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 July 31, 2009





OR





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


EXCHANGE
ACT OF 1934





For the
transition period from _____ to ____





Commission
File No. 000-53367





DOT VN,
INC.


(Exact
name of registrant as specified in its charter)





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





9449 Balboa Avenue, Suite
114


San Diego, California
92123


(Address
of principal executive offices, zip code)





(858)
571-2007


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year,


if
changed since last report)





Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.   Yes x   No
 ̈





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





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





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





As of
September 8, 2008, there were 29,481,211 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 JULY 31, 2009





INDEX





Index
                                    
                                    
                                    PagePart
      I.
                                    Financial
      InformationItem
      1.
                                    Financial StatementsBasis
      of Presentation
                                    4Report
      of Independent Registered Public Accounting Firm
                                    5Condensed
      Consolidated Balance Sheets as of July 31, 2009 (unaudited) and April 30,
      2009
                                    6Condensed
      Consolidated Statements of Operations for the Three Months ended July 31,
      2009 and 2008 (unaudited)
                                    7Condensed
      Consolidated Statements of Changes in Stockholders Equity for the Three
      Months ended July 31, 2009 (unaudited) and Year ended April 30,
      2009
                                    8Condensed
      Consolidated Statements of Cash Flows for the Three Months ended July 31,
      2009 and 2008 (unaudited)
                                    10Notes
      to Condensed Consolidated Financial Statements (unaudited)
                                    12Item
      2.
                                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                    38Item
      3.
                                    Quantitative
      and Qualitative Disclosures About Market Risk
                                    51Item
      4.
                                    Controls
      and Procedures
                                    51Part
      II.
                                    Other
      InformationItem
      1.
                                    Legal
      Proceedings
                                    52Item
      1A.
                                    Risk
      Factors
                                    52Item
      2.
                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                    52Item
      3.
                                    Defaults
      Upon Senior Securities
                                    53Item
      4.
                                    Submission
      of Matters to a Vote of Security Holders
                                    53Item
      5.
                                    Other
      Information
                                    53Item
      6.
                                    Exhibits
                                    54Signatures
                                    
                                    
                                    55Certifications





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 52.4% 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 50.4% 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 July 31,
2009, and the related consolidated balance sheet of the Company as of April 30,
2009, which is derived from the Company's audited consolidated financial
statements, the un-audited condensed consolidated statement of operations and
cash flows for the three months ended July 31, 2009 and July 31, 2008 and the
condensed consolidated statement of stockholders equity for the period of April
30, 2008 to July 31, 2009 are included in this document.  These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in the Company’s most recently filed Form 10-K.





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


4


Chang
G. Park, CPA, Ph. D.


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


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


t
E-MAIL
changgpark@gmail.com

t





Report of Independent
Registered Public Accounting Firm





To the
Board of Directors of


Dot VN,
Inc.


9449
Balboa Avenue, Suite 114


San
Diego, CA 92123





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





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





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





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




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





September
10, 2009





San
Diego, CA 92108





Member
of the California Society of Certified Public Accountants


Registered
with the Public Company Accounting Oversight Board


5


Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Balance Sheets





July
      31,
                                                        
                                                        
                                                        April
      30,2009
                                                        
                                                        
                                                        2009(unaudited)ASSETSCurrent
      assets:Cash
                                                        
                                                        $
                                                        61,296
                                                        
                                                        
                                                        $
                                                        144,842Accounts
      receivable
                                                        
                                                        
                                                        149,275
                                                        
                                                        
                                                        
                                                        103,833Prepaid
      expenses and other current assets
                                                        
                                                        
                                                        58,777
                                                        
                                                        
                                                        
                                                        47,561Notes
      receivable, net
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Total
      current assets
                                                        
                                                        
                                                        269,348
                                                        
                                                        
                                                        
                                                        296,236Equipment,
      net
                                                        
                                                        
                                                        756,494
                                                        
                                                        
                                                        
                                                        740,816Intangible
      assets
                                                        
                                                        
                                                        1,022,336
                                                        
                                                        
                                                        
                                                        1,022,336Other
      noncurrent assets
                                                        
                                                        
                                                        221,157
                                                        
                                                        
                                                        
                                                        221,321Total
      assets
                                                        
                                                        $
                                                        2,269,335
                                                        
                                                        
                                                        $
                                                        2,280,709LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                                        
                                                        $
                                                        167,747
                                                        
                                                        
                                                        $
                                                        96,323Customer
      deposits
                                                        
                                                        
                                                        2,971
                                                        
                                                        
                                                        
                                                        21,471Due
      to related party, net of zero and zero discount
                                                        
                                                        
                                                        8,279,525
                                                        
                                                        
                                                        
                                                        8,109,452Short-term
      convertible debt, net of zero and zero discount
                                                        
                                                        
                                                        222,973
                                                        
                                                        
                                                        
                                                        106,913Short-term
      debt and current portion of long-term debt
                                                        
                                                        
                                                        2,434,536
                                                        
                                                        
                                                        
                                                        2,683,450Accrued
      and other liabilities
                                                        
                                                        
                                                        515,580
                                                        
                                                        
                                                        
                                                        524,673Total
      current liabilities
                                                        
                                                        
                                                        11,623,332
                                                        
                                                        
                                                        
                                                        11,542,282Long-term
      liabilities:Long-term
      debt, net of current portion
                                                        
                                                        
                                                        167,708
                                                        
                                                        
                                                        
                                                        189,904Total
      long-term liabilities
                                                        
                                                        
                                                        167,708
                                                        
                                                        
                                                        
                                                        189,904Total
      Liabilities
                                                        
                                                        
                                                        11,791,040
                                                        
                                                        
                                                        
                                                        11,732,186Commitments
      and ContingenciesShareholders'
      equity (deficit):Preferred
      stock: 50,000,000 shares authorized of $0.001 par value;
      120,000shares
      designated Series A, $10.00 stated value; 0 issued and
      outstanding
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —as
      of July 31, 2009 and April 30, 2009Common
      stock: 250,000,000 shares  authorized of $0.001 par
      value;29,481,211
      and 28,360,322 shares issued and outstanding as of July
31,2009
      and April 30, 2009
                                                        
                                                        
                                                        29,481
                                                        
                                                        
                                                        
                                                        28,360Additional
      paid-in capital
                                                        
                                                        
                                                        32,871,438
                                                        
                                                        
                                                        
                                                        30,344,251Accumulated
      deficit
                                                        
                                                        
                                                        (42,423,711
                                                        )
                                                        
                                                        
                                                        (39,825,769
                                                        )Accumulated
      comprehensive income
                                                        
                                                        
                                                        1,087
                                                        
                                                        
                                                        
                                                        1,681Total
      shareholders' equity (deficit)
                                                        
                                                        
                                                        (9,521,705
                                                        )
                                                        
                                                        
                                                        (9,451,477
                                                        )Total
      liabilities and shareholders' equity (deficit)
                                                        
                                                        $
                                                        2,269,335
                                                        
                                                        
                                                        $
                                                        2,280,709





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


6





Dot
VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations (Unaudited)





Three
      Months Ended July 31,2009
                                              
                                              
                                              2008Revenues
                                              
                                              $
                                              363,112
                                              
                                              
                                              $
                                              376,680Cost
      of revenues
                                              
                                              
                                              130,597
                                              
                                              
                                              
                                              143,406Gross
      profit
                                              
                                              
                                              232,515
                                              
                                              
                                              
                                              233,274General
      and administrative expenses:Consulting
      and professional fees
                                              
                                              
                                              61,854
                                              
                                              
                                              
                                              125,256Marketing
      and promotion
                                              
                                              
                                              12,140
                                              
                                              
                                              
                                              12,000Option
      bonus
                                              
                                              
                                              1,972,393
                                              
                                              
                                              
                                              913,715Bad
      debt expense
                                              
                                              
                                              2,600
                                              
                                              
                                              
                                              26,000Other
      general & administrative expenses
                                              
                                              
                                              539,097
                                              
                                              
                                              
                                              591,675Total
      general and administrative expenses
                                              
                                              
                                              2,588,084
                                              
                                              
                                              
                                              1,668,646(Loss)
      from operations
                                              
                                              
                                              (2,355,569
                                              )
                                              
                                              
                                              (1,435,372
                                              )Other
      income (expenses)Interest
      income
                                              
                                              
                                              214
                                              
                                              
                                              
                                              1,644Finance
      expense
                                              
                                              
                                              (700
                                              )
                                              
                                              
                                              (164,363
                                              )Interest
      expense
                                              
                                              
                                              (247,319
                                              )
                                              
                                              
                                              (731,417
                                              )Foreign
      exchange gain (loss)
                                              
                                              
                                              5,432
                                              
                                              
                                              
                                              (2,520
                                              )Total
      other income (expenses)
                                              
                                              
                                              (242,373
                                              )
                                              
                                              
                                              (896,656
                                              )Net
      loss
                                              
                                              $
                                              (2,597,942
                                              )
                                              
                                              $
                                              (2,332,028
                                              )Loss
      per common share:Basic
      and diluted
                                              
                                              $
                                              (0.09
                                              )
                                              
                                              $
                                              (0.09
                                              )Weighted
      average common shares outstanding:Basic
      and diluted
                                              
                                              
                                              29,143,587
                                              
                                              
                                              
                                              27,105,489Comprehensive
      loss:Net
      loss
                                              
                                              $
                                              (2,597,942
                                              )
                                              
                                              $
                                              (2,332,028
                                              )Other
      comprehensive loss:Foreign
      currency translation
                                              
                                              
                                              (594
                                              )
                                              
                                              
                                              —Comprehensive
      loss
                                              
                                              $
                                              (2,598,536
                                              )
                                              
                                              $
                                              (2,332,028
                                              )





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


7




Dot
VN, INC. AND SUBSIDIARIES


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





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





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


8


Dot
VN, INC. AND SUBSIDIARIES


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





Common
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      AccumulatedCommon
                      
                      
                      stock
                      
                      
                      paid-in
                      
                      
                      Accumulated
                      
                      
                      comprehensivestock
                      
                      
                      amount
                      
                      
                      capital
                      
                      
                      deficit
                      
                      
                      income
                      
                      
                      TotalBalance,
      April 30, 2009
                      
                      
                      28,360,322
                      
                      
                      
                      28,360
                      
                      
                      
                      30,344,251
                      
                      
                      
                      (39,825,769
                      )
                      
                      
                      1,681
                      
                      
                      
                      (9,451,477
                      )Shares
      issued for cash
                      
                      
                      320,000
                      
                      
                      
                      320
                      
                      
                      
                      152,680
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      153,000Shares
      issued for services
                      
                      
                      2,000
                      
                      
                      
                      2
                      
                      
                      
                      998
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,000Shares
      issued as payment on term debt
                      
                      
                      796,389
                      
                      
                      
                      796
                      
                      
                      
                      397,398
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      398,194Shares
      issued upon exercise of warrants
                      
                      
                      2,500
                      
                      
                      
                      3
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      3Warrants
      issued for services
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      3,718
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      3,718Stock
      options expensed
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,972,393
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,972,393Comprehensive
      loss, July 31, 2009
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (2,597,942
                      )
                      
                      
                      (594
                      )
                      
                      
                      (2,598,536
                      )Balance,
      July 31, 2009
                      
                      
                      29,481,211
                      
                      
                      $
                      29,481
                      
                      
                      $
                      32,871,438
                      
                      
                      $
                      (42,423,711
                      )
                      
                      $
                      1,087
                      
                      
                      $
                      (9,521,705
                      )





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


9


Dot VN, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows (Unaudited)





For
      the Three Months Ended
                                      July
      31,2009
                                    
                                    
                                    2008Cash
      flows from operating activities:Net
      loss
                                    
                                    $
                                    (2,597,942
                                    )
                                    
                                    $
                                    (2,332,028
                                    )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
                                    
                                    
                                    4,968
                                    
                                    
                                    
                                    2,384Accrued
      interest expense
                                    
                                    
                                    231,201
                                    
                                    
                                    
                                    178,668Accrued
      bad debt expense
                                    
                                    
                                    —
                                    
                                    
                                    
                                    25,000Amortization
      of debt issuance costs
                                    
                                    
                                    700
                                    
                                    
                                    
                                    117,304Amortization
      of service warrants
                                    
                                    
                                    3,718
                                    
                                    
                                    
                                    68,828Amortization
      of debt discounts
                                    
                                    
                                    —
                                    
                                    
                                    
                                    557,756Stock
      options expensed
                                    
                                    
                                    1,972,393
                                    
                                    
                                    
                                    913,715Stock
      issued to employees
                                    
                                    
                                    —
                                    
                                    
                                    
                                    11,600Stock
      issued for services
                                    
                                    
                                    8,500
                                    
                                    
                                    
                                    19,625Changes
      in operating assets and liabilities:(Increase)
      in accounts receivable
                                    
                                    
                                    (20,341
                                    )
                                    
                                    
                                    (27,545
                                    )(Increase)
      in prepaid expenses and other current assets
                                    
                                    
                                    (18,399
                                    )
                                    
                                    
                                    (7,223
                                    )Decrease
      in other noncurrent assets
                                    
                                    
                                    2,665
                                    
                                    
                                    
                                    14,546Increase
      in accounts payable
                                    
                                    
                                    71,412
                                    
                                    
                                    
                                    26,871(Decrease)
      increase in customer deposits
                                    
                                    
                                    (18,500
                                    )
                                    
                                    
                                    20,101Increase
      in accrued and other liabilities
                                    
                                    
                                    171,009
                                    
                                    
                                    
                                    217,780Net
      cash (used in) operating activities
                                    
                                    
                                    (188,616
                                    )
                                    
                                    
                                    (192,618
                                    )Cash
      flows from investing activities:Purchase
      of equipment
                                    
                                    
                                    (3,058
                                    )
                                    
                                    
                                    (6,765
                                    )Proceeds
      from equipment sale
                                    
                                    
                                    —
                                    
                                    
                                    
                                    870Net
      cash (used in) investing activities
                                    
                                    
                                    (3,058
                                    )
                                    
                                    
                                    (5,895
                                    )Cash
      flows from financing activities:Proceeds
      from term notes
                                    
                                    
                                    
                                    
                                    
                                    
                                    120,000Repayments
      on term notes
                                    
                                    
                                    (34,221
                                    )
                                    
                                    
                                    —Repayments
      to related parties
                                    
                                    
                                    (6,396
                                    )
                                    
                                    
                                    (53,000
                                    )Proceeds
      from stock issuances
                                    
                                    
                                    153,003
                                    
                                    
                                    
                                    53Net
      cash provided by financing activities
                                    
                                    
                                    112,386
                                    
                                    
                                    
                                    67,053Effect
      of exchange rate changes on cash
                                    
                                    
                                    (4,258
                                    )
                                    
                                    
                                    —Net
      increase (decrease) in cash
                                    
                                    
                                    (83,546
                                    )
                                    
                                    
                                    (131,460
                                    )Cash,
      beginning of the period
                                    
                                    
                                    144,842
                                    
                                    
                                    
                                    480,350Cash,
      end of the period
                                    
                                    $
                                    61,296
                                    
                                    
                                    $
                                    348,890





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


10


Dot VN, INC. AND SUBSIDIARIES


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





For
      the Three Months Ended
                        July
      31,2009
                      
                      
                      2008Non-cash
      investing and financing activities:Increase in construction in
      progress from accrued interest
                      
                      $
                      17,339
                      
                      
                      $
                      13,418Common stock issued in exchange
      for convertible note
                      
                      $
                      —
                      
                      
                      $
                      7,500Common stock issued to
      employees
                      
                      $
                      —
                      
                      
                      $
                      5,100Common stock issued for
      services
                      
                      $
                      1,000
                      
                      
                      $
                      —Common stock issued for note
      receivable
                      
                      $
                      —
                      
                      
                      $
                      25,000Common stock issued as payment on
      term debt
                      
                      $
                      398,194
                      
                      
                      $
                      —Supplemental
      cash flow disclosure:Interest paid
                      
                      $
                      11,116
                      
                      
                      $
                      27,540Taxes paid
                      
                      $
                      3,900
                      
                      
                      $
                      —





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


11





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





1.      Condensed
Consolidated Financial Statements





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





2.      Organization





The
Company





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





·
            to
      drive growth in registrations of the Vietnamese ccTLD ‘.vn’;·
            to
      build and operate Internet data centers in major city centers in
      Vietnam;·
            to
      commercialize the use of multi-gigabit capacity virtual fiber, a wireless
      point-to-point layer one solution; and·
            to
      identify, deploy and commercialize best of breed technologies and
      applications in Vietnam.





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





Dot VN is
currently in the process of designing an Internet data center (“IDC” in the
singular or “IDCs” in the plural) which will serve as an internal data and
telecommunications network within the country of Vietnam.  The IDCs
will provide web hosting, collocation, and disaster recovery services as well as
serve as the basic infrastructure for additional Internet and data technologies
such as virtual fiber connectivity, distance e-learning and e-government
projects.  The Company has secured a 35-year lease, ending September
21, 2043, for approximately 8,678 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 signed agreements with E-Band Communications Corp. providing the Company the
exclusive right to distribute E-Band’s multi-gigabit capacity virtual
fiber systems and related E-Band technology and services (the “E-Band
Products”) in Vietnam, and the non-exclusive right to distribute E-Band Products
in Cambodia, Thailand and Laos.





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


12





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





2.      Organization
(continued)





Reverse
Merger





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





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





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





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





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





3.      Prepaid
expenses and other current assets





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





July
      31,
                        
                        
                        April
      30,2009
                        
                        
                        2009Prepaid
      expenses
                        
                        $
                        13,340
                        
                        
                        $
                        22,743Prepaid
      land lease, Vietnam
                        
                        
                        209,073
                        
                        
                        
                        207,718Vietnam
      value added tax (VAT) receivable
                        
                        
                        9,735
                        
                        
                        
                        9,147VNNIC
      Deposit
                        
                        
                        9,804
                        
                        
                        
                        4,130Miscellaneous
      receivable
                        
                        
                        18,145
                        
                        
                        
                        3,909260,097
                        
                        
                        
                        247,647Less
      prepaid land lease included in other
                          noncurrent assets  (see
      Note 7)
                        
                        
                        201,320
                        
                        
                        
                        200,086Total
      prepaid expenses and other current assets
                        
                        $
                        58,777
                        
                        
                        $
                        47,561





On August
21, 2008, Dot VN Company, Ltd. (Danang City), an entity existing under the laws
of the Country of Vietnam (“Dot VN Danang”), a wholly owned subsidiary of the
Dot VN, Inc., entered into a Land Sublease Agreement (the “Land


13





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





3.      Prepaid
expenses and other current assets (continued)





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 8,678 square meters of land in the Danang Industrial Zone,
known as Lot 47, in Danang City, Vietnam, for the express purpose of building an
Internet data center and related uses, for a term of approximately 35 years
expiring September 21, 2043.  Base rent is $32/square meter, excluding
value added taxes (“VAT”) and other possible fees and costs, for the term is
payable in three installments of 50%, 30% and 20%.  Base rent
(excluding VAT) of $140,293 and $84,175 was paid September 22, 2008 and March
16, 2009, respectively.  The final 20% of the Land Sublease obligation
is due August 21, 2009 and was paid August 27, 2009.  Lease expense
charged to operations was $1,924 and $5,530 for the three months ended July 31,
2009 and the year ended April 30, 2009.





Dot VN
Danang is required to bill and collect from its customers a Ten Percent
(10%)  VAT.  In addition, Dot VN Danang can offset its
obligation to pay the VAT collected from its customers with the VAT it pays to
others during the tax reporting period (typically a calendar
quarter).  For the period from inception through December 31, 2008,
Dot VN Danang received a $13,000 refund of VAT paid, principally on the Land
Sublease.  For the seven month period ending July 31, 2009, Dot VN
Danang has paid $9,735 of VAT for which it will request a refund from the taxing
authority.





The
Company maintains a credit balance with the VNNIC from which it pays the domain
name registration and renewal fees incurred daily.  The balance as of
July 31 and April 30, 2009 was $9,804 and $4,130, respectively.





During
the three months ended July 31, 2009 and year ended April 30, 2009, the Company
provided administrative and technical support to Business.VN, a Nevada
corporation, for an aggregate fee of $1,500 per month, in addition until
September 30, 2007 and from November 1, 2008 to current the Company also
provides office space to Business.VN for an aggregate fee of $1,000 per
month.  Business.VN, which develops travel related Internet
applications focused on the emerging market in the country of Vietnam, is
majority owned by Hi-Tek, Inc. a privately held California corporation (“Hi-Tek
Private”), previously a related party (see Note 10).  The balance owed
the Company as of July 31 and April 30, 2009 was $7,500 and zero.





4.      Notes
receivable





During
the year ended April 30, 2009, the Company issued an aggregate of 25,000
restricted shares of its Common Stock pursuant to the conversion of $25,000 in
convertible debentures issued by Spot-On Networks, LLC
(“Spot-On”).  On January 31 and February 9, 2007 the Company issued a
series of convertible debentures (see Note 8) for an aggregate of $1,148,212 due
January 31, 2009 (the “February Financing”) which convert at the option of each
individual noteholder (the “February Investors”) into restricted shares of the
Company’s Common Stock at $1.00 per share.  The February Financing was
funded in conjunction with a like amount of convertible debentures issued
concurrently by Spot-On to the February Investors (the “Spot-On
Debenture”).  The February Financing terms required that the
convertible debentures issued by Spot-On be convertible into either membership
units of Spot-On or common stock of the Company, at the option of the February
Investors.  Upon the February Investors’ election to convert a Spot-On
Debenture into the Company’s Common Stock the Spot-On Debenture is assigned and
transferred into the name of the Company (the “Assigned Spot-On Debentures”) at
which time the Company issues the Common Stock and records a note
receivable.  Future monthly interest payments, at Ten Percent (10%)
per annum, accrue for the benefit of the Company; during the three months ended
July 31, 2009 and the year ended April 30, 2009 interest of $5,954 and $23,368
has accrued, respectively.  On January 31, 2009, at maturity, the
Spot-On Conversion right expired and the Assigned Spot-On Debentures principal
and accrued interest was due to be paid by Spot-On.  On January 30,
2009, the Company received a request from Spot-On to (i) extend the maturity
date to March 31, 2009 and (ii) waive any defaults under the Assigned Spot-On
Debentures or any of the related documents or events of default which are
outstanding or have occurred (the “Spot-On Offer”).  The Company has
not accepted the Spot-On Offer and continues discussing options to receive the
full amount due, with accrued interest, prior to March 31, 2009.  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.


14





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (unaudited)


As
of July 31, 2009





4.      Notes
receivable (continued)





Spot-On
is a private company and does not furnish the Company with financial statements
to evaluate their ability to pay the Assigned Spot-On Debentures principal and
accrued interest, currently in default.  The Company’s ability to
collect the Assigned Spot-On Debentures is dependent on the cash reserves held
by Spot-On and/or their ability to raise additional financing.  Due to
the uncertainty of collection the Company has recorded a bad debt expense for
the full amount of the Assigned Spot-On Debentures principal and does not record
the monthly accrual of interest.  Interest income ($33,152) will be
recognized upon collection from Spot-On.





July
      31,
                      
                      
                      April
      30,2009
                      
                      
                      2009Notes
      receivable
                      
                      $
                      236,213
                      
                      
                      $
                      236,213Less
      allowance
                      
                      
                      236,213
                      
                      
                      
                      236,213Notes
      receivable, net
                      
                      $
                      —
                      
                      
                      $
                      —





5.      Equipment





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





July
      31,
                          
                          
                          April
      30,2009
                          
                          
                          2009Computer
      equipment
                          
                          $
                          60,522
                          
                          
                          $
                          57,374Other
      furniture and equipment
                          
                          
                          15,287
                          
                          
                          
                          15,167Leasehold
      improvements
                          
                          
                          3,915
                          
                          
                          
                          3,853Internet
      data center, construction in progress
                          
                          
                          705,254
                          
                          
                          
                          687,915784,978
                          
                          
                          
                          764,309Less
      accumulated depreciation
                          
                          
                          28,484
                          
                          
                          
                          23,493Equipment,
      net
                          
                          $
                          756,494
                          
                          
                          $
                          740,816





Depreciation
expense charged to operations was $4,413 and $12,419 for the three months ended
July 31, 2009 and the year ended April 30, 2009,
respectively.  Amortization expense charged to operations was $555 and
$193 for the three months ended July 31, 2009 and the year ended April 30, 2009,
respectively  Capitalized interest on borrowings related to the
Internet data center was $17,339 and $64,620 for the three months ended July 31,
2009 and the year ended April 30, 2009, respectively.





6.      Intangibles
assets





On
October 16, 2006 the Company acquired the rights to the US trademark “Dot VN”
including its logo and certain related domain names for $360,000 in the form of
a two year convertible note (see Note 8) from Hi-Tek Private, previously a
related party (see Note 12).  The trademark was determined to have an
indefinite useful life and is not amortized.





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


15





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





6.      Intangibles
assets (continued)





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





7.      Other
noncurrent assets





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





July
      31,
                          
                          
                          April
      30,2009
                          
                          
                          2009Deposits
                          
                          $
                          11,684
                          
                          
                          $
                          12,241Deferred
      debt issuance cost
                          
                          
                          7,518
                          
                          
                          
                          8,218Prepaid
      land lease Danang City, Vietnam (see Note 3)
                          
                          
                          201,320
                          
                          
                          
                          200,086Other
      noncurrent assets
                          
                          
                          635
                          
                          
                          
                          776Total
      other noncurrent assets
                          
                          $
                          221,157
                          
                          
                          $
                          221,321





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





Following
the January 31, 2009 maturity of the convertible debentures (see Note 8) the
Company contacted the February Investors for an extension of the due date in
exchange for modified terms, to include an amortized term note (see Note 9) and
warrants.  The Company issued a series of warrants to ten February
Investors for the purchase of an aggregate of 31,173 restricted shares of the
Company’s Common Stock (see Note 13) with a fair value of $8,918 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 thirty-six month term of the debt with $700 and $700 expensed in
the three months ended July 31, 2009 and the year ended April 30, 2009,
respectively.  Amortization for the year ended April 30, 2010 will be
$2,800.


16





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





8.      Convertible
Notes





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





Issued date
                                  
                                  Maturity
                                  
                                  Conversion
                                    price
                                  
                                  
                                  Amount
                                  
                                  
                                  Debt
                                    discount
                                  
                                  
                                  Accrued
                                    interest
                                  
                                  
                                  Net amountConvertible
      Note 1
                                  
                                  Oct.
      16, 2006
                                  
                                  Dec.
      31, 2009
                                  
                                  $
                                  1.00
                                  
                                  
                                  $
                                  360,000
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  115,527
                                  
                                  
                                  $
                                  475,527Convertible
      Notes 2
                                  
                                  Feb.
      9, 2007
                                  
                                  Jan.
      31, 2009
                                  
                                  $
                                  1.00
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Convertible
      Note 3
                                  
                                  June
      29, 2007
                                  
                                  Dec.
      31, 2009
                                  
                                  $
                                  1.43
                                  
                                  
                                  
                                  92,336
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  16,748
                                  
                                  
                                  
                                  109,084Convertible
      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
                                  
                                  Oct.
      16, 2009
                                  
                                  $
                                  0.30
                                  
                                  
                                  
                                  5,769,316
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  130,379
                                  
                                  
                                  
                                  5,899,695Convertible
      Note 7
                                  
                                  July
      6, 2009
                                  
                                  Oct.
      16, 2009
                                  
                                  $
                                  0.46
                                  
                                  
                                  
                                  113,244
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  645
                                  
                                  
                                  
                                  113,8896,334,896
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  263,299
                                  
                                  
                                  
                                  6,598,195Less
      notes 1 and 6 included in due to related parties, current
                                    (see Note
      10)
                                  
                                  
                                  
                                  6,129,316
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  245,906
                                  
                                  
                                  
                                  6,375,222Less
      notes 3 and 7 included in short-term convertible debt
                                  
                                  
                                  
                                  205,580
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  17,393
                                  
                                  
                                  
                                  222,973Long-term
      convertible notes, net of current portion
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —





Convertible
Note 1 for $360,000 was issued on October 16, 2006 with a two year term,
converts at the option of the holder into restricted shares of the Company’s
Common Stock at $1.00 per share and bears an interest rate of Ten Percent (10%)
per annum.  The note is payable to Hi-Tek Private, a former related
party (see Note 10) (the “Hi-Tek Trademark Loan”) (see Note 6), had accrued
interest of $115,527 at July 31, 2009.  The beneficial conversion
feature was calculated to be $360,000 at the time of issuance in accordance with
FASB Emerging Issue Task Force (“EITF”) No 00-27 (“EITF 00-27”); the Company
recorded this amount as debt discount with a corresponding credit to additional
paid in capital.  On October 13, 2008, the Hi-Tek Trademark Loan was
amended to extend the due date to June 30, 2009, with no other change to the
terms of the note or conversion feature.  On June 25, 2009, the Hi-Tek
Trademark Loan was amended to extend the due date to December 31, 2009, with no
other change to the terms of the note or conversion feature.  In
accordance with EITF 00-27, there is no beneficial conversion feature at the
time of the two extensions.  As of July 31, 2009 the unamortized debt
discount was zero.





Convertible
Notes 2 are a set of convertible debentures with an aggregate face value of
$949,500 issued January 31 and February 9, 2007 (the “February Debentures”), net
of conversions, which were due January 31, 2009.  The convertible
debentures bear no interest until July 2007 at which point they accrue Ten
Percent (10%) per annum with interest payable monthly.  The Company
accrued interest at an imputed rate of approximately Eight Percent (8%) per
annum effective from the date the convertible debentures were
issued.  The debentures convert at the option of each individual
noteholder (the “February Investors”) into restricted shares of the Company’s
Common Stock at $1.00 per share; representing a beneficial conversion
feature.  In addition, the February Investor received a detachable
warrant exercisable into restricted shares of the Company’s Common Stock; the
number of shares of each warrant is equal to 30% of the note face value for an
aggregate of 344,465 shares amount.  The detachable warrants have an
exercise price of $2.00 per share and a term of five years from the date of
issuance.  The combined fair value of the beneficial conversion
feature and detachable warrants calculated, in accordance with EITF 00-27, is
limited to the proceeds of the debt and was allocated between the beneficial
conversion feature and detachable warrants as $888,258 and $259,954,
respectively.  The beneficial conversion feature and detachable
warrants are recorded as debt discount with a corresponding credit to additional
paid in capital and were amortized over the life of the February
Debentures.  During the year ended April 30, 2009, five (5) February
Investors exercised the conversion option, prior to the January 31, 2009
expiration of the conversion option, on an aggregate of $191,212 convertible
debenture.  Upon conversion, $44,991 of unamortized debt discount for
the converted debenture was expensed.


17


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





8.      Convertible
notes (continued)





The
Company did not repay the $949,500 due the sixteen 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.  In addition, on May 4 and 7, 2009, three (3) of the
February Investors agreed to modify the terms of their February Debentures
aggregating $112,500 as follows: (i) the February Debenture plus the unpaid
liquidated damages ($10,125) are combined into a single amortized term note for
each of the three (3) February Investors, (ii) interest accrues from February 1,
2009 at Twelve Percent (12%) per annum, (iii) a one-time Fifteen Percent (15%)
principal payment was paid in May, and (iv) commencing June 1, 2009, the unpaid
balance will be amortized over thirty-six (36) equal monthly
payments.  In addition, warrants aggregating 31,173 shares were issued
to the ten February Investors, upon agreeing to modify the terms of their
February Debentures, with a $2 exercise price expiring on January 31, 2012
(collectively the “Extended Debentures”).  Six February Investors
holding February Debentures aggregating $662,500 have not responded to the
Company’s request to modify their repayment terms, these amounts, which are no
longer convertible into common stock of the Company, are included under
term-debt as a current obligation (see Note 9).





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





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





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 11).


18


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





8.      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 and bears no interest during the one
year term.  The note was recorded at the present value of $92,336
based on the state default interest rate of Eight Percent (8%) per annum after
the original maturity date of June 29, 2008 (see Note 6) (the “Business.com.VN
Loan”).  The Company has accrued interest of $16,748 at July 31,
2009.  The beneficial conversion feature was calculated to be $39,860
at the time of issuance in accordance with EITF 00-27; the Company recorded this
amount as debt discount with a corresponding credit to additional paid in
capital.  On July 23, 2008, the Business.com.VN Loan was amended to
extend the due date to June 30, 2009 and accrue interest at the rate of Eight
Percent (8%) per annum; there was no change to the conversion
feature.  On June 25, 2009, the Business.com.VN Loan was amended to
extend the due date to December 31, 2009, with no other change to the terms of
the note or conversion feature.  In accordance with EITF 00-27, there
is no beneficial conversion feature at the time of the two
extensions.  As of July 31, 2009 the unamortized debt discount was
zero.





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 (50%) (the “TJ First
Note”) and Dr. Lee Johnson (50%) (the “LJ First Note”) issued in satisfaction of
unpaid accrued salary, including interest, from January, 2003 through June, 2007
by each of Mr. Thomas Johnson and Dr. Lee Johnson under their respective
employment agreements with the Company.  The notes were due August 1,
2008 and accrued interest monthly at Eight Percent (8%) per annum (see Note
10).  At the election of the holder, the amount due and owing pursuant
to such note may be converted in restricted shares of the Company’s Common Stock
at a per share price of $1.43 per share (the “Conversion Price”).  The
Conversion Price shall be adjusted downward in the event Dot VN issues common
stock (or securities exercisable for or convertible into common stock) at a
price below the Conversion Price, to a price equal to such issue
price.  The beneficial conversion feature was calculated to be an
aggregate of $1,446,594 at the time of issuance in accordance with EITF 00-27;
the Company recorded this amount as debt discount with a corresponding credit to
additional paid in capital.  On August 14, 2008, the unpaid notes and
accrued interest ($343,401) were cancelled and replaced with new convertible
notes with materially the same terms and conditions as Convertible Notes 4, with
an aggregate face value of $4,321,533 issued to Mr. Thomas Johnson (50%) and Dr.
Lee Johnson (50%) (see Convertible Notes 5).





Convertible
Notes 5 are a set of two individual notes with an aggregate face value of
$4,321,533 issued August 14, 2008 to Mr. Thomas Johnson (50%) (the “TJ Second
Note”) and Dr. Lee Johnson (50%) (the “LJ Second Note”) in exchange for the
unpaid balance owed under Convertible Notes 4 which were
cancelled.  The notes were due February 15, 2009 and accrued interest
monthly at Eight Percent (8%) per annum (see Note 10).  At the
election of the holder, the amount due and owing pursuant to such note may be
converted in restricted shares of the Company’s Common Stock at a per share
price of $1.43 per share (the “Conversion Price”).  The Conversion
Price shall be adjusted downward in the event Dot VN issues common stock (or
securities exercisable for or convertible into common stock) at a price (the
“Subsequent Price”) below the Conversion Price, to a price equal to the
Subsequent Price.  In accordance with EITF 00-27, there is no
beneficial conversion feature at the time of issuance.  On February
15, 2009, the TJ Second Note and the LJ Second Note were amended to extend the
due date thirty days to March 17, 2009 with no other change to the terms of the
notes.  On March 17, 2009, the TJ Second Note and the LJ Second Note
were amended to extend the due date fourteen days to March 31, 2009 with no
other change to the terms of the notes.  On April 20, 2009, the unpaid
notes and accrued interest ($239,729) were cancelled and replaced with new
convertible notes with materially the same terms and conditions as Convertible
Notes 5, issued to Mr. Thomas Johnson (50%) and Dr. Lee Johnson (50%), except
that in the new notes the adjusted Conversion Price is established as One
hundred Ten percent (110%) of the Subsequent Price where previously the
Subsequent Price became the adjusted Conversion Price (see Convertible Notes
6).


19





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009




8.      Convertible
notes (continued)





Convertible
Notes 6 are a set of two individual notes with an aggregate face value of
$5,769,316 issued April 20, 2009 to Mr. Thomas Johnson (50%) (the “TJ Third
Note”) and Dr. Lee Johnson (50%) (the “LJ Third Note”) issued (i) in exchange
for the unpaid balance owed under Convertible Notes 5 ($4,561,262) which were
cancelled and (ii) in satisfaction of unpaid accrued salary and interest
accruing since July 1, 2007 through January 31, 2009 by each of Mr. Thomas
Johnson ($604,027) and Dr. Lee Johnson ($604,027) under their respective
employment agreements with the Company.  The notes are due October 16,
2009 and accrued interest monthly at Eight Percent (8%) per annum (see Note
10).  At the election of the holder, the amount due and owing pursuant
to such note may be converted in restricted shares of the Company’s Common Stock
at a per share price of $0.30 per share (the “Conversion Price”).  The
Conversion Price shall be adjusted downward in the event Dot VN issues common
stock (or securities exercisable for or convertible into or exchangeable for
common stock) at a price (the “Subsequent Price”) below the Conversion Price
times Ninety percent (90%), to a price equal to such Subsequent Price times One
hundred Ten percent (110%)(the “Adjusted Conversion Price”).  In
accordance with EITF 00-27, there is no beneficial conversion feature at the
time of issuance.  The Company had accrued interest of $130,379 as of
July 31, 2009.





Convertible
Note 7 for $113,244 was issued on July 6, 2009 to Mr. Louis P. Huynh 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 note is due October 16, 2009 and accrued interest
monthly at Eight Percent (8%) per annum.  The Company has accrued
interest of $645 at July 31, 2009.  The beneficial conversion feature
was calculated to be zero at the time of issuance in accordance with EITF
00-27.  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”).





9.      Term
debt





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





July
      31,
                            
                            
                            April
      30,2009
                            
                            
                            2009Term
      Note 1
                            
                            $
                            752,974
                            
                            
                            $
                            734,055Term
      Notes 2, 3, 4, 9, 10, 11, and 14
                            
                            
                            1,542,667
                            
                            
                            
                            1,503,905Term
      Note 5
                            
                            
                            —
                            
                            
                            
                            266,797Term
      Note 6
                            
                            
                            —
                            
                            
                            
                            —Term
      Note 7
                            
                            
                            —
                            
                            
                            
                            76,649Term
      Note 8
                            
                            
                            —
                            
                            
                            
                            54,749Term
      Notes 12
                            
                            
                            706,925
                            
                            
                            
                            684,381Term
      Notes 13
                            
                            
                            252,652
                            
                            
                            
                            286,873Term
      Note 15
                            
                            
                            100,000
                            
                            
                            
                            —3,355,218
                            
                            
                            
                            3,607,409Less
      short-term debt and current portion of long-term debt:Short-term notes 2 through 11
      and notes 14 and 15
                            
                            
                            1,642,667
                            
                            
                            
                            1,902,100Notes 12
                            
                            
                            706,925
                            
                            
                            
                            684,381Current portion of notes
      13
                            
                            
                            84,944
                            
                            
                            
                            96,9692,434,536
                            
                            
                            
                            2,683,450Less
      note 1 included in due to related parties (see Note 10)
                            
                            
                            752,974
                            
                            
                            
                            734,055Long-term
      debt, net of current portion
                            
                            $
                            167,708
                            
                            
                            $
                            189,904


20


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





9.      Term
debt (continued)





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





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





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





Term Note
4 executed by the Company on October 17, 2008 with Vina Mex Capital, for
$100,000; the promissory note is due September 17, 2009.  Interest
accrues monthly at a rate of Ten Percent (10%) per annum (the “Vina Mex 3rd
Loan”).  Proceeds were used to fund general operations.  On
February 3, 2009 Vina Mex Capital assigned, without recourse, the Vina Mex
3rd
Loan to IDCG SA de CV.





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





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


21


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





9.      Term
debt (continued)





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





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





Term Note
9 executed by the Company on December 1, 2008 with IDCG SA de CV, a corporation
established under the laws of the Country of Mexico, for $50,000; the promissory
note is due November 30, 2009.  Interest accrues monthly at a rate of
Ten Percent (10%) per annum.  Proceeds were used to fund general
operations.





Term Note
10 executed by the Company on December 19, 2008 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum.  Proceeds were used
to fund general operations.





Term Note
11 executed by the Company on January 27, 2009 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum.  Proceeds were used
to fund general operations.





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 February Investors (see Note 8) and
is negotiating an extension of the due date and terms with the February
Investors.  Ten February Investors, aggregating $287,000, have agreed
to extend the term of their February Debenture (the “Extended Debentures”) (see
Term Notes 13).  Six February Investors, aggregating $662,500, have
not extended the due date of their February Debenture (the “Defaulted
Debentures”).  The Defaulted Debentures are classified as short-term
debt as Term Notes 12.  The February Debentures were paid interest
monthly at a rate of Ten Percent (10%) per annum from July 1, 2007 to January
31, 2009.  The Company offered to raise the interest rate to Twelve
Percent (12%) per annum in part for an extension of the due date; effective
February 1, 2009 the Company accrues interest on the Defaulted Debentures at the
proposed rate of Twelve Percent (12%) per annum.





Term
Notes 13 aggregate the obligations owed the ten February Investors that agreed
to extend the term of their (i) February Debentures ($287,000) then in default
and (ii) accrued, but unpaid, liquidated damages ($24,705).  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.  In addition, on May 4 and 7, 2009, three
(3) of the February Investors agreed to modify the terms of their February
Debentures aggregating $112,500 as follows: (i) the February Debenture plus the
unpaid liquidated damages ($10,125) are combined into a single amortized term
note for each of the three (3) February Investors, (ii) interest accrues from
February 1, 2009 at Twelve Percent (12%) per annum, (iii) a one-time Fifteen
Percent (15%) principal payment was paid in May, and (iv) commencing June 1,
2009, the unpaid balance will be amortized over thirty-six (36) equal monthly
payments.  In addition, warrants aggregating 31,173 shares were issued
to the ten February Investors, upon agreeing to modify the terms of their
February Debentures, with a $2 exercise price expiring on January 31,
2012.


22




Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





9.      Term
debt (continued)





Term Note
14 executed by the Company on February 28, 2009 with IDCG SA de CV for $100,000;
the promissory note is due November 30, 2009.  Interest accrues
monthly at a rate of Ten Percent (10%) per annum.  Proceeds were used
to fund general operations.





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





10.    Due
to related parties





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





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





July
      31,
                        
                        
                        April
      30,2009
                        
                        
                        2009Balance
      at beginning of year
                        
                        $
                        1,
      129,344
                        
                        
                        $
                        1,120,928Funds advanced
                        
                        
                        —
                        
                        
                        
                        —Repayments
                        
                        
                        (6,396
                        )
                        
                        
                        (102,708
                        )Interest
accrued
                        
                        
                        28,381
                        
                        
                        
                        111,124Balance
      at end of year
                        
                        $
                        1,151,329
                        
                        
                        $
                        1,129,344


23


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





10.    Due
to related parties (continued)





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





July
      31,
                        
                        
                        April
      30,2009
                        
                        
                        2009Hi-Tek
      Revolver
                        
                        $
                        1,151,329
                        
                        
                        $
                        1,129,344Hi-Tek
      Trademark Loan, net of zero and zero
                          discount at July 31 and April
      30, 2009
                        
                        
                        475,527
                        
                        
                        
                        463,740Hi-Tek
      IDC Loan
                        
                        
                        752,974
                        
                        
                        
                        734,055TJ
      Notes, net of zero and zero discount at July
                          31 and April 30,
      2009
                        
                        
                        2,949,847
                        
                        
                        
                        2,891,156LJ
      Notes, net of zero and zero discount at July
                          31 and April 30,
      2009
                        
                        
                        2,949,848
                        
                        
                        
                        2,891,1578,279,525
                        
                        
                        
                        8,109,452Less
      current portion
                        
                        
                        8,279,525
                        
                        
                        
                        8,109,452Due
      to related parties
                        
                        $
                        —
                        
                        
                        $
                        —





On
October 16, 2006 the Company acquired the rights to the US trademark “Dot VN”
including its logo from Hi-Tek Private for $360,000 (see Note 6) upon the
issuance of a two year convertible note due October 16, 2008 (the “Hi-Tek
Trademark Loan”).  The Hi-Tek Trademark Loan converts at the option of
the holder into shares of the Company’s restricted Common Stock at $1.00 per
share and bears an interest rate of Ten Percent (10%) per annum.  The
Company has accrued interest of $103,740 at April 30, 2009 and unamortized debt
discount was zero.  On October 13, 2008, the Hi-Tek Trademark Loan was
amended to extend the due date to June 30, 2009, with no other change to the
terms of the note or conversion feature.  On June 25, 2009, the Hi-Tek
Trademark Loan was amended to extend the due date to December 31, 2009, with no
other change to the terms of the note or conversion feature (see Note
8).





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





24




Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





10.    Due
to related parties (continued)





On August
1, 2007, the Company executed a convertible note with Mr. Thomas Johnson, the
Company’s Chief Executive Officer and Chairman of the Board of Directors, in the
amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January, 2003 through June, 2007 under his employment agreement
with the Company (the “TJ First Note”).  The TJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at a per share price of $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price below the Conversion Price, to a price equal to such
issue price.  On August 14, 2008, the Company executed a convertible
promissory note for $2,160,766 due February 15, 2009 plus accrued interest at
Eight Percent (8%) per annum with Mr. Johnson (the “TJ Second Note”) in exchange
for the unpaid balance owed under the TJ First Note which was cancelled (see
Note 8) (collectively the “TJ Notes”).  The terms and conditions of
the TJ Second Note are materially the same as the TJ First Note that expired
August 1, 2008.  At the election of the holder, the amount due and
owing pursuant to such note may be converted into restricted shares of the
Company’s Common Stock at $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or





On August
1, 2007, the Company executed a convertible note with Dr. Lee Johnson, the
Company’s President, Chief Technology Officer, and Chief Financial Officer, in
the amount of $1,989,066 in satisfaction of unpaid accrued salary, including
interest, from January, 2003 through June, 2007 under his employment agreement
with the Company (the “LJ First Note”).  The LJ First Note had a term
of one year and accrued interest at a rate of Eight Percent (8%) per annum (see
Note 8).  At the election of the holder, the amount due and owing
pursuant to such note may be converted into restricted shares of the Company’s
Common Stock at a per share price of $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price below the Conversion Price, to a price equal to such
issue price.  On August 14, 2008, the Company executed a convertible
promissory note for $2,160,767 due February 15, 2009 plus accrued interest at
Eight Percent (8%) per annum with Dr. Lee Johnson (the “LJ Second Note”) in
exchange for the unpaid balance owed under the LJ First Note which was cancelled
(see Note 8) (collectively the “LJ Notes”).  The terms and conditions
of the LJ Second Note are materially the same as the LJ First Note that expired
August 1, 2008.  At the election of the holder, the amount due and
owing pursuant to such note may be converted into restricted shares of the
Company’s Common Stock at $1.43 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into
common stock) at a price (the “Subsequent Price”) below the Conversion Price, to
a price equal to such issue price.  On February 15, 2009, the LJ
Second Note was amended to extend the due date thirty days to March 17, 2009
with no other change to the terms of the note or the conversion
feature.  On March 17, 2009, the LJ Second Note was further amended to
extend the due date fourteen days to March 31, 2009 with no other change to the
terms of the note or the conversion feature.  On April 20, 2009, the
Company executed a convertible promissory note due October 16, 2009 plus accrued
interest at Eight Percent (8%) per annum (the “LJ Third Note”) issued (i) in
exchange for the unpaid balance owed under the LJ Second Note ($2,280,631) which
was cancelled and (ii) in satisfaction of unpaid accrued salary and interest
accruing since July 1, 2007 through January 31, 2009 under his employment
agreements with the Company ($604,027) (see Note 8).  The terms and
conditions of the LJ Third Note are materially the same as the LJ Second Note
that expired March 31, 2009 except that in the LJ Third Note the adjusted
Conversion Price is established as One hundred Ten percent (110%) of the
Subsequent Price where previously the Subsequent Price became the adjusted
Conversion Price   At the election of the holder, the amount due
and owing pursuant to such note may be converted in restricted shares of the
Company’s Common Stock at a per share price of $0.30 per share (the “Conversion
Price”).  The Conversion Price shall be adjusted downward in the event
Dot VN issues common stock (or securities exercisable for or convertible into or
exchangeable for common stock) at a price (the “Subsequent Price”) below the
Conversion Price times Ninety percent (90%), to a price equal to such Subsequent
Price times One hundred Ten percent (110%)(the “Adjusted Conversion
Price”).  The Company has accrued interest of $130,378 at July 31,
2009 and unamortized debt discount was zero.


25





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





11.    Accrued
and other liabilities





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





July
      31,
                      
                      
                      April
      30,2009
                      
                      
                      2009Officer
      salaries
                      
                      $
                      395,744
                      
                      
                      $
                      326,837Other
      payroll accruals
                      
                      
                      20,484
                      
                      
                      
                      16,540Liquidated
      damages
                      
                      
                      67,159
                      
                      
                      
                      67,159Other
      liabilities
                      
                      
                      —
                      
                      
                      
                      101,500Other
      accrued liabilities
                      
                      
                      32,193
                      
                      
                      
                      12,637Total
      accrued and other liabilities
                      
                      $
                      515,580
                      
                      
                      $
                      524,673





As of
July 31 and April 30, 2009, the Company has unpaid salaries and accrued interest
owed to officers of $395,744 and $326,837, respectively.  The unpaid
salaries bear interest at a rate of 10 percent per annum.  As of July
31 and April 30, 2009, accrued interest on the salaries was $35,844 and $37,897,
respectively.  On April 20, 2009, the Company executed convertible
notes with Mr. Thomas Johnson and Dr. Lee Johnson each in the amount of $604,027
in satisfaction of unpaid salary, including interest, accrued through January,
2009 (see Notes 8 and 10).  On July 6, 2009, the Company executed a
convertible note for Mr. Louis P. Huynh in the amount of $113,244 in
satisfaction of unpaid salary, including interest, accrued through June, 2009
(see Note 8).





On
February 9, 2007, in connection with the February Financing, the Company
executed an investor’s registration rights agreement (the “IRRA”) by and between
the February Investors participating in the February Financing and the Company
(see Note 8).  Pursuant to the terms of the IRRA as amended on August
10, 2007, the February Investors shall be entitled to liquidated damages equal
to One Percent (1%) of the outstanding convertible debentures issued in the
February Financing (the “Liquidated Damages”) for every thirty (30) day period
that the registration statement is not declared effective by December 14, 2007
(the “Effectiveness Deadline”), limited to a total of ten such 30-day
periods.  One such 30-day period was funded concurrent with the August
10, 2007 IRRA amendment and as of September, 2008 the remaining nine 30-day
periods were owed to the February Investors.  On January 31, 2009, an
aggregate of 15,300 shares of the Company’s Common Stock was issued to four
February Investors in satisfaction of their Liquidated damages
($11,475).  Between March and May, 2009, an aggregate of ten (10)
February Investors (see Notes 8 and 9) agreed to modify the terms of their
February Debentures (the “Extended Debentures”) to include their unpaid
Liquidated Damages ($24,705).  As of July 31, 2009, Liquidated Damages
are owed to the six holders of the Defaulted Debentures ($59,625) and to three
February Investors who previously converted their February Debenture into common
stock of the Company ($7,534) are owed for nine such 30-day
periods.





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





12.    Related
Party Transactions





On
October 16, 2006, the Company entered into an agreement whereby it acquired
certain intellectual property from Hi-Tek Private (see Notes 6, 8 and
10).  Included within the assets acquired by the Company are the
rights to the trademark “Dot VN” in the United States including its logo and
certain related domain names (the “Dot VN US Trademark”).  Pursuant to
the acquisition of the Dot VN US Trademark, the Company executed a convertible
promissory note in the amount of $360,000 (the “Hi-Tek Trademark
Loan”).  The Hi-Tek Trademark Loan, at the election of the holder, may
convert the balance due and


26





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





12.    Related
Party Transactions (continued)





owing at
the time of conversion into restricted shares of the Company’s Common Stock at a
per share price of $1.00 per share.  The Hi-Tek Trademark Loan accrues
interest at a rate of Ten Percent (10%) per annum and was due two years from the
date of execution.  On October 13, 2008, the Hi-Tek Trademark Loan was
amended to extend the due date to June 30, 2009 and was further amended June 25,
2009 to extend the due date to December 31, 2009, with no other change to the
terms of the note or the conversion feature (see Note 8).





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





Employment
Agreements





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





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





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





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





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





As stated
previously, the above referenced employment agreements contained an aggregate of
7,200,000 stock options, of which an aggregate 7,200,000 have vested and none
are exercised.  As the October 2006 employment agreements provided for
the options to be purchased at below the Company’s market price on the date of
grant, the Company has recorded Option bonus expense relating to these options
of zero and $1,299,900 for the three months ended July 31, 2009 and year ended
April 30, 2009, respectively, in accordance with SFAS 123R (see Note
13).


27


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





12.    Related
Party Transactions (continued)





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





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


28





Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





12.    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 10,800,000 restricted
shares of the Company’s Common Stock to Dr. Lee Johnson, the Company’s
President, Chief Technology Officer, and Chief Financial Officer and Director
(5,400,000 shares) and Mr. Thomas Johnson, the Company’s Chief Executive Officer
and Chairman of the Board of Directors (5,400,000 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 1,304,346 shares are issued as incentive stock options and expire ten years
from the date of grant and 9,495,654 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 $1,695,490 for the
three months ended July 31, 2009 in accordance with SFAS 123R (see Note
13).





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





13.    Warrants,
Options and Stock Based Compensation





On
October 9, 2006, the Company issued options to purchase an aggregate of
7,650,000 restricted shares of the Company’s Common Stock with an estimated fair
value of $19,886,786 to three officers (see Note 12) and an
employee.  The options have an exercise price of $0.50 per share, vest
one third at the date of grant and one third at the end of the first and second
year from the date of grant and expire ten years the date of
vesting.  As of July 31, 2009, 7,650,000 options have vested and no
options were exercised.  Compensation cost, using the graded vesting
attribute method in accordance with SFAS 123R, 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 three months
ended July 31, 2009 and the year ended April 30, 2009,
respectively.  As of July 31, 2009, no options were
exercised.





The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 212.1%; risk-free interest rate of 4.70%; contractual life of ten
years; and a closing market price of $2.60.  Expected volatility is
calculated based on the historic Friday stock market closing price from the
first week the Company was publically traded over the counter on the Pink Sheets
to the date of grant, a seventy-three week period, in accordance with SFAS 123R
implementation guidance provided in paragraph 32(c) of appendix A.





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





29




Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





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 July
31, 2009.  As of July 31, 2009, 66,000 $0.001 Pali Retainer Warrants
and 42,180 $1.00 Pali Placement Warrants A have been exercised.  In
addition, the Company agreed to register the shares associated with the
Placement Agent Warrants in the registration statement required in connection
with the February Financing (see Notes 7 and 8).





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





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





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





On August
7, 2007, the Company issued options to purchase an aggregate of 350,000
restricted shares of the Company’s Common Stock with an estimated fair value of
$628,847 to an officer (Louis P. Huynh) and an employee.  The options
have an exercise price of $1.80 per share, vest one third at the date of grant
and one third at the end of the first and second year from the date of grant and
expire ten years the date of vesting.  On January 15, 2009, 150,000
options expired unexercised upon the employee’s termination.  As of
July 31, 2009, 133,334 options have vested and no options were
exercised.  Compensation cost, using the graded vesting attribute
method in accordance with SFAS 123R, is recognized over the requisite service
period during which each tranche (one third) of shares is earned (zero, one, and
two years).  The value of each tranche is amortized on a straight-line
basis; $14,984 was expensed in the three months ended July 31,
2009.  Amortization for the years ending April 30, 2010 will be
$14,984.





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


30


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





On
September 7, 2007, the Company issued options to purchase 10,000 restricted
shares of the Company’s Common Stock with an estimated fair value of $16,400 to
an employee.  The options have an exercise price of $2.00 per share,
vest at the date of grant and expire three years the grant date.  As
of July 31, 2009, 10,000 options have vested and no options were
exercised.  Compensation cost, in accordance with SFAS 123R, was
recognized over the requisite service period (date of grant).





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





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





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





On
October 14, 2007, the Company issued options to purchase 150,000 restricted
shares of the Company’s Common Stock with an estimated fair value of $306,777 to
Michael Weller, an officer of the Company.  The options had an
exercise price of $1.80 per share, vest one third at the end of the first,
second, and third year from the date of grant and expire three years the date of
vesting.  Compensation cost, using the graded vesting attribute method
in accordance with SFAS 123R, is recognized over the requisite service period
during which each tranche (one third) of shares is earned (one, two, and three
years), with the value of each tranche amortized on a straight-line
basis.  On May 15, 2008, the Company’s Employment Agreement with
Michael Weller was terminated, as a consequence, the unvested options to
purchase 150,000 common shares of the Company’s stock were
extinguished.  Prior to termination of the agreement, $6,394 was
expensed in the year ended April 30, 2009.





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





On August
5, 2008, the Company issued options to purchase 75,000 restricted shares of the
Company’s Common Stock with an estimated fair value of $75,561 to an
employee.  The options have an exercise price of $1.80 per share, vest
one third at the date of grant and one third on February 14, 2009 and 2010 and
expire ten years from the date of vesting.  As of April 30, 2009,
50,000 options have vested and no options were
exercised.  Compensation cost, using the graded vesting attribute
method in accordance with SFAS 123R, 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; $62,291 was expensed during the year ended April 30,
2009.  Amortization for the year ending April 30, 2010 will be
$13,271.





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


31


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





Following
the January 31, 2009 maturity of the February Debentures (see Note 8) the
Company proposed an extension of the due date and a modification of the
terms.  Ten February Investors (the “Extended Debentures”) agreed with
the Company’s proposal (see Note 9) regarding their (i) February Debentures and
(ii) accrued, but unpaid, liquidated damages in exchange, in part, for a warrant
equal to Twenty Percent (20%) of the combined amount due and owing on the same
terms as the detachable warrants issued with the original February
Debentures.  The series of ten (10) warrants expire January 31, 2012
and are exercisable into an aggregate 31,173 restricted shares of the Company’s
Common Stock at a per share price of $2.00, with an estimated fair value of
$8,918 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 thirty-six month term of the term debt.





The fair
value of these warrants was estimated at March 10, March 13, March 15, March 16,
March 18, March 25, April 13,May 4, and May 7, 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%,
and 209.7%%; risk-free interest rate of 1.46%, 1.36%, 1.39%, 1.39%, 1.14%,
1.35%, 1.27%, 1.40%, and 1.46%; 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, and $0.40; respectively.  Expected volatility is calculated
based on the historic Friday stock market closing price of the preceding one
hundred eighty-nine to two hundred and six week periods (from Pink Sheet
inception).





On July
6, 2009, the Company’s Board of Directors approved the Company’s 2009 Stock
Option Plan (the “Option Plan”).  The Option Plan is administered by a
two (2) or more persons committee appointed by the Board of Directors or the
Board of Directors (the “Plan Administrator”) and provides for the issuance of
up to twenty-five million restricted 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 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
6, 2009, the Company granted under the newly adopted Option Plan stock options
to purchase an aggregate of 12,460,500 restricted shares of the Company’s Common
Stock with an estimated fair value of $5,218,093 to three officers (11,551,500
restricted shares with an estimated fair value of $4,836,647) and twelve
employees (909,000 restricted shares with an estimated fair value of
$381,446).  The employee options, granted as incentive stock options,
have an exercise price of $0.42 per share, generally vest one third at the date
of grant and one third at the end of the first and second year from the date of
grant and expire ten years the date of issue.  The officers options,
granted as incentive stock options (1,956,519 restricted shares and
non-qualified stock options (9,594,981), have an exercise price of $0.46 per
share, a Ten Percent (10%) premium on the market closing price, vest one third
at the date of grant and one third at the end of the first and second year from
the date of grant and expire in ten years from the date of issue except for ISO
grants to Mr. Johnson and Dr. Johnson which expire in five years from the date
of issue (see Note 12).  As of July 31, 2009, 4,141,500 options have
vested and no options were exercised.  Compensation cost, using the
graded vesting attribute method in accordance with SFAS 123R, 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; $1,924,666 was expensed during the three
months ended July 31, 2009.  Amortization for the years ending April
30, 2010, 2011, and 2012 will be $3,856,047, $1,142,533, and $142,817,
respectively.





32


Dot VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





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





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





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





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





Period
      endedJuly
      31, 2009
                
                
                April
      30, 2009Options
                
                
                Weighted
                  average
                  exercise
                  price
                
                
                Weighted
                  average
                  intrinsic
                  value
                  per
      share
                
                
                Options
                
                
                Weighted
                  average
                  exercise
                  price
                
                
                Weighted
                  average
                  intrinsic
                  value
                  per
      shareOutstanding
      at the beginning of the period
                
                
                7,935,000
                
                
                $
                0.547
                
                
                
                
                
                
                8,160,000
                
                
                $
                0.581Granted
                
                
                12,460,500
                
                
                $
                0.457
                
                
                
                
                
                
                75,000
                
                
                $
                1.800Exercised
                
                
                —
                
                
                $
                —
                
                
                
                
                
                
                —
                
                
                $
                —Cancelled
                
                
                —
                
                
                $
                —
                
                
                
                
                
                
                300,000
                
                
                $
                1.800Outstanding
      at the end of the period
                
                
                20,395,500
                
                
                $
                0.492
                
                
                $
                0.788
                
                
                
                7,935,000
                
                
                $
                0.547
                
                
                $
                2.025Vested
      at the end of the period
                
                
                12,046,834
                
                
                
                
                
                
                
                
                
                
                
                7,843,334Exercisable
      at the end of period
                
                
                12,046,834
                
                
                
                
                
                
                $
                1.34
                
                
                
                7,843,334
                
                
                
                
                
                
                $
                2.050Weighted
      average fair value per share ofoptions
      granted during the period
                
                
                
                
                
                $
                0.409
                
                
                
                
                
                
                
                
                
                
                $
                1.007


33







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





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





Options Outstanding
                                                        
                                                        Options ExercisableExercise prices
                                                        
                                                        Number
                                                          Outstanding
                                                        
                                                        Weighted
                                                          average
                                                          remaining
                                                          contractual
                                                          life (years)
                                                        
                                                        Weighted
                                                          average
                                                          exercise
                                                          price
                                                        
                                                        Number
                                                          exercisable
                                                        
                                                        Weighted
                                                          average
                                                          remaining
                                                          contractual
                                                          life (years)
                                                        
                                                        Weighted
                                                          average
                                                          exercise
                                                          price$
                                                        0.42
      to 0.46
                                                        
                                                        12,460,500
                                                        
                                                        9.9
                                                        
                                                        $
                                                        0.457
                                                        
                                                        4,153,500
                                                        
                                                        
                                                        
                                                        $
                                                        0.457$
                                                        0.500
                                                        
                                                        7,650,000
                                                        
                                                        7.9
                                                        
                                                        $
                                                        0.500
                                                        
                                                        7,650,000
                                                        
                                                        
                                                        
                                                        $
                                                        0.500$
                                                        1.80
      to 2.00
                                                        
                                                        285,000
                                                        
                                                        8.9
                                                        
                                                        $
                                                        1.807
                                                        
                                                        243,334
                                                        
                                                        
                                                        
                                                        $
                                                        1.80820,395,500
                                                        
                                                        9.2
                                                        
                                                        $
                                                        0.559
                                                        
                                                        12,046,834
                                                        
                                                        9.2
                                                        
                                                        $
                                                        0.512





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





July 31,2009Balance,
      beginning of the period
                  
                  
                  —Shares
      authorized for grant
                  
                  
                  25,000,000Shares
      granted
                  
                  
                  12,460,500Balance,
      end of the period
                  
                  
                  12,539,500





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





Period endedJuly 31, 2009
                              
                              April 30, 2009Warrants
                              
                              Weighted
                                average
                                exercise
                                price
                              
                              Warrants
                              
                              Weighted
                                average
                                exercise
                                priceOutstanding
      at the beginning of the period
                              
                              6,635,822
                              
                              $
                              1.864
                              
                              6,932,945
                              
                              $
                              1.914Granted
                              
                              173,278
                              
                              $
                              1.500
                              
                              308,557
                              
                              $
                              1.280Exercised
                              
                              —
                              
                              $
                              —
                              
                              105,680
                              
                              $
                              0.400Cancelled
                              
                              —
                              
                              $
                              —
                              
                              500,000
                              
                              $
                              2.500Outstanding
      at the end of the period
                              
                              6,809,100
                              
                              $
                              1.855
                              
                              6,635,822
                              
                              $
                              1.864Vest
      and exercisable at the end of period
                              
                              6,809,100
                              
                              
                              
                              
                              6, 635,822Weighted
      average fair value per share of warrants granted during the
      period
                              
                              
                              
                              $
                              0.257
                              
                              
                              
                              $
                              0.198


34







Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





13.    Warrants,
Options and Stock Based Compensation (continued)





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





Warrants Outstanding
                                              
                                              Warrants ExercisableExercise prices
                                              
                                              Number
                                                Outstanding
                                              
                                              Weighted
                                                average
                                                remaining
                                                contractual
                                                life (years)
                                              
                                              Weighted
                                                average
                                                exercise
                                                price
                                              
                                              Number
                                                exercisable
                                              
                                              Weighted
                                                average
                                                remaining
                                                contractual
                                                life (years)
                                              
                                              Weighted
                                                average
                                                exercise
                                                price$
                                              0.001
                                              
                                              186,500
                                              
                                              2.5
                                              
                                              $
                                              0.001
                                              
                                              186,500
                                              
                                              
                                              
                                              $
                                              0.001$
                                              1.000
                                              
                                              354,088
                                              
                                              2.1
                                              
                                              $
                                              1.000
                                              
                                              354,088
                                              
                                              
                                              
                                              $
                                              1.000$
                                              1.500
                                              
                                              523,994
                                              
                                              1.5
                                              
                                              $
                                              1.500
                                              
                                              523,994
                                              
                                              
                                              
                                              $
                                              1.500$
                                              2.000
                                              
                                              5,744,518
                                              
                                              0.3
                                              
                                              $
                                              2.000
                                              
                                              5,744,518
                                              
                                              
                                              
                                              $
                                              2.0006,809,100
                                              
                                              
                                              
                                              $
                                              1.855
                                              
                                              6,809,100
                                              
                                              
                                              
                                              $
                                              1.855





14.    Going Concern





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





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


·
            Increasing
      revenues of its services, specifically within its domain name 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 and through direct marketing to
      existing customers both online, via e-mail and direct mailings,
      and


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


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


·
            Commercialization
      and Deployment of certain new wireless point-to-point layer one solutions;
      and


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





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





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





15.    Stock
Issuances





On May
20, 2009, pursuant to the terms of three stock subscription agreements, the
Company issued an aggregate of 796,389 restricted shares of the Company’s Common
Stock at $0.50 per unit as full and final payment of three term notes (see Note
9) recorded as a $397,661 aggregate payment of short term debt as follows: (i)
Ms. Aussy Manuhu, an accredited investor, 533,594 restricted shares as full and
final payment ($266,263) of that term note issued March 29, 2008, as amended,
(ii)


35





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





15.    Stock
Issuances (continued)





Equity
Trust Company, custodian FBO John T. Butler, IRA, an accredited investor,
153,297 restricted shares as full and final payment ($76,649) of that term note
issued June 1, 2008, and (iii) Equity Trust Company, custodian FBO Tupou U.
Kaho, IRA, an accredited investor, 109,498 restricted shares as full and final
payment ($54,749) of that term note issued June 1, 2008.  The
subscription units consists of one restricted share of the Company’s Common
Stock and a warrant to purchase 1/5 of a restricted share of the Company’s
Common Stock at an exercise price of $1.50 expiring April 30, 2011; a series of
three warrants were issued as follows: (i) Ms. Manuhu 106,719 shares, (ii)
Butler IRA 30,659 shares, and (iii) Kaho IRA 21,900 shares





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





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





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





On July
27, 2009, pursuant to the terms of a two stock subscription agreements, each an
accredited investor, the Company issued an aggregate of 200,000 restricted
shares of the Company’s Common Stock at $0.50 per unit for cash consideration of
$100,000.  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 $1.00 expiring two years from the
date of issue.  The Company will pay a finder a finder’s fee equal to
Seven Percent (7%) of the aggregate amount received in cash and apart from the
payment of a finder’s fee; no commissions were incurred by the Company in
connection with the transaction.





Additionally
on July 27, 2009, pursuant to the terms of a stock subscription agreement the
Company issued, an accredited investor, 50,000 restricted shares of the
Company’s Common Stock at $0.50 per unit for cash consideration of
$25,000.  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 $1.00 expiring two years from the
date of issue.





16.    Subsequent Events





On
August, 2009, pursuant to the terms of four stock subscription agreements, the
Company will issue to accredited investors, an aggregate of 260,000 restricted
shares of the Company’s Common Stock at $0.50 per unit for cash consideration of
$130,000.  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 $1.00 expiring two years from the
date of issue.  The Company will pay a finder a finder’s fee equal to
Ten Percent (10%) of the aggregate amount received in cash and apart from the
payment of a finder’s fee; no commissions were incurred by the Company in
connection with the transaction.





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 for each of the three (3) of the February Investors, (ii)
interest accrues from February 1, 2009 at Twelve Percent (12%) per annum, (iii)
a one-time Fifteen Percent (15%) principal payment will be paid in September,
and (iv)


36





Dot
VN, INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements (Unaudited)


As
of July 31, 2009





16.    Subsequent Events
(continued)





commencing
October 1, 2009, the unpaid balance will be amortized over thirty-eight (38)
equal monthly payments.  In addition, warrants aggregating 5,450
shares will be issued to the three February Investors with a $2 exercise price
expiring on January 31, 2012.  Currently three February Investors
holding February Debentures aggregating $612,500 have not responded to the
Company’s request to modify their repayment terms, these amounts, which are no
longer convertible into common stock of the Company, are included under
term-debt as a currently obligation (see Note 9).





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




On
September 12, 2009, in connection with the receipt of an Eighteen Thousand
Dollar ($18,000) cash loan from Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, the Company executed
an $18,000 promissory note to Mr. Johnson, due December 12, 2009 with interest
accruing monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.


37


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





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





OVERVIEW





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





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





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





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


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


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


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





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





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


38


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





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





Going
Concern





To date
the Company has had limited revenues from the marketing and registration of
‘.vn’ domain names as
it operates in this single business segment.  Consequently, the
Company has incurred recurring losses from operations.  In addition,
the Company has defaulted on $662,500 of convertible debentures that were due
January 31, 2009 and currently has not negotiated new terms or an extension of
the due date with the holders of these convertible debentures.  These
factors, as well as the risks associated with raising capital through the
issuance of equity and/or debt securities creates uncertainty as to the
Company’s ability to continue as a going concern.





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


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


·
            the
      development and deployment of an Application Programming Interface which
      the Company anticipates will increase its reseller network and
      international distribution channels and through direct marketing to
      existing customers both online, via e-mail and direct mailings,
      and


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


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


·
            Commercialization
      and Deployment of certain new wireless point-to-point layer one solutions;
      and


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





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





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





CRITICAL
ACCOUNTING POLICIES





The
discussion and analysis of our financial condition and results of operations are
based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”).  The preparation of these condensed
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities.  On an
ongoing basis, we evaluate our estimates based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.  We have identified the policies
below as critical to our business operations and to the understanding of our
financial results:





Basis of
Presentation





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





Cash and Cash
Equivalent





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


39


Revenue
Recognition





We
recognize revenue in accordance with Security and Exchange Commission (“SEC”)
Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial
Statements,” as amended by SAB 101A and 101B and as revised by SAB 104, “Revenue
Recognition” and EITF No. 99-19 “Reporting Revenue Gross as a Principal Versus
Net as an Agent” (“EITF 99-19”).  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 EITF
99-19.





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





SFAS No.
107, “Disclosures about Fair Value of 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 July 31, and April 30, 2009 approximate
their respective fair values because of the short-term nature of these
instruments.  Such instruments consist of cash, accounts receivable,
accounts payable, due to related parties, short-term convertible and term debt,
and accrued and other liabilities.





Foreign Currency
Translation





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





Comprehensive Income
(Loss)





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





Equipment





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





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 SFAS No. 34 “Capitalization of Interest
Cost”.


40


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 SFAS No.142 “Goodwill and Other Intangible
Assets” (“SFAS 142”).  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.  SFAS 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, “Accounting for
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).





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 SFAS 144.  Circumstances which could
trigger a review include, but are not limited to: significant decreases in the
market price of the asset; significant adverse changes in the business climate
or legal factors; accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of the asset; current
period cash flow or operating losses combined with a history of losses or a
forecast of continuing losses associated with the use of the asset; and current
expectation that the asset will more likely than not be sold or disposed
significantly before the end of its estimated useful life.





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





Deferred
Charges





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





Convertible
Debt





In
accordance with the provisions of EITF No. 98-5 “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios” and EITF No. 00-27 “Application of Issue No. 98-5 to Certain
Convertible Instruments” (“EITF 00-27”) the Company evaluates debt securities
(“Debt”) for beneficial conversion features.  A beneficial conversion
feature is present when the conversion price per share is less than the market
value of the common stock at the commitment date.  The intrinsic value
of the feature is then measured as the difference between the conversion price
and the market value (the “Spread”) multiplied by the number of shares into
which the Debt is convertible and is recorded as debt discount with an
offsetting amount increasing additional paid-in-capital.  The debt
discount is accreted to interest expense over the term of the Debt with any
unamortized discount recognized as interest expense upon conversion of the
Debt.  If a debt security contains terms that change upon the
occurrence of a future event the incremental intrinsic value is measured as the
additional number of issuable shares multiplied by the commitment date market
value and is recognized as additional debt discount with an offsetting amount
increasing additional paid-in-capital upon the future event
occurrence.  The total intrinsic value of the feature is limited to
the proceeds allocated to the Debt instrument.





Income
Taxes





Income
taxes are provided in accordance with SFAS No. 109, “Accounting for Income
Taxes” ”, which requires an asset and liability approach for the financial
accounting and reporting of income taxes (“SFAS 109”).  Current income
tax expense (benefit) is the amount of income taxes expected to be payable
(receivable) for the current year.  A deferred tax asset and/or
liability is computed for both the expected future impact of differences between
the financial statement and tax bases of assets and liabilities and for the
expected future tax benefit to be derived from tax loss and tax credit carry
forwards.  Deferred income tax expense is generally the net change
during the year in the deferred income tax asset and
liability.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be “more likely than not”
realized in future tax returns.  Tax rate changes and changes in tax
laws are reflected in income in the period such changes are
enacted.


41


Uncertain Tax
Positions





FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statements No. 109” (“FIN 48”).  FIN 48
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements.  FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing 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.  FIN 48 provides guidance on the
presentation of such positions within a classified statement of financial
position as well as on derecognition, interest and penalties, accounting in
interim periods, disclosure, and transition.  FIN 48 was effective in
the Company’s fiscal year ended April 30, 2008 and did not have a material
effect on the Company's consolidated financial statements.





Guarantees of
Others





FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”)
requires an initial recognition and measurement of guarantees in which the
guarantor obligation represents a liability, as defined.  FIN 45
excludes the from recognition guarantees which may be settled in equity shares
of the guarantor, at its option, and instead establishes minimum disclosure
requirements.  The Company evaluated FIN 45 and determined that the
Company currently has no guarantees which require recognition of a
liability.





Use of
Estimates





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





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





As the
Company is entering into a new market it is difficult to estimate if its
investments in long term assets will be realizable in the future.  The
Company’s assumptions, in part, include an evaluation of Internet growth within
Vietnam and its acceptance and availability to the population (less than 4% of
the population in December 2003 to over 24% by December 2008), the country’s
economic growth rate at over 61⁄2% per year, and the increasing capital investment
from foreign companies.





The
Company estimates the useful life of its fixed assets to be generally three to
five years for assets purchased new and two to three years for assets purchased
used and has made no changes to the depreciation life of its fixed
assets.  Leasehold improvements are amortized over the shorter of the
lease term or the estimated lives.  At July 31, 2009 net fixed assets
to be recovered in the future are $756,494.





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





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





The
Company estimates the fair value of stock-based transactions (options and
warrants) using a Black-Sholes option pricing model which requires the Company
to estimate the market volatility of our common stock among other input
variables.  The Company calculates market volatility based on the
historic Friday stock market closing price from the first week the Company was
publically traded over the counter on the Pink Sheets to the specific date of
the grant in accordance with SFAS 123R implementation guidance provided in
paragraph 32(c) of appendix A.  Based on the Pink Sheet and more
recently the Over-The-Counter Bulletin Board trading history of our common stock
the market volatility has ranged from 230% (61 weekly data points) to 174% (133
weekly data points) and averaged 199% during our fiscal year ended April 30,
2009.  The future market volatility of our common stock could continue
to fluctuate which will impact the fair value of future stock-based
transactions.


42


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





Stock-Based
Compensation





SFAS No.
123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) replaces SFAS No. 123
“Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes Accounting
Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to
Employees” (“APB 25”).  SFAS 123R 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 SFAS 123R, the Company applied 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 APB 25, which only required charges to
compensation expense for the excess, if any, of the fair value of the underlying
stock at the date a stock option is granted (or at an appropriate subsequent
measurement date) over the amount the employee must pay to acquire the
stock.  Prior to fiscal year 2006, the Company had elected to account
for employee stock options using the intrinsic value method under APB 25 and
provided, as required by SFAS 123, pro forma footnote disclosures of net loss as
if a fair value based method of accounting had been applied.





The
Company adopted 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 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





SFAS No.
131, “Segment Information” (“SFAS 131”), amends the requirements for companies
to report financial and descriptive information about their reportable operating
segments.  Operating segments, as defined in SFAS 131, 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 SFAS No. 131 and determined that the
Company currently operates in one segment, domain name registration, and will
operate in additional segments when it commences future operation of Internet
data centers or wireless point-to-point systems.





Concentration of
Risks





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





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





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


43


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





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





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





Prior to
the January 31, 2009 expiration of the Spot-On Debenture conversion right, a
total of eight 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.  The Company is discussing options with Spot-On to
receive the full amount due, with accrued interest, prior 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 SFAS No. 128, “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 20,395,500 shares of common
stock and 6,809,100 warrants potentially issuable at July 31, 2009 which were
not included in the computation of net loss per share.





RESULTS
OF OPERATIONS





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





REVENUES





Revenues
of $363,112 for the three months ended July 31, 2009 (the “Current Quarter”)
decreased 3.6% or $13,568 as compared to $376,680 for the three months ended
July 31, 2008 (the “Prior Quarter”).  During the Current Quarter
revenue from domain name registration activity was $360,906, a decreased of
$15,774 or 4.2% compared to $376,680 for the Prior Quarter.  For the
Current Quarter the volume of domain name registration activity from all sources
(new, renewal, and registration changes) in the aggregate increased 0.4% over
the Prior Quarter.  Revenue derived from our reseller network within
Vietnam (“Domestic Network”) increased $5,851 of 21.3% and our reseller network
outside of Vietnam (“International Network”), to include our web site sales,
decreased $27,193 or 8.5%; the Domestic Network registration rates are lower
than the International Network due to competitive pressures within Vietnam
resulting in the 4.2% decrease in revenue.


44


In
addition, the Company earns commissions from VNNIC based on semi-annually
contract benchmarks (January through June and July through December) for new
registrations, renewals and registration changes; commissions of $33,555 for the
Current Quarter increased $5,568 or 19.9% as compared to $27,987 for the Prior
Quarter.  The increase in commission revenue results from favorable
contract renewal terms effective January 2, 2009.  Total domain names
under management at July 31, 2009 increased to 11,126 compared to 9,910 at July
31, 2008.





On July
22, 2009, the Company commenced generating revenue ($2,206) under its first
domain registry monetization initiative whereby an Internet user who types in a
domain name that does not exist or that has expired is redirected to a Company
landing page with targeted pay-per-click advertising links.  During
the next quarter, the Company will tailor the landing page look and develop
specific advertising links for the Asian market to improve both the number of
clicks (pay-per-click rate) and the resulting revenue.





COST OF
REVENUES





For the
three months ended July 31, 2009, cost of revenues decreased 8.9% to $130,597
compared to $143,406 for the three months ended July 31, 2008, a decrease of
$12,809.  Gross profit was $232,515 or 64.0% (as a percentage of
revenues) for the three months ended July 31, 2009 compared to $233,274 or 61.9%
for the three months ended July 31, 2008.  The increase in gross
profit (2.1%) was principally due to a nominal increase in renewal activity
which yields a higher gross margin rate.





GENERAL
AND ADMINISTRATIVE EXPENSES





For the
three months ended July 31, 2009, general and administrative expenses, which
includes consulting and professional fees, marketing and promotion, option
bonus, bad debt expense, and other general and administrative, were $2,588,084
compared to $1,668,646 for the three months ended July 31, 2008, an increase of
$919,438 or 55.1%.  The increase in total general and administrative
expenses was primarily attributable to the following offsetting
factors:





·
            Option
      Bonus expenses increased to $1,972,393 for the three months ended July 31,
      2009, from $913,715 for the three months ended July 31, 2008, an increase
      of $1,058,678 or 115.9%.  The increase results from the
      Company’s application of the graded vesting attribute method, in
      accordance with SFAS 123R, to record compensation costs for stock
      options.  Under this method the Company records compensation
      costs for one third of the fair value at the first vesting date (generally
      the date of grant) and one third during the one year service period of the
      second vesting and the remaining third during the two year service period
      of the final vesting.  The increased expense is the net result
      the following items:


o
            In
      October 2006, the Company issued options for an aggregate of 7,650,000
      shares with an estimated fair value of $19,886,786; during the Current
      Quarter zero was expensed compared to $828,687 during the Prior Quarter,
      for a decrease of $828,687 in the Current
  Quarter.


o
            During
      the quarter ending October 31, 2007 the Company issued options for an
      aggregate of 510,000 shares with an estimated fair value of $952,025;
      during the Current Quarter $14,985 was expensed compared to $85,028 during
      the Prior Quarter, for a decrease of $70,043 in the Current
      Quarter.


o
            In
      August 2008, the Company issued options for an aggregate of 75,000 shares
      with an estimated fair value of $75,561; during the Current Quarter $3,981
      was expensed compared to zero during the Prior Quarter, for an increase 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 $1,953,427 was expensed compared to zero during the Prior Quarter,
      for an increase of $1,953,427 in the Current
  Quarter.





·
            Consulting
      and professional fees decreased to $61,854 for the three months ended July
      31, 2009, from $125,256 for the three months ended July 31, 2008, a
      decrease of $63,402 or 50.6%.  The decreased expense is
      primarily attributable to decreased amortization expense ($65,110) of the
      fair value of stock warrants issued for investor relation services of
      $68,828 for the Prior Quarter compared to the Current Quarter expense of
      $3,718.


45


·
            Bad
      debt expense decreased to $2,600 for the three months ended July 31, 2009
      from $26,000 for the three months ended July 31, 2008, a decrease of
      $23,400 or 90.0%.  The decrease in bad debt expense primarily
      results from the Company’s 100% bad debt reserve applied to an additional
      $25,000 in note receivable from Spot-On (“Spot-On”) recorded in the Prior
      Quarter.  The Prior Quarter note receivable results from the
      assignment by one individual of the convertible debentures originally
      issued to him by Spot-On and assigned to the Company as his full
      consideration for an aggregate of 25,000 restricted shares of the
      Company’s Common Stock (the “Assigned Spot-On
      Debentures”).  Spot-On is a private company and does not furnish
      the Company with financial statements to evaluate their ability to pay the
      Assigned Spot-On Debentures principal and accrued interest on January 31,
      2009 at maturity.  The Company’s ability to collect the Assigned
      Spot-On Debentures is dependent on the cash reserves held by Spot-On
      and/or their ability to raise additional financing.  Due to the
      uncertainty of collection the Company has recorded a bad debt expense for
      the full amount of the Assigned Spot-On Debentures. On
      January 30, 2009, the Company received a request from Spot-On to (i)
      extend the maturity date of the Assigned Spot-On Debentures to March 31,
      2009 and (ii) waive any defaults under the Assigned Spot-On Debentures or
      any of the related documents or events of default which are outstanding or
      have occurred (the “Spot-On Offer”).  The Company did not accept
      the Spot-On Offer and continues discussing options to receive the full
      amount due, with accrued interest.  To date the Company has not
      received any payment from Spot-On on the Assigned Spot-On Debentures and
      Spot-On is unable to provide the Company with a firm repayment date as
      they negotiated to raise funds to satisfy their obligation under the
      Spot-On Debentures.





·
            Other
      general and administrative expenses decreased to $539,097 for the three
      months ended July 31, 2009 from $591,675 for the three months ended July
      31, 2008, a decrease of $52,578 or 8.9%.  The decreased expense
      is the net result the following significant
  items:





o
            Employee
      wages and payroll taxes decreased to $329,496 for the Current Quarter from
      $338,038 for the Prior Quarter, a decrease of $8,542 or
    2.5%.


o
            Travel
      and related expenses increased to $40,245 for the Current Quarter from
      $18,589 for the Prior Quarter, an increase of $21,656 or
      116.5%.


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


o
            Employee
      wages paid with shares of the Company’s restricted common stock decreased
      to zero for the Current Quarter from $11,600 for the Prior Quarter, a
      decrease of $11,600.


o
            IRRA
      liquidated damages associated with the February Debentures decreased to
      zero for the Current Quarter from $34,449 for the Prior Quarter, a
      decrease of $34,449.


o
            All
      other general and administrative expenses increased to $169,356 for the
      Current Quarter from $163,814 for the Prior Quarter, an increase of $5,542
      or 3.4%.





LOSS FROM
OPERATIONS





We
reported a loss from operations of $2,355,569 for the three months ended July
31, 2009 as compared to a loss from operations of $1,435,372 for the three
months ended July 31, 2008, an increase of $920,197 or 64.1%.  The
increase is primarily attributed to increased option bonus expense
($1,058,678) offset by decreased Consulting and professional fees ($63,402), bad
debt expense ($23,400) and other general and administrative expenses
($52,578).





OTHER
INCOME AND EXPENSES





Total
other income and expense decreased to a net expense of $242,373 for three months
ended July 31, 2009 as compared to a net expense of $896,656 for the three
months ended July 31, 2008.  Included in this net expense decrease of
$654,283 or 73.0% are:





·
            Interest
      income was $214 for the three months ended July 31, 2009 as compared to
      interest income of $1,644 for the three months ended July 31, 2008; the
      decrease of $1,430 or 87.0% was attributable to a decrease in average cash
      balances.





·
            The
      finance expense was $700 for the three months ended July 31, 2009 as
      compared to finance expense of $164,363 for the three months ended July
      31, 2008, a decrease of $163,663 or 99.6%.  The net decreased
      expense is the result of the amortization of both cash fees paid and the
      fair value of stock warrants issued to obtain equity and/or debt financing
      for the Company, the significant items
were:





o
            Pursuant
      to the Extended Debentures, the Company issued warrants to ten February
      Investors totaling in the aggregate 31,173 shares exercisable at a per
      share price of $2.00, with an estimated fair value of
      $8,918.  The warrants will be expensed over the approximate
      thirty-five month term of the Extended Debentures.  Amortization
      of the warrants for the three months ended July 31, 2009 was $700 compared
      to zero in the Prior Quarter.


46


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


o
            Additionally,
      pursuant to its engagement of Pali, the Company issued three series of
      warrants: (i) retainer warrants totaling in the aggregate 250,000 shares
      exercisable at a per share price of $0.001, with an estimated fair value
      of $712,404; (ii) placement warrants “A” totaling in the aggregate 229,600
      shares exercisable at a per share price of $1.00, with an estimated fair
      value of $563,640; and (iii) placement warrants “B” totaling in the
      aggregate 68,880 shares exercisable at a per share price of $2.00, with an
      aggregate estimated fair value of $167,700 (the “Placement Agent
      Warrants”) recorded as a deferred debt issuance cost.  The
      Placement Agent Warrants have a term of 5 years from the date of
      issuance.  The retainer warrants were expensed over the one year
      engagement term and the two placement warrants were expensed over the
      approximate two year term of the February Financing.  The
      Company had no expense for two placement warrants in the Current Quarter
      compared to $117,304 expensed in the Prior
  Quarter.


o
            Warrants
      for an aggregate of 344,465 shares exercisable at a per share price of
      $2.00, with an estimated fair value of $259,954, as allocated, were issued
      to the February Financing investors which are amortized over the
      approximate two year term of the convertible debt or upon
      conversion.  During the three months ended July 31, 2009, the
      Company expensed zero compared to $32,706 expensed in the Prior
      Quarter.





·
            Interest
      expense decreased to $247,319 for the three months ended July 31, 2009
      from $731,417 for the three months ended July 31, 2008, a decrease of
      $484,098 or 66.2%.  The decreased expense is the net result the
      following significant items:


o
            accretion
      of the debt discount associated with the February Financing and other
      convertible notes decreased to zero for the Current Quarter from $525,050
      for the Prior Quarter, a decrease of $525,050 or 100%; the accretion of
      debt discount results from:


§
            The
      Company issued a series of convertible debentures in the aggregate amount
      of $1,148,212 which were convertible into 1,148,212 shares of the
      Company’s restricted Common Stock at a per share price of $1.00 which
      represented a beneficial conversion feature with an estimated fair value
      at inception of $888,258, as allocated, which was recorded as a discount
      against the convertible debentures and was expensed over the term of the
      debt or upon conversion.  The convertible feature expired at
      maturity on January 31, 2009.  For the three months ended July
      31, 2009 the Company had no expensed for the beneficial conversion feature
      as compared to $111,758 for the three months ended July 31,
      2008.


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


§
            Other
      convertible notes issued by the Company with a beneficial conversion
      feature had no expense for the beneficial conversion feature during the
      three months ended July 31, 2009 as compared to $51,643 for the three
      months ended July 31, 2008.


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


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


o
            interest
      expense on term debt, to include the Extended Debentures and Defaulted
      Debentures, increased to $91,341 for the Current Quarter from $51,235 for
      the Prior Quarter, an increase of $40,106 or 78.3% is primarily
      attributable to net additional borrowings outstanding at July 31, 2009
      ($3,355,218) compared to July 31, 2008
  ($2,083,785).


47


·
            Foreign
      exchange gain (loss) increased to a gain of $5,432 for the three
      months ended July 31, 2009 from a loss of $2,520 for the three months
      ended July 31, 2008, an improvement of $7,952 from favorable changes in
      the U.S. dollar to Vietnamese dong exchange
  rates.





OVERALL





We
reported a net loss for the three months ended July 31, 2009 of $2,597,942
compared to a net loss for the three months ended July 31, 2008 of
$2,332,028.  This translates to an overall basic and diluted per-share
loss available to shareholders of $0.09 for the three months ended July 31, 2009
and for the three months ended July 31, 2008 based on 29,143,587 and 27,105,489
weighted average common shares outstanding, respectively.





LIQUIDITY
AND CAPITAL RESOURCES





The
Company has financed its operations primarily through the deferral of salary by
its two executive officers Thomas Johnson (CEO) and Lee Johnson (President, CTO,
and CFO), the sale of equity securities, to include convertible notes, other
private party loans, and previously by the advance of funds by a former
related party (Hi-Tek, Inc. a California corporation (“Hi-Tek
Private”)).  Overall, our liquidity and access to capital is very
limited; we have not received any commitment for additional financing and given
the size of our company we may be limited to (i) additional loans from Hi-Tek
Private and continued deferral of salaries by our officers, (ii) the sale of the
Company’s Common Stock or the issuance of convertible notes, or (iii) other debt
instruments.  The Company does not have a written agreement with
Hi-Tek Private and no funds were advanced during the three months ended July 31,
2009 or 2008.





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing
basis.  During the quarters ended July 31, 2009 and 2008 cash used in
our operating activities was $188,616 and $192,618, and cash used in investing
activities was $3,058 and $5,895, respectively.  We funded our
operating activities and investing activities during the three months ended July
31, 2009 and 2008 with cash reserves in addition to the following
resources:





July 31,
                    
                    
                    July 31,2009
                    
                    
                    2008Funds
      advanced by Hi-Tek Private under revolving credit arrangement, net of
      $6,396 and  53,000 repayments
                    
                    $
                    (6,396
                    )
                    
                    $
                    (53,000
                    )Twelve
      month term loan from John T. Butler, due June 1, 2009
                    
                    
                    
                    
                    
                    
                    70,000Twelve
      month term loan from Tupou U. Kaho, due June 1, 2009
                    
                    
                    
                    
                    
                    
                    50,000Principal
      and interest payments on Extended Debentures
                    
                    
                    (34,221
                    )
                    
                    
                    —Proceeds
      from stock issuances
                    
                    
                    153,003
                    
                    
                    
                    53Other
      short term borrowings
                    
                    
                    
                    
                    
                    
                    —Total
                    
                    $
                    112,386
                    
                    
                    $
                    67,053





At July
31, 2009, we had a cash balance of $61,296 compared to $144,842 at April 30,
2009, a decrease of $83,546.  At July 31, 2009, our working capital
deficit was $11,353,984 as compared to $11,246,046 at April 30,
2009.  Our current assets, other than cash, consist of $149,275 in
accounts receivable, $5,000 in unearned stock based compensation, $16,093 in
other prepaid expenses, $9,804 in fees on deposit for ‘.vn’ domain registrations,
and $27,880 in miscellaneous and VAT receivables.





Our
current liabilities consisted primarily of $2,379,830 due to Hi-Tek Private
under three credit arrangements, $2,949,847 due Thomas Johnson (our CEO),
$2,949,848 due Lee Johnson (our President, CTO, and CFO), $84,943 for the
current portion due on the Extended Debentures, $706,925 due on the Defaulted
Debentures, $1,542,668 due IDCG SA de CV under seven term notes, $113,889 due
Louis Huynh, $109,084 due Business.com.VN, $100,000 due Diep Tai in Danang City,
Vietnam (due upon thirty-day written demand), $395,743 in accrued officer
salaries, $67,159 in liquidated damages to the February Investors, and $167,747
in accounts payable.


48


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





RECENT
ACCOUNTING PRONOUNCEMENTS





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





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





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





PLAN
OF OPERATION FOR THE NEXT 12 MONTHS





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





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





2)          the
commercialization of domain monetization services (such as parking page
advertising),





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





4)          commercialization
of the E-Link 1000 wireless point-to-point system.





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





The plan
includes:





PHASE I:
CY Q3 2009 through CY Q1 2010:  This phase is in
process.  During this period, the Company, will focus on the design of
the Danang City Internet data center and receipt of all necessary permits and
licenses related to the construction of the Internet data
center.  Further, the Company is in the process of identifying service
providers and contractors in anticipation of the construction of the Internet
data center.  During this same time period, Dot VN will collaborate
with various consultants and VNNIC to design and test an API which will allow
the Company to substantially increase its reseller network.  Dot VN
also expects to continue to market and expand its domain monetization program
both locally in Vietnam as well as the larger international
market.


49


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





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





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





Subsequent
Events





On
August, 2009, pursuant to the terms of a four stock subscription agreements, the
Company will issue to accredited investors, an aggregate of 260,000 restricted
shares of the Company’s Common Stock at $0.50 per unit for cash consideration of
$130,000.  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 $1.00 expiring two years from the
date of issue.  The Company will pay a finder a finder’s fee equal to
Ten Percent (10%) of the aggregate amount received in cash and apart from the
payment of a finder’s fee; no commissions were incurred by the Company in
connection with the transaction.





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 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 will be paid in September, and
(iv) commencing October 1, 2009, the unpaid balance will be amortized over
thirty-eight (38) equal monthly payments.  In addition, warrants
aggregating 5,450 shares will be issued to the three February Investors with a
$2 exercise price expiring on January 31, 2012.  Currently three
February Investors holding February Debentures aggregating $612,500 have not
responded to the Company’s request to modify their repayment terms, these
amounts, which are no longer convertible into common stock of the Company, are
included under term-debt as a currently obligation (see Note 9).





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




On
September 12, 2009, in connection with the receipt of an Eighteen Thousand
Dollar ($18,000) cash loan from Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, the Company executed
an $18,000 promissory note to Mr. Johnson, due December 12, 2009 with interest
accruing monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.


50




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





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





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





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





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





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 July 31,
2009.





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





CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING





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





51




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
20, 2009, pursuant to the terms of three stock subscription agreements, the
Company issued an aggregate of 796,389 restricted shares of the Company’s Common
Stock at $0.50 per unit as full and final payment of three term notes (see Note
9) recorded as a $397,661 aggregate payment of short term debt as follows: (i)
Ms. Aussy Manuhu, an accredited investor, 533,594 restricted shares as full and
final payment ($266,263) of that term note issued March 29, 2008, as amended,
(ii) Equity Trust Company, custodian FBO John T. Butler, IRA, an accredited
investor, 153,297 restricted shares as full and final payment ($76,649) of that
term note issued June 1, 2008, and (iii) Equity Trust Company, custodian FBO
Tupou U. Kaho, IRA, an accredited investor, 109,498 restricted shares as full
and final payment ($54,749) of that term note issued June 1,
2008.  The subscription units consists of one restricted share of the
Company’s Common Stock and a warrant to purchase 1/5 of a restricted share of
the Company’s Common Stock at an exercise price of $1.50 expiring April 30,
2011; a series of three warrants were issued as follows: (i) Ms. Manuhu 106,719
shares, (ii) Butler IRA 30,659 shares, and (iii) Kaho IRA 21,900
shares  The offer and sale was made to three persons, 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 of 1933, as
amended (the “Securities Act”) and Rule 506 of Regulation D, promulgated
thereunder.





On May
20, 2009, pursuant to the terms of a stock subscription agreement, the Company
issued to Equity Trust Company, custodian FBO John T. Butler, IRA, an accredited
investor, 70,000 restricted shares of the Company’s Common Stock at $0.50 per
unit for cash consideration of $35,000.  The subscription unit
consists of one restricted share of the Company’s Common Stock and a warrant to
purchase 1/5 of a restricted share (14,000 shares) of the Company’s Common Stock
at an exercise price of $1.50 expiring April 30, 2011.  The offer and
sale was made to one  person, in a non-public offering, where the
offeree had access to the kind of information that registration would disclose,
in reliance on the exemption from registration afforded by Section 4(2),
promulgated pursuant to the Securities Act and Rule 506 of Regulation D,
promulgated thereunder.





On June
12, 2009, pursuant to the terms of a strategic advisory board agreement and in
consideration for his participation at a Company event, the Company issued to
Dr. Mai Liem Truc 1,000 shares of the Company’s Common Stock valued at the
market closing price and recorded as an aggregate $500 in consulting
fees.  The offer and sale made to Dr. Truc was exempt from
registration pursuant to 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, with no directed selling efforts in the US and where
offering restrictions were implemented.





On June
12, 2009, pursuant to the terms of a strategic advisory board agreement and in
consideration for his participation at a Company event, the Company issued to
Mr. Kenneth Le 1,000 shares of the Company’s Common Stock for services valued at
the market closing price and recorded as an aggregate $1,000 in consulting
fees.  The offer and sale was made to Mr. Le, in a non-public
offering, where the offeree was sophisticated and 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.





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





On July
27, 2009, pursuant to the terms of a two stock subscription agreements, each an
accredited investor, the Company issued an aggregate of 200,000 restricted
shares of the Company’s Common Stock at $0.50 per unit for cash consideration of
$100,000.  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 $1.00 expiring two years from the
date of issue.  The offer and sale was made to three persons, in a
non-public offering, where each offeree had access to the kind of information
that registration would disclose, in reliance on the exemption from registration
afforded by Section 4(2), promulgated pursuant to the Securities Act and Rule
506 of Regulation D, promulgated thereunder.  The Company will pay a
finder a finder’s fee equal to Seven Percent (7%) of the aggregate amount
received in cash and apart from the payment of a finder’s fee; no commissions
were incurred by the Company in connection with the
transaction.


52


Additionally
on July 27, 2009, pursuant to the terms of a stock subscription agreement the
Company issued, an accredited investor, 50,000 restricted shares of the
Company’s Common Stock at $0.50 per unit for cash consideration of
$25,000.  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 $1.00 expiring two years from the
date of issue.  The offer and sale was mad, in a non-public offering,
where each offeree had access to the kind of information that registration would
disclose, in reliance on the exemption from registration afforded by Section
4(2), promulgated pursuant to the Securities Act and Rule 506 of Regulation D,
promulgated thereunder.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





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





None.





ITEM
      5.
            OTHER
      INFORMATION.





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




On
September 12, 2009, in connection with the receipt of an Eighteen Thousand
Dollar ($18,000) cash loan from Mr. Thomas Johnson, the Company’s Chief
Executive Officer and Chairman of the Board of Directors, the Company executed
an $18,000 promissory note to Mr. Johnson, due December 12, 2009 with interest
accruing monthly at a rate of Ten Percent (10%) per annum.  Proceeds
were used to fund general operations.




53




ITEM
      6.
              EXHIBITS.
 
 (a)  Exhibits
required by Item 601 of Regulation SK.
 
 Number
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation*3.2
                
                Bylaws*10.44
                
                Land
      Lease Agreement dated September 9, 2009 by and between Dot VN, Inc. and
      Saigon Hi-Tech Park, a Vietnam entity.10.45
                
                Corporate
      promissory note dated September 12, 2009 by and between Dot VN, Inc. and
      Thomas Johnson our Chairman and CEO23.1
                
                Auditor’s
      Consent31.1
                
                Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                
                Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
 
 *
              Filed
      as an Exhibit to the Company’s Registration Statement on Form SB-2 (File
      No. 333-146129), as amended on Form S-1,
      as filed with the Securities and Exchange Commission on September 17,
      2007.


54




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:  September
      14, 2009
              By:
              /s/ Louis P. HuynhName:
              Louis
      P. HuynhTitle:
              General
      Counsel, Executive Vice President of Operations and Business Development,
      and Corporate Secretary




55




EXHIBIT
INDEX





Number
              
              Description3.1
              
              Amended
      and Restated Articles of Incorporation*3.2
              
              Bylaws*10.44
              
              Land
      Lease Agreement dated September 9, 2009 by and between Dot VN, Inc. and
      Saigon Hi-Tech Park, a Vietnam entity.10.45
              
              Corporate
      promissory note dated September 12, 2009 by and between Dot VN, Inc. and
      Thomas Johnson our Chairman and CEO23.1
              
              Auditor’s
      Consent31.1
              
              Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
              
              Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





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





56