of $12,603 at October 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 to December 31, 2009
with no other change to the terms of the note or the conversion
feature.  On December 29, 2009, the Huynh Note was amended to extend
the due date to June 30, 2010 with no other change to the terms of the note or
the conversion feature.  On June 29, 2010, the Huynh Note was amended
to extend the due date to December 31, 2010 with no other change to the terms of
the note or the conversion feature.  Additionally, on December 13,
2010, the Huynh Note was further amended to extend the due date to September 30,
2011 with no other change to the terms of the note or the conversion
feature.  In accordance with Codification topic 470-20, there is no
beneficial conversion feature at the time of the four 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 Adjusted Conversion Price of the Huynh
Note 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.  On March 12, 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 $0.20
per share (the “March Debentures”).  Accordingly, the Conversion Price
of the Huynh Note 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; the Company recorded this amount as debt discount
with a corresponding credit to additional paid in capital.  As of
October 31, 2010, the unamortized debt discount was zero.





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 was due December 12, 2009 (see Note
10).  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.  On February 25, 2010, the Thomas First Loan was amended
to extend the due date to May 31, 2010 with no other change to the
terms.  On May 27, 2010, the Thomas First Loan was amended to extend
the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Thomas First Loan was
further amended to extend the due date to September 30, 2011 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 was 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, $5,000, $23,000, $10,000, $20,000, $15,000, $5,000, $30,000, $10,000,
and $10,000 from Ms. Johnson under the Hue Revolver on November 16, November 17,
December 2, 2009, January 8, January 28, April 14, July 19, July 20, July 27,
August 9, August 30, September 14, and September 16, 2010,
respectively.  In addition, the Company borrowed additional funds
advanced in Hanoi, Vietnam in Vietnamese Dong of 200,000,000 VND ($10,471), and
700,000,000 VND ($36,005) on June 23, and August 16, 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 April 29, 2010, the Hue Revolver was amended to extend
the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Hue Revolver was
further amended to extend the due date to September 30, 2011 with no other
change to the terms.




37





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





12.  Due
to related parties (continued)





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 was 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 May 27, 2010, the Thomas Second Loan was
amended to extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Thomas Second Loan was
further amended to extend the due date to September 30, 2011 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 was 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.





On March
12, 2010, the Company converted an aggregate of $668,667 of unpaid salaries and
accrued interest owed to its three officers into convertible debentures due in
three years offered by the Company, which offering closed on March 12, 2010 (see
Note 10).  The set of three (3) convertible debentures, with the same
terms and conditions as the March Debentures, were issued in satisfaction of
unpaid accrued salary and interest for (i) Mr. Thomas Johnson, the Company’s
Chief Executive Officer and Chairman of the Board of Directors from February 1,
2009 through December 12, 2009 ($329,510), (ii) Dr. Lee Johnson, the Company’s
President, Chief Technology Officer, and Chief Financial Officer, from February
1, 2009 through December 12, 2009 ($329,511), and (iii) Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary from July 8, 2009 to January 9, 2010
($9,646) under their respective employment agreements with the Company (the
“March Officer Debentures”).  The convertible debentures have a three
year term and are due March 12, 2013.  Interest accrues at Ten Percent
(10%) per annum and is due quarterly.  The Company has accrued
interest of $42,685 at October 31, 2010.  The debentures convert, in
whole or in part, at the option of each individual noteholder (the “March
Officer Investors”) into restricted shares of the Company’s Common Stock at
$0.20 per share; representing a beneficial conversion feature.  In
addition, the March Officer 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 3,346,336 restricted 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 fair value of the beneficial conversion feature,
calculated in accordance with Codification topic 470-20, is
$300,900.  The beneficial conversion feature is recorded as debt
discount with a corresponding credit to additional paid in capital and are
amortized over the life of the March Officer Debentures (three
years).  As of October 31, 2010, the unamortized debt discount was
$237,378.





On April
16, 2010, in a private assignment of a $50,000 March Debenture an aggregate of
$10,000 was assigned to Ms. Tran Johnson ($5,000) and Ms. Lee Tran Johnson
($5,000), both a related party.  Ms. Tran Johnson and Ms. Lee Tran
Johnson are the daughters of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.  The March Debentures
have a three year term and are due February 12, 2013.  Interest
accrues at Ten Percent (10%) per annum and is due quarterly.  The
debentures convert, in whole or in part, at the option of each individual
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 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 50,000 restricted
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.  In the event the Company
issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock), as defined, at a price below the Conversion
Price then the Conversion Price shall be subject to a BBWA adjustment, as
defined.  The fair value of the beneficial conversion feature,
calculated in accordance with Codification topic 470-20, is $5,000; excluding
the unvested detachable warrants.  The beneficial
conversion feature is recorded as debt discount with a corresponding credit to
additional paid in capital and is amortized over the life of the March
Debentures (three years).  The Company has accrued interest, from
inception, of $542 at October 31, 2010.  As of October 31, 2010, the
unamortized debt discount was $3,805.




38





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





12.  Due
to related parties (continued)




On May
19, 2010, Hi-Tek Private assigned the Hi-Tek Trademark Loan One to Mr. Howard
Johnson, a related party.  Mr. Johnson is the father of 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.  The Hi-Tek Trademark Loan One
is due December 31, 2010, accrues interest monthly at Ten Percent (10%) per
annum with interest paid monthly, in arrears, effective July 1,
2010,  The note converts at the option of the holder into restricted
shares of the Company’s Common Stock at $0.20 per share (the “Conversion
Price”).  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 $1,713 at October 31, 2010.  As of October 31, 2010, the
unamortized debt discount was zero.





On August
30, 2010, the Company executed a $20,500 promissory note with Mr. Louis Huynh,
the Company’s General Counsel, Executive Vice President of Operations and
Business Development, and Corporate Secretary.  The promissory note
was due September 30, 2010 and interest accrues monthly at a rate of Ten Percent
(10%) per annum (the “Huynh Loan”).  Proceeds were used to fund
general operations.  On September 30, 2010, the Huynh Loan was amended
to extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Huynh Loan was further
amended to extend the due date to September 30, 2011 with no other change to the
terms.





Also on
August 30, 2010, the Company executed a $30,000 promissory note with Mr. Thomas
Johnson, the Company’s Chief Executive Officer and Chairman of the Board of
Directors.  The promissory note was due November 30, 2010 and interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Thomas Fourth
Loan”).  Proceeds were used to fund general operations.  On
November 10, 2010, the Thomas Fourth Loan was amended to extend the due date to
December 31, 2010 with no other change to the terms.  Additionally, on
December 13, 2010, the Thomas Fourth Loan was further amended to extend the due
date to September 30, 2011 with no other change to the terms.





13.  Accrued
and other current liabilities





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





October 31,
                  
                  
                  April 30,2010
                  
                  
                  2010Officer
      salaries
                  
                  $
                  654,885
                  
                  
                  $
                  286,522Other
      payroll accruals
                  
                  
                  22,785
                  
                  
                  
                  20,375Liquidated
      damages
                  
                  
                  17,659
                  
                  
                  
                  17,659Other
      accrued liabilities
                  
                  
                  46,906
                  
                  
                  
                  19,900Total
      accrued and other current liabilities
                  
                  $
                  742,235
                  
                  
                  $
                  344,456





As of
October 31 and April 30, 2010, the Company has unpaid salaries and accrued
interest owed to officers of $654,885 and $286,522, respectively.  The
unpaid salaries bear interest at a rate of Ten Percent (10%) per
annum.  As of October 31 and April 30, 2010, accrued interest on the
salaries was $43,258 and $19,895, respectively.  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 from August 7, 2007 through July
6, 2009 under his employment agreement with the Company (see Notes 10 and
12).  On March 12, 2010, the Company issued a set of three (3)
convertible debentures with the same terms and conditions
as the March Debentures (see Note 10) in satisfaction of unpaid accrued salary
and interest for (i) Mr. Thomas Johnson, the Company’s Chief Executive Officer
and Chairman of the Board of Directors from February 1, 2009 through December
12, 2009 ($329,510), (ii) Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer, from February 1, 2009 through
December 12, 2009 ($329,511), and (iii) Mr. Louis P. Huynh, the Company’s
General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary from July 8, 2009 to January 9, 2010
($9,646) under their respective employment agreements with the Company (the
“March Officer Debentures”) (see Note 10).




39





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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 restricted 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 Notes”) to include their unpaid
Liquidated Damages ($29,205).  On June 17, 2010 one (1) February
Investors (see Note 10) agreed to modify the terms of their February Debenture
(the “Vision Debenture”) to include their unpaid Liquidated Damages
($45,000).  As of October 31, 2010, Liquidated Damages are owed to the
two (2) holders of the Defaulted Debentures ($10,125) 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.





14.  Related
party transactions





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 executive 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 executive
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 restricted shares; such shares 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 executive employment agreement was
approved by the Board of Directors, making him the Chief Executive
Officer.  Pursuant to the terms of the executive 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 restricted 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.




40





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





14.  Related
party transactions (continued)




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





On
October 9, 2006, Mr. Louis Huynh’s consulting agreement was amended to be an
employment agreement making him the General Counsel.  Pursuant to the
terms of the employment agreement, Mr. Huynh shall receive an annual salary of
Sixty Thousand Dollars ($60,000) and shall receive stock options totaling in the
aggregate 300,000 restricted shares; such shares are exercisable, at a per share
price of $0.50, into shares of the Company’s Common Stock (the “Huynh Employment
Options”).  The Huynh 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.  On
November 20, 2006, Mr. Huynh was appointed to the Company’s Board of
Directors.  On August 7, 2007, Mr. Huynh’s executive employment
agreement was approved by the Board of Directors, making him the General Counsel
and Secretary.  Pursuant to the terms of the executive employment
agreement, Mr. Huynh shall receive an annual salary of One Hundred Twenty
Thousand Dollars ($120,000), a grant of 19,445 restricted shares of the
Company’s Common Stock and shall receive stock options totaling in the aggregate
200,000 restricted shares and are exercisable, at a per share price of $1.80,
the Company’s market price on the date of grant, into shares of the Company’s
Common Stock (the “Huynh 2nd Employment Options”).  On June 10, 2008,
Mr. Huynh was appointed the Company’s Executive Vice President, Operations and
Business Development.





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 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 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 to December 31, 2009 with no other change to the terms of the note
or the conversion feature.  On November 17, 2009, the Company agreed
to a 50% conversion of the outstanding balance ($1,510,490) at $0.30 per share
and issued 5,034,965 restricted shares of the Company’s Common Stock and a
$1,510,489 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 $119,323 at October 31, 2010.  On June 29, 2010,
the TJ Fourth Note was amended to extend the due date to December 31, 2010 with
no other change to the terms of the note or the conversion
feature.  Additionally, on December 13, 2010, the TJ Fourth Note was
further amended to extend the due date to September 30, 2011 with no other
change to the terms of the note or the conversion feature.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the two extensions.  On March 12, 2010, the
Company closed an offering of convertible debentures (see Convertible Notes 10
and 11) 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 Adjusted Conversion Price of the TJ
Fourth Note 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 $402,104 on March 12, 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 October 31,
2010, the unamortized debt discount was zero.




41





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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 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 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 to
December 31, 2009 with no other change to the terms of the note or the
conversion feature.  On November 17, 2009, the Company agreed to a 50%
conversion of the outstanding balance ($1,510,490) at $0.30 per share and issued
5,034,965 restricted shares of the Company’s Common Stock and a $1,510,489
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 $119,324 at October 31, 2010.  On June 29, 2010, the LJ Fourth Note
was amended to extend the due date to December 31, 2010 with no other change to
the terms of the note or the conversion feature.  Additionally, on
December 13, 2010, the LJ Fourth Note was further amended to extend the due date
to September 30, 2011 with no other change to the terms of the note or the
conversion feature.  In accordance with Codification topic 470-20,
there is no beneficial conversion feature at the time of the two
extensions.  On March 12, 2010, the Company closed an offering of
convertible debentures (see Convertible Notes 10 and 11) 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 Adjusted
Conversion Price of the LJ Fourth Note 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 $402,104 on March 12, 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 October 31, 2010, the unamortized debt discount was
zero.




42





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





14.  Related
party transactions (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, for $113,244 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 was due October 16, 2009 and accrues interest
monthly at Eight Percent (8%) per annum.  The Company has accrued
interest of $12,603 at October 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 to December 31, 2009 with no other change to the terms of the note
or the conversion feature.  On December 29, 2009, the Huynh Note was
amended to extend the due date to June 30, 2010 with no other change to the
terms of the note or the conversion feature.  On June 29, 2010, the
Huynh Note was amended to extend the due date to December 31, 2010 with no other
change to the terms of the note or the conversion
feature.  Additionally, on December 13, 2010, the Huynh Note was
further amended to extend the due date to September 30, 2011 with no other
change to the terms of the note or the conversion feature.  In
accordance with Codification topic 470-20, there is no beneficial conversion
feature at the time of the four 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 Adjusted Conversion Price of the Huynh Note 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.  On March 12, 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 $0.20 per share (the
“March Debentures”).  Accordingly, the Conversion Price of the Huynh
Note 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; the Company recorded this amount as debt discount with a corresponding
credit to additional paid in capital.  As of October 31, 2010, the
unamortized debt discount was zero.




43





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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 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 $671,757 and $3,627,486 for the six months ended October 31,
2010 and the year ended April 30, 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 one-year 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.  The lock-up agreements expired 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 was 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.  On February 25, 2010, the Thomas First Loan was amended
to extend the due date to May 31, 2010 with no other change to the
terms.  On May 27, 2010, the Thomas First Loan was amended to extend
the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Thomas First Loan was
further amended to extend the due date to September 30, 2011 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 was 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, $5,000, $23,000, $10,000, $20,000, $15,000, $5,000, $30,000, $10,000,
and $10,000 from Ms. Johnson under the Hue Revolver on November 16, November 17,
December 2, 2009, January 8, January 28, April 14, July 19, July 20, July 27,
August 9, August 30, September 14, and September 16, 2010,
respectively.  In addition, the Company borrowed additional funds
advanced in Hanoi, Vietnam in Vietnamese Dong of 200,000,000 VND ($10,471), and
700,000,000 VND ($36,005) on June 23, and August 16, 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 April 29, 2010, the Hue Revolver was amended to extend
the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Hue Revolver was
further amended to extend the due date to September 30, 2011 with no other
change to the terms.


44





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




14.  Related
party transactions (continued)





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 was due February 28, 2010 (see Note
11).  Interest accrues monthly at a rate of Ten Percent (10%) per
annum (the “Thomas Second Loan”).  Proceeds were used to fund general
operations.  On February 25, 2010, the Thomas Second Loan was amended
to extend the due date to May 31, 2010 with no other change to the
terms.  Additionally, on May 27, 2010, the Thomas Second Loan was
further amended to extend the due date to December 31, 2010 with no other change
to the terms.  Additionally, on December 13, 2010, the Thomas Second
Loan was further amended to extend the due date to September 30, 2011 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 was due March 11, 2010 (see Note
11).  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.





On March
12, 2010, the Company converted an aggregate of $668,667 of unpaid salaries and
accrued interest owed to its three officers into convertible debentures due in
three years offered by the Company, which offering closed on March 12, 2010 (see
Note 10).  The set of three (3) convertible debentures, with the same
terms and conditions as the March Debentures, were issued in satisfaction of
unpaid accrued salary and interest for (i) Mr. Thomas Johnson, the Company’s
Chief Executive Officer and Chairman of the Board of Directors from February 1,
2009 through December 12, 2009 ($329,510), (ii) Dr. Lee Johnson, the Company’s
President, Chief Technology Officer, and Chief Financial Officer, from February
1, 2009 through December 12, 2009 ($329,511), and (iii) Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary from July 8, 2009 to January 9, 2010
($9,646) under their respective employment agreements with the Company (the
“March Officer Debentures”).  The convertible debentures have a three
year term and are due March 12, 2013.  Interest accrues at Ten Percent
(10%) per annum and is due quarterly.  The Company has accrued
interest of $42,685 at October 31, 2010.  The debentures convert, in
whole or in part, at the option of each individual noteholder (the “March
Officer Investors”) into restricted shares of the Company’s Common Stock at
$0.20 per share; representing a beneficial conversion feature.  In
addition, the March Officer 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 3,346,336 restricted 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 fair value of the beneficial conversion feature,
calculated in accordance with Codification topic 470-20, is
$300,900.  The beneficial conversion feature is recorded as debt
discount with a corresponding credit to additional paid in capital and is
amortized over the life of the March Officer Debentures (three
years).  As of October 31, 2010, the unamortized debt discount was
$237,378.





On April
16, 2010, in a private assignment of a $50,000 March Debenture an aggregate of
$10,000 was assigned to Ms. Tran Johnson ($5,000) and Ms. Lee Tran Johnson
($5,000), both a related party.  Ms. Tran Johnson and Ms. Lee Tran
Johnson are the daughters of Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer.  The March Debentures
have a three year term and are due February 12, 2013.  Interest
accrues at Ten Percent (10%) per annum and is due quarterly.  The
debentures convert, in whole or in part, at the option of each individual
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 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 50,000 restricted
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.  In the event the Company
issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock), as defined, at a price below the Conversion
Price then the Conversion Price shall be subject to a BBWA adjustment, as
defined.  The fair value of the beneficial conversion feature,
calculated in accordance with Codification topic 470-20, is $5,000; excluding
the unvested detachable warrants.  The beneficial
conversion feature is recorded as debt discount with a corresponding credit to
additional paid in capital and is amortized over the life of the March
Debentures (three years).  The Company has accrued interest, from
inception, of $542 at October 31, 2010.  As of October 31, 2010, the
unamortized debt discount was $3,805.




45





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




14.  Related
party transactions (continued)




On May
19, 2010, Hi-Tek Private assigned the Hi-Tek Trademark Loan One to Mr. Howard
Johnson, a related party.  Mr. Johnson is the father of 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.  The Hi-Tek Trademark Loan One
is due December 31, 2010, accrues interest monthly at Ten Percent (10%) per
annum with interest paid monthly, in arrears, effective July 1,
2010,  The note converts at the option of the holder into restricted
shares of the Company’s Common Stock at $0.20 per share (the “Conversion
Price”).  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 $1,713 at October 31, 2010.  As of October 31, 2010, the
unamortized debt discount was zero.





On, May
25, 2010, the Company advanced $60,000 in furtherance of the development of
INFO.VN, a super web portal which employees the Company’s unregistered domain
monetization rights, to IT.VN, a joint stock company, (“IT.VN”), existing under
the laws of the country of Vietnam.  The Company is the direct
beneficiary of all economic and legal benefit derived from the ownership of
IT.VN and IT.VN is managed by Dot VN staff at the direction of the Company’s
officers and directors.  Under the arrangement, IT.VN will facilitate
the sales of online advertising within Vietnam, manage and develop content for
INFO.VN and perform such other functions as may be required by the Company’s
management from time to time.  Ownership of IT.VN is held by three (3)
nominees of the Company, Dr. Lee Johnson, the Company’s President, Chief
Technology Officer, and Chief Financial Officer; Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary and Ms. Ngoc Anh Ung, the Company’s Vice
President of, Operations and Business Development, Asia.  The nominees
have executed agreements with the Company which provide that (i) the nominees
shall represent the Company in the management and operation of IT.VN, subject to
the direction of the Company’s Board of Directors, until the earlier of his or
her resignation, termination or replacement and (ii) all legal and economic
benefit in IT.VN is irrevocably assigned to Dot VN by such
nominees.  The arrangement involves nominee participation for the
purpose of complying with Vietnam law and policy.  The definitive
agreement memorializing the transaction was executed on December 14,
2010.  At October 31, 2010, IT.VN has incurred a cumulative operating
loss of 464,670,087 VND ($24,207) which the Company funded with the
advance.  The $24,207 was recognized as the Company’s 100% share of
the IT.VN operational loss as a component of the Company’s loss from
operations.





On August
30, 2010, the Company executed a $20,500 promissory note with Mr. Louis Huynh,
the Company’s General Counsel, Executive Vice President of Operations and
Business Development, and Corporate Secretary.  The promissory note
was due September 30, 2010 and interest accrues monthly at a rate of Ten Percent
(10%) per annum (the “Huynh Loan”).  Proceeds were used to fund
general operations.  On September 30, 2010, the Huynh Loan was amended
to extend the due date to December 31, 2010 with no other change to the
terms.  Additionally, on December 13, 2010, the Huynh Loan was further
amended to extend the due date to September 30, 2011 with no other change to the
terms.





Also on
August 30, 2010, the Company executed a $30,000 promissory note with Mr. Thomas
Johnson, the Company’s Chief Executive Officer and Chairman of the Board of
Directors.  The promissory note was due November 30, 2010 and interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Thomas Fourth
Loan”).  Proceeds were used to fund general operations.  On
November 10, 2010, the Thomas Fourth Loan was amended to extend the due date to
December 31, 2010 with no other change to the terms.  Additionally, on
December 13, 2010, the Thomas Fourth Loan was further amended to extend the due
date to September 30, 2011 with no other change to the terms.




46





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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





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 October 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
six months ended October 31, 2010 and the year ended April 30, 2010,
respectively.  As of October 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.





On
January 31 and February 9, 2007, 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 October 31, 2010.  As of October 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
October 31, 2010.  As of October 31, 2010, an aggregate of 73,750
$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).





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).




47





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010




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





The
Company issued a series of six monthly warrants exercisable into 40,000
restricted shares of the Company’s Common Stock on July 5, August 5, September
5, October 5, November 5, and December 5, 2007 for an aggregate of 240,000
restricted shares to Double Barrel, LLC for monthly performance of services,
with an estimated fair value of $73,086, $58,021, $66,771, $77,954, $67,900, and
$63,845, respectively.  Each warrant is exercisable at $1.50 per share
and expires three years from the date of grant.  The warrants are
earned in the month of grant and the fair value is expensed in the month; there
is no unamortized balance at October 31, 2010.  The July 5, August 5,
September 5, and October 5, 2007 warrants expired unexercised on July 5, August
5, September 5, and October 5, 2010, respectively.  As of October 31,
2010, two warrants aggregating 80,000 restricted shares remain outstanding and
no warrants were exercised.





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





On August
7, 2007, the Company issued options to purchase an aggregate of 350,000
restricted shares of the Company’s Common Stock with an estimated fair value of
$628,847 to an officer (Louis P. Huynh) and an employee.  The options
have an exercise price of $1.80 per share, vest one third at the date of grant
and one third at the end of the first and second year from the date of grant and
expire ten years the date of vesting.  On January 15, 2009, 150,000
options expired unexercised upon the employee’s termination.  As of
October 31, 2010, 200,000 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 $14,984 was expensed in the six
months ended October 31, 2010 and the year ended April 30, 2010.





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 had an exercise price of $2.00 per share,
vested at the date of grant and expired September 7, 2010, three years the grant
date, unexercised.  Compensation cost, in accordance with Codification
topic 718, was recognized over the requisite service period (date of
grant).  On September 7, 2010, the options expired
unexercised.





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





On
September 18, 2007, the Company issued a 200,000 share warrant pursuant to the
terms of a consulting agreement exercisable into restricted shares of the
Company’s Common Stock with an estimated fair value of $275,312 to IR.VN LLC
with a three year term and an exercise price of $2.00 per share.  The
value of the warrants was expensed over the one year term of service; there is
no unamortized balance at October 31, 2010.  On September 18, 2010 the
warrants expired unexercised.




48









Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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
three 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 August
5, 2008, the Company issued options to purchase 75,000 restricted shares of the
Company’s Common Stock with an estimated fair value of $75,561 to an
employee.  The options have an exercise price of $1.80 per share, vest
one third at the date of grant and one third on February 14, 2009 and 2010 and
expire ten years from the date of vesting.  As of October 31, 2010,
75,000 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; zero and $13,271 was expensed during the
six months ended October 31, 2010 and the year ended April 30,
2010.





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 Notes”) have
agreed to the Company’s proposal (see Note 10) 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 (see Note 9).  The deferred charge
is amortized on a straight-line basis over the approximate thirty-six month term
of the term debt with $1,636 and $3,390 expensed in the six months ended October
31, 2010 and the year ended April 30, 2010, respectively..





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





On April
20 and April 21, 2009, pursuant to the terms of two stock subscription
agreements, the Company issued two warrants exercisable into an aggregate of
166,668 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.


49





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





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





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 October 31, 2010, 4,129,500 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; $720,539 and $3,908,534 was expensed during
the six months ended October 31, 2010 and the year ended April 30,
2010.  Amortization for the years ending April 30, 2011, and 2012 will
be $1,152,862, and $144,108, respectively.  During the year ended
April 30, 2010, 72,000 options terminated as a consequence of employee
terminations.  Prior to termination of the option agreements, $17,624
was expensed in the year ended April 30, 2010.





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 October 31,
2010.  As of October 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).




50









Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





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





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
warrant was expensed in the month of grant; there is no unamortized balance at
October 31, 2010.  As of October 31, 2010, no warrants were
exercised.





The fair
value of the warrant 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).





On
December 30, 2009, 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.  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 estimated fair value, contingent upon vesting of the
warrant shares, allocated to the warrants at the date of grant is
$12,973.  On June 10, 2010 one December Investor exercised the
conversion option on a $5,000 debenture thereby vesting the 16,667 share
detachable warrant.  The fair value of the vested detachable warrant,
calculated in accordance with Codification topic 470-20, is $2,162 and was
recorded as debt discount, fully expensed when record, with a corresponding
credit to additional paid in capital.  As of October 31, 2010, 16,667
warrants were vested and unexercised.





The fair
value of these warrants was estimated at December 30, 2009, the date of grant,
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.  Expected volatility is
calculated based on the historic Friday stock market closing price of the
preceding 240 week period (from Pink Sheet inception).





On
February 12, 2010, in connection with the March Debentures (see Note 10), the
Company issued detachable warrants to the investors exercisable into an
aggregate 1,531,666 restricted shares of the Company’s Common Stock at a per
share price of $0.30.  The warrants have a term of three 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 estimated fair value, contingent upon vesting of the
warrant shares, allocated to the warrants at the date of grant is
$145,935.  As of October 31, 2010, no warrants were
vested.





The fair
value of these warrants was estimated at February 12, 2010, the date of grant,
using the Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 194.5%; risk-free interest rate of 1.38%; contractual life of
three years; and a closing market price of $0.30.  Expected volatility
is calculated based on the historic Friday stock market closing price of the
preceding 247 week period (from Pink Sheet inception).




51





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





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





On
February 26, 2010, in connection with the March Debentures (see Note 10), the
Company issued detachable warrants to the investor exercisable into an aggregate
2,500,000 restricted shares of the Company’s Common Stock at a per share price
of $0.30.  The warrants have a term of three 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
estimated fair value, contingent upon vesting of the warrant shares, allocated
to the warrants at the date of grant is $237,984.  On March 22, 2010,
one March Investor exercised the conversion option on $150,000 of principal, a
portion of their March Debenture vesting 750,000 share of the detachable warrant
vested.  The fair value of the vested detachable warrant, calculated
in accordance with Codification topic 470-20, is $75,000 and was recorded as
debt discount, fully expensed when record, with a corresponding credit to
additional paid in capital.  On May 28, 2010, the same March Investor
exercised the conversion option on $250,000 of principal, a portion of their
March Debenture vesting 1,250,000 share of the detachable warrant
vested.  The fair value of the vested detachable warrant, calculated
in accordance with Codification topic 470-20, is $125,000 and was recorded as
debt discount, fully expensed when record, with a corresponding credit to
additional paid in capital.  As of October 31, 2010, 2,000,000 warrant
shares are vested and no warrants were exercised.





The fair
value of these warrants was estimated at February 26, 2010, the date of grant,
using the Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 193.6%; risk-free interest rate of 1.36%; contractual life of
three years; and a closing market price of $0.30.  Expected volatility
is calculated based on the historic Friday stock market closing price of the
preceding 249 week period (from Pink Sheet inception).





On March
12, 2010, in connection with the March Debentures (see Note 10), the Company
issued detachable warrants to the investor exercisable into 2,625,000 restricted
shares of the Company’s Common Stock at a per share price of
$0.30.  The warrants have a term of three 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
estimated fair value, contingent upon vesting of the warrant shares, allocated
to the warrants at the date of grant is $249,496.  On March 22, 2010
and May 28, 2010, the partial conversion of a March Debenture vested 750,000 and
1,250,000 warrant shares and the Company recorded $71,395 and $128,605 as debt
discount, fully expensed when record, with a corresponding credit to additional
paid in capital, respectively.  As of October 31, 2010, 2,000,000
warrant shares have vested and no warrants have been exercised.  On
December 13, 2010 an additional 425,000 warrant share vested.





Also on
March 12, 2010, in connection with the March Debentures (see Note 10), the
Company issued detachable warrants to the three Company officers (see Notes 10
and 14) exercisable into 3,343,336 restricted shares of the Company’s Common
Stock at a per share price of $0.30.  The warrants have a term of
three 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 estimated fair value, contingent upon vesting of
the warrant shares, allocated to the warrants at the date of grant is
$317,770.  As of October 31, 2010, no warrants were
vested.





The fair
value of these warrants was estimated at March 12, 2010, the date of grant,
using the Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 192.8%; risk-free interest rate of 1.50%; contractual life of
three years; and a closing market price of $0.29.  Expected volatility
is calculated based on the historic Friday stock market closing price of the
preceding 251 week period (from Pink Sheet inception).





On July
31, 2010, pursuant to the terms of two stock subscription agreements, the
Company issued two warrants exercisable into an aggregate 303,715 restricted
shares of the Company’s Common Stock at a per share price of $0.35 expiring July
31, 2013.




52









Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





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





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





Period endedOctober 31, 2010
                  
                  
                  April 30, 2010Options
                  
                  
                  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
                  
                  
                  20,323,500
                  
                  
                  $
                  0.492
                  
                  
                  
                  
                  
                  
                  7,935,000
                  
                  
                  $
                  0.547Granted
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  12,460,500
                  
                  
                  $
                  0.457Exercised
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  $
                  -Cancelled
                  
                  
                  10,000
                  
                  
                  $
                  2.000
                  
                  
                  
                  
                  
                  
                  72,000
                  
                  
                  $
                  0.420Outstanding
      at the end of the period
                  
                  
                  20,313,500
                  
                  
                  $
                  0.492
                  
                  
                  $
                  0.791
                  
                  
                  
                  20,323,500
                  
                  
                  $
                  0.492
                  
                  
                  $
                  0.790Vested
      at the end of the period
                  
                  
                  16,184,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  12,064,500Exercisable
      at the end of period
                  
                  
                  16,184,000
                  
                  
                  
                  
                  
                  
                  $
                  0.994
                  
                  
                  
                  12,064,500
                  
                  
                  
                  
                  
                  
                  $
                  1.333Weighted
      average fair value per share of options granted during the
      period
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  0.409





The
following table summarizes information regarding employee stock options
outstanding at October 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
                                                                              
                                                                              12,388,500
                                                                              
                                                                              8.7
                                                                              
                                                                              $
                                                                              0.457
                                                                              
                                                                              8,259,000
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              0.457$
                                                                              0.500
                                                                              
                                                                              7,650,000
                                                                              
                                                                              6.7
                                                                              
                                                                              $
                                                                              0.500
                                                                              
                                                                              7,650,000
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              0.500$
                                                                              1.80
                                                                              
                                                                              275,000
                                                                              
                                                                              7.7
                                                                              
                                                                              $
                                                                              1.800
                                                                              
                                                                              275,000
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              1.80020,313,500
                                                                              
                                                                              7.9
                                                                              
                                                                              $
                                                                              0.492
                                                                              
                                                                              16,184,000
                                                                              
                                                                              7.9
                                                                              
                                                                              $
                                                                              0.500




53





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 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, for the six months ended October 31, 2010 and the year
ended April 30, 2010:





October 31,
                      
                      
                      April 30,2010
                      
                      
                      2010Balance
      at beginning of year
                      
                      
                      12,611,500
                      
                      
                      
                      -Shares
      authorized for grant
                      
                      
                      -
                      
                      
                      
                      25,000,000Shares
      granted
                      
                      
                      -
                      
                      
                      
                      12,460,500Share
      grants cancelled
                      
                      
                      -
                      
                      
                      
                      72,000Balance
      at end of period
                      
                      
                      12,611,500
                      
                      
                      
                      12,611,500





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





Period endedOctober 31, 2010
                            
                            
                            April 30, 2010Warrants
                            
                            
                            Weighted
                              average
                              exercise
                              price
                            
                            
                            Warrants
                            
                            
                            Weighted
                              average
                              exercise
                              priceOutstanding
      at the beginning of the period
                            
                            
                            12,734,303
                            
                            
                            $
                            0.507
                            
                            
                            
                            6,635,822
                            
                            
                            $
                            1.864Granted
                            
                            
                            303,715
                            
                            
                            $
                            0.350
                            
                            
                            
                            11,208,731
                            
                            
                            $
                            0.382Exercised
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            10,250
                            
                            
                            $
                            0.001Cancelled
                            
                            
                            360,000
                            
                            
                            $
                            1.778
                            
                            
                            
                            5,100,000
                            
                            
                            $
                            2.000Outstanding
      at the end of the period
                            
                            
                            12,678,018
                            
                            
                            $
                            0.467
                            
                            
                            
                            12,734,303
                            
                            
                            $
                            0.507Vest
      and exercisable at the end of period
                            
                            
                            4,954,682
                            
                            
                            
                            
                            
                            
                            
                            3,384,300Weighted
      average fair value per share of warrants granted during the
      period
                            
                            
                            
                            
                            
                            $
                            0.294
                            
                            
                            
                            
                            
                            
                            $
                            0.118




54









Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





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





The
following table summarizes information regarding stock purchase warrants
outstanding at October 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
                                                          
                                                          1.3
                                                          
                                                          
                                                          $
                                                          0.001
                                                          
                                                          176,250
                                                          
                                                          
                                                          
                                                          $
                                                          0.001$
                                                          0.300
                                                          
                                                          10,000,002
                                                          
                                                          2.4
                                                          
                                                          
                                                          $
                                                          0.300
                                                          
                                                          2,000,000
                                                          
                                                          
                                                          
                                                          $
                                                          0.300$
                                                          0.350
                                                          
                                                          303,715
                                                          
                                                          2.8
                                                          
                                                          
                                                          $
                                                          0.350
                                                          
                                                          303,715
                                                          
                                                          
                                                          
                                                          $
                                                          0.350$
                                                          0.800
                                                          
                                                          100,001
                                                          
                                                          1.2
                                                          
                                                          
                                                          $
                                                          0.800
                                                          
                                                          16,667
                                                          
                                                          
                                                          
                                                          $
                                                          0.800$
                                                          1.000
                                                          
                                                          1,284,088
                                                          
                                                          0.7
                                                          
                                                          
                                                          $
                                                          1.000
                                                          
                                                          1,284,088
                                                          
                                                          
                                                          
                                                          $
                                                          1.000$
                                                          1.500
                                                          
                                                          363,994
                                                          
                                                          0.4
                                                          
                                                          
                                                          $
                                                          1.500
                                                          
                                                          363,994
                                                          
                                                          
                                                          
                                                          $
                                                          1.500$
                                                          2.000
                                                          
                                                          449,968
                                                          
                                                          1.3
                                                          
                                                          
                                                          $
                                                          2.000
                                                          
                                                          449,968
                                                          
                                                          
                                                          
                                                          $
                                                          2.00012,678,018
                                                          
                                                          2.1
                                                          
                                                          
                                                          $
                                                          0.507
                                                          
                                                          4,594,682
                                                          
                                                          1.2
                                                          
                                                          $
                                                          0.820





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 two (2) convertible debentures aggregating $112,500
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, and


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


·
            Develop
      the INFO.VN web platform as a central hub for the best content the
      Vietnamese Internet has to offer and which will also serve as a platform
      through which we will launch a variety of new online services and web
      properties, to include Internet
  advertising;


·
            Completion
      and operation of the IDCs based on micro-modular data centers technology
      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


·
            micro-modular
      data centers 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.




55





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





16.  Going
concern (continued)





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 we
will be able to initiate construction of the IDCs.





17.  Stock
issuances





On May
28, 2010, pursuant to the terms of a March Debenture, the Company issued to IDCG
SA de C.V. 1,250,000 restricted shares of the Company’s Common Stock exempt from
registration afforded by Section (4)(2), promulgated pursuant to the Securities
Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated pursuant to the
Securities Act, on the basis that the securities were sold outside of the US, to
a non-US person, and with no directed selling efforts in the US, in exchange for
the cancellation of $250,000 of IDCG’s $500,000 March Debenture upon the partial
conversion.





On June
18, 2010, pursuant to the terms of a December Debenture, the Company issued to
IDCG SA de C.V. 18,079 restricted shares of the Company’s Common Stock exempt
from registration afforded by Section (4)(2), promulgated pursuant to the
Securities Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated
pursuant to the Securities Act, on the basis that the securities were sold
outside of the US, to a non-US person, and with no directed selling efforts in
the US, in exchange for the cancellation of IDCG’s $5,000 December Debenture
plus $62 of accrued interest.





Also on
June 18, 2010, pursuant to the terms of a March Debenture, the Company issued to
IDCG SA de C.V. 42,535 restricted shares of the Company’s Common Stock exempt
from registration afforded by Section (4)(2), promulgated pursuant to the
Securities Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated
pursuant to the Securities Act, on the basis that the securities were sold
outside of the US, to a non-US person, and with no directed selling efforts in
the US, in exchange for the cancellation of $8,507 of accrued interest on IDCG’s
$500,000 March Debenture.





On July
31, 2010, pursuant to the terms of two stock subscription agreements, each
entered into each with an accredited investor, the Company issued an aggregate
of 303,715 restricted shares of the Company’s Common Stock at $0.35 per unit for
cash consideration of $106,300.  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 $0.35 expiring three
years from the date of subscription.





On August
2, 2010, the Company issued to one employee, a sophisticated purchaser, in
consideration for the execution of Non-Disclosure and Invention Assignment
Agreements 3,000 restricted shares of the Company’s Common Stock valued at the
market close and recorded as a $990 bonus.





18.  Subsequent
events





On
November 18, 2010, the Company executed a short term promissory note with G.F.
Galaxy Corporation for $100,000; due January 18, 2011.  Interest
accrues monthly at a rate of Ten Percent (10%) per month based on a 30 day
month.  Proceeds were used to fund general operations.





On
December 3, 2010, the Company repaid $10,000 on the IDCG Fifth
Loan.





On
December 10, 2010, the Vina Mex First Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms of the note in exchange for
a warrant for the purchase of 700,000 restricted shares of the Company’s common
stock at $0.25 valid for a term of three years with an estimated fair value of
$110,060 capitalized as a deferred charge associated with the loan
extension.





On
December 10, 2010, the Vina Mex Second Loan was amended to extend the due date
to September 30, 2011 with no other change to the terms of the note in exchange
for a warrant for the purchase of 200,000 restricted shares of the Company’s
common stock at $0.25 valid for a term of three years with an estimated fair
value of $31,446 capitalized as a deferred charge associated with the loan
extension.


56





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of October 31, 2010





18.  Subsequent
events (continued)





On
December 10, 2010, the Vina Mex Third Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms of the note in exchange for
a warrant for the purchase of 100,000 restricted shares of the Company’s common
stock at $0.25 valid for a term of three years with an estimated fair value of
$15,723 capitalized as a deferred charge associated with the loan
extension.





On
December 13, 2010, Hi-Tek Private elected to convert the full amount due on the
Hi-Tek Trademark Loan Two ($333,365) into 1,666,825 restricted shares of the
Company’s Common Stock at $0.20 per share.  Also on December 13, 2010,
Hi-Tek Private elected to convert the full amount due on the March Debenture
plus accrued interest ($92,079) into 460,398 restricted shares of the Company’s
Common Stock and the 425,000 share detachable warrant vested.  The
fair value of the vested detachable warrant, calculated in accordance with
Codification topic 470-20, is $42,500 and was recorded as debt discount, fully
expensed when record, with a corresponding credit to additional paid in
capital.  Upon conversion, $31,167 of unamortized debt discount, from
the beneficial conversion feature, was also expensed.  Additionally,
on December 13, 2010, the Hi-Tek IDC Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms.





On
December 13, 2010, Business.com.VN elected to convert the full amount due on the
Business.com.VN Loan ($121,674) into 608,372 restricted shares of the Company’s
Common Stock at $0.20 per share.





On
December 13, 2010, the Huynh Note, the TJ Fourth Note and the LJ Fourth Note
were amended to extend the due date to September 30, 2011 with no other change
to the terms of the notes or the conversion feature.





On
December 13, 2010, the Thomas First Loan, Thomas Second Loan and Thomas Fourth
Loan were amended to extend the due date to September 30, 2011 with no other
change to the terms.





On
December 13, 2010, the Ung First Loan and Ung Fourth Loan were amended to extend
the due date to September 30, 2011 with no other change to the
terms.





On
December 13, 2010, the Hue Revolver was amended to extend the due date to
September 30, 2011 with no other change to the terms.





On
December 13, 2010, the Huynh Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms.


On,
December 14, 2010, the Company and IT.VN, a joint stock company, (“IT.VN”),
existing under the laws of the country of Vietnam signed the Business
Co-Operation Agreement to memorialize the INFO.VN project; a super web portal
which employees the Company’s unregistered domain monetization
rights.  Pursuant to the Business Co-Operation Agreement, which has a
term of 50 years, the Company shall contribute equipment, machines, software
development and programming, operating protocols for INFO.VN, expertise,
know-how and capital.  IT.VN shall undertake to operate day to day
functions as well as provide staff, businesses licenses and other in-country
support in furtherance of INFO.VN.  Both parties to the Business
Co-Operation Agreement shall contribute investment capital which shall include,
but not be limited to, cash, equipment, services and such other resources deemed
appropriate by the parties, in accordance with the following ratio: (i) Dot VN
to invest 75% of the capital; and (ii) IT.VN to invest 25% of the capital (the
“Initial Investment Ratio”).  Periodically, IT.VN and Dot VN shall
review all costs, contributions and payments made in connection with the INFO.VN
project and the Initial Investment Ratio shall be adjusted, as defined, to
conform to such actual expenditures (the “Final Investment
Ratio”).  IT.VN and Dot VN shall be entitled to a distribution of Net
Revenues in accordance with the Final Investment Ratio.  The Company
is the direct beneficiary of all economic and legal benefit derived from the
ownership of IT.VN and IT.VN is managed by Dot VN staff at the direction of the
Company’s officers and directors.  Under the arrangement, IT.VN will
facilitate the sales of online advertising within Vietnam, manage and develop
content for INFO.VN and perform such other functions as may be required by the
Company’s management from time to time.  Ownership of IT.VN is held by
three (3) nominees of the Company, Dr. Lee Johnson, the Company’s President,
Chief Technology Officer, and Chief Financial Officer; Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary and Ms. Ngoc Anh Ung, the Company’s Vice
President of, Operations and Business Development, Asia.  The nominees
have executed agreements with the Company which provide that (i) the nominees
shall represent the Company in the management and operation of IT.VN, subject to
the direction of the Company’s Board of Directors, until the earlier of his or
her resignation, termination or replacement and (ii) all legal and economic
benefit in IT.VN is irrevocably assigned to Dot VN by such
nominees.  The arrangement involves nominee participation for the
purpose of complying with Vietnam law and policy.





On
December 14, 2010, the Company repaid $5,000 on the IDCG Fifth
Loan.




57


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 and (ii) the more detailed
business information and the April 30, 2010 and 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.  Statements in this section and elsewhere in this Form
10-Q that are not statements of historical or current fact are forward-looking
statements, as that term is defined by the Private Securities Litigation Reform
Act of 1995, including statements relating to our plans, objectives,
expectations and intentions.  Although we believe that the
expectations reflected in such forward-looking statements are reasonable,
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from those projected.  We caution
investors that any forward-looking statements made by us are not guarantees of
future performance and that actual results may differ materially from those in
the forward-looking statements.  Such risks and uncertainties include,
without limitation: established competitors who have substantially greater
financial resources and operating histories, regulatory delays or denials,
ability to compete as a start-up company in a highly competitive market, and
access to sources of capital.





OVERVIEW





Dot VN,
Inc., its subsidiaries, and its predecessors (the “Company” or “Dot VN”), is a
leading technology company deploying cutting edge infrastructure solutions and
innovative online services and solutions focused on the Vietnamese and South
East Asian markets.  Dot VN provides first class internet related
services including domain name registration, web hosting and through its
management of the INFO.VN platform and web portal offers internet
advertising.  Dot VN is also focused on commercializing cutting edge
infrastructure technology in the South East Asian region.  Dot VN has
signed agreements with industry leaders in the data center and wireless sectors
to develop a market for their products in the region.





Dot VN
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 July 17, 2006, Malers completed an
Agreement and Plan of Merger with Dot VN, Inc., a California corporation (“Dot
VN CA”), the completion of which transaction resulted in Malers being renamed
“Dot VN, Inc.” and the California corporation renamed Hi-Tech Multimedia, Inc.
becoming a wholly owned subsidiary of the Company.  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
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;
VNNIC directs all internet traffic requesting a non-existent or expired domain
name to a web page managed by the Company.





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.


58




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 centers
(“MMDC”) solutions and related technology and services (the “EMS Products”) in
Vietnam, and the non-exclusive right to distribute EMS Products in
Asia.





Dot VN
will continue to explore and test, and analyze, new and best of breed
technologies and applications for deployment in Vietnamese and South East Asian
markets.





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 two (2) convertible debentures aggregating $112,500
that were due January 31, 2009 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, and


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


·
            Develop
      the INFO.VN web platform as a central hub for the best content the
      Vietnamese Internet has to offer and which will also serve as a platform
      through which we will launch a variety of new online services and web
      properties, to include Internet
advertising;


·
            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


·
            micro-modular
      data centers 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 we
will be able to initiate construction of the IDCs.





CRITICAL
ACCOUNTING POLICIES





The
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”).  The preparation of these 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:





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.  Investments in less-than-majority-owned subsidiaries, to
include foreign businesses owned through nominees, in which we have significant
influence are accounted for under the equity method.  All significant
intercompany accounts and transactions have been eliminated in
consolidation.


59





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 Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (the “Codification”) topic 605-45 “Principal Agent
Considerations” (reporting revenue gross as a principal versus net as an
agent).  Accordingly, we recognize revenue and the related costs when:
(1) persuasive evidence of an arrangement exists; (2) delivery and acceptance
has occurred or service has been rendered; (3) the fee is fixed or determinable;
and (4) collectability of the resulting receivable is reasonably
assured.





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





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





Fair Value of Financial
Instruments





Codification
topic 825, “Financial Instruments”, requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value.  The carrying amounts of the Company’s financial instruments as
of October 31 and April 30, 2010 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.





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.


60





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.





Equity
Investment





Investments
in less-than-majority-owned subsidiaries, to include foreign businesses owned
through nominees, in which we have significant influence are accounted for under
the equity method.  The Company’s investment in IT.VN is carried at
cost adjusted for IT.VN’s income, losses, and distributions.  We
classify our equity in the earnings of IT.VN as a component of loss from
operations because the investment monetizes the Company’s exclusive rights to
all Vietnam internet traffic requesting a non-existent or expired domain
name.  The Company is the direct beneficiary of all economic and legal
benefit derived from the ownership of IT.VN and IT.VN is managed by Dot VN staff
at the direction of the Company’s officers and directors.  In
addition, the sales and administrative functions are integrated with the
Company’s existing operations in Vietnam.





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.


61




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
period.  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.





On an
on-going basis, the Company evaluates our estimates, including, but not limited
to, those related to the 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.





Stock-Based
Compensation





Codifications
topic 718 “Stock Compensation” 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.




62


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





Concentration of
Risks





The
Company derives the majority of its revenues from the registration of country
code top level domain names (“ccTLD”) for the Vietnamese Ministry of Information
and Communications under a contract with the Vietnam Internet Network
Information Center (“VNNIC”).  The Company signed its first contract
with VNNIC on September 18, 2003 which was renewed annually.  On
January 3, 2006, the Company and VNNIC signed a new contract for registration of
top level country domain names with no fixed term; on May 25, 2009, the Company
and VNNIC signed an updated contract, with no fixed term, which revised the
Company’s incentive goals effective January 2, 2009; on December 3, 2009, the
Company and VNNIC signed an updated contract, with no fixed term, which further
revised the Company’s incentive goals for calendar year 2010.





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
Financing”).  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 Financing 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 Financing terms required that the
convertible debentures issued by Spot-On be convertible into common stock of
either membership units of Spot-On Networks, LLC 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
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.


63





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 20,313,500 shares of common
stock and 12,594,684 warrants potentially issuable at October 31, 2010 which
were not included in the computation of net loss per share.





Reclassifications





Certain
reclassifications have been made to prior year amounts to conform to the current
period presentation.  These reclassifications had no effect on
operating results or stockholders’ equity (deficit).





RESULTS
OF OPERATIONS





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





REVENUES





Revenues
of $244,802 for the three months ended October 31, 2010 (the “Current Quarter”)
decreased 15.7% or $45,426 as compared to $290,228 for the three months ended
October 31, 2009 (the “Prior Quarter”).  During the Current Quarter
revenue from domain name registration activity was $219,046, a decrease of
$28,981 or 11.7% compared to $248,027 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 decreased 2.4% over
the Prior Quarter.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) decreased $5,637 or 11.7% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
decrease $23,344 or 11.7%; resulting in a combined 11.7% decrease in revenue
from domain name registration activity.  The overall decrease in
revenue is the net result of a 26.4% reduction in new domain name registrations
during the Current Quarter (648) compared to the Prior Quarter (880); the
registration of new domain names yield more revenue per unit than the renewal of
domain names due to the initial year registration fee offset by a 9.9% increase
in domain name registration renewals during the Current Quarter (2,338) compared
to the Prior Quarter (2,127).




64


In
addition, the Company earns commissions from VNNIC based on contract benchmarks
during each calendar quarter for new registrations, renewals and registration
changes; commissions of $24,850 for the Current Quarter decreased $4,423 or
15.1% as compared to $29,273 for the Prior Quarter.  The decrease in
commission revenue results from decrease in new domain name registration
activity in the Current Quarter, as noted above.  Total domain names
under management during the Current Quarter was a net increase of 96 to 11,724
at October 31, 2010 compared to a Prior Quarter net increase of 473 to 11,599
total domain names under management at October 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 .vn 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
in the process of replacing the generic Landing Page used to generate revenue
last year with the web portal INFO.VN 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 zero compared to $12,280 in the Prior Quarter.  In
addition, last year the Company commenced offering 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 $905
compared to $649 in the Prior Quarter.





COST OF
REVENUES and GROSS PROFIT





For the
three months ended October 31, 2010, cost of revenues decreased 15.4% to
$107,664 compared to $127,261 for the three months ended October 31, 2009, a
decrease of $19,597.  Gross profit was $137,138 or 56.0% (as a
percentage of revenues) for the three months ended October 31, 2010 compared to
$162,967 or 56.2% for the three months ended October 31, 2009; a decrease of
15.8% or $25,829.  The decrease in gross profit is consistent with the
15.7% decrease in revenues.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
three months ended October 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 $812,929
compared to $1,244,493 for the three months ended October 31, 2009, a decrease
of $431,564 or 34.7%.  The decrease in total general and
administrative expenses, a significant portion of which is noncash based, was
primarily attributable to the following offsetting factors:





·
            Option
      Bonus expenses decreased to $216,162 for the three months ended October
      31, 2010, from $658,971 for the three months ended October 31, 2009, a
      decrease of $442,809 or 67.2%.  The decrease 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) an additional 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 decreased
      expense is the net result the following
items:





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 zero
      was expensed compared to $3,981 during the Prior Quarter, for a decrease
      of $3,981 in the Current Quarter.


o
            In
      July 2009, the Company issued options for an aggregate of 12,460,500
      shares with an estimated fair value of $5,218,093; during the Current
      Quarter $216,162 was expensed compared to $654,990 during the Prior
      Quarter, for a decrease of $438,828 in the Current
  Quarter.





·
            Consulting
      and professional fees decreased to $22,856 for the three months ended
      October 31, 2010, from $29,046 for the three months ended October 31,
      2009, a decrease of $6,190 or 21.3%.  The decreased expense is
      primarily attributable to decreased legal services from the Prior Quarter
      of $3,725 compared to the Current Quarter expense of
  $150.





·
            Other
      general and administrative expenses decreased to $537,119 for the three
      months ended October 31, 2010 from $538,876 for the three months ended
      October 31, 2009, a decrease of $1,757 or 0.3%.  The decreased
      expense is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes increased to $345,061 for the Current Quarter from
      $334,448 for the Prior Quarter, an increase of $10,613 or
      3.2%.


65


o
            Rent
      and land lease expense increased to $34,673 for the Current Quarter from
      $33,021 for the Prior Quarter, an increase of $1,652 or
      5.0%.  The Current Quarter net increase in expense results from
      two significant offsetting factors; increased costs associated with the
      new Hanoi office (three months in the Current Quarter ($9,000) compared to
      two months in the Prior Quarter ($6,000)) offset by reduced costs
      associated with the San Diego headquarter office resulting from a
      favorable thirteen month lease extension effective October 1, 2010 and the
      Danang land and office resulting from favorable exchange
      rates.


o
            Travel
      and related expenses decreased to $23,652 for the Current Quarter from
      $42,556 for the Prior Quarter, a decrease of $18,904 or
      44.4%.  The Current Quarter decrease results the Company’s
      management only traveling once to Vietnam compared to two trips during the
      Prior Quarter.


o
            Employee
      wages and other service fees paid with shares of the Company’s restricted
      common stock decreased to $990 for the Current Quarter from $12,500 for
      the Prior Quarter, a decrease of $11,510 or
  92.1%.


o
            Investor
      relations and press release expense decreased to $18,507 for the Current
      Quarter from $29,470 for the Prior Quarter, a decrease of $10,963 or 37.2%
      as the Company reduced its reliance on outside service
      providers.


o
            Costs
      associated with testing and introducing new products increased to $20,500
      in the Current Quarter from zero in the Prior Quarter as the Company
      provided additional E-band product
  demonstrations.


o
            All
      other general and administrative expenses increased to $93,736 for the
      Current Quarter from $84,882 for the Prior Quarter, an increase of $8,854
      or 10.4%.





·
            Equity
      in earnings of IT.VN was a loss of $24,207 for the three months ended
      October 31, 2010, from zero for the three months ended October 31,
      2009.  The Company is developing the INFO.VN web portal through
      IT.VN; the $24,207 represents the Company’s 100% share in the results of
      IT.VN.  IT.VN has commenced to hire programmers, editors and
      sales staff in support of the INFO.VN web
  portal.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $675,791 for the three months ended October
31, 2010 as compared to a loss from operations of $1,081,526 for the three
months ended October 31, 2009, a decrease of $405,735 or 37.5%.  The
decrease is primarily attributed to decreased option bonus expense ($442,809)
offset by the equity in earnings of IT.VN ($24,207 loss) and reduced gross
profit ($25,829).





OTHER
INCOME AND EXPENSES





Total
other income and expense increased to a net expense of $321,544 for three months
ended October 31, 2010 as compared to a net expense of $265,085 for the three
months ended October 31, 2009.  Included in this net expense increase
of $56,459 or 21.3% are:





·
            The
      finance expense was $3,777 for the three months ended October 31, 2010 as
      compared to finance expense of $1,054 for the three months ended October
      31, 2009, an increase of $2,723 or 258%.  The net increased
      expense is the result of the amortization of cash fees paid ($2,959)
      offset by the fair value of stock warrants ($236) issued to obtain equity
      and/or debt financing for the
Company.





·
            Interest
      expense increased to $307,968 for the three months ended October 31, 2010
      from $257,794 for the three months ended October 31, 2009, an increase of
      $50,174 or 19.5%.  The increased expense is the net result the
      following significant items:





o
            accretion
      of the debt discount associated with convertible notes increased to
      $69,037 for the Current Quarter from zero for the Prior Quarter; the
      accretion of debt discount results
from:


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $2,000,000 which are convertible into 10,000,002 shares of the
      Company’s restricted Common Stock at a per share price of $0.20 which
      represented a beneficial conversion feature with an estimated fair value
      at inception of $940,317, which was recorded as a discount against the
      convertible debentures and is expensed over the thirty-six month term of
      the debt or upon conversion.  For the three months ended October
      31, 2010 the Company expensed $61,693 for the beneficial conversion as
      compared to zero for the three months ended October 31,
    2009.


66


§
            The
      Company issued a set of two (2) convertible debentures to one (1) February
      Investor in the aggregate amount of $617,246 which are convertible into
      489,560 shares of the Company’s restricted Common Stock at a per share
      price of $0.25 which represented a beneficial conversion feature with an
      estimated fair value at inception of $88,121, which was recorded as a
      discount against the convertible debentures and is expensed over the
      thirty-six month term of the debt or upon conversion.  For the
      three months ended October 31, 2010 the Company expensed $7,344 for the
      beneficial conversion as compared to zero for the three months ended
      October 31, 2009.


o
            Other
      interest expense items decreased to $238,931 for the Current Quarter from
      $257,794 for the Prior Quarter, a decrease of $18,863 or
    7.3%.





·
            Foreign
      exchange gain (loss) decreased to a loss of $9,877 for the three months
      ended October 31, 2010 from a loss of $6,452 for the three months ended
      October 31, 2009, an increase of $3,425 or 53.1% from unfavorable changes
      in the U.S. dollar to Vietnamese dong exchange
  rates.





OVERALL





We
reported a net loss for the three months ended October 31, 2010 of $997,335
compared to a net loss for the three months ended October 31, 2009 of
$1,346,611.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.02 for the three months ended October 31,
2010 and $0.05 for the three months ended October 31, 2009 based on 42,656,527
and 29,548,760 weighted average common shares outstanding,
respectively.





Six
months ended October 31, 2010 compared to six months ended October 31,
2009.





REVENUES





Revenues
of $578,310 for the six months ended October 31, 2010 (the “Current Period”)
decreased 11.5% or $75,030 as compared to $653,340 for the six months ended
October 31, 2009 (the “Prior Period”).  During the Current Period
revenue from domain name registration activity was $526,357, a decrease of
$49,021 or 8.5% compared to $575,378 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 decreased 3.9% over
the Prior Period.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) decreased $2,188 or 2.7% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
decrease $46,833 or 9.5%; resulting in a combined 8.5% decrease in revenue from
domain name registration activity.  The overall decrease in revenue is
the result of a 20.5% reduction in new domain name registrations during the
Current Period (1,267) compared to the Prior Period (1,594); the registration of
new domain names yield more revenue per unit than the renewal of domain names
due to the initial year registration fee offset by a 4.3% increase in domain
name registration renewals during the Current Period (4,824) compared to the
Prior Period (4,623).





In
addition, the Company earns commissions from VNNIC based on contract benchmarks
each calendar quarter for new registrations, renewals and registration changes;
commissions of $50,357 for the Current Period decreased $12,471 or 19.8% as
compared to $62,828 for the Prior Period.  The decrease in commission
revenue results from decrease in new domain name registration activity in the
Current Period, as noted above.  Total domain names under management
during the Current Period was a net increase of 219 to 11,724 at October 31,
2010 compared to a Prior Period net increase of 854 to 11,599 total domain names
under management at October 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 .vn 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
in the process of replacing the generic Landing Page used to generate revenue
last year with the web portal INFO.VN 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 zero compared to $14,486 in the Prior Period.  In
addition, the Company commenced offering 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 $1,595 compared to $649 in the Prior
Period.





COST OF
REVENUES and GROSS PROFIT





For the
six months ended October 31, 2010, cost of revenues decreased 13.7% to $222,499
compared to $257,858 for the six months ended October 31, 2009, a decrease of
$35,359.  Gross profit was $355,811 or 61.5% (as a percentage of
revenues) for the six months ended October 31, 2010 compared to $395,482 or
60.5% for the six months ended October 31, 2009; a decrease of 10.0% or
$39,671.  The nominal decrease in gross profit is consistent with the
11.5% decrease in revenues.


67




GENERAL
AND ADMINISTRATIVE EXPENSES





For the
six months ended October 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 $1,907,534
compared to $3,832,577 for the six months ended October 31, 2009, a decrease of
$1,925,043 or 50.2%.  The decrease in total general and administrative
expenses, a significant portion of which is noncash based, was primarily
attributable to the following offsetting factors:





·
            Option
      Bonus expenses decreased to $720,539 for the six months ended October 31,
      2010, from $2,631,364 for the six months ended October 31, 2009, a
      decrease of $1,910,825 or 72.6%.  The decrease 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) an additional 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 decreased
      expense is the net result the following
items:





o
            Between
      August and October 2007, the Company issued options for an aggregate of
      510,000 shares with an estimated fair value of $952,025; during the
      Current Period zero was expensed compared to $14,985 during the Prior
      Period, for a decrease of $14,985 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 zero
      was expensed compared to $7,962 during the Prior Period, for a decrease of
      $7,962 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 $720,539 was expensed compared to $2,608,417 during the Prior
      Period, for a decrease of $1,887,878 in the Current
  Period.





·
            Consulting
      and professional fees decreased to $77,079 for the six months ended
      October 31, 2010, from $90,900 for the six months ended October 31, 2009,
      a decrease of $13,821 or 15.2%.  The decreased expense is
      primarily attributable to the amortization expense of the fair value of
      stock warrants issued for investor relations and public relation services
      in the Prior Period of $3,721 compared to the Current Period expense of
      zero and decreased legal services from the Prior Period of $5,526 compared
      to the Current Period expense of
$150.





·
            Other
      general and administrative expenses decreased to $1,057,837 for the six
      months ended October 31, 2010 from $1,077,973 for the six months ended
      October 31, 2009, a decrease of $20,136 or 1.9%.  The decreased
      expense is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes increased to $699,213 for the Current Period from
      $663,944 for the Prior Period, an increase of $35,269 or
      55.3%.


o
            Rent
      and land lease expense increased to $70,717 for the Current Period from
      $61,834 for the Prior Period, an increase of $8,883 or
      14.4%.  The Current Period net increase in expense results from
      two significant offsetting factors; increased costs associated with the
      new Hanoi office (six months in the Current Period ($18,000) compared to
      two months in the Prior Quarter ($6,000)) offset by reduced costs
      associated with the San Diego headquarter office resulting from a
      favorable thirteen month lease extension effective October 1, 2010 and the
      Danang land and office resulting from favorable exchange
      rates.


o
            Travel
      and related expenses decreased to $35,795 for the Current Period from
      $83,440 for the Prior Period, a decrease of $47,645 or
      57.1%.  The Current Period decrease results the Company’s
      outside auditor and internal comptroller not traveling to Vietnam in
      association with the audit of the year ended April 30, 2010 and from
      management only traveling twice to Vietnam compared to four trips during
      the Prior Quarter.


o
            Employee
      wages and other service fees paid with shares of the Company’s restricted
      common stock decreased to $990 for the Current Period from $21,000 for the
      Prior Period, a decrease of $20,010 or 95.3% as the Company reduced its
      reliance on outside service
providers.


o
            Investor
      relations and press release expense decreased to $39,159 for the Current
      Period from $63,360 for the Prior Period, a decrease of $24,201 or 38.2%
      as the Company reduced its reliance on outside service
      providers.


o
            Costs
      associated with testing and introducing new products increased to $20,500
      in the Current Quarter from zero in the Prior Quarter as the Company
      provided additional E-band product
  demonstrations.


o
            All
      other general and administrative expenses increased to $190,963 for the
      Current Period from $179,801 for the Prior Period, an increase of $11,162
      or 6.2%.




68


·
            Equity
      in earnings of IT.VN was a loss of $24,207 for the six months ended
      October 31, 2010, from zero for the six months ended October 31,
      2009.  The Company is developing the INFO.VN web portal through
      IT.VN; the $24,207 represents the Company’s 100% share in the results of
      IT.VN.  IT.VN has commenced to hire programmers, editors and
      sales staff in support of the INFO.VN web
  portal.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $1,551,723 for the six months ended October
31, 2010 as compared to a loss from operations of $3,437,095 for the six months
ended October 31, 2009, a decrease of $1,885,372 or 54.9%.  The
decrease is primarily attributed to decreased option bonus expense ($1,910,825)
and other general and administrative expenses ($20,136) offset by the equity in
earnings of IT.VN ($24,207 loss) and reduced gross profit
($39,671).





OTHER
INCOME AND EXPENSES





Total
other income and expense increased to a net expense of $1,405,753 for six months
ended October 31, 2010 as compared to a net expense of $507,458 for the six
months ended October 31, 2009.  Included in this net expense increase
of $898,295 or 177% are:





·
            The
      finance expense was $141,324 for the six months ended October 31, 2010 as
      compared to finance expense of $1,754 for the six months ended October 31,
      2009, an increase of $139,570 or 7957%.  The net increased
      expense is the result of the amortization of cash fees paid ($6,917) and
      the fair value of stock warrants ($132,653) issued to obtain equity and/or
      debt financing for the Company.  The December Debenture and the
      March Debenture included cash fees and warrants which vest upon the
      conversion of the debenture into restricted shares of the Company’s Common
      Stock and upon vesting the warrant value is recognized and fully
      expensed.  During May 2010, a partial March Debenture conversion
      of $250,000 resulted in the recognition of $125,000 in finance expense and
      during June 2010, the conversion of a $5,000 December Debenture resulted
      in the recognition of $4,166 in finance expense.  The Extended
      February Debt warrants fair value ($10,754) is amortized over the
      approximate thirty-six month term of the new
  debt.





·
            Interest
      expense increased to $1,250,759 for the six months ended October 31, 2010
      from $505,113 for the six months ended October 31, 2009, an increase of
      $745,646 or 148%.  The increased expense is the net result the
      following significant items:





o
            accretion
      of the debt discount associated with convertible notes increased to
      $782,836 for the Current Period from zero for the Prior Period; 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 (the “December
      Debentures”) which represented a beneficial conversion feature with an
      estimated fair value at inception of $5,000, 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 six months
      ended October 31, 2010 the Company expensed $1,667 for the beneficial
      conversion feature as compared to zero for the six months ended October
      31, 2009.


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $2,000,000 which are convertible into 10,000,002 shares of the
      Company’s restricted Common Stock at a per share price of $0.20 which
      represented a beneficial conversion feature with an estimated fair value
      at inception of $940,317, which was recorded as a discount against the
      convertible debentures and is expensed over the thirty-six month term of
      the debt or upon conversion.  For the six months ended October
      31, 2010 the Company expensed $123,386 for the beneficial conversion
      feature and $117,604 upon the partial conversion of a debenture for a
      total expense of $240,990 as compared to zero for the six months ended
      October 31, 2009.


§
            When
      the December Debenture offering was completed (closed) in accordance with
      the terms of three (3) outstanding convertible notes the conversion price
      was reduced; additional debt discount for the revised beneficial
      conversion feature was calculated to be $93,208.  When the March
      Debenture offering was completed (closed) in accordance with the terms of
      five (5) outstanding convertible notes the conversion price was reduced;
      additional debt discount for the revised beneficial conversion feature was
      calculated to be $860,830.  For the six months ended October 31,
      2010 the Company expensed $525,796 for the beneficial conversion feature
      as compared to zero for the six months ended October 31,
    2009.


69


§
            Other
      convertible notes issued by the Company with a beneficial conversion
      feature had $7,039 expense for the beneficial conversion feature during
      the six months ended October 31, 2010 as compared to zero for the six
      months ended October 31, 2009.


§
            The
      Company issued a set of two (2) convertible debentures to one (1) February
      Investor in the aggregate amount of $617,246 which are convertible into
      489,560 shares of the Company’s restricted Common Stock at a per share
      price of $0.25 which represented a beneficial conversion feature with an
      estimated fair value at inception of $88,121, which was recorded as a
      discount against the convertible debentures and is expensed over the
      thirty-six month term of the debt or upon conversion.  For the
      three months ended October 31, 2010 the Company expensed $7,344 for the
      beneficial conversion as compared to zero for the three months ended
      October 31, 2009.


o
            Other
      interest expense items decreased to $467,923 for the Current Period from
      $505,113 for the Prior Period, a decrease of $37,190 or
    7.4%.





·
            Foreign
      exchange gain (loss) decreased to a loss of $14,539 for the six months
      ended October 31, 2010 from a loss of $1,020 for the six months ended
      October 31, 2009, an increase of $13,519 from unfavorable changes in the
      U.S. dollar to Vietnamese dong exchange
rates.





OVERALL





We
reported a net loss for the six months ended October 31, 2010 of $2,957,476
compared to a net loss for the six months ended October 31, 2009 of
$3,944,553.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.07 for the six months ended October 31,
2010 and $0.13 for the six months ended October 31, 2009 based on 42,296,843 and
29,315,214 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 and the 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; $77,531 and $15,000 funds were
advanced and $55,878 and $12,592 were repaid during the six months ended October
31, 2010 or 2009, respectively.





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing
basis.  During the six months ended October 31, 2010 and 2009 cash
used in our operating activities was $440,935 and $534,574, and cash used in
investing activities was $70,713 and $11,337, respectively.  We funded
our operating activities and investing activities during the six months ended
October 31, 2010 and 2009 with cash reserves in addition to the following
resources:





For the Six Months Ended
                                                  October 31,2010
                                                
                                                
                                                2009Proceeds
      from stock issuances
                                                
                                                $
                                                106,300
                                                
                                                
                                                $
                                                377,003Funds
      advanced by Hue Tran Johnson under revolvingcredit
      agreement due December 31, 2010
                                                
                                                
                                                146,476
                                                
                                                
                                                
                                                10,000Three
      month term loan from Thomas Johnson, dueNovember
      30, 2010
                                                
                                                
                                                30,000
                                                
                                                
                                                
                                                -One
      month term loan from Louis Huynh, dueSeptember
      30, 2010
                                                
                                                
                                                20,500
                                                
                                                
                                                
                                                -Three
      month term loan from Anh Ung, dueDecember
      17, 2010
                                                
                                                
                                                15,000
                                                
                                                
                                                
                                                -Demand
      note from IDCG SA de CV
                                                
                                                
                                                25,000
                                                
                                                
                                                
                                                -Funds
      advanced by Diep Tai under revolving creditagreement
      due November 19, 2009
                                                
                                                
                                                -
                                                
                                                
                                                
                                                85,000Three
      month term loan from Thomas Johnson, dueDecember
      12, 2009
                                                
                                                
                                                -
                                                
                                                
                                                
                                                18,000Three
      month term loan from Ngoc Anh Ung, dueDecember
      17, 2009
                                                
                                                
                                                -
                                                
                                                
                                                
                                                10,000Funds
      advanced by Hi-Tek Private under revolvingcredit
      arrangement, net of $20,878 and$12,592
      repayments
                                                
                                                
                                                56,653
                                                
                                                
                                                
                                                2,408Principal
      payments on Extended Debentures, net of interest
                                                
                                                
                                                (5,316
                                                )
                                                
                                                
                                                (59,206
                                                )Total
                                                
                                                $
                                                394,613
                                                
                                                
                                                $
                                                443,205




70





At
October 31, 2010, we had a cash balance of $25,865 compared to $135,664 at April
30, 2010, a decrease of $109,799.  At October 31, 2010, our working
capital deficit was $8,680,319 as compared to $7,005,768 at April 30, 2010, an
increase of $1,674,551.  Our current assets, other than cash, consist
of $177,800 in accounts receivable, $22,688 in inventories, $3,155 in fees on
deposit for domain registrations, $16,175 in other prepaid expenses (to include
the current portion of the prepaid Danang land lease), and $14,497 in
miscellaneous and VAT receivables.





Our
current liabilities consisted primarily of $2,447,286 due to Hi-Tek Private
under three credit arrangements, $1,713,351 due Thomas Johnson (our CEO) under
four notes, $1,629,813 due Lee Johnson (our President, CTO, and CFO) under two
notes, $146,697 due Louis Huynh (our General Counsel, Executive Vice President
of Operations and Business Development, and Corporate Secretary) under two
notes, $256,274 due Hue Tran Johnson (our President’s wife), $654,885 in accrued
officer salaries, $89,437 for the current portion due on the Extended
Debentures, $26,466 convertible debenture due June 30, 2010, $140,997 due on the
Defaulted Debentures, $1,240,211 due IDCG SA de CV under three term notes and
one demand note, $120,536 due Business.com.VN, $100,500 due Diep Tai, $17,659 in
liquidated damages to the February Investors, $19,151 advancement payments from
four resellers, and $241,045 in accounts payable.





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 was effective for the Company as of January
31, 2010 and did not have a significant impact on the Company’s consolidated
financial statements.





In August
2009 the FASB issued ASU No. 2009-05 “Improving Disclosure about Fair Value
Measurements”, (“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.


71





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 single source
of authoritative U.S. generally accepted accounting principles (“US GAAP”)
recognized by the FASB to be applied by nongovernmental
entities.  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.  The Codification supersedes all then-existing non-SEC
accounting and reporting standards not included in the
Codification.  The Company 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 change US GAAP; 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.





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





Our
current operational strategy involves the implementation of a four-component
plan that includes:


(i)
            The
      development and implementation of an Application Program Interface (“API”)
      to expand our reseller network;


(ii)
            The
      implementation and commercialization of our INFO.VN portal and the launch
      of various related online products and
services;


(iii)
            The
      construction of an Internet data center located in Danang City, Vietnam
      and other major cities in Vietnam;
and


(iv)
            Commercialization
      of the virtual fiber equipment, a wireless point-to-point layer one
      solution and the EMS MMDC solution.




The plan
provides revenue-generating opportunities throughout the development process,
and leads to a complete operational demonstration of the
technology.





The plan
includes:





PHASE I:
CY Q1 2010 through CY Q1 2011:  This phase is in
process.  During this period, the Company, will focus on integrating
its service offerings with Key Systems platform with a view towards offering
.vn registrations
through Key Systems reseller network while concurrently offering Key Systems
service offerings to the Company’s in-country reseller network.  The
integration process with Key Systems was completed and launched on August 26,
2010.  Dot VN is also continuing to develop its data center project in
Danang City.  The Company is currently reviewing the application of
the EMS MMDC as the basis for the data center infrastructure.  Dot VN
is also beginning to commercialize online services through the online portal
INFO.VN.





PHASE II:
CY Q2 through Q4 2011:  During this period the Company expects to
begin construction of the IDC located in Danang City.  The Company
also expects to begin developing additional services for the INFO.VN portal such
as a business directory and financial press releases.  Dot VN also
expects to begin initial sales of the virtual fiber equipment and EMS
MMDC.





PHASE
III: CY Q1 through Q2 2012:  Begin design and construction of an
Internet data center located in Ho Chi Minh City, Vietnam.  Begin the
development of social networking services and email services offered through
INFO.VN.





Subsequent
to the successful demonstration of the first MMDC based 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.




72


SUBSEQUENT
EVENTS





On
November 18, 2010, the Company executed a short term promissory note with G.F.
Galaxy Corporation for $100,000; due January 18, 2011.  Interest
accrues monthly at a rate of Ten Percent (10%) per month based on a 30 day
month.  Proceeds were used to fund general operations.





On December 3, 2010, the Company repaid $10,000 on the IDCG
Fifth Loan.





On
December 10, 2010, the Vina Mex First Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms of the note in exchange for
a warrant for the purchase of 700,000 restricted shares of the Company’s common
stock at $0.25 valid for a term of three years with an estimated fair value of
$110,060 capitalized as a deferred charge associated with the loan
extension.





On
December 10, 2010, the Vina Mex Second Loan was amended to extend the due date
to September 30, 2011 with no other change to the terms of the note in exchange
for a warrant for the purchase of 200,000 restricted shares of the Company’s
common stock at $0.25 valid for a term of three years with an estimated fair
value of $31,446 capitalized as a deferred charge associated with the loan
extension.





On
December 10, 2010, the Vina Mex Third Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms of the note in exchange for
a warrant for the purchase of 100,000 restricted shares of the Company’s common
stock at $0.25 valid for a term of three years with an estimated fair value of
$15,723 capitalized as a deferred charge associated with the loan
extension.





On
December 13, 2010, Hi-Tek Private elected to convert the full amount due on the
Hi-Tek Trademark Loan Two ($333,365) into 1,666,825 restricted shares of the
Company’s Common Stock at $0.20 per share.  Also on December 13, 2010,
Hi-Tek Private elected to convert the full amount due on the March Debenture
plus accrued interest ($92,079) into 460,398 restricted shares of the Company’s
Common Stock and the 425,000 share detachable warrant vested.  The
fair value of the vested detachable warrant, calculated in accordance with
Codification topic 470-20, is $42,500 and was recorded as debt discount, fully
expensed when record, with a corresponding credit to additional paid in
capital.  Upon conversion, $31,167 of unamortized debt discount, from
the beneficial conversion feature, was also expensed.  Additionally,
on December 13, 2010, the Hi-Tek IDC Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms.





On
December 13, 2010, Business.com.VN elected to convert the full amount due on the
Business.com.VN Loan ($121,674) into 608,372 restricted shares of the Company’s
Common Stock at $0.20 per share.





On
December 13, 2010, the Huynh Note, the TJ Fourth Note and the LJ Fourth Note
were amended to extend the due date to September 30, 2011 with no other change
to the terms of the notes or the conversion feature.





On
December 13, 2010, the Thomas First Loan, Thomas Second Loan and Thomas Fourth
Loan were amended to extend the due date to September 30, 2011 with no other
change to the terms.





On
December 13, 2010, the Ung First Loan and Ung Fourth Loan were amended to extend
the due date to September 30, 2011 with no other change to the
terms.





On
December 13, 2010, the Hue Revolver was amended to extend the due date to
September 30, 2011 with no other change to the terms.





On
December 13, 2010, the Huynh Loan was amended to extend the due date to
September 30, 2011 with no other change to the terms.




On,
December 14, 2010, the Company and IT.VN, a joint stock company, (“IT.VN”),
existing under the laws of the country of Vietnam signed the Business
Co-Operation Agreement to memorialize the INFO.VN project; a super web portal
which employees the Company’s unregistered domain monetization
rights.  Pursuant to the Business Co-Operation Agreement, which has a
term of 50 years, the Company shall contribute equipment, machines, software
development and programming, operating protocols for INFO.VN, expertise,
know-how and capital.  IT.VN shall undertake to operate day to day
functions as well as provide staff, businesses licenses and other in-country
support in furtherance of INFO.VN.  Both parties to the Business
Co-Operation Agreement shall contribute investment capital which shall include,
but not be limited to, cash, equipment, services and such other resources deemed
appropriate by the parties, in accordance with the following ratio: (i) Dot VN
to invest 75% of the capital; and (ii) IT.VN to invest 25% of the capital (the
“Initial Investment Ratio”).  Periodically, IT.VN and Dot VN shall
review all costs, contributions and payments made in connection with the INFO.VN
project and the Initial Investment Ratio shall be adjusted, as defined, to
conform to such actual expenditures (the “Final Investment
Ratio”).  IT.VN and Dot VN shall be entitled to a distribution of Net
Revenues in accordance with the Final Investment Ratio.  The Company
is the direct beneficiary of all economic and legal benefit derived from the
ownership of IT.VN and IT.VN is managed by Dot VN staff at the direction of the
Company’s officers and directors.  Under the arrangement, IT.VN will
facilitate the sales of online advertising within Vietnam, manage and develop
content for INFO.VN and perform such other functions as may be required by the
Company’s management from time to time.  Ownership of IT.VN is held by
three (3) nominees of the Company, Dr. Lee Johnson, the Company’s President,
Chief Technology Officer, and Chief Financial Officer; Mr. Louis P. Huynh, the
Company’s General Counsel, Executive Vice President of Operations and Business
Development, and Corporate Secretary and Ms. Ngoc Anh Ung, the Company’s Vice
President of, Operations and Business Development, Asia.  The nominees
have executed agreements with the Company which provide that (i) the nominees
shall represent the Company in the management and operation of IT.VN, subject to
the direction of the Company’s Board of Directors, until the earlier of his or
her resignation, termination or replacement and (ii) all legal and economic
benefit in IT.VN is irrevocably assigned to Dot VN by such
nominees.  The arrangement involves nominee participation for the
purpose of complying with Vietnam law and policy.




73





On
December 14, 2010, the Company repaid $5,000 on the IDCG Fifth
Loan.





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





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





ITEM
      4.
            CONTROLS
      AND PROCEDURES.





EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





As of
October 31, 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.





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




74




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.


75





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 May
28, 2010, pursuant to the terms of a March Debenture, the Company issued to IDCG
SA de C.V. 1,250,000 restricted shares of the Company’s Common Stock exempt from
registration afforded by Section (4)(2), promulgated pursuant to the Securities
Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated pursuant to the
Securities Act, on the basis that the securities were sold outside of the US, to
a non-US person, and with no directed selling efforts in the US, in exchange for
the cancellation of $250,000 of IDCG’s $500,000 March Debenture upon the partial
conversion.  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 of 1933, as amended (the
“Securities Act”) and Rule 903(b)(3) of Regulation S, promulgated pursuant to
the Securities Act, on the basis that the securities were sold outside of the
US, to a non-US person, and with no directed selling efforts in the
US.





On June
18, 2010, pursuant to the terms of a December Debenture, the Company issued to
IDCG SA de C.V. 18,079 restricted shares of the Company’s Common Stock exempt
from registration afforded by Section (4)(2), promulgated pursuant to the
Securities Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated
pursuant to the Securities Act, on the basis that the securities were sold
outside of the US, to a non-US person, and with no directed selling efforts in
the US, in exchange for the cancellation of IDCG’s $5,000 December Debenture
plus $62 of accrued interest.  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
903(b)(3) of Regulation S, promulgated pursuant to the Securities Act, on the
basis that the securities were sold outside of the US, to a non-US person, and
with no directed selling efforts in the US.





Also on
June 18, 2010, pursuant to the terms of a March Debenture, the Company issued to
IDCG SA de C.V. 42,535 restricted shares of the Company’s Common Stock exempt
from registration afforded by Section (4)(2), promulgated pursuant to the
Securities Act, as amended, and Rule 903(b)(3) of Regulation S, promulgated
pursuant to the Securities Act, on the basis that the securities were sold
outside of the US, to a non-US person, and with no directed selling efforts in
the US, in exchange for the cancellation of $8,507 of accrued interest on IDCG’s
$500,000 March Debenture.  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
903(b)(3) of Regulation S, promulgated pursuant to the Securities Act, on the
basis that the securities were sold outside of the US, to a non-US person, and
with no directed selling efforts in the US.





On July
31, 2010, pursuant to the terms of two stock subscription agreements, each an
accredited investor, the Company issued an aggregate of 303,715 restricted
shares of the Company’s Common Stock at $0.35 per unit for cash consideration of
$106,300.  Each subscription unit consists of one restricted shares 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 $0.35 expiring three years from
the date of issue.  The offer and sale was made, in a non-public
offering, where each offeree had access to the kind of information that
registration would disclose, in reliance on the exemption from registration
afforded by Section 4(2), promulgated pursuant to the Securities Act and Rule
506 of Regulation D, promulgated thereunder.





On August
2, 2010, the Company issued to one employee, a sophisticated purchaser, in
consideration for the execution of Non-Disclosure and Invention Assignment
Agreements 3,000 restricted shares of the Company’s Common Stock valued at the
market close and recorded as a $990 bonus.  The offer and sale was made, in
a non-public offering, where each offeree had access to the kind of information
that registration would disclose, in reliance on the exemption from registration
afforded by Section 4(2), promulgated pursuant to the Securities Act and Rule
506 of Regulation D, promulgated thereunder.


76





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





ITEM
      4.
            (REMOVED
      AND RESERVED).





ITEM
      5.
            OTHER
      INFORMATION.





None.





ITEM
      6.
            EXHIBITS.





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





Number
              
              Description2.1
              
              Agreement
      and Plan of Merger dated July 17, 2006, by and among Malers, Inc., a
      Delaware corporation, Malers Acquisition Corp., a Washington corporation;
      and Dot VN, Inc., a California corporation**3.1
              
              Amended
      and Restated Articles of Incorporation*3.2
              
              Bylaws*10.61
              
              Assignment
      of Rights dated November 1, 2006 by and between the Company and Lee P.
      Johnson10.62
              
              Assignment
      of Rights dated November 1, 2006 by and between the Company and Ngoc Anh
      Ung10.63
              
              Assignment
      of Rights dated November 1, 2006 by and between the Company and Louis P.
      Huynh10.64
              
              Business
      Co-Operation Agreement dated December 14, 2010 by and among the Company
      and Vietnam Telecommunications and Internet, JCS
(IT.VN)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.





*
            Incorporated
      by reference 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.


**
            Incorporated
      by reference to Amendment No. 1 to the Company’s Registration Statement on
      Form S-1 (File No. 333-146129), as filed with the Securities and Exchange
      Commission on March 12, 2008.




77




SIGNATURES





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





DOT
      VN, INC.(Name
      of Registrant)Date:  December
      15, 2010
                            By:
                            /s/
                            Louis P.
  HuynhName:
                            Louis
      P. HuynhTitle:
                            General
      Counsel, Executive Vice President of Operations and Business Development,
      and Corporate
Secretary


78





EXHIBIT
INDEX





Number
                
                Description2.1
                
                Agreement
      and Plan of Merger dated July 17, 2006, by and among Malers, Inc., a
      Delaware corporation, Malers Acquisition Corp., a Washington corporation;
      and Dot VN, Inc., a California corporation**3.1
                
                Amended
      and Restated Articles of Incorporation*3.2
                
                Bylaws*10.61
                
                Assignment
      of Rights dated November 1, 2006 by and between the Company and Lee P.
      Johnson10.62
                
                Assignment
      of Rights dated November 1, 2006 by and between the Company and Ngoc Anh
      Ung10.63
                
                Assignment
      of Rights dated November 1, 2006 by and between the Company and Louis P.
      Huynh10.64
                
                Business
      Co-Operation Agreement dated December 14, 2010 by and among the Company
      and Vietnam Telecommunications and Internet, JCS
(IT.VN)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.





*
            Incorporated
      by reference 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.


**
            Incorporated
      by reference to Amendment No. 1 to the Company’s Registration Statement on
      Form S-1 (File No. 333-146129), as filed with the Securities and Exchange
      Commission on March 12, 2008.




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