**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 June 30, 2008





OR





**o 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. 000-27277





**KALEIDOSCOPE
      VENTURE CAPITAL INC.**


(Exact
      name of registrant as specified in its charter)





**NEVADA**
            **98-0207554**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)




170
      E.
      Post Road, Suite 206


White
      Plains, New York 10601


(Address
      of principal executive offices, zip code)





(914)
      448-7600


(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
o





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





As
      of
      August 17, 2008, there were 1,901,395 shares of the issuer’s common stock, par
      value $0.001 per share, outstanding, 350 shares of Series A Convertible
      Preferred Stock outstanding, and 100,000,000 shares of Class A Common Stock,
      par
      value $0.001 per share, outstanding.





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 o
              Accelerated
                  filer o
              Non-accelerated
                  filer o
              Smaller
                  reporting company x


(Do
      not
      check if a smaller reporting company)








**KALEIDOSCOPE
      VENTURE CAPITAL INC.**


**QUARTERLY
      REPORT ON FORM 10-Q**


**FOR
      THE PERIOD ENDED JUNE 30, 2008**





**INDEX**




**Index**
            
            
            **Page****Part
                I.**
            **Financial
              Information**Item
              1.
            Financial
                Statements
            F-1Consolidated
                Balance Sheets as of June 30, 2008 (unaudited) and December 31,
                2007
            F-2Consolidated
                Statements of Operations - for the three and six months ended June
                30,
                2008 and 2007 (unaudited)
            F-3Consolidated
                Statements of Cash Flows for the six months ended June 30, 2008 and
                2007
                (unaudited)
            F-4Notes
                to Consolidated Financial Statements (unaudited)
            F-5Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            4Item 3.
            Controls
                and Procedures
            7**Part
                II.**
            **Other
                Information**
            7Item 1.
            Legal
                Proceedings
            7Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            7Item 3.
            Defaults
                Upon Senior Securities
            7Item 4.
            Submission
                of Matters to a Vote of Security Holders
            7Item 5.
            Other
                Information
            7Item 6.
            Exhibits
            8**Signatures**
            
            
            9**Certifications**





2


CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
      Quarterly Report on Form 10-Q 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 include, among
      other things, the company’s ability to (i) adapt to rules and regulations that
      may be promulgated that affect how Kaleidoscope Venture Capital must conduct
      its
      Voice-over-Internet Protocol business and operations; (ii) market and distribute
      its Voice-over-Internet Protocol services; (iii) secure capital to continue
      operations; (iv) achieve and manage growth; and (v) develop or acquire new
      technology to effectively provide new and/or better services. Additional factors
      that will impact the company’s success include the company’s ability to attract
      and retain qualified personnel; the voting decisions of Robert Koch, who
      controls approximately 46.79% **** of
      the
      voting power of all securities of Kaleidoscope Venture Capital; and other
      factors discussed in Kaleidoscope Venture Capital’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


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**




**Kaleidoscope
        Venture Capital Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc)**
  Index
        to
        Consolidated Financial Statements
 
 Page(s)Consolidated
                  Balance Sheets (Unaudited)
              
              
              F-2Consolidated
                  Statements of Operations (Unaudited)
              
              
              F-3Consolidated
                  Statements of Cash Flows (Unaudited)
              
              
              F-4Notes
                  to Consolidated Financial Statements (Unaudited)
              
              
              F-5
  F-1
 Kaleidoscope
          Venture Capital, Inc. and Subsidiary
 (Formerly
          known as Vocalscape Networks, Inc.)
 Consolidated
          Balance Sheets
  June
                    30,
                  2008
                
                December
                    31,
                  2007Unaudited**ASSETS****Current
                    assets:**Cash
                    and cash equivalents
                
                $
                -
                
                $
                236Total
                    current assets
                
                
                -
                
                
                236Investment
                    in non-marketable equity securities
                
                
                20,628
                
                
                18,656Property
                    and equipment, net
                
                
                14,701
                
                
                18,074Total
                    assets
                
                $
                35,329
                
                $
                36,966**LIABILITIES
                    AND STOCKHOLDER'S DEFICIT****Current
                    liabilities:**Loans
                    and notes payable
                
                $
                1,867,000
                
                $
                1,767,000Bank
                    overdraft
                
                
                39Loans
                    and notes payable, related parties
                
                
                170,886
                
                
                160,486Loan
                    payable due for software purchase
                
                
                131,746
                
                
                131,746Accounts
                    payable
                
                
                289,550
                
                
                285,379Accounts
                    payable, related parties
                
                
                281,620
                
                
                240,779Accrued
                    expenses
                
                
                1,438,012
                
                
                1,270,289Accrued
                    expenses, related parties
                
                
                461,163
                
                
                272,304Convertible
                    debentures
                
                
                84,912
                
                
                84,912Payable
                    to shareholder
                
                
                900,027
                
                
                900,027Embedded
                    conversion option liability
                
                
                -
                
                
                193,375Other
                    liablilities
                
                
                14,289
                
                
                14,289Total
                    current liabilities
                
                
                5,639,244
                
                
                5,320,586Commitments
                    and contingencies (Note 10)**STOCKHOLDERS'
                    DEFICIT**Preferred
                    stock, $0.001 par value, 25,000,000 authorizedSeries
                    A, voting convertible preferred stock, 100,000shares
                    authorized, 300 and 250 shares issued and outstanding(liquidation
                    value $100.00 per share)
                
                
                -
                
                
                -Common
                    stock, $0.001 par value, 400,000,000 authorized,1,901,395
                    and 1,364,680 issued and outstanding
                
                
                1,901
                
                
                1,365Common
                    stock issuable, at par value (250,025 and 40,025 shares)
                
                
                250
                
                
                40Common
                    stock , Class A non voting, $.001 par value, 100,000,000
                    sharesauthorized,
                    100,000,000 shares issued and outstanding
                
                
                100,000
                
                
                100,000Common
                    stock and Common Stock, Class A subscriptions receivable
                
                
                (1,165,000
                )
                
                (1,165,000
                )Additional
                    paid-in capital
                
                
                11,241,342
                
                
                7,881,916Accumulated
                    deficit
                
                
                (15,782,408
                )
                
                (12,101,941
                )Total
                    stockholders' deficit
                
                
                (5,603,915
                )
                
                (5,283,620
                )Total
                    liabilities and stockholders' deficit
                
                $
                35,329
                
                $
                36,966
 See
            accompanying notes to consolidated financial statements
  F-2
  Kaleidoscope
          Venture Capital, Inc. and Subsidiary
 (Formerly
          known as Vocalscape Networks, Inc)
 Consolidated
          Statements of Operations
  Three
                    Months Ended
                
                Six
                    Months EndedJune
                    30,
                
                June
                    30,**2008**
                
                **2007**
                
                **2008**
                
                **2007**Revenue
                
                $
                1,186
                
                $
                39,250
                
                $
                7,461
                
                $
                49,761Cost
                    of revenue
                
                
                -
                
                
                739
                
                
                -
                
                
                1,478Gross
                    profit
                
                
                1,186
                
                
                38,511
                
                
                7,461
                
                
                48,283Costs
                    and expenses:Compensation
                
                
                256,800
                
                
                166,940
                
                
                424,797
                
                
                343,797Consulting
                
                
                1,003,300
                
                
                101,737
                
                
                1,129,848
                
                
                255,353Professional
                    fees
                
                
                747,692
                
                
                65,585
                
                
                759,985
                
                
                48,403General
                    and administration
                
                
                19,773
                
                
                47,971
                
                
                45,718
                
                
                114,8162,027,565
                
                
                382,233
                
                
                2,360,348
                
                
                762,369Loss
                    from operations
                
                
                (2,026,379
                )
                
                (343,722
                )
                
                (2,352,887
                )
                
                (714,086
                )Other
                    income (expense)Interest
                    expense
                
                
                (87,263
                )
                
                (158,192
                )
                
                (172,857
                )
                
                (299,422
                )Change
                    in fair value of embedded conversionoption
                    liability
                
                
                (1,190,220
                )
                
                (63,780
                )
                
                (1,156,696
                )
                
                (63,780
                )Foreign
                    currency transaction gain (loss), net
                
                
                (488
                )
                
                15
                
                
                1,972
                
                
                (3,269
                )Total
                    other income (expense)
                
                
                (1,277,971
                )
                
                (221,957
                )
                
                (1,327,581
                )
                
                (366,471
                )Net
                    loss
                
                $
                (3,304,350
                )
                $
                (565,679
                )
                $
                (3,680,468
                )
                $
                (1,080,557
                )Net
                    loss per share - basic and diluted
                
                $
                (1.78
                )
                $
                (1.42
                )
                $
                (2.13
                )
                $
                (2.31
                )Weighted
                    average shares outstanding during the period - basic and
                    diluted
                
                
                1,851,832
                
                
                398,752
                
                
                1,729,676
                
                
                467,812
  See
          accompanying notes to consolidated financial statements
  F-3
  Kaleidoscope
        Venture Capital, Inc. and Subsidiary
 (Formerly
        known as Vocalscape Networks, Inc.)
 Consolidated
        Statements of Cash Flows
 **Six
                    Months Ended June 30****2008**
                
                **2007****Cash
                    flows from operating activities:**Net
                    loss
                
                $
                (3,680,466
                )
                $
                (1,080,557
                )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Stock
                    options granted for services
                
                
                490,817
                
                
                14,029Stock
                    option exercises paid for with services
                
                
                15,000
                
                
                1,850Deferred
                    consulting amortization
                
                
                -
                
                
                146,667Common
                    stock granted for services
                
                
                1,392,000
                
                
                -Preferred
                    stock granted for services
                
                
                2,500
                
                
                -Non-cash
                    loan fee
                
                
                25,000
                
                
                20,000Non-cash
                    revenues
                
                
                -
                
                
                (17,290
                )Foreign
                    currency transaction loss (gain)
                
                
                (1,972
                )
                
                1,143Amortization
                    of debt discount to interest expense
                
                
                -
                
                
                169,519Depreciation
                    and amortization
                
                
                3,373
                
                
                4,851Change
                    in fair value of embedded conversion option liability
                
                
                1,156,696
                
                
                63,780Changes
                    in operating assets and liabilities:Increase
                    (Decrease) in:Accounts
                    payable
                
                
                4,171
                
                
                33,513Accounts
                    payable, related party
                
                
                40,841
                
                
                (4,943
                )Accrued
                    interest and expenses
                
                
                104,185
                
                
                -Accrued
                    expenses, related aprties
                
                
                186,028
                
                
                174,659Accrued
                    interest - related party
                
                
                2,829
                
                
                -Other
                    accrued liabilities
                
                
                63,538
                
                
                -Accrued
                    expenses
                
                
                -
                
                
                (28,613
                )Net
                    cash used in operations
                
                
                (195,460
                )
                
                (501,392
                )**Cash
                    Flo ws from investing activities:**Equipment
                    purchase
                
                
                -
                
                
                -Net
                    cash used in investing activities
                
                
                -
                
                
                -**Cash
                    flows from financing activities:**Bank
                    overdraft
                
                
                39
                
                
                4,257Loan
                    proceeds from related party, net
                
                
                10,400
                
                
                4,700Loan
                    proceeds
                
                
                75,000
                
                
                -Loan
                    repayments to related parties
                
                
                -
                
                
                197,738Proceeds
                    from common stock sales
                
                
                109,785
                
                
                -Repayment
                    of notes payable
                
                
                -
                
                
                280,000Net
                    cash provided by financing activities
                
                
                195,224
                
                
                486,695Net
                    increase (decrease) in cash and cash equivalents
                
                
                (236
                )
                
                (14,697
                )Cash
                    and cash equivalents, beginning of period
                
                
                236
                
                
                14,697**Cash
                    and cash equivalents, end of period**
                
                $
                -
                
                $
                -**Supplemental
                    disclosure o f cash flow info rmation:**Cash
                    paid during the period for:Interest
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                -**Supplemental
                    disclosure o f no n-cash investing and****financing
                    activities:**Conversion
                    of debt to common stock
                
                $
                -
                
                $
                120,000Recording
                    of beneficial conversion value to debt discount and APIC
                
                $
                -
                
                $
                60,000Record
                    initial fair value of embedded conversion option as debt
                    discount
                
                $
                -
                
                $
                100,000Exchange
                    of accounts payable for common stock on exercise of
                    options
                
                $
                -
                
                $
                37,900Recording
                    of deferred consulting
                
                $
                -
                
                $
                60,000Sale
                    of common stock Class A for subscription receivable
                
                $
                -
                
                $
                1,000,000Reclassification
                    of embedded conversion option liability to equity
                
                $
                1,350,071
                
                $
                -
  See
        accompanying notes to consolidated financial
        statements
  F-4
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **June
          30, 2008**
 **1.** **NATURE
            OF BUSINESS AND GOING CONCERN**
 
 Organization
        - Kaleidoscope Venture Capital, Inc. (“KVI” or the “Company”) is a Nevada
        corporation, which was incorporated on June 12, 1998. On July 14, 2008
        Vocalscape Networks, Inc. filed an amendment with the Nevada Secretary of
        State
        to change its name to Kaleidoscope Venture Capital, Inc.
 
 Vocalscape
        Networks Operating Subsidiary, Inc. (VNOS), our wholly-owned subsidiary,
        is a
        Nevada corporation, which was incorporated on February 5, 2003.
 
 KVI
        has
        announced a change in its current business direction after officially changing
        its name to Kaleidoscope Venture Capital Inc. KVI plans to take advantage
        of
        certain strategic business relationships and opportunities. While maintaining
        its interest in VNOS, Kaleidoscope Venture Capital Inc. plans to foster
        early-stage companies through the developmental phases until such time as
        these
        companies have sufficient financial, human and physical resources to function
        on
        their own."
 
 **Nature
        of Business and Current Operations -** Our
        subsidiary, VNOS is a developer of Voice over Internet Protocol (VoIP) telephony
        solutions. VNOS provides VoIP telephony solutions and communications software
        for Internet Service Providers (ISPs), Internet Telephony Service Providers
        (ITSPs) and Telecommunications companies worldwide. VNOS develops VoIP and
        interactive communications software, including Soft phone applications, Customer
        Acquisition and Billing Systems, SIP Servers, Gatekeepers and Virtual Calling
        Cards. VNOS’s strategy is to focus on VoIP software and Long Distance
        termination solutions that bring together a full range of communications
        solutions and services thereby providing a turn-key VoIP infrastructure for
        ISP’s, ITSP’s and Telecommunications companies.
 
 On
        July
        14, 2008 Vocalscape Networks, Inc. filed an amendment with the Nevada Secretary
        of State to change its name to Kaleidoscope Venture Capital, Inc. and to
        do a 1
        for 200 reverse split on both its common stock and its Series A Convertible
        preferred stock. The Class A Common Stock was not part of the reverse split.
        Due
        to the reverse split all share and per share data has been retroactively
        restated in the accompanying consolidated financial statements and footnotes
        to
        conform to the post split share amounts.
 
 **Going
        Concern -** The
        accompanying financial statements have been prepared in conformity with
        accounting principles generally accepted in the United States of America,
        which
        contemplate continuation of the Company as a going concern. The Company had
        a
        net loss for the six months ended June 30, 2008 of $3,680,468, net cash used
        in
        operations for the six months ended June 30, 2008 of $195,460, and working
        capital deficit of $5,639,244, accumulated deficit of $15,782,408 and
        stockholders’ deficit of $5,603,915 at June 30, 2008. In addition, the Company
        was in default on $436,746 of promissory notes and loans at June 30,
        2008.
  F-5
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
  These
        conditions raise substantial doubt about the Company’s ability to continue as a
        going concern. These consolidated financial statements do not include any
        adjustments to reflect the possible future effect on the recoverability and
        classification of assets or the amounts and classifications of liabilities
        that
        may result from the outcome of these uncertainties.
  In
        order
        to execute its business plan, the Company will need to raise additional working
        capital and generate additional revenues. There can be no assurance that
        the
        Company will be able to obtain the necessary working capital or generate
        additional revenues to execute its business plan. During 2008, the Company
        generated revenues from customer consulting agreements and raised capital
        through initiating a Regulation S offering by VSI.  Management
        believes the continuation of revenues combined with additional capital raises
        and additional promissory notes will provide the Company the ability to continue
        as a going concern.
 
 **2.**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING PRINCIPLES**
 
 **Principles
        of Consolidation -** The
        consolidated financial statements include the accounts of KVI and it’s wholly
        owned subsidiary VNOS. All material intercompany balances and transactions
        have
        been eliminated in consolidation.
  **Cash
        and Cash Equivalents -** The
        Company classifies as cash equivalents any investments which can be readily
        converted to cash and have an original maturity of less than three months.
        At
        times cash and cash equivalent balances at a limited number of banks and
        financial institutions may exceed insurable amounts. The Company believes
        it
        mitigates its risks by depositing cash or investing in cash equivalents in
        major
        financial institutions.
 
 **Investments** -
        Certain securities that the Company may invest in may be determined to be
        non-marketable. Non-marketable securities where the Company owns less than
        20%
        of the investee are accounted for at cost pursuant to APB No. 18, "The Equity
        Method of Accounting for Investments in Common Stock" ("APB
        18").
  Management
        determines the appropriate classification of its investments at the time
        of
        acquisition and reevaluates such determination at each balance sheet date.
        The
        cost of investments sold is based on the specific identification
        method.
  The
        Company periodically reviews its investments in non-marketable securities
        and
        impairs any securities whose value is considered non-recoverable. The Company's
        determination of whether a security is other than temporarily impaired
        incorporates both quantitative and qualitative information. GAAP requires
        the
        exercise of judgment in making this assessment for qualitative information,
        rather than the application of fixed mathematical criteria. The Company
        considers a number of factors including, but not limited to, the length of
        time
        and the extent to which the fair value has been less than cost, the financial
        condition and near term prospects of the issuer, the reason for the decline
        in
        fair value, changes in fair value subsequent to the balance sheet date, and
        other factors specific to the individual investment. The Company's assessment
        involves a high degree of judgment and accordingly, actual results may differ
        materially from the Company's estimates and judgments.
  F-6
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
  **Fair
        Value of Financial Instruments -** The
        following methods and assumptions were used by the Company in estimating
        its
        fair value disclosures for financial instruments:
 
 ·
              Cash
                  and cash equivalents: The carrying amount reported in the balance
                  sheet
                  for cash approximates its fair
                  value.
 ·
              Accounts
                  payable: Due to their short-term nature, the carrying amounts reported
                  in
                  the balance sheet for accounts payable approximate their fair value.
 ·
              Notes
                  payable: The carrying amount of the Company’s notes payable approximate
                  their fair value.
  **Property
        and Equipment -** Property
        and equipment are recorded at cost, net of accumulated depreciation.
        Depreciation is calculated by using the straight-line method over the estimated
        useful lives of the assets, which is five to seven years for all categories
        except for internal use computer software, which is depreciated over three
        years. Leasehold improvements are amortized over the life of the lease if
        it is
        shorter than the estimated useful life. Repairs and maintenance are charged
        to
        expense as incurred. Expenditures for betterments and renewals are capitalized.
        The cost of property and equipment and the related accumulated depreciation
        are
        removed from the accounts upon retirement or disposal with any resulting
        gain or
        loss being recorded in operations.
 
 **Impairment
        of Long-Lived Assets -** The
        Company evaluates its long-lived assets and intangible assets for impairment
        whenever events or change in circumstances indicate that the carrying amount
        of
        such assets may not be recoverable. Recoverability of assets to be held and
        used
        is measured by a comparison of the carrying amount of the asset to the future
        net undiscounted cash flows expected to be generated by the asset. If such
        assets are considered to be impaired, the impairment to be recognized is
        the
        excess of the carrying amount over the fair value of the asset.
 
 **Software
        Development Costs -** Costs
        incurred in connection with the development of software products are accounted
        for in accordance with Statement of Financial Accounting Standards (“SFAS”) No.
        86, *“Accounting
        for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.”* Costs
        incurred prior to the establishment of technological feasibility are charged
        to
        research and development expense. Software development costs are capitalized
        after a product is determined to be technologically feasible and is in the
        process of being developed for market. Amortization of capitalized software
        development costs begins upon initial product shipment. Capitalized software
        development costs are amortized over the estimated life of the related product
        (generally thirty-six months), using the straight-line method. The Company
        evaluates its software assets for impairment whenever events or change in
        circumstances indicate that the carrying amount of such assets may not be
        recoverable. Recoverability of software assets to be held and used is measured
        by a comparison of the carrying amount of the asset to the future net
        undiscounted cash flows expected to be generated by the asset. If such software
        assets are considered to be impaired, the impairment to be recognized is
        the
        excess of the carrying amount over the fair value of the software asset.
  F-7
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 No
        software development costs were amortized during the years ended December
        31,
        2004 and 2003 as the product was not considered to be generally released
        until
        2005. The sales recorded during 2004 occurred prior to the general release.
        Amortization was recorded in 2006 and 2007 and is included in cost of
        revenues.
 
 **Intangible
                  Assets -**The Company records goodwill and intangible assets arising from
                  business
                  combinations in accordance with SFAS No. 141 “Business Combinations”
                  (“SFAS 141”) which requires that the purchase method of accounting be used
                  for all business combinations initiated after June 30, 2001. SFAS
                  141 also
                  specifies the criteria applicable to intangible assets acquired
                  in a
                  purchase method business combination to be recognized and reported
                  apart
                  from goodwill.
  The
        Company accounts for goodwill and intangible assets in accordance with SFAS
        142.
        In accordance with SFAS 142, the Company does not amortize goodwill. SFAS
        142
        requires that goodwill and intangible assets with indefinite useful lives
        no
        longer be amortized, but instead be tested at least annually for impairment.
        SFAS 142 also requires that intangible assets with definite useful lives
        be
        amortized over their respective estimated useful lives to their estimated
        residual values, and be reviewed for impairment.
 
 **Accounting
        for Derivatives** - The
        Company evaluates its convertible debt, options, warrants or other contracts
        to
        determine if those contracts or embedded components of those contracts qualify
        as derivatives to be separately accounted for under Statement of Financial
        Accounting Standards 133 “ *Accounting
        for Derivative Instruments and Hedging Activities* ”
and
        related interpretations including EITF 00-19 “ *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company’s Own Stock* ”.
        The
        result of this accounting treatment is that the fair value of the derivative
        is
        marked-to-market each balance sheet date and recorded as a liability. In
        the
        event that the fair value is recorded as a liability, the change in fair
        value
        is recorded in the statement of operations as other income or expense. Upon
        conversion or exercise of a derivative instrument, the instrument is marked
        to
        fair value at the conversion date and then that fair value is reclassified
        to
        equity. Equity instruments that are initially classified as equity that become
        subject to reclassification under SFAS 133 are reclassified to liability
        at the
        fair value of the instrument on the reclassification date.
  F-8
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **Contingencies** -
        Certain
        conditions may exist as of the date financial statements are issued, which
        may
        result in a loss to the Company, but which will only be resolved when one
        or
        more future events occur or fail to occur. Company management and its legal
        counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company's legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be sought
        therein. If the assessment of a contingency indicates that it is probable
        that a
        liability has been incurred and the amount of the liability can be estimated,
        then the estimated liability would be accrued in the Company's financial
        statements. If the assessment indicates that a potentially material loss
        contingency is not probable but is reasonably possible, or is probable but
        cannot be estimated, then the nature of the contingent liability, together
        with
        an estimate of the range of possible loss if determinable would be
        disclosed.
 
 **Revenue
        Recognition** -
        The
        Company is engaged as a seller of VoIP telephony solutions. The Company
        generally recognizes revenue in accordance with Securities and Exchange
        Commission Staff Accounting Bulletin 104, *“Revenue
        Recognition”* when
        persuasive evidence of an arrangement exists, delivery has occurred, the
        fee is
        fixed or determinable and collectibility is probable. Specifically, the Company
        recognizes software revenue in accordance with Statement of Position (“SOP”)
        97-2, *“Software
        Revenue Recognition,”* as
        amended by SOP 98-4, “ *Deferral
        of the Effective Date of a Provision of SOP 97-2* ,”
and
        SOP 98-9, “ *Modification
        of SOP 97-2 With Respect to Certain Transactions* ”
and *EITF
        00-21 “Revenue Arrangements with Multiple Deliverables”.*
 
 The
        Company sells bundled solutions which may consist of the software, configuration
        services, support services, customization and future upgrades. The Company
        defers recognition of the software sales until configuration is completed
        as
        they are considered one unit of accounting. Support services are considered
        a
        separate unit of accounting and such fees are recognized as services are
        provided. Future upgrades or enhancements and customizations are considered
        separate units of accounting and related fees are recognized as those upgrades
        or enhancements are provided.
 
 **Stock
        Based Compensation -** On
        January 1, 2006, the Company implemented Statement of Financial Accounting
        Standard 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment” which
        replaced SFAS 123 “Accounting for Stock-Based Compensation” and superseded APB
        Opinion No. 25, “Accounting for Stock Issued to Employees.” In
        March
        2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding
        its
        interpretation of SFAS 123R. SFAS
        123(R) and related interpretations requires the fair value of all stock-based
        employee compensation awarded to employees to be recorded as an expense over
        the
        related requisite service period. The statement also requires the recognition
        of
        compensation expense for the fair value of any unvested stock option awards
        outstanding at the date of adoption. The Company values any employee or
        non-employee stock based compensation at fair value using the Black Scholes
        Pricing Model. In adopting SFAS 123(R), the Company used the modified
        prospective application (“MPA”). MPA requires the Company to account for all new
        stock based compensation to employees using fair value, and for any portion
        of
        awards prior to January 1, 2006 for which the requisite service has not been
        rendered and the options remain outstanding as of January 1, 2006, the Company
        should recognize the compensation cost for that portion of the award that
        the
        requisite service was rendered on or after January 1, 2006. The fair value
        for
        these awards is determined based on the grant-date. There was no accounting
        effect of applying the MPA method.
  F-9
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **Foreign
        Currency Transactions** - The
        Company’s corporate offices are located in New York in the United States and its
        operating offices are located in Canada. Although the Company’s accounts are
        maintained in U.S. dollars, the Company did maintain one Canadian dollar
        bank
        account and engages in various transactions resulting in deposits and
        disbursements to and from that bank account. The Canadian dollar bank account
        was closed in the second quarter of 2007. The Company also holds one investment
        in non-marketable equity securities which is denominated in a foreign currency
        and translated to U.S dollars at each reporting date with any gain or loss
        recorded in operations.
 
 Revenue
        and expense items transacted in Canadian dollars are translated using the
        average rate of exchange prevailing during the period. Gains and losses
        resulting from foreign currency transactions are recognized in operations
        of the
        period incurred.
 
 **Income
        Taxes -** The
        Company accounts for income taxes using the liability method, which requires
        the
        determination of deferred tax assets and liabilities based on the differences
        between the financial and tax bases of assets and liabilities, using enacted
        tax
        rates in effect for the year in which differences are expected to reverse.
        Deferred tax assets are adjusted by a valuation allowance, if based on the
        weight of available evidence it is more likely than not that some portion
        or all
        of the deferred tax assets will not be realized.
 
 **Use
                  of Estimates in Financial Statements -**The presentation of financial statements in conformity with accounting
                  principles generally accepted in the United States of America requires
                  management to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and
                  liabilities at the date of the financial statements and the reported
                  amounts of revenues and expenses during the reporting period. Actual
                  results could differ from those estimates. Significant estimates
                  in 2008
                  and 2007 include the valuation of the investment in non-marketable
                  equity
                  securities, valuation of stock-based payments, valuation of beneficial
                  conversion feature on convertible debt, fair value of the embedded
                  conversion option liability, and valuation allowance on deferred
                  tax
                  assets.
 
 F-10
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
  **Net
        Earnings (Loss) Per Share -** Basic
        earnings (loss) per common share is based on the weighted-average number
        of all
        common shares and Class A Common Shares outstanding. The computation of diluted
        earnings (loss) per share does not assume the conversion, exercise or contingent
        issuance of securities that would have an anti-dilutive effect on earnings
        (loss) per share.
  Class
        A
        Common Stock was issued in May and October 2007 with a majority of it issued
        into escrow. The subscription receivable has not been received as of December
        31, 2007 nor as of August 14, 2008. Accordingly, for purposes of the computation
        of net loss per share, Class A Common Shares are not considered issued and
        outstanding and not included in the computation of weighted average shares
        outstanding for the period ended June 30, 2008.
 
 As
        of
        June 30, 2008, there were warrants and options convertible to 6 and 11 common
        shares and there were promissory notes convertible into 29,280 common shares
        that may dilute future earnings per share.
 
 **Recently
        Issued Accounting Standards -**
 
 In
        July
        2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes — an Interpretation of FASB Statement No. 109, Accounting for
        Income Taxes” (FIN 48) to create a single model to address accounting for
        uncertainty in tax positions. FIN 48 clarifies the accounting for income
        taxes
        by prescribing a minimum recognition threshold a tax position is required
        to
        meet before being recognized. FIN 48 also provides guidance on derecognizing,
        measurement, classification, interest and penalties, accounting in interim
        periods, disclosure and transition. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. We are currently evaluating the impact
        of
        adopting FIN 48 and do not expect the adoption of FIN 48 will have a material
        impact on our Consolidated Financial Statements.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
        No. 157 defines fair value and applies to other accounting pronouncements
        that
        require or permit fair value measurements and expands disclosures about fair
        value measurements. SFAS No. 157 is effective for fiscal years beginning
        after
        November 15, 2007 and interim periods within those fiscal years. We are
        currently evaluating the impact of adopting SFAS No. 157 on our Consolidated
        Financial Statements.
  In
        September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, to
        address diversity in practice in quantifying financial statement misstatements
        and the potential for the build up of improper amounts on the balance sheet.
        SAB
        No. 108 identifies the approach that registrants should take when evaluating
        the
        effects of unadjusted misstatements on each financial statement, the
        circumstances under which corrections of misstatements should result in a
        revision to financial statements, and disclosures related to the correction
        of
        misstatements. SAB No. 108 is effective for the fiscal year ending December
        31,
        2006. The adoption of SAB No. 108 did not have a material impact on our
        Consolidated Financial Statements.
  F-11
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 In
        December 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
        2007), *Business Combinations* ,
        which
        replaces SFAS No 141. The statement retains the purchase method of accounting
        for acquisitions, but requires a number of changes, including changes in
        the way
        assets and liabilities are recognized in the purchase accounting. It also
        changes the recognition of assets acquired and liabilities assumed arising
        from
        contingencies, requires the capitalization of in-process research and
        development at fair value, and requires the expensing of acquisition-related
        costs as incurred. SFAS No. 141R is effective for us beginning
        January 1, 2009. We do not expect it to have a material effect on our
        consolidated financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements, an amendment
        of
        ARB 51* ,
        which
        changes the accounting and reporting for minority interests. Minority interests
        will be recharacterized as non-controlling interests and will be reported
        as a
        component of equity separate from the parent’s equity, and purchases or sales of
        equity interests that do not result in a change in control will be accounted
        for
        as equity transactions. In addition, net income attributable to the
        noncontrolling interest will be included in consolidated net income on the
        face
        of the income statement and, upon a loss of control, the interest sold, as
        well
        as any interest retained, will be recorded at fair value with any gain or
        loss
        recognized in earnings. SFAS No. 160 is effective for us beginning
        January 1, 2009 and will apply prospectively, except for the presentation
        and disclosure requirements, which will apply retrospectively. We do not
        expect
        it to have a material effect on our consolidated financial
        statements.
 
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
        Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161).
        This statement is intended to improve transparency in financial reporting
        by
        requiring enhanced disclosures of an entity’s derivative instruments and hedging
        activities and their effects on the entity’s financial position, financial
        performance, and cash flows. SFAS 161
        applies to all derivative instruments within the scope of SFAS 133, “Accounting
        for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
        hedged items, bifurcated derivatives, and nonderivative instruments that
        are
        designated and qualify as hedging instruments. Entities with instruments
        subject
        to SFAS 161
        must
        provide more robust qualitative disclosures and expanded quantitative
        disclosures. SFAS 161
        is
        effective prospectively for financial statements issued for fiscal years
        and
        interim periods beginning after November 15, 2008, with early application
        permitted. We are currently evaluating the disclosure implications of this
        statement.
  F-12
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **Reclassifications**
 
 Certain
        amounts in the 2007 consolidated financial statements have been reclassified
        to
        conform with the 2008 presentation.
 
 **3.**  **INVESTMENT
        IN NON-MARKETABLE EQUITY SECURITIES**
 
 The
        composition of non-marketable securities at June 30, 2008 is as follows:
 
 **Cost**
              
              **Fair
                  Value**Equity
                  securities
              
              $
              20,628
              
              $
              20,628
  During
        April 2007 the Company received 2.1 million equity securities of a customer
        based in Europe. These securities were received from this private company
        as
        payment for services rendered. The value of the securities could not be
        determined and the value of the services was also not determinable, therefore
        the Company valued the securities at a nominal value equal to the par value
        of
        the securities or $17,290 which the Company believes is below the value of
        services provided. This amount was recorded as revenues. At December 31,
        2007
        the cost and fair value were increased by $1,366 to reflect the increase
        due to
        changes in the exchange rates. At March 31, 2008 the cost and fair value
        were
        increased by $ 2,460 to reflect the increase due to changes in the exchange
        rates. At June 30, 2008 the cost and fair value were decreased by $488 to
        reflect the decrease due to changes in the exchange rates.
 
 **4.**  **PROPERTY
        AND EQUIPMENT**
 
 Property
        and equipment at June 30, 2008, consists of the following:
 
 Office
                  equipment
              
              $
              35,854Accumulated
                  depreciation
              
              
              (21,153
              )Property
                  and equipment, net
              
              $
              14,701
 
 Depreciation
        during the three and six months ended June 30, 2008 were $1,686 and $3,372,
        respectively.
 
 **5.**  **DEVELOPMENT
        COSTS**
 
 Capitalized
                  software development cost consists of the following at June 30,
                  2008:
 
 Cost
              
              $
              8,869Accumulated
                  amortization
              
              
              (8,869
              )Software,
                  net
              
              $
              0
 
 F-13
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
  During
        January 2004 the Company capitalized $136,538 relating to a suite of software
        products purchased by a related party and assigned to the Company with the
        related liabilities (see Note 7). The related non-interest bearing liabilities
        of $131,746 due to the seller are collateralized by the purchased software.
        These products had already reached the point of technological feasibility
        prior
        to the Company’s purchase and needed some modifications by the Company to bring
        the product to market. Accordingly, no amortization had been charged to
        operations as of December 31, 2004. Due to the lack of available resources
        during 2004 and subsequent, the Company did not allocate the resources to
        this
        project and instead allocated resources to other software projects being
        developed internally. Accordingly, since the Company could not reliably project
        any positive cash flows from this asset, the Company had recorded an impairment
        loss of $136,538 at December 31, 2004. During December 2004, the Company
        recorded $8,869 of software costs for certain VoIP products, which it had
        been
        developing internally and had reached technological feasibility. During the
        year
        ended December 31, 2004, the Company had no amortization expense. During
        2005
        the Company recognized $ 2,956 of amortization expense, upon general release
        of
        the software product. During 2006 the Company recognized $2,956 of amortization
        expense. During 2007 the Company recognized $2,956 of amortization
        expense.
 
 **6.** **NOTES
            PAYABLE, NOTES PAYABLE RELATED PARTIES AND CONVERTIBLE
            DEBENTURES**
  Notes
        payable to related and unrelated parties consists of the following at June
        30,
        2008:
 
 Note
                  payable to the related party principal shareholder and officer
                  of the
                  Parent and to companies owned or controlled by him; due on demand;
                  unsecured; with interest at prime plus 2% to 3% (7.% to 8.% at
                  June 30,
                  2008)
              
              $
              111,886Note
                  payable to law firm, due on demand, non-interest bearing
              
              
              59,000Subtotal
                  - Notes payable related parties
              
              
              170,886Notes
                  payable to two individuals - non interest bearing-in
                  default
              
              
              145,000Notes
                  payable to two individuals with interest at 10.50%-Due March 2008
                  - in
                  default
              
              
              160,000Notes
                  payable to two individuals with interest accruing at 10%
              
              
              159,000Notes
                  payable to six individuals; due on demand; unsecured; with interest
                  at
                  prime plus 3% (8.0% at June 30, 2008)
              
              
              1,403,000Subtotal
                  - Notes payable unrelated parties
              
              
              1,867,000Total
                  Notes Payable
              
              $
              2,037,886
 
 The
        weighted average interest rate on short term outstanding as of June 30, 2008
        was
        7.84 %.
  F-14
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 At
        December 31, 2007, $145,000 of the above promissory notes were in default.
        At
        June 30, 2008, $305,000 of the above promissory notes were in
        default.
 
 **Convertible
        Debentures** - In
        October 2005, upon recapitalization, the Company assumed four 10% one-year
        convertible debentures to four individuals for $11,698, $60,705, $6,121 and
        $6,388 cash. These debentures had been issued in October and November 2004.
        The
        debentures are convertible into 10 common shares based on a conversion rate
        of
        $8,000 per share. The embedded conversion options were determined not to
        be
        derivatives at the issuance date or as of June 30, 2008 since the debt qualifies
        as conventional convertible debt. Based upon the conversion rate at the issuance
        date, there was no beneficial conversion feature recorded.
 
 **Convertible
        Promissory Notes and Conversions**
 
 In
        March
        2006, the Company issued a convertible promissory note for $150,000 with
        interest payable at maturity at 10.5% per annum. The note matures and is
        due
        March 3, 2008. The note principal is convertible to common stock at a fixed
        price of $23.60 per share which equates to 6,356 common shares. Management
        has
        determined that this note qualifies as conventional convertible debt pursuant
        to
        SFAS 133 and EITF 00-19 and accordingly the embedded conversion option is
        not a
        derivative. The convertible promissory note was converted into common stock
        in
        March 2006. The Company computed a beneficial conversion value of $150,000
        based
        on the quoted stock price on the grant date of $120 per share. The $150,000
        was
        recorded as a debt discount and credited to additional paid-in capital. The
        debt
        discount was amortized to interest expense in March 2006 when the note was
        converted. The note is guaranteed by, Azatel Communications Inc. (the
“Acquiree”) with the note holder holding a first security interest in
        substantially all assets of the Acquiree and the Company has guaranteed the
        conversion.
  In
        March
        2006, the Company issued a convertible promissory note for $10,000 with interest
        payable at maturity at 10.5% per annum. The note matures and is due March
        15,
        2008. The note principal is convertible to common stock at a fixed price
        of
        $23.60 per share which equates to 429 common shares. Management has determined
        that this note qualifies as conventional convertible debt pursuant to SFAS
        133
        and EITF 00-19 and accordingly the embedded conversion option is not a
        derivative. The convertible promissory note was converted into common stock
        in
        March 2006. The Company computed a beneficial conversion value of $10,000
        based
        on the quoted stock price on the grant date of $120 per share. The $10,000
        was
        recorded as a debt discount and credited to additional paid-in capital. The
        debt
        discount was amortized to interest expense in March 2006 when the note was
        converted.
 
 In
        late
        2007, the Company was notified by the above lenders that the lenders had
        not
        converted and the shares issued to them were pursuant to a collateral
        arrangement. Although management believes the conversion occurred, they have
        reclassified the $160,000 into loans payable and removed them from the issued
        and outstanding shares as of December 31, 2007
  F-15
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 On
        January 9, 2007, the Company received cash and issued a promissory note for
        $30,000 which bears interest at prime plus three percent and is due within
        90
        day of written demand.
 
 On
        January 10, 2007, the Company received cash and issued a promissory note
        for
        $30,000 which bears interest at prime plus three percent and due within 90
        day
        of written demand.
 
 In
        February 2007, the Company issued a convertible promissory note for $120,000
        with no specified term or interest rate and thus it is considered due on
        demand.
        The note principal is convertible into 15,000 shares of common stock and
        collateralized by such shares which were to be issued as security. Management
        has determined that this note qualifies as conventional convertible debt
        pursuant to SFAS 133 and EITF 00-19 and accordingly the embedded conversion
        option is not a derivative. The Company computed a beneficial conversion
        value
        of $60,000 based on the quoted stock price on the grant date of $12 per share.
        The $60,000 was recorded as a debt discount and credited to additional paid-in
        capital and then charged to interest expensed immediately since the note
        is due
        on demand. The Company received proceeds on the note of $100,000 and they
        were
        charged $20,000 as a loan fee. The loan fee was charged to interest expense
        in
        March 2007 since the note is due on demand.
 
 On
        April
        30, 2007 the Company issued a convertible promissory note for $150,000. The
        Company received $100,000 of the proceeds from this note during the second
        quarter and $50,000 in July 2007 (see below). The note bears interest at
        prime
        plus three percent, is due on demand and is collateralized by non-marketable
        equity securities owned by the Company (see Note 3). The note holder has
        the
        option to convert the note into Common Stock of the Company within 365 days
        of
        the note date at the lessor of 50% of the closing market price of the Common
        Stock on the date the written notice is provided by the holder of the note
        or
        $0.10 per share. Management of the Company has determined that the note is
        a
        derivative and contains an embedded conversion option since the variable
        conversion rate causes an inability to guarantee that there will be enough
        authorized shares available if the holder elects to convert. The Company
        recorded an embedded conversion option liability on this note of $169,596.
        This
        created a change in fair value of the embedded conversion options of $69,596
        that was recorded as an other expense. Since the note is due on demand, the
        Company recognized $100,000 of interest expense on the debt discount. At
        June
        30, 2007 the Company adjusted the embedded conversion option liability to
        fair
        value and decreased it by $5,816 due to changes in market value. The $5,816
        was
        credited to expense in June 2007. The embedded conversion option was valued
        using the Black-Scholes model with the following assumptions in May 2007
        and
        June 30, 2007: stock price $4.00 and $3.00, exercise price of $2.00 and $1.50,
        volatility of 242%, term of 1 year and .83 years, and interest rate of 4.8%.
        At
        September 30, 2007 the Company adjusted the embedded conversion option liability
        to fair value and decreased it by $21,945 due to changes in market value.
        The
        $21,945 was credited to expense in September 2007. At December 31, 2007 the
        Company adjusted the embedded conversion option liability to fair value and
        decreased it by $12,918 due to changes in market value. The $12,918 was credited
        to expense in December 2007. At March 31, 2008 the Company adjusted the embedded
        conversion option liability to fair value and decreased it by $22,349 due
        to
        changes in market value. The $22,349 was credited to expense in March 2008.
        At
        April 30, 2008 the Company adjusted the embedded conversion option liability
        to
        fair value and increased it by $793,480 due to changes in market value. The
        $793,480 was charged to expense in April 2008. At April 30, 2008 the conversion
        option expired and the balance of the liability was reclassified to additional
        paid in capital.
  F-16
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 On
        July
        2, 2007 the Company received the $50,000 balance of the above note payable.
        Management of the Company has determined that the note is a derivative and
        contains an embedded conversion option since the variable conversion rate
        causes
        an inability to guarantee that there will be enough authorized shares available
        if the holder elects to convert. The Company recorded an embedded conversion
        option liability on this note of $81,825. This created a change in fair value
        of
        the embedded conversion option of $31,825 that was recorded as an other expense.
        Since the note is due on demand, the Company recognized $50,000 of interest
        expense on the debt discount. At September 30, 2007 the Company adjusted
        the
        embedded conversion option liability to fair value and decreased it by $10,908
        due to changes in market value. The $10,908 was credited to expense in September
        2007. The embedded conversion option was valued using the Black-Sholes model
        with the following assumptions in July 2007 and September 2007: stock price
        of
        $2.80 and $5.20, exercise price of $1.40 and $2.60, volatility of 204%, term
        of
        .83 and .58 years, and interest rate of 4.80%. At December 31, 2007 the Company
        adjusted the embedded conversion option liability to fair value and decreased
        it
        by $6,459 due to changes in market value. The $6,459 was credited to expense
        in
        December 2007. At March 31, 2008 the Company adjusted the embedded conversion
        option liability to fair value and decreased it by $11,175 due to changes
        in
        market value. The $11,175 was credited to expense in March 2008. At April
        30,
        2008 the Company adjusted the embedded conversion option liability to fair
        value
        and increased it by $396,740 due to changes in market value. The $396,740
        was
        charged to expense in April 2008. At April 30, 2008 the conversion option
        expired and the balance of the liability was reclassified to additional paid
        in
        capital.
 
 The
        Company also determined that all other common stock equivalent securities
        including the convertible debentures, warrants and options, but excluding
        conventional convertible debt, may require classification as liabilities
        due to
        the authorized shares problem. However, due to the relatively large conversion
        and exercise prices of these other instruments, the fair value of the
        liabilities at all dates from April 2007 through June 30, 2008 was
        zero.
  F-17
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 On
        October 11, 2007, the Company received $20,000 on a note payable. The Company
        was charged a $5,000 loan fee for the note. The note was due on November
        11,
        2007 and is in default at December 31, 2007. The note does not bear interest
        but
        is secured by a Pledge and Security agreement covering 7,500 shares of the
        capital stock of KVI.
 
 On
        November 2, 2007, the Company received $100,000 and issued a promissory note
        for
        $120,000 which includes a $20,000 loan fee. The loan is non-interest bearing
        and
        due in 30-days or on December 2, 2007. At June 30, 2008 the loan was in
        default.
 
 In
        May,
        2008 the Company received $75,000 on a promissory note. The note is for
        $100,000, without interest, but with a loan fee of $25,000. The loan is due
        on
        July 13, 2008. The loan is currently in default.
 
 **7.**  **LOAN
        PAYABLE FOR SOFTWARE PURCHASE**
 
 In
        2004 a
        liability was recorded relating to a software purchase. The software purchase
        price was $200,000 Canadian dollars (“CA$”) payable with CA$26,096 down payment
        and CA$10,842 payable per quarter commencing May 1, 2004 and on August 1,
        November 1, February 1 and May 1 in each year thereafter until the purchase
        price is paid in full. In accordance with APB 21, “Interest on Receivables and
        Payables,” the Company imputed interest at 6% or CA$21,845 on this loan payable.
        This resulted in an initial loan payable balance translated to US dollars
        of
        $136,538, net of discount of $16,742, an initial payment made of $20,000
        (recorded as a note payable to the related party assignor of the purchase
        agreement) and quarterly payments of approximately $8,309 as adjusted for
        foreign currency transaction gains or losses.
 
 The
        loan
        payable balance at June 30, 2008 was as follows:
 
 Loan
                  payable
              
              $
              131,746Debt
                  discount
              
              
              (0
              )Loan
                  payable, net of discount
              
              $
              131,746
 
 This
        loan
        payable is collateralized by the software asset. Additional interest in the
        amount of $7,698 was accrued in 2007. The loan is currently in
        default.
 
 **8.**  **STOCKHOLDERS’
        DEFICIT**
 
 **Authorized
        Shares** - In
        January 2007, the Company amended its Articles of Incorporation to increase
        the
        number of authorized common shares to 400,000,000. The Company also authorized
        100,000,000 new Class A common shares at a par value of $0.001 per share.
        The
        Class A has the same rights, terms, and preferences, as common stock except
        it
        is non-voting. The changes in capitalization are reflected retroactively
        in the
        accompanying consolidated Balance Sheet.
  F-18
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **Reverse
        Stock Split** - On
        July 14, 2008 Vocalscape Networks, Inc. filed an amendment with the Nevada
        Secretary of State to change its name to Kaleidoscope Venture Capital, Inc.
        and
        to do a 1 for 200 reverse split on both its common stock and its Series A
        Convertible preferred stock. The Class A Common Stock was not part of the
        reverse split. Due to the reverse split all share and per share data has
        been
        retroactively restated in the accompanying consolidated financial statements
        and
        footnotes to conform to the post split share amounts.
 
 **Preferred
        Stock -** The
        Company has authorized 25,000,000 shares of preferred stock. The Board of
        Directors at its discretion may determine the rights and preferences of the
        preferred stock. In December 2005 the Company designated 100,000 shares as
        Series A Convertible Preferred Stock (“Series A shares”). The Series A shares
        upon issuance and consideration received by the Company is convertible to
        common
        stock on a one-for-one basis at a minimum of 50 shares per conversion. The
        conversion rate is not adjustable except for standard anti-dilution provisions,
        such as stock splits, reorganization or recapitalizations. Upon liquidation
        the
        Series A stockholders would receive $100 per share plus any unpaid dividends.
        Each Series A share has voting rights equal to 25 common shares. On January
        20,
        2006 the Company accepted a subscription from its CEO to purchase 100 Series
        A
        shares in exchange for a $5,000 portion of a promissory note due to the CEO.
        Such note was previously due to a controlled affiliate of the CEO and assigned
        to the CEO by that affiliate. In October 2006, the CEO resigned and executed
        an
        employment agreement as Head of Business Development. Among other compensation
        the employment agreement grants 75 Series A preferred shares as compensation.
        The shares were valued at $50 per share, the same amount he previously paid
        and
        expensed immediately in 2006 since it was not material. In November 2007
        another
        50 Series A Preferred Shares were granted to this former CEO and 25 shares
        to
        another director for services rendered. The shares were valued at an estimated
        $100 per share based on their liquidation value and expensed immediately.
        In
        April, 2008 the Company sold 50 shares to the former CEO for $50 per
        share.
 
 **Common
        Stock and Class A Common Stock Issued for Cash and Subscriptions
        Receivable**
 
 During
        2007, the Company sold 1,033,401 common shares for net proceeds of $459,470
        pursuant to a Regulation S Stock Purchase Agreement.
 
 In
        May
        2007, the Company entered into a subscription agreement with an individual
        to
        purchase 100,000,000 shares of the Class A non voting common stock of the
        Company. The total sales price is $1,000,000. It is to be paid in four blocks.
        The Company issued the first block of 25,000,000 shares on July 11, 2007.
        The
        remaining 75,000,000 shares were issued on October 1, 2007. All 100,000,000
        shares are reflected in the accompanying balance sheet as common stock Class
        A
        non-voting and a subscription receivable at June 30, 2008.
  F-19
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 In
        September 2007, the Company executed a settlement agreement with an individual
        who had subscribed to 15,000 common shares for a $120,000 promissory note
        in
        2006, which shares were issued to him, and never paid the subscription price.
        The settlement resulted in the return of the shares to the Company and
        cancellation of the subscription promissory note.
 
 During
        February and March 2008, the Company sold 321,715 common shares for net proceeds
        of $109,785 pursuant to a Regulation S Stock Purchase Agreement.
 
 **Common
        Stock Issued as Settlement**
 
 In
        late
        2007, the Company agreed to issue an investor 10,000 shares that had been
        paid
        for in 2006 but never issued and were reflected as issuable in prior
        financial statements. As settlement compensation, the Company also issued
        the
        investor another 5,000. These were valued at the quoted trading price of
        $4.60
        on the settlement date resulting in an expense of $23,000. The total 15,000
        were
        issued by the transfer agent in 2008.
 
 **Common
        Stock Issued for Services**
 
 During
        the third quarter of 2006, 1,000 shares were issued pursuant to a consulting
        agreement that runs from July 15, 2006 through January 15, 2007. These shares
        were valued at $80 per share based on the quoted trading price on the agreement
        date and $33,333 was recorded as expense in the quarter and $46,667 was recorded
        as Deferred Consulting Fees. The Deferred Consulting was fully amortized
        during
        2007.
 
 In
        March
        2008 the Company granted 17,500 common shares to a consultant for services
        rendered. The shares were valued at the $4.80 quoted trading price on the
        grant
        date resulting in an expense of $84,000. The shares are reflected
        as issuable as of June 30, 2008.
 
 In
        April
        2008, the Company issued 37,500 and 80,000 common shares to two consultants,
        respectively, pursuant to consulting agreements. The shares were valued at
        the
        $4.20 quoted trading price for a total of $493,500 to be recognized over
        the
        service period. The consulting agreements have not been finalized at this
        time
        so the total amount of $493,500 was recorded as an expense in the second
        quarter
        of 2008.
 
 In
        April
        2008 the Company issued 50,000 options and 50,000 common shares and another
        100,000 options to a related party director for services his law firm rendered.
        The options were valued at $469,814 using the Black-Sholes method with
        volatility of 214%, expected term of 5 years and interest rate of 4.8%. The
        shares were valued at the $4.20 quoted trading price or $210,000 and expensed
        immediately pursuant to the services agreement with the related party (see
        Note
        9)
  F-20
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 In
        April
        2008 the Company granted 232,500 common shares to various employees and lenders.
        The shares were valued at the $2.60 quoted trading price or $604,000 and
        expensed. As of June 30, 2008 these shares have not been issued and are shown
        in
        the accompanying consolidated financial statements as issuable
        shares.
 
 **Common
        Stock Issued for Exercise of Stock Options**
 
 In
        January 2007, the Company issued 1,125 common shares upon exercise of a stock
        option at $8.00 per share. The exercise price of $9,000 was paid for with
        a
        payable that was due to the option holder. In May 2007, the company issued
        2,875
        common shares to the same option holder upon exercise of a stock option at
        $2.00
        per share in exchange for a payable of $5,750.
 
 In
        March
        2007, the Company issued 15,000 common shares upon exercise of stock options
        at
        $2.00 per share and received the $30,000 exercise price in cash.
 
 In
        March
        2007, the Company issued 5,000 common shares upon exercise of stock options
        at
        $4.00 per share which was paid for $18,150 with a payable due to the option
        holder and the remaining $1,850 was expensed as a professional fee.
 
 In
        June
        2007, the Company issued 2,500 common shares upon exercise of stock options
        at
        $2.00 per share in exchange for a payable of $5,000.
 
 In
        August
        2007, the Company issued 1,000 common shares upon exercise of stock options
        at
        $3.20 per share in exchange for a payable of $3,200.
 
 **Grants
        of Options to Purchase Common Stock**
 
 In
        January 2007, the Company granted 1,125 common stock options to a law firm
        for
        services provided. The options were valued at $7,876 ($7 per option) using
        a
        Black-Scholes option pricing model with the following assumptions: stock
        price
        $15, exercise price of $8.00, volatility of 282%, term of 1 day, and interest
        rate of 4.8%. The term of 1 day was used since as intended the recipient
        exercised their options immediately on the grant date. (See above) The Company
        recognized $7,876 in expense.
 
 In
        March
        2007, the Company granted options for 15,000 common shares at an exercise
        price
        of $2.00 per share pursuant to a consulting agreement. The options were valued
        at $60,000 ($4.00 per option), using a Black-Scholes option pricing model
        with
        the following assumptions: stock price $6.00, exercise price of $2.00,
        volatility of 282%, term of 1 day, and interest rate of 4.8%. The term of
        1 day
        was used since as intended the recipient exercised their options immediately
        on
        the grant date (see above). The value is to be recognized over the requisite
        service period and accordingly, $50,000 was deferred as of March 31, 2007.
        During the second quarter of 2007 $50,000 of the deferred consulting was
        expensed.
  F-21
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 In
        March
        2007, the Company granted 5,000 common stock options to a consultant for
        services. The options were valued at $0.36 per option or $1,763 using a
        Black-Scholes option pricing model with the following assumptions: stock
        price
        $4.20, exercise price of $4.00, volatility of 282%, term of 1 day, and interest
        rate of 4.8%. The term of 1 day was used since as intended the recipient
        exercised their options immediately on the grant date. (See above) The Company
        recognized $1,763 in expense.
 
 In
        May
        2007, the Company granted 2,875 options to a law firm for services provided.
        The
        options were valued at $2,877 ($1.00 per option) using a Black-Scholes option
        pricing model with the following assumptions: stock price $3.00, exercise
        price
        of $2.00, volatility of 242%, term of 1 day, and interest rate of 4.8%. The
        term
        of 1 day was used since as intended the recipient exercised their options
        immediately on the grant date. The Company recognized $2,877 in
        expense
 
 In
        June
        2007, the Company granted 2,500 options to a consultant for services provided.
        The options were valued at $0.60 per option or $1,513 using a Black-Sholes
        Option Pricing Model with the following assumptions: stock price $2.60, exercise
        price of $2.00, volatility of 242%, term of 1 day, and interest rate of 4.8%.
        The term of 1 day was used since as intended the recipient exercised their
        options immediately on the grant date. The Company recognized $1,513 in
        expense.
 
 In
        August
        2007, the Company granted 1,000 options to a consultant for services provided.
        The options were valued at $1.40 per option or $146 using a Black-Sholes
        Option
        Pricing Model with the following assumptions: stock price of $3.20, exercise
        price of $3.20, volatility of 220%, term of 1 day and interest rate of 4.8%.
        The
        term of 1 day was used since as intended the recipient exercised their options
        immediately on the grant date. The Company recognized $146 in
        expense.
 
 In
        March
        2008, the Company granted 7,500 options and 17,500 common shares to a consultant
        for services rendered. The options were valued at $21,002 using a Black-Sholes
        option pricing model with the following assumptions: stock price of $4.80
        and
        exercise price of $2.00, volatility of 214%, term of 1 day and interest rate
        of
        4.8%. The term of 1 day was used since the recipient exercised their options
        shortly after the grant date in April 2008. The shares were valued at the
        $4.80
        quoted trading price or $84,000 and both amounts were expensed as
        compensation
 
 **Warrants** - Upon
        the recapitalization in October 2005, the Company assumed outstanding warrants.
        As of December 31, 2006, all warrants had expired except for 6 warrants at
        an
        exercise price of $20,000 which expire December 31, 2009.
  F-22
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **9.**  **RELATED
        PARTY TRANSACTIONS**
 
 In
        October 2006, the Company accepted a $165,000 subscription promissory note
        from
        a Director (former officer) as payment for the exercise of his 15,000 stock
        options. Management believes this amount may be materially offset, with the
        director’s approval, against loans and accrued compensation due to this director
        or his controlled affiliates. Loans and accrued compensation due to this
        director at June 30, 2008 was $515,691.
 
 Notes
        payable to a related party director or his affiliates were $111,886 at June
        30,
        2008
 
 At
        June
        30, 2008, accrued expenses to related parties amounted to $430,848 which
        includes $27,043 of accrued interest
 
 Certain
        officers and directors of the Company remain as officers and directors of
        the
        former parent, Vocalscape, Inc. now known as Nevstar.
 
 The
        Company has an agreement with a related party director dated August 25, 2005
        for
        legal services with his law firm whereby the related party is periodically
        issued vested non-forfeitable common shares of the Company so the director
        shall
        hold 4.9% of the issued and outstanding common shares and any proceeds from
        the
        sale of such shares by the related party are credited against invoice amounts
        due to that related party for legal services. The agreement has no stated
        term.
        Due to the contingent nature of the proceeds and the unstated term of the
        legal
        service agreement, the fair value of any shares issued will be expensed when
        issued. The related party invoices are accrued to accounts payable, periodically
        paid in cash and the accounts payable and legal expenses are credited for
        any
        proceeds in the period the proceeds are received by the related party and
        reported to the Company. As of September 30, 2007 proceeds in the amount
        of $
        42,871 were reported to the Company in 2007. These proceeds were credited
        to
        legal expenses and reduced the payable to the related party. No additional
        shares were issued as the director held in excess of 4.9% of the common stock
        of
        the Company. At December 31, 2007 and June 30, 2008 accounts payable to this
        law
        firm were $240,779 and $281,620 and included in accounts payable, related
        parties. In addition a loan payable to the law firm was $59,000 and included
        in
        loans and notes payable, related parties. Expenses incurred by the Company
        during 2007 to this law firm were $33,352 after the $42,871 credit above.
        Expenses in 2008 were $40,841 primarily relating to interest on outstanding
        invoice balances. See Note 8 for common share grants to this related
        party.
 
 **10.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 **Commitments**
 
 The
        Company is a party to a five-year office lease agreement covering 2,238 square
        feet, which commenced July 1, 2005, for the office in Vancouver, British
        Columbia. The lease provides for 22 monthly payments of $2,238 Canadian dollars
        (“CDN”) with two free months during the first 24 months of the agreement; 24
        monthly payments of $2,331 CDN during the third and fourth years of the
        agreement; and 12 monthly payments of $2,425 CDN during the final year of
        the
        agreement. In addition, the agreement provides for a monthly common area
        maintenance charge of $1,585 CDN. The Company moved out of this office in
        April
        2008. The office has been leased by the landlord and the Company is negotiating
        the final amounts due under the lease.
  F-23
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 The
        Company is a party to a second office lease agreement, with a two-year term,
        covering 1,435 square feet, which commenced March 1, 2005, for the office
        in
        White Plains, New York. The agreement calls for monthly rental of $2,350.
        The
        lease expired on February 28, 2007 and the Company pays $2,500 per month,
        on a
        month to month basis.
 
 The
        Company enters into sales agent and distributor agreements to sell its products.
        These agreements are primarily commission based. There were no commissions
        payable as of June 30, 2008.
 
 **Legal
        Matters**
 
 The
        Company continues to receive claims from a prior director of Dtomi, Inc.
        relating to periods prior to the October 2005 recapitalization transaction
        with
        the Company.  The cash amounts the director claims he is due total
        approximately $520,000 and the total shares he claims he is due are estimated
        by
        the Company to be approximately 6,300. These amounts appear to relate to
        prior
        license or other alleged agreements between the director and the Company. 
The Company has accrued $86,000 in prior license fees due and has accounted
        for,
        in a prior period of Dtomi, Inc. approximately 15,278 common shares issued
        by
        the transfer agent in the director’s name. The director claims he never received
        2,778 of the 15,278 shares or other anti-dilution shares.  Management of
        the Company disputes the remaining cash amounts and believes no anti-dilution
        shares are due (which would account for the remaining 3,522 shares) since
        the
        license agreement was terminated in early 2005 by the licensor.  Management
        believes it will prevail in this matter.  Accordingly, no accruals have
        been made for the disputed amounts. The termination of the Patent License
        Agreement terminates these and other obligations during 2005. In May of 2006
        the
        director entered into an agreement with a third party whereby the director
        assigned his rights to any financial obligations made by the Company. In
        consideration of such assignment to such third party, the director was to
        receive a payment of $15,000.
 
 In
        July
        and August 2005, the Company received correspondence from a former officer
        and
        former employee regarding threatened material litigation relating to alleged
        compensation due to each employee. Although the Company disputes such amounts,
        these amounts aggregating $ 687,407 had been previously accrued in a period
        prior to 2005 and are included in accrued expenses.
 
 In
        late
        2007, the Company was notified by the certain lenders of $160,000 that the
        lenders had not converted and the shares issued to them were pursuant to
        a
        collateral arrangement. Although management believes the conversion occurred,
        they have reclassified the $160,000 into loans payable and removed them from
        the
        issued and outstanding shares as of December 31, 2007 and June 30, 2008.
        (see
        Note 6) The lenders have threatened litigation, however, as of the date of
        this
        report, the Company has not been served.
  F-24
 **Kaleidoscope
            Venture Capital, Inc. and Subsidiary**
 **(Formerly
            known as Vocalscape Networks, Inc.)**
 **Notes
            to Consolidated Financial Statements**
 **June
            30, 2008**
 **11.**  **ACCRUED
        EXPENSES**
 
 Accrued
        expenses at June 30, 2008 consist of the following:
 
 Accrued
                  license fees
              
              $
              36,000Accrued
                  interest
              
              
              544,715Accrued
                  compensation
              
              
              687,407Accrued
                  expenses - other
              
              
              169,890Total
              
              $
              1,438,012
 
 **12.**  **PAYABLE
        TO SHAREHOLDER**
 
 During
        the second quarter of 2006 one of the shareholders of the Company, who is
        a
        former director who resigned during the second quarter, was assigned certain
        debts of the company pursuant to assignment agreements between the shareholder
        and creditors as follows:
 
 Payable
                  to Vocalscape, Inc. former parent (n.k.a. Nevstar)
              
              $
              265,617Former
                  officer note payable and accrued compensation
              
              
              214,410Accounts
                  payable to related party attorney
              
              
              420,000Total
              
              $
              900,027
 
 There
        was
        no consideration given by the Company to assign these debts. They were assigned
        from the vendors directly to the shareholder in a private transaction between
        those parties.
 
 **13.**  **SUBSEQUENT
        EVENTS**
 
 On
        July
        14, 2008 the Company filed a Certificate of Amendment to the Articles of
        Incorporation with the Secretary of State in Nevada. The amendment changed
        the
        name of the Company from Vocalscape Networks, Inc. to Kaleidoscope Venture
        Capital, Inc. They filed a Certificate of Change on the same date that provided
        for a 1 for 200 stock split. One share of common stock shall be issued in
        exchange for 200 shares of common stock issued. One share of Series A
        Convertible Preferred Stock shall be issued in exchange for 200 shares of
        Series
        A Convertible Preferred Stock issued. All shares of Class A Common Stock
        issued
        remain issued and are not exchanged. Due to the stock split all share and
        per
        share data in the accompanying consolidated financial statements have been
        retroactively restated to conform to the stock split.
   F-25




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





**MANAGEMENT’S
      DISCUSSION AND ANALYSIS**




You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with our financial statements and related notes
      appearing elsewhere in this Form 10-Q. This discussion and analysis contains
      forward-looking statements that involve risks, uncertainties and assumptions.
      Our actual results may differ materially from those anticipated in these
      forward-looking statements.




**OVERVIEW**





The
      following discussion relates to the business of Kaleidoscope Venture Capital
      Inc., which includes the operations of its wholly owned subsidiary Vocalscape
      Operating Subsidiary, Inc., which holds assets through which Kaleidoscope
      provides services in connection with its business. Kaleidoscope is a next
      generation communications provider that provides Voice over Internet Protocol
      (“VoIP”) solutions. We were named “Vocalscape Networks, Inc.” until July 14,
      2008, at which time we changed our name to “Kaleidoscope Venture Capital
      Inc.”





**PRODUCTS
      AND SERVICES**




Vocalscape
      Networks, Inc has announced a change in its current business direction after
      officially changing its name to Kaleidoscope Venture Capital, Inc.
      (“Kaleidoscope”). Kaleidoscope plans to take advantage of certain strategic
      business relationships and opportunities. While maintaining its interest in
      Vocalscape Operating Subsidiary, Inc., KVI plans to foster early stage companies
      through the development phases until such time as these companies have
      sufficient financial, human and physical resources to function on their own.
      Kaleidoscope provides VoIP telephony solutions and communications software
      for
      Internet Service Providers (“ISPs”), Internet Telephony Service Providers
      (“ITSPs”) and telecommunications companies worldwide. Kaleidoscope develops VoIP
      and interactive communications software including Softphone applications,
      Customer Acquisition and Billing Systems, SIP Servers, Gatekeepers and Virtual
      Calling Cards. Kaleidoscope’s strategy is to focus on VoIP software and long
      distance termination solutions that bring together a full range of
      communications solutions and services thereby providing a turn-key VoIP
      infrastructure for ISPs, ITSPs and Telecommunications companies. Additionally,
      Kaleidoscope is actively seeking and negotiating strategic alliances with
      companies.





**COMPETITION**





The
      market for VoIP telephony software and services is relatively new and is quickly
      evolving and subject to rapid technological change. The VoIP telephony market
      has also seen significant consolidation and this trend is projected to continue.
      The companies following companies are not meant to be an exhaustive list of
      competitors to Kaleidoscope, but represent the largest and most active
      participants in this market: Deltathree, VocalTec Communications Ltd. and
      Net2Phone.





Kaleidoscope’s
      software solutions operate on the customer’s choice of hardware. Our software
      solutions support our customer’s choice of business models including, pre-paid,
      post-paid or monthly subscriber billing systems. Kaleidoscope’s product
      offerings are designed to streamline subscriber provisioning and subscriber
      services online.





**DISTRIBUTION
      & MARKETING**





Kaleidoscope
      has a direct sales team and will build an indirect or reseller sales force.
      Direct resources will target the ISP’s, ITSP’s and Alternative Providers with
      the residential VoIP solution. Indirect channels will include VARs that supply
      the growing VoIP provider market with IP PBX solutions.





4


The
      direct sales force will also utilize web based leads (generated by search
      engine, blog, publication and email marketing) and outbound telemarketing to
      go
      directly after the solution sales clients. A select number of tradeshows will
      be
      attended to build the Kaleidoscope brand and the awareness of the solutions
      and
      product offerings from the company.




**GOING
      CONCERN**




Our
      company has nominal revenues and has incurred net losses in the second quarter
      of $3,304,350 and for the six months ended June 30, 2008 of $3,680,468 and
      net
      cash used in operations of $195,460 in the six months ended June 30, 2008.
      Our
      current liabilities exceed our current assets by $5,639,244 and we have an
      accumulated deficit and stockholder’s deficit of $15,782,408 and $5,603,915
      respectively, at June 30, 2008. These conditions give rise to substantial doubt
      about Kaleidoscope’s ability to continue as a going concern. Kaleidoscope’s
      ability to continue developing its operations and generate revenues or its
      ability to obtain additional funding will determine its ability to continue
      as a
      going concern. Our consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




**RESULTS
      OF OPERATIONS**





**Three
      Months Ended June 30, 2008 versus June 30, 2007**




The
      Company recorded revenues of $1,186 for the quarter ending June 30, 2008, as
      compared to revenues of $39,250 for the quarter ending June 30,
      2007.




General
      and administrative expenses decreased to $19,773 for the quarter ending June
      30,
      2008, a decrease of 59% over expenses of $49,471 for the quarter ending June
      30,
      2007. General and administrative expenses in this second quarter of 2008 consist
      primarily of rent, telephone, travel sales and other general corporate and
      office expenses.




Interest
      expense was $87,263 for the quarter ending June 30, 2008, a decrease of 45%
      over
      expense of $158,192 for the quarter ending June 30, 2007. This interest expense
      consists of interest on various loans, and convertible debentures.




Compensation
      expense for the quarter ending June 30, 2008, was $256,800, as compared to
      $166,940 for the quarter ending June 30, 2007, an increase of 54% Compensation
      expense for the current quarter consists of salaries paid to the Company’s
      employees and officers of which $130,000 is stock-based.




Professional
      fees increased to $747,692 for the quarter ending June 30, 2008, compared to
      $65,585 for the quarter ending June 30, 2007. These expenses consist primarily
      of legal and accounting fees in 2008 as a result of the Company being a
      reporting issuer under the Securities Exchange Act of 1934, as amended and
      includes $697,814 of stock-based legal fees




Consulting
      fees expense for the quarter ending June 30, 2008 was $1,003,300, an increase
      of
      886% over expenses of $101,737 for the quarter ending June 30, 2007. The
      consulting fees in this second quarter of 2008 primarily relate to amounts
      paid
      to non-officer and director persons performing services on behalf of
      Kaleidoscope and includes $983,000 of stock based expenses.




Depreciation
      expense for the quarter ending June 30, 2008 was $1,686 compared to $2,426
      for
      the quarter ending June 30, 2007.




The
      net
      loss for the quarter ending June 30, 2008 is $3,304,350 (net loss per share
      of
      $1.78) compared to a net loss for quarter ending June 30, 2007 of $565,679
      (net
      loss per share of $1.42).





5


**Six
      Months Ended June 30, 2008 versus June 30, 2007**




The
      Company recorded revenues of $7,461 for the six months ending June 30, 2008,
      as
      compared to revenues of $49,761 for the six months ending June 30,
      2007.




General
      and administrative expenses decreased to $45,718 for the six months ending
      June
      30, 2008, a decrease of 60% over expenses of $114,816 for the six months ending
      June 30, 2007. General and administrative expenses in 2008 consist primarily
      of
      rent, telephone, travel sales and other general corporate and office
      expenses.




Interest
      expense was $172,857 for the six months ending June 30, 2008, a decrease of
      42%
      over expense of $299,422 for the six months ending June 30, 2007. This interest
      expense consists of interest on various loans, and convertible debentures
      including amortization of beneficial conversion discounts.




Compensation
      expense for the six months ending June 30, 2008, was $424,797, as compared
      to
      $343,797 for the six months ending June 30, 2007, an increase of 24%
      Compensation expense for 2008 consists of salaries paid to the Company’s
      employees and officers of which $130,000 is stock-based.




Professional
      fees increased to $759,985 for the six months ending June 30, 2008, compared
      to
      $48,403 for the six months ending June 30, 2007. These expenses consist
      primarily of legal and accounting fees in 2008 as a result of the Company being
      a reporting issuer under the Securities Exchange Act of 1934, as amended and
      includes $697,814 of stock-based legal fees.




Consulting
      fees expense for the six months ending June 30, 2008 was $1,129,848, an increase
      of 342% over expenses of $255,353 for the six months ending June 30, 2007.
      The
      consulting fees in 2008 primarily relate to amounts paid to non-officer and
      director persons performing services on behalf of Kaleidoscope and includes
      $1,073,002 of stock based expenses.




Depreciation
      expense for the six months ending June 30, 2008 was $3,373 compared to $4,851
      for the six months ending June 30, 2007.




The
      net
      loss for the six months ending June 30, 2008 is $3,680,468 (net loss per share
      of $2.13) compared to a net loss for the six months ending June 30, 2007 of
      $1,080,557 (net loss per share of $2.31).




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company has cash and cash equivalents of $0, total current liabilities of
      $5,639,244 and total assets of $35,329 at June 30, 2008. The Company continues
      to incur costs, but has not secured adequate new revenue to cover the costs.
      The
      Company does not currently have an adequate source of reliable, long-term
      revenue to fund operations. As a result, Kaleidoscope is completely dependent
      on
      outside sources of capital funding to continue operations. There can be no
      assurances that the company will in the future achieve a consistent and reliable
      revenue stream adequate to support continued operations. In addition, there
      are
      no assurances that the Company will be able to secure adequate sources of new
      capital funding, whether it is in the form of share capital, debt, or other
      financing sources.




**PLAN
      OF OPERATION FOR THE NEXT 12 MONTHS**




Kaleidoscope
      has limited cash and will only be able to satisfy its cash requirements through
      raising additional funds in the next 12 months.





The
      company recognizes that, without additional financing, the success of
      Kaleidoscope’s VOIP business is highly uncertain and Kaleidoscope must adapt its
      business operations to this reality. We are therefore seeking to broaden and
      transform our business base through the acquisition of innovative,
      value-differentiated products and services. Our focus is on revenue generating
      businesses poised for rapid growth that can benefit from being part of a public
      company and benefit from the sharing of resources and the sharing of costs
      associated with public filings and compliance.





6


We
      have
      limited funds with which to pursue the acquisition of new business
      opportunities, as we have generated losses since our inception. In our pursuit
      of acquiring new business opportunities, we anticipate needing additional funds
      to cover legal and accounting expenses, due diligence expenses and other costs.
      Subject to the availability of adequate financing, Kaleidoscope will continue
      to
      focus on providing services to our existing customers, marketing and selling
      our
      products to new customers and the continuous development of our products and
      services.





**EVENTS
      SUBSEQUENT TO THE QUARTER ENDED JUNE 30, 2008**





None.





**ITEM
      3. CONTROLS AND PROCEDURES.**





We
      maintain disclosure controls and procedures, which are designed to ensure that
      information required to be disclosed in the reports we file or submit under
      the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
      processed, summarized and reported within the time periods specified in the
      Securities and Exchange Commission’s rules and forms, and that such information
      is accumulated and communicated to our management, including our President,
      who
      also acts as our principal financial officer, as appropriate, to allow timely
      decisions regarding required disclosure.





Under
      the
      supervision and with the participation of our management, including our
      President and principal financial officer, an evaluation was performed on the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of the end of the period covered by this quarterly report. Based
      on that evaluation, our management, including our President, who also acts
      as
      our principal financial officer, concluded that our disclosure controls and
      procedures were effective as of the end of the period covered by this report
      for
      the purpose of gathering, analyzing and disclosing of information that
      Kaleidoscope is required to disclose in the reports it files under the
      Securities Exchange Act of 1934, within the time periods specified in the SEC’s
      rules and forms.




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.





**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 subjected 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
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS.**





None.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES.**





In
      May
      2008, the Company received $75,000 pursuant to a promissory note the Company
      made for $100,000, which bears no interest, but included a loan fee of $25,000.
      The principal amount due and owing under the note became due on July 13, 2008.
      The Company is currently in default.





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





Information
      contained in Kaleidoscope Venture Capital’s definitive Information Statement on
      Schedule 14C (File No. 000-27277), filed with the SEC on June 23, 2008, and
      previously furnished to its security holders via first class mail, is
      incorporated herein by reference.





**ITEM
      5. OTHER INFORMATION.**





None.





7


**ITEM
      6. EXHIBITS.**





ExhibitNumber
            Description3.1.1
            Articles
                of Incorporation of the Company (incorporated by reference to the
                Company’s Registration Statement on Form 10-SB 12G/A filed on November 26,
                1999).3.1.2
            Certificate
                of Amendment to Articles of Incorporation of the Company (incorporated
                by
                reference to the Company’s Registration Statement on Form 10-SB 12G/A
                filed on November 26, 1999).3.1.3
            Certificate
                of Amendment to Articles of Incorporation of the Company filed October
                25,
                2001 (incorporated by reference to the Company’s Quarterly Report on Form
                10-QSB filed on December 18, 2001).3.1.4
            Certificate
                of Amendment to Articles of Incorporation of the Company filed November
                6,
                2005 (incorporated by reference to the Company’s Annual Report on Form
                10-KSB filed on May 18, 2006).3.1.5
            Certificate
                of Amendment to Articles of Incorporation of the Company filed January
                3,
                2007 (incorporated by reference to the Company’s Annual Report on Form
                10-KSB filed on April 17, 2007).3.1.6
            Certificate
                of Amendment to Articles of Incorporation of the Company effective
                July
                14, 2008 (incorporated by reference to the Company’s Current Report on
                Form 8-K filed on July 15, 2008).3.1.7
            Certificate
                of Change (incorporated by reference to the Company’s Current Report on
                Form 8-K filed on July 15, 2008).3.2.1
            Bylaws
                (incorporated by reference to the Company’s Registration Statement on Form
                10-SB 12G/A filed on November 26, 1999).31.1
            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 and Principal Financial Officer Pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002.






8


**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.




Kaleidoscope
                Venture Capital Inc.
              (Name
                of Registrant)Date:
              August 19, 2008
            By:
            /s/
              Ron
              McIntyreRon
              McIntyrePresident





9


**EXHIBIT
      INDEX**





ExhibitNumber
            Description3.1.1
            Articles
                of Incorporation of the Company (incorporated by reference to the
                Company’s Registration Statement on Form 10-SB 12G/A filed on November 26,
                1999).3.1.2
            Certificate
                of Amendment to Articles of Incorporation of the Company (incorporated
                by
                reference to the Company’s Registration Statement on Form 10-SB 12G/A
                filed on November 26, 1999).3.1.3
            Certificate
                of Amendment to Articles of Incorporation of the Company filed October
                25,
                2001 (incorporated by reference to the Company’s Quarterly Report on Form
                10-QSB filed on December 18, 2001).3.1.4
            Certificate
                of Amendment to Articles of Incorporation of the Company filed November
                6,
                2005 (incorporated by reference to the Company’s Annual Report on Form
                10-KSB filed on May 18, 2006).3.1.5
            Certificate
                of Amendment to Articles of Incorporation of the Company filed January
                3,
                2007 (incorporated by reference to the Company’s Annual Report on Form
                10-KSB filed on April 17, 2007).3.1.6
            Certificate
                of Amendment to Articles of Incorporation of the Company effective
                July
                14, 2008 (incorporated by reference to the Company’s Current Report on
                Form 8-K filed on July 15, 2008).3.1.7
            Certificate
                of Change (incorporated by reference to the Company’s Current Report on
                Form 8-K filed on July 15, 2008).3.2.1
            Bylaws
                (incorporated by reference to the Company’s Registration Statement on Form
                10-SB 12G/A filed on November 26, 1999).31.1
            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 and Principal Financial Officer Pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002.







10