**UNITED
      STATES**


**SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
 
 (MARK
        ONE)
 **[X]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE**
 **ACT
        OF 1934**
 
 For
        the
        quarterly period ended September 30, 2007
 
 OR
 
 **[_]
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 
 For
        the
        transition period from _____ to ____
 
 Commission
        File No. 000-27277
 
 **VOCALSCAPE
        NETWORKS, INC.**
 
 (Exact
        name of registrant as specified in its charter)
   **NEVADA**
              
              **98-0207554**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer 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 [ ] No [X]
 
 As
        of
        November 12, 2007, there were 211,525,694 shares of the Registrant’s common
        stock, $0.001 par value per share, outstanding, and 35,000 shares of Series
        A
        Convertible Preferred Stock outstanding, and 100,000,000 shares of Class
        A
        Common Stock, $0.001 par value per share, outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): Yes [ ] No [X]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Exchange
        Act Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
  
  **VOCALSCAPE
        NETWORKS, INC.**
 **QUARTERLY
        REPORT ON FORM 10-QSB**
 **FOR
        THE PERIOD ENDED SEPTEMBER 30, 2007**
 
 **INDEX**
 
 
 **Index**
              
              
              **Page****Part
                  I.**
              **Financial
                Information**Item 1.
              Financial
                  Statements
              1Consolidated
                  Balance Sheet as of September 30, 2007 (unaudited)
              2Consolidated
                  Statements of Operations - for the three and nine months ended
                  September
                  30, 2007 and 2006 (unaudited)
              3Consolidated
                  Statements of Cash Flows for the nine months ended September 30,
                  2007 and
                  2006 (unaudited)
              4Notes
                  to Unaudited Consolidated Financial Statements
              5Item 2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              24Item 3.
              Controls
                  and Procedures
              27**Part
                  II.**
              **Other
                Information**Item 1.
              Legal
                  Proceedings
              27Item 2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              28Item 3.
              Defaults
                  Upon Senior Securities
              28Item 4.
              Submission
                  of Matters to a Vote of Security Holders
              28Item 5.
              Other
                  Information
              28Item 6.
              Exhibits
              28**Signatures**
              
              
              28**Certifications**
              
              
              29
 
 
  CAUTIONARY
        NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
        Form
        10-QSB release 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 Vocalscape 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 78% **** of
        the
        voting power of all securities of Vocalscape; and other factors discussed
        in
        Vocalscape’s filings with the Securities and Exchange Commission
        (“SEC”).
 
 Our
        management has included projections and estimates in this Form 10-QSB, 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.
  
 
 **PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS.**
 
 **Vocalscape
        Networks, Inc. and Subsidiary**
 **Consolidated
          Financial Statements**
 **For
          the Nine Months ended September 30, 2007 and 2006**
 **(Unaudited)**
  
 
 **Vocalscape
          Networks, Inc. and Subsidiary**
  Index
          to
          Consolidated Financial Statements
  Page(s)Consolidated
                    Balance Sheet (unaudited)
                2Consolidated
                    Statements of Operations (unaudited)
                3Consolidated
                    Statements of Cash Flows (unaudited)
                4Notes
                    to Consolidated Financial Statements (unaudited)
                5-23
  
  Vocalscape
            Networks, Inc. and Subsidiary
 Consolidated
            Balance Sheet
 September
            30, 2007
 (Unaudited)
  **ASSETS****Current
                    assets:**Cash
                    and cash equivalents
                
                $
                -Total
                    current assets
                
                
                -Investment
                    in non-marketable equity securities
                
                
                17,290Property
                    and equipment, net
                
                
                19,761Development
                    costs, net
                
                
                739Total
                    assets
                
                $
                37,790**LIABILITIES
                    AND STOCKHOLDER'S DEFICIT****Current
                    liabilities:**Bank
                    overdraft
                
                $
                4,143Loans
                    and notes payable
                
                
                1,342,000Loans
                    and notes payable, related parties
                
                
                177,568Loan
                    payable due for software purchase, net of discount
                
                
                130,659Accounts
                    payable
                
                
                281,790Accounts
                    payable, related parties
                
                
                221,346Accrued
                    expenses
                
                
                1,210,101Accrued
                    expenses, related parties
                
                
                249,246Convertible
                    debentures
                
                
                84,912Payable
                    to shareholder
                
                
                900,027Embedded
                    conversion option liability
                
                
                212,752Other
                    liablilities
                
                
                14,289Total
                    current liabilities
                
                
                4,828,833Commitments
                    and contingencies (Note 10)**STOCKHOLDERS'
                    DEFICIT**Preferred
                    stock, $0.001 par value, 25,000,000 authorized Series A, voting
                    convertible preferred stock, 100,000 shares authorized, 35,000
                    shares
                    issued and outstanding (liquidation value $0.50 per share)
                
                
                35Common
                    stock, $0.001 par value, 400,000,000 authorized, 185,721,461
                    issued and
                    outstanding
                
                
                185,722Common
                    stock issuable, at par value (5,004,969 shares)
                
                
                5,005Common
                    stock , Class A non voting, $.001 par value, 100,000,000 shares
                    authorized, 100,000,000 shares issued and outstanding
                
                
                100,000Common
                    stock and Common Stock, Class A subscriptions receivable
                
                
                (1,285,000
                )Additional
                    paid-in capital
                
                
                7,774,926Accumulated
                    deficit
                
                
                (11,571,731
                )Total
                    stockholders' deficit
                
                
                (4,791,043
                )Total
                    liabilities and stockholders' deficit
                
                $
                37,790
  See
            accompanying notes to consolidated financial statements
  2
 
 Vocalscape
          Networks, Inc. and Subsidiary
 Consolidated
          Statements of Operations
 (Unaudited)
 
 Three
                    Months Ended
                
                Nine
                    Months EndedSeptember
                    30,
                
                September
                    30,**2007**
                
                **2006**
                
                **2007**
                
                **2006**Revenue
                
                $
                4,000
                
                $
                36,229
                
                $
                53,761
                
                $
                180,547Cost
                    of revenue
                
                
                739
                
                
                739
                
                
                2,217
                
                
                17,478Gross
                    profit
                
                
                3,261
                
                
                35,490
                
                
                51,544
                
                
                163,069Costs
                    and expenses:Compensation
                
                
                148,035
                
                
                85,087
                
                
                491,832
                
                
                204,056Consulting
                
                
                51,876
                
                
                411,238
                
                
                307,229
                
                
                695,532Professional
                    fees
                
                
                24,050
                
                
                39,892
                
                
                72,453
                
                
                247,021Bad
                    debts
                
                
                
                
                
                -
                
                
                
                
                
                -General
                    and administration
                
                
                51,307
                
                
                121,187
                
                
                166,122
                
                
                281,972275,268
                
                
                657,404
                
                
                1,037,636
                
                
                1,428,581Loss
                    from operations
                
                
                (272,007
                )
                
                (621,914
                )
                
                (986,092
                )
                
                (1,265,512
                )Other
                    income (expense)Loss
                    on conversion
                
                
                -
                
                
                -
                
                
                -
                
                
                (220,000
                )Interest
                    expense
                
                
                (111,685
                )
                
                (36,621
                )
                
                (411,108
                )
                
                (262,381
                )Change
                    in fair value of embedded conversion option liability
                
                
                1,028
                
                
                -
                
                
                (62,752
                )
                
                -Settlement
                    expense
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,414,000
                )Bad
                    debt recovery
                
                
                -
                
                
                -
                
                
                -
                
                
                20,873Writeoff
                
                
                -
                
                
                -
                
                
                -
                
                
                (22,602
                )Other
                    Income
                
                
                -
                
                
                -
                
                
                -
                
                
                6Foreign
                    currency transaction gain (loss), net
                
                
                -
                
                
                (2,348
                )
                
                (3,269
                )
                
                (8,757
                )Total
                    other income (expense)
                
                
                (110,657
                )
                
                (38,969
                )
                
                (477,129
                )
                
                (1,906,861
                )Net
                    loss
                
                $
                (382,664
                )
                $
                (660,883
                )
                $
                (1,463,221
                )
                $
                (3,172,373
                )Net
                    loss per share - basic and diluted
                
                $
                (0.00
                )
                $
                (0.04
                )
                $
                (0.01
                )
                $
                (0.35
                )Weighted
                    average shares outstanding during the period
                
                
                259,934,809
                
                
                15,972,280
                
                
                141,471,891
                
                
                9,032,289
  See
            accompanying notes to consolidated financial statements
  3
 Vocalscape
            Networks, Inc. and Subsidiary
 Consolidated
              Statements of Cash Flows
 For
              the
              Nine Months Ended September 30, 2007 and 2006
 (Unaudited)
 **2007**
                
                **2006****Cash
                    flows from operating activities:**Net
                    loss
                
                $
                (1,463,221
                )
                $
                (3,172,374
                )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Depreciation
                    and amortization
                
                
                7,276
                
                
                7,278Amortization
                    of debt discount
                
                
                220,607
                
                
                160,000Deferred
                    consulting fees amortization
                
                
                146,667
                
                
                -Stock
                    compensation expense
                
                
                
                
                
                236,780Stock
                    options granted for services
                
                
                14,175
                
                
                -Stock
                    options exercises paid for with services
                
                
                5,050
                
                
                -Non
                    cash loan fee
                
                
                20,000
                
                
                -Foreign
                    currency transaction loss
                
                
                1,143
                
                
                -Non
                    cash revenues
                
                
                (17,290
                )
                
                -Change
                    in fair value of embedded conversion option liability
                
                
                62,752
                
                
                -Loss
                    on debt conversion
                
                
                -
                
                
                353,333Loss
                    on debt settlement
                
                
                -
                
                
                1,414,000Changes
                    in other assets and liabilities:Other
                    assets
                
                
                -
                
                
                (4,950
                )Deferred
                    revenue
                
                
                -
                
                
                (45,000
                )Accounts
                    payable
                
                
                55,133
                
                
                (4,561
                )Accounts
                    payable, related party
                
                
                13,919
                
                
                88,915Other
                    accrued liabilities
                
                
                (93,883
                )Accrued
                    expenses
                
                
                104,737
                
                
                75,880Accrued
                    expenses, related aprties
                
                
                234,928
                
                
                -Net
                    cash used in operations
                
                
                (688,007
                )
                
                (890,699
                )**Cash
                    flows from investing activities:**Acquisition
                    of property and equipment
                
                
                -
                
                
                -Acquisition
                    of software for development
                
                
                -
                
                
                -Net
                    cash used in investing activities
                
                
                -
                
                
                -**Cash
                    flows from financing activities:**Bank
                    overdraft
                
                
                (180
                )
                
                185Payment
                    of expense for Vocalscape, Inc.
                
                
                
                
                
                -Loan
                    proceeds from related party
                
                
                26,152
                
                
                -Proceeds
                    from common stock sales
                
                
                317,338
                
                
                533,145Prepaid
                    liability for stock subscription
                
                
                
                
                
                -Repayment
                    of notes payable
                
                
                -
                
                
                (53,243
                )Loan
                    proceeds
                
                
                330,000
                
                
                410,612Net
                    cash provided by financing activities
                
                
                673,310
                
                
                890,699Net
                    increase (decrease) in cash and cash equivalents
                
                
                (14,697
                )
                
                -Cash
                    and cash equivalents, beginning of period
                
                
                14,697
                
                
                -**Cash
                    and cash equivalents, end of period**
                
                $
                -
                
                $
                -**Supplemental
                    disclosure of cash flow information:**Cash
                    paid during the period for:Interest
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                -**Supplemental
                    disclosure of non-cash investing and financing
                    activities:**Conversion
                    of debt to common stock
                
                $
                120,000
                
                $
                235,000Conversion
                    of debt to preferred stock
                
                $
                -
                
                $
                5,000
 Assignment
                      of debt from creditors to related party shareholder
                  
                  $
                  -
                  
                  $
                  900,027Settlement
                      of accrued liabilites with common stock
                  
                  $
                  -
                  
                  $
                  86,000Recording
                      of beneficial conversion value to debt discount and APIC
                  
                  $
                  60,000
                  
                  $
                  -Record
                      initial fair value of embedded conversion option as debt
                      discount
                  
                  $
                  150,000
                  
                  $
                  -Exchange
                      of accounts payable for common stock on exercise of options
                  
                  $
                  37,900
                  
                  $
                  -Recording
                      of deferred consulting
                  
                  $
                  60,000
                  
                  $
                  -Sale
                      of common stock Class A for subscription receivable
                  
                  $
                  1,000,000
                  
                  $
                  -
 See
            accompanying notes to consolidated financial statements
  4
   **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 
 **1.**
                
                **NATURE
                    OF BUSINESS AND GOING
                    CONCERN**
 
 **Nature
          of Business and Current Operations –** 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.
 
 **Organization
          –** VNI
          is a
          Nevada corporation, which was incorporated on June 12, 1998.
 
 VNOS
          is a
          Nevada corporation, which was incorporated on February 5, 2003.
 
 **Recapitalization** - On
          October 28, 2005, Vocalscape, Inc. (“VSI”) and Dtomi, Inc. (“Dtomi”) announced
          that on October 4, 2005, Dtomi and its wholly owned subsidiary Vocalscape
          Networks, Inc. (Subsidiary) (“VNI OLD”) effected a merger pursuant to that
          certain Agreement and Plan of Reorganization (the “Agreement”) by and between
          Dtomi and VSI dated August 25, 2005. Effective October 4, 2005, the date
          that
          Articles of Merger effecting the merger were filed with the Nevada Secretary
          of
          State, VNI OLD became a wholly owned subsidiary of Dtomi. Pursuant to the
          amended Agreement, Dtomi issued shares of its common stock with voting
          rights
          equal to 82% (1,138,889 common shares) of the voting power of the stockholders
          of Dtomi, to VSI in exchange for VNI OLD merging into a wholly owned subsidiary
          of Dtomi. The business of VNI OLD became the primary business of Dtomi.
          Subsequent to the recapitalization, Dtomi changed its name to Vocalscape
          Networks, Inc. and the subsidiary changed its name to Vocalscape Networks
          Operating Subsidiary, Inc.
 
 Due
          to
          the change in control of Dtomi, the transaction was accounted for as a
          recapitalization of VNI OLD.
 
 Accordingly,
          the financial statements of the Company consists of the historical operations
          of
          VNI OLD from its inception, and the operations of Dtomi from the
          recapitalization date. The Company assumed approximately $2.3 million of
          liabilities and deferred stock based costs of approximately $842,000 and
          is
          deemed to have issued 250,129 common shares to the existing pre-recapitalization
          shareholders of Dtomi. All share and per share data in the accompanying
          financial statements has been retroactively adjusted for the effect of
          the
          recapitalization.
  5
  **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
  **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 in the first nine months of 2007 of $1,463,221, net cash used
          in
          operations in the first nine months of 2007 of $688,007, and working capital
          deficit of $4,828,833, accumulated deficit of $11,571,731 and stockholders’
deficit of $4,791,043 at September 30, 2007.
  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 the first nine
          months
          of 2007, the Company generated revenues from customer consulting agreements
          and
          raised capital through initiating a Regulation S offering by VSI and entering
          into additional Promissory Notes.  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 Vocalscape Networks,
          Inc. (the “Company” or “VNI” or “Vocalscape”) and it’s wholly owned subsidiary
          Vocalscape Networks Operating Subsidiary, Inc. (“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.
  6
  **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 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.
   **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.
  7
  **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 **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.
 
 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.
 
 **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.
  8
  **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 **Revenue
          Recognition –** The
          Company is engaged as a seller of VoIP telephony solutions. The Company
          generally recognizes revenue in accordance 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.
  9
 **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 **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 does 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.
 
 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 2007 and 2006 include the valuation of stock-based
              payments, valuation of beneficial conversion feature on convertible
              debt and
              valuation allowance on deferred tax assets.
 
 **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.
  The
          Company has not issued any warrants or options since its inception in February
          2003. Upon the recapitalization in October 2005, the Company assumed outstanding
          warrants as follows: At December 31, 2005 there were warrants to purchase
          41,347
          shares at an exercise price of $72.00 expiring December 31, 2006; 214 shares
          at
          an exercise price of $.40 expiring December 31, 2006 and 1,250 shares at
          an
          exercise price of $100.00 expiring December 31, 2009. Total warrants outstanding
          at December 31, 2005 were 42,811. There were also options outstanding to
          purchase 2,276 common shares at $40 per share and 229 common shares at
          $38 per
          share.
  10
  **Vocalscape
            Networks, Inc. and Subsidiary**
 **Notes
            to Consolidated Financial Statements**
 **September
            30, 2007**
 **(Unaudited)**
 As
          of
          December 31, 2006, all warrants had expired except for 1,250. At September
          30,
          2007 there were also 2,505 options outstanding.
 
 The
          exercise of such warrants and options may dilute future earnings per share.
 
 **Recently
          Issued Accounting Standards –**
 
 In
          May
          2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
which replaces Accounting Principles Board Opinion (“APB”) No. 20, “Accounting
          Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
          Statements-An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on
          the accounting for and reporting of accounting changes and error corrections.
          SFAS 154 is effective for accounting changes and a correction of errors
          made in
          fiscal years beginning after December 15, 2005 and did not have a material
          effect on our consolidated financial statements.
 
 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.
 
 11
 **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **Reclassifications**
 
 Certain
          amounts in the 2006 consolidated financial statements have been reclassified
          to
          conform with the 2007 presentation.
 
 **3.**
                **INVESTMENT
                    IN NON-MARKETABLE EQUITY
                    SECURITIES**
 
 The
          composition of non-marketable securities at September 30, 2007 is as follows:
 
 **Cost**
                ****
                **Fair
                    Value**Equity
                    securities
                
                $
                17,290
                
                $
                17,290
 
 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.
 
 **4.**
                **PROPERTY
                    AND EQUIPMENT**
 
 Property
          and equipment at September 30, 2007, consists of the following:
 
 Office
                    equipment
                
                $
                35,854Accumulated
                    depreciation
                
                
                (16,093
                )Property
                    and equipment, net
                
                $
                19,761
 
 Depreciation
          during 2007 and 2006 was $5,059 and $5,059, respectively.
 
 **5.**
                **DEVELOPMENT
                    COSTS**
 
 Capitalized
                    software development cost consists of the following at September
                    30,
                    2007:
 
 Cost
                
                $
                8,869Accumulated
                    amortization
                
                
                (8,130
                )Software,
                    net
                
                $
                739
 
 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 Notes 7 and 9). The related liabilities 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 has 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 the first
          nine
          months of 2007 the Company recognized $2,217 of amortization
          expense.
  12
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **6.**
                
                **NOTES
                    PAYABLE, NOTES PAYABLE RELATED PARTIES AND CONVERTIBLE
                    DEBENTURES**
  Notes
          payable to related and unrelated parties consists of the following at September
          30, 2007:
 
 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% (9.75% to 10.75%
                    at
                    September 30, 2007)
                
                $
                118,568Note
                    payable to law firm, due on demand, non-interest bearing
                
                
                59,000Subtotal
                    –
                    Notes
                    payable related parties
                
                
                177,568Notes
                    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% (10.75% at September 30, 2007)
                
                
                1,183,000Subtotal
                    – Notes payable unrelated parties
                
                
                1,342,000Total
                    Notes Payable
                
                $
                1,519,568
 
 The
          weighted average interest rate on short term outstanding as of September
          30,
          2007 was 10.25 %.
 
 **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 2,123 common shares based on a conversion
          rate
          of $40 per share. The embedded conversion options were determined not to
          be
          derivatives at the issuance date or as of September 30, 2007 since the
          debt
          qualifies as conventional convertible debt. Based upon the conversion rate
          at
          the issuance date, there was no beneficial conversion feature
          recorded.
  13
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **Convertible
          Promissory Notes and Conversion**
 
 In
          February 2007, the Company issued a convertible promissory note for $120,000.
          The note principal is convertible into 3,000,000 shares of common stock.
          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 to be converted
          into common stock in March 2007. The Company computed a beneficial conversion
          value of $60,000 based on the quoted stock price on the grant date of $.06
          per
          share. The $60,000 was recorded as a debt discount and credited to additional
          paid-in capital. The debt discount was amortized to interest expense in
          March
          2007 when the note was to be automatically converted into stock. 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
          stock had not been issued as of September 30, 2007, it is included in the
          attached balance sheet as issuable shares.
 
 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 and therefore has recorded a note payable
          of
          $100,000 as of June 30, 2007. 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
          $0.02 and $.015, exercise price of $.01 and $.0075, 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.
  14
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 On
          July
          2, 2007 the Company received the $50,000 balance of the 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
          $0.014 and $0.026, exercise price of $0.007 and $0.013, volatility of 204%,
          term
          of .83 and.58 years, and interest rate of 4.80%.
 
 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, 2007 was
          zero.
 
 **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 September 30, 2007 was as follows:
 
 Loan
                    payable
                
                $
                131,746Debt
                    discount
                
                
                (1,087
                )Loan
                    payable, net of discount
                
                $
                130,659
  15
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 This
          loan
          payable is collateralized by the software asset. Additional interest in
          the
          amount of $6,611 was accrued in 2007. The loan is currently in
          default.
 
 **8.**
                **STOCKHOLDERS’
                    DEFICIT**
 
 **Recapitalization
          -** In
          October 2005, VNI OLD was acquired by Dtomi, Inc., a public shell, in a
          transaction accounted for as a recapitalization of the Company. All authorized,
          issued and outstanding share and per share data in the accompanying consolidated
          financial statements has been retroactively adjusted to reflect the
          recapitalization. (See Note 1)
 
 **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.
 
 **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 $0.50 per share plus any unpaid dividends.
          Each Series A share has voting rights equal to 5,000 common shares. On
          January
          20, 2006 the Company accepted a subscription from its CEO to purchase 20,000
          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 15,000 Series A preferred
          shares as
          compensation. The shares are valued at $0.25, the same amount he previously
          paid
          and expensed immediately since it was not material.
 
 **Common
          Stock Issued for Cash and Subscriptions Receivable**
 
 During
          2007 the Company sold 115,108,700 common shares for net proceeds of $287,338
          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 September 30, 2007.
 16
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **Common
          Stock Issued for Exercise of Stock Options**
 
 In
          January 2007 the Company issued 225,000 common shares upon exercise of
          a stock
          option at $.04 per share. The exercise price was paid for with a payable
          that
          was due to the option holder. In May 2007, the company issued 575,000 common
          shares to the same option holder upon exercise of a stock option at $.01
          per
          share in exchange for a payable of $5,750.
 
 In
          March
          2007 the Company issued 3,000,000 common shares upon exercise of stock
          options
          at $.01 per share and received the $30,000 exercise price in cash.
 
 In
          March
          2007 the Company issued 1,000,000 common shares upon exercise of stock
          options
          at $.02 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 500,000 common shares upon exercise of stock options
          at
          $.01 per share in exchange for a payable of $5,000.
 
 In
          August
          2007, the Company issued 200,000 common shares upon exercise of stock options
          at
          $0.016 per share in exchange for a payable of $3,200.
 
 **Common
          Stock Issued Upon Conversion of Note**
 
 In
          2007 a
          note holder converted a $120,000 convertible promissory note at $.04 and
          3,000,000 shares are issuable. (See Note 6)
 
 **Grants
          of Options to Purchase Common Stock**
 
 In
          January 2007 the Company granted 225,000 common stock options to a law
          firm for
          services provided. The options were valued at $7,876 ($.035 per option) using a
          Black-Scholes option pricing model with the following assumptions: stock
          price
          $0.075, exercise price of $.04, 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 3,000,000 common shares at an exercise
          price of $.01 per share pursuant to a consulting agreement. The options
          were
          valued at $60,000 ($.02 per option), using a Black-Scholes option pricing
          model
          with the following assumptions: stock price $0.03, exercise price of $.01,
          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.
 17
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 In
          March
          2007 the Company granted 1,000,000 common stock options to a consultant
          for
          services. The options were valued using a Black-Scholes option pricing
          model
          with the following assumptions: stock price $0.021, exercise price of $.02,
          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 575,000 options to a law firm for services provided.
          The options were valued at $2,877 ($.005 per option) using a Black-Scholes
          option pricing model with the following assumptions: stock price $0.015,
          exercise price of $.01, 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 500,000 options to a consultant for services provided.
          The options were valued at $1,513 using a Black-Sholes Option Pricing Model
          with
          the following assumptions: stock price $0.013, exercise price of $.01,
          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 200,000 options to a consultant for services
          provided.
          The options were valued at $146 using a Black-Sholes Option Pricing Model
          with
          the following assumptions: stock price of $0.016, exercise price of $0.016,
          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.
 
 **Warrants** - Upon
          the recapitalization in October 2005, the Company assumed outstanding warrants
          as follows: At December 31, 2005 there were warrants to purchase 41,347
          shares
          at an exercise price of $72.00 expiring December 31, 2006; 214 shares at
          an
          exercise price of $.40 expiring December 31, 2006 and 1,250 shares at an
          exercise price of $100.00 expiring December 31, 2009. Total warrants outstanding
          at December 31, 2005 were 42,811. At December 31, 2005, 2,632 options
          exercisable at $72.00 had expired and are excluded from the above balance.
          As of
          December 31, 2006, all warrants had expired except for the 1,250 at an
          exercise
          price of $100 which expire December 31, 2009. (See Note 6)
 18
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **Options**
 
 A
          summary
          of the options issued to employees and assumed in the recapitalization
          and
          changes during the third quarter ending September 30, 2007 and 2006 is
          presented
          below.
 
 Number
                    of
                  Options
                
                Weighted
                  Average
                  Exercise PriceBalance
                    at January 1, 2006
                
                
                2,505
                
                $
                38.20Granted
                
                
                7,500,000
                
                
                .0474Exercised
                
                
                (7,500,000
                )
                $
                .0474Expired
                
                
                -
                
                $
                80.00Balance
                    at December 31, 2006
                
                
                2,505
                
                $
                38.20Weighted
                    average fair value of options granted during the year
                
                
                
                
                $
                .0474Balance
                    at January 1, 2007
                
                
                2,505
                
                
                38.20Granted
                
                
                5,300,000
                
                
                .014Exercised
                
                
                (5,300,000
                )
                $
                .014Expired
                
                
                -Balance
                    at September 30, 2007
                
                
                2,505
                
                $
                38.20Weighted
                    average fair value of options granted during the year
                
                
                
                
                $
                .0165
 
 The
          following table summarizes information about employee stock options outstanding
          at September 30, 2007:
  Options
                    Outstanding
                
                Options
                    ExercisableRange
                    of
                  Exercise
                  Price
                
                Number
                    Outstanding at September 30, 2007
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Life
                
                Weighted
                  Average
                  Exercise
                  Price
                
                Number
                  Exercisable
                    at
                  September
                    30, 2007
                
                Weighted
                  Average
                  Exercise
                  Price$
                40
                
                
                229
                
                
                0.39
                    Years
                
                $
                40.00
                
                
                229
                
                $
                40.00$
                38
                
                
                2,276
                
                
                1.25
                    Years
                
                $
                38.00
                
                
                2,276
                
                $
                38.002,505
                
                
                
                
                $
                38.20
                
                
                2,505
                
                $
                38.20
 
 **9.**
                **RELATED
                    PARTY TRANSACTIONS**
 
 Notes
          payable to a related party director or his affiliates were $118,568 at
          September
          30, 2007.
 19
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 At
          September 30, 2007 accrued expenses to related parties amounted to $249,246
          which includes $22,378 of accrued interest
 
 In
          October 2006 the Company accepted a $165,000 subscription promissory note
          from a
          Director (former officer) as payment for the exercise of his 3,000,000
          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 September 30, 2007 was $340,436.
 
 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 September 30, 2007 accounts payable to this law firm were
          $221,346 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 $13,919 after the $42,871 credit above.
 
 **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.
 20
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 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 September 30, 2007.
 
 **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 reflected in accrued expenses at September 30,
          2007.
 
 **11.**
                **CONCENTRATIONS**
 
 **Revenues
          -** During
          2007, the Company had revenues from 3 customers. **** During
          2006, the Company had revenues from 5 customers.
 21
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **12.**
                **ACCRUED
                    EXPENSES**
 
 Accrued
          expenses at September 30, 2007 consist of the following:
 
 Accrued
                    compensation
                
                $
                687,407Accrued
                    license fees
                
                
                36,000Accrued
                    interest
                
                
                372,544Accrued
                    expenses –
                    other
                
                
                114,150Total
                
                $
                1,210,101
 
 **13.**
                **SHARE
                    EXCHANGE AGREEMENT**
 
 On
          February 26, 2006, Vocalscape and Azatel Communications Inc., a British
          Columbia
          corporation (“Azatel”), and all of the shareholders of Azatel (the
“Shareholders”), entered into a Share Exchange Agreement (the “Share Exchange
          Agreement”), pursuant to which Vocalscape shall acquire all of the issued and
          outstanding shares of common shares of Azatel in a transaction valued at
          approximately $118,000.  Under the Share Exchange Agreement, Vocalscape
          shall issue 200,000 shares of its common stock to the Shareholders, who
          number
          three persons, in exchange for all of their respective shares of Azatel
          (the
“Share Exchange”).   Azatel had taken the position that the Share
          Exchange Agreement is terminated.  Vocalscape did not believe that the
          Share Exchange Agreement is terminated. Therefore, the company had fully
          reserved $22,601, which is the amount advanced through March 31, 2006.
          On June
          19, 2006 the Company received CAN$23,804 pursuant to a settlement agreement
          signed on May 23, 2006 wherein the Share Exchange Agreement was terminated.
          The
          company has recorded the amount received of $20,873 as a bad debt recovery
          in
          June 2006.
 
 **14.**
                **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.
 22
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2007**
 **(Unaudited)**
 
 **15.**
                **SUBSEQUENT
                    EVENTS**
 
 On
          October 11, 2007 the Company signed a 30 day secured promissory note for
          $40,000, that is due on November 11, 2007. The terms of the note provide
          that
          the Company would receive $40,000 and be charged a $10,000 loan fee. The
          note
          does not bear interest, but is secured by a pledge and security agreement
          that
          provides that the Company pledge 3,000,000 shares of common stock to secure
          the
          loan. To date the Company has only received $20,000 of the funds. Since
          the
          balance of the funds have not been received by the Company the shares have
          not
          been issued to the lender.
 
 In
          October 2007, the Company issued 75,000,000 Class A non voting common shares
          related to subscription agreement with an individual. (See note 8)
 
 In
          October 2007, the Company issued 25,460,000 common shares in exchange for $40,692 net
          proceeds under the Regulation S offering.
 
 In
          November 2007, the Company issued 35,661,439 common shares in exchange
          for
          $75,000 net proceeds under the Regulation S offering.
 
 In
          November 2007, the Company signed a 30 day promissory note for $100,000.
          The
          Company received the $100,000 in November. The note does not bear interest,
          but
          includes a $20,000 loan fee that is due at the same time the note is due.
  23
 **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-QSB. 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 Vocalscape Networks,
            Inc., which
            includes the operations of its wholly owned subsidiary Vocalscape Operating
            Subsidiary, Inc., which holds assets through which Vocalscape provides
            services
            in connection with its business. Vocalscape is a next generation communications
            provider that provides Voice over Internet Protocol (“VoIP”) solutions. The
            current business of Vocalscape is the result of a merger of Dtomi, Inc.
            with
            Vocalscape Networks, Inc. on October 4, 2005, a date prior to which Vocalscape
            Networks, Inc. was not affiliated with the Company, and the Company was
            named
“Dtomi, Inc.” Until October 4, 2005, the Company was named “Dtomi, Inc.”, and
            was a Florida-based, company that was developing the Air Spring Axle
            system, a
            suspension system for small and medium sized trailers.
  24
 
 **PRODUCTS
            AND SERVICES**
  Vocalscape
            provides VoIP telephony solutions and communications software for Internet
            Service Providers (“ISPs”), Internet Telephony Service Providers (“ITSPs”) and
            telecommunications companies worldwide. Vocalscape develops VoIP and
            interactive
            communications software including Softphone applications, Customer Acquisition
            and Billing Systems, SIP Servers, Gatekeepers and Virtual Calling Cards.
            Vocalscape’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, Vocalscape 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 Vocalscape, but represent the largest and most active
            participants in this market: Deltathree, VocalTec Communications Ltd.
            and
            Net2Phone.
 
 Vocalscape’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. Vocalscape’s product offerings
            are designed to streamline subscriber provisioning and subscriber services
            online.
 
 **DEVELOPMENT**
 
 Vocalscape
            has a team of engineers with software and systems industry experience.
            These
            engineers and management have significant experience in telecommunications,
            communication and control systems development. Vocalscape will be able
            to bring
            to market its products in a timely fashion while retaining the IP, and
            producing
            a superior product with high reliability and quality. Our core team is
            overseeing the development of: 1) a seamless 911 Dashboard designed to
            integrate
            multiple 911 service providers and 2) an IP PBX subscriber system, enabling
            resellers to service business customers online with a self-managed telephone
            system.
  **DISTRIBUTION
            & MARKETING**
 
 Vocalscape
            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.
 
 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 Vocalscape 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 nine
            months
            ended September 30, 2007, of $1,463,221 and net cash used in operations
            of
            $688,007 in the nine months ended September 30, 2007. Our current liabilities
            exceed our current assets by $4,828,833 and we have an accumulated deficit
            and
            stockholder’s deficit of $11,571,731 and $4,791,043, respectively, at September
            30, 2007. These conditions give rise to substantial doubt about Vocalscape’s
            ability t o continue as a going concern. Vocalscape’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.
  25
 
 **RESULTS
            OF OPERATIONS**
  The
            Company recorded revenues of $53,761 for the nine months ending September
            30,
            2007, as compared to revenues of $180,547 for the nine months ending
            September
            30, 2006.
 
 General
            and administrative expenses decreased to $166,122 for the nine months
            ending
            September 30, 2007, a decrease of 41% over expenses of $281,972 for the
            nine
            months ending September 30, 2006. General and administrative expenses
            in the
            first none months of 2007 consist primarily of rent, telephone, travel
            sales and
            other general corporate and office expenses.
  Interest
            expense was $411,108 for the nine months ending September 30, 2007, an
            increase of 56% over expense of $262,381 for the nine months ending September
            30, 2006. This interest expense consists of interest on various loans,
            and
            convertible debentures and amortization of debt discounts.
  Compensation
            expense for the nine months ending September 30, 2007, was $491,832,
            as compared
            to $204,056 for the nine months ending September 30, 2006. Compensation
            expense
            for the current year consists of salaries paid to employees and the Company’s
            officers.
  Professional
            fees decreased to $72,453 for the nine months ending September 30,
            2007, a decrease of 71% compared to an expense of $247,021 for the nine
            months
            ending September 30, 2006. These consist of primarily of legal and accounting
            fees in 2006 as a result of the Company being a reporting issuer under
            the
            Securities Exchange Act of 1934, as amended. In 2007, the net professional
            fees
            are lower due to credits from a related party legal services
            provider.
  Consulting
            fees expense for the nine months ending September 30, 2007 was $307,229,
            a
            decrease of 56% over expenses of $695,532 for the nine months ending
            September
            30, 2006. The consulting fees 2007 primarily relate to amounts paid to
            non-officer and director persons performing services on behalf of
            Vocalscape.
  The
            net
            loss for the nine months ending September 30, 2007 is $1,463,221 (net
            loss per
            share of $0.01), compared to a net loss for the nine months ending September
            30,
            2006 of $3,173,373 (net loss per share of $0.35).
  **LIQUIDITY
            AND CAPITAL RESOURCES**
  The
            Company has cash and cash equivalents of $0, total current liabilities
            of
            $4,828,833 and total assets of $37,790 at September 30, 2007. 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, Vocalscape 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**
  Vocalscape
            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
            Vocalscape’s VOIP business is highly uncertain and Vocalscape 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.
  26
 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, Vocalscape 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 SEPTEMBER 30, 2007**
 
 On
            October 11, 2007 the Company signed a 30 day secured promissory note
            for
            $40,000, that is due on November 11, 2007. The terms of the note provide
            that
            the Company would receive $40,000 and be charged a $10,000 loan fee.
            The note
            does not bear interest, but is secured by a pledge and security agreement
            that
            provides that the Company pledge 3,000,000 shares of common stock to
            secure the
            loan. To date the Company has only received $20,000 of the funds. Since
            the
            balance of the funds have not been received by the Company the shares
            have not
            been issued to the lender.
  In
            October 2007, the Company issued 75,000,000 Class A non voting common
            shares
            related to subscription agreement with an individual.
  In
            October 2007, the Company issued 25,460,000 common shares in exchange
            for
            $40,692 net proceeds under the Regulation S offering.
  In
            November 2007, the Company issued 35,661,439 common shares in exchange
            for
            $75,000 net proceeds under the Regulation S offering.
  In
            November 2007, the Company signed a 30 day promissory note for $100,000.
            The
            Company received the $100,000 in November. The note does not bear interest,
            but
            includes a $20,000 loan fee that is due at the same time the note is
            due.
 
 **ITEM
            3. CONTROLS AND PROCEDURES.**
 
 As
            of the
            period covered by this report, Vocalscape carried out an evaluation,
            under the
            supervision and with the participation of its management, including Ron
            McIntyre, Vocalscape’s President, who also currently acts as Vocalscape’s
            principal financial officer, of the design and operation of its disclosure
            controls and procedures. Based on this evaluation, Vocalscape’s President
            concluded that Vocalscape’s disclosure controls and procedures are effective for
            the gathering, analyzing and disclosing of information that Vocalscape
            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
            have been no significant changes in the Vocalscape’s internal controls or in
            other factors that could significantly affect the internal controls subsequent
            to the date of this evaluation.
  **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.**
 
 On
          August
          27, 2007, Vocalscape offered and sold 39,620,939 shares of common stock
          of the
          Company to a non-US person, at a purchase price of $.00017 per share, for
          aggregate proceeds of $68,000. The Company made such sale of pursuant to
          Rule
          903(b)(3) of Regulation S, promulgated pursuant to the Securities Act of
          1933,
          as amended, on the basis that the sale was made offshore of the United
          States,
          to a non-United States person, where no directed selling efforts were made
          in
          the United States and offering restrictions were implemented.
  27
 
 **ITEM
          3. DEFAULTS UPON SENIOR SECURITIES.**
 
 None.
 
 **ITEM
          4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 None.
  **ITEM
          5. OTHER INFORMATION.**
 
 None.
 
 **ITEM
          6. EXHIBITS.**
  Exhibit
                  Number
                Description  3.1.1
                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).
 
 3.2.1
                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.
 
 **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.
  Vocalscape
                    Networks, Inc.
                  (Name of Registrant)Date: November
                  19, 2007
                By:
                /s/ Ron
                  McIntyreRon
                  McIntyrePresident






28


**EXHIBIT
        INDEX**
 3.1.1
                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).
 
 3.2.1
                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.
   29