**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 June 30, 2006





OR





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


**EXCHANGE
      ACT OF 1934**








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
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)




170
      E.
      Post Road, Suite 206


White
      Plains, New York


(Address
      of principal executive offices, zip code)





(914)
      448-7600


(Registrant’s
      telephone number, including area code)





(Former
      name, former address and former fiscal year,


if
      changed since last report)








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





As
      of
      June 30, 2006 there were 6,059,132 shares of the Registrant’s common stock,
      $0.001 par value per share, issued and outstanding, 7,577,769 common shares
      issuable and outstanding, and 20,000 shares of Series A Convertible Preferred
      Stock issued and outstanding.





Transitional
      Small Business Disclosure Format (check one):


o
      Yes x No





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














**VOCALSCAPE
      NETWORKS, INC.**


**QUARTERLY
      REPORT ON FORM 10-QSB**


**FOR
      THE PERIOD ENDED JUNE 30, 2006**





**INDEX**








**Index**
            
            
            **Page****Part
                I.**
            **Financial
                Information**Item
              1.
            Financial
                StatementsConsolidated
                Balance Sheet as of June 30, 2006 (unaudited)
            2Consolidated
                Statements of Operations - for the three and six months ended June
              30,
                2006 and 2005 (unaudited)
            3Consolidated
                Statements of Cash Flows for the six months ended June 30, 2006 and
              2005
                (unaudited)
            4Notes
                to Unaudited Consolidated Financial StatementsItem 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            5Item 3.
            Controls
                and Procedures
            15**Part
                II.**
            **Other
              Information**Item 1.
            Legal
                Proceedings
            18Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item 3.
            Defaults
                Upon Senior Securities
            19Item 4.
            Submission
                of Matters to a Vote of Security Holders
            19Item 5.
            Other
                Information
            19Item 6.
            Exhibits
            19**Signatures**
            
            
            20**Certifications**










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 94% **** of
      the
      voting power of all security holders 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 Three and Six Months ended June 30, 2006 and 2005**
 **(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)
              
              5-14
  1
  Vocalscape
        Networks, Inc. and Subsidiary
 Consolidated
        Balance Sheet
 June
        30,
        2006
 (Unaudited)
 
 **ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              34,403Prepaid
                  expenses
              
              
              2,500Total
                  current assets
              
              
              36,903Property
                  and equipment, net
              
              
              28,193Other
                  assets
              
              
              3,054Development
                  costs, net
              
              
              4,434Total
                  assets
              
              $
              72,584**LIABILITIES
                  AND STOCKHOLDER'S DEFICIT****Current
                  liabilities:**Bank
                  overdraft
              
              $
              6,045Notes
                  payable
              
              
              309,000Notes
                  payable, related parties
              
              
              937,640Loan
                  payable due for software purchase, current portion, net of
                  discount
              
              
              69,781Accounts
                  payable
              
              
              296,376Accounts
                  payable, related parties
              
              
              372,939Accrued
                  expenses
              
              
              1,039,897Convertible
                  debentures
              
              
              84,912Payable
                  to related party shareholder
              
              
              900,027Other
                  liablilities
              
              
              59,289Total
                  current liabilities
              
              
              4,075,906**Long
                  term liabilities:**Loan
                  payable due for software purchase, net of discount
              
              
              21,877Total
                  liabilities
              
              
              4,097,783Commitments
                  and contingencies (Note 8)**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, $0.001 par value, 25,000,000 authorizedSeries
                  A, voting convertible preferred stock, 100,000shares
                  authorized, 20,000 shares issued and outstanding(liquidation
                  value $0.50 per share)
              
              
              20Common
                  stock, $0.001 par value, 100,000,000 authorized,6,059,132
                  issued and outstanding
              
              
              6,059Common
                  stock issuable at par value (7,577,769 shares)
              
              
              7,578Deferred
                  consulting fees
              
              
              (180,000
              )Additional
                  paid-in capital
              
              
              1,076,731Accumulated
                  deficit
              
              
              (4,935,587
              )Total
                  stockholders' deficit
              
              
              (4,025,199
              )Total
                  liabilities and stockholders' deficit
              
              $
              72,584
 
 See
        accompanying notes to financial statements
  2
 
 Vocalscape
        Networks, Inc. and Subsidiary
 Consolidated
        Statements of Operations
 For
        the
        Three Months and Six Months Ended June 30, 2006 and 2005
 (Unaudited)
 
 **Three
                  Months EndedJune 30,**
              ****
              **Six
                  Months EndedJune 30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Revenue
              
              $
              43,351
              
              $
              59,232
              
              $
              144,318
              
              $
              59,232Cost
                  of revenue
              
              
              3,589
              
              
              -
              
              
              16,740
              
              
              -Gross
                  profit
              
              
              39,762
              
              
              59,232
              
              
              127,578
              
              
              59,232Costs
                  and expenses:Compensation
              
              
              85,646
              
              
              -
              
              
              118,969
              
              
              -Consulting
              
              
              172,670
              
              
              110,075
              
              
              284,294
              
              
              149,620Professional
                  fees
              
              
              75,036
              
              
              19,899
              
              
              207,129
              
              
              26,917Bad
                  debts
              
              
              -
              
              
              -
              
              
              -
              
              
              -General
                  and administration
              
              
              75,690
              
              
              73,370
              
              
              160,784
              
              
              119,428409,042
              
              
              203,344
              
              
              771,176
              
              
              295,965Loss
                  from operations
              
              
              (369,280
              )
              
              (144,112
              )
              
              (643,598
              )
              
              (236,733
              )Other
                  income (expense)Bad
                  debt recovery
              
              
              20,873
              
              
              -
              
              
              20,873
              
              
              -Writeoff
              
              
              -
              
              
              3,699
              
              
              (22,602
              )
              
              3,699Settlement
                  expense
              
              
              (1,414,000
              )
              
              -
              
              
              (1,414,000
              )
              
              -Loss
                  on conversion
              
              
              (220,000
              )
              
              -
              
              
              (220,000
              )
              
              -Interest
                  expense
              
              
              (32,715
              )
              
              (12,874
              )
              
              (225,760
              )
              
              (23,467
              )Other
                  Income
              
              
              6
              
              
              -
              
              
              6
              
              
              -Foreign
                  currency transaction gain (loss), net
              
              
              (3,105
              )
              
              -
              
              
              (6,409
              )
              
              -Total
                  other income (expense)
              
              
              (1,648,941
              )
              
              (9,175
              )
              
              (1,867,892
              )
              
              (19,768
              )Net
                  loss
              
              $
              (2,018,221
              )
              $
              (153,287
              )
              $
              (2,511,490
              )
              $
              (256,501
              )Net
                  loss per share - basic and diluted
              
              $
              (0.24
              )
              $
              (0.13
              )
              $
              (0.46
              )
              $
              (0.23
              )Weighted
                  average shares outstanding during the period
              
              
              8,259,964
              
              
              1,138,889
              
              
              5,504,780
              
              
              1,138,889
 
 See
        accompanying notes to financial statements
  3
 
 Vocalscape
        Networks, Inc. and Subsidiary
 Consolidated
        Statements of Cash Flows
 For
        the
        Six Months Ended June 30, 2006 and 2005
 (Unaudited)
 
 **2006**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (2,511,490
              )
              $
              (256,501
              )Adjustments
                  to reconcile net loss to net cashused
                  by operating activities:Depreciation
                  and amortization
              
              
              4,852
              
              
              1,417Amortization
                  of debt discount
              
              
              160,000
              
              
              -Loss
                  of debt conversion
              
              
              280,000
              
              
              -Loss
                  on debt settlement
              
              
              1,414,000
              
              
              -Advances
                  to affilliate
              
              
              -
              
              
              (63,853
              )Changes
                  in other assets and liabilities:Other
                  assets
              
              
              (2,200
              )
              
              -Deferred
                  revenue
              
              
              (45,000
              )
              
              -Accounts
                  payable
              
              
              18,105
              
              
              24,085Accounts
                  payable, related party
              
              
              59,175
              
              
              -Accrued
                  expenses
              
              
              48,315
              
              
              5,486Net
                  cash used in operations
              
              
              (574,243
              )
              
              (289,366
              )**Cash
                  flows from investing activities:**Acquisition
                  of property and equipment
              
              
              -
              
              
              (29,388
              )Acquisition
                  of software for development
              
              
              -
              
              
              (38,688
              )Net
                  cash used in investing activities
              
              
              -
              
              
              (68,076
              )**Cash
                  flows from financing activities:**Bank
                  overdraft repayment
              
              
              (7,364
              )
              
              -Payable
                  to Vocalscape, Inc.
              
              
              -
              
              
              84,917Prepaid
                  liability for stock subscription
              
              
              45,000
              
              
              -Common
                  stock sale proceeds, net of offering costs
              
              
              165,398
              
              
              -Repayment
                  of notes payable
              
              
              (5,000
              )
              
              (18,464
              )Loan
                  proceeds
              
              
              410,612
              
              
              277,486Net
                  cash provided by financing activities
              
              
              608,646
              
              
              343,939Net
                  increase (decrease) in cash and cash equivalents
              
              
              34,403
              
              
              (13,503
              )Cash
                  and cash equivalents, beginning of period
              
              
              -
              
              
              55,274**Cash
                  and cash equivalents, end of period**
              
              $
              34,403
              
              $
              41,771**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
              
              $
              235,000
              
              $
              -Conversion
                  of debt to preferred stock
              
              $
              5,000
              
              $
              -Assignment
                  od debt from creditors to related party shareholder
              
              $
              900,027
              
              $
              -Settlement
                  of accrued liabilities with common stock
              
              $
              86,000
              
              $
              -
  4
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 **1.**  **NATURE
        OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN**
 
 **Basis
        of Presentation -** The
        consolidated financial statements included in this report have been prepared
        by
        the Company pursuant to the rules and regulations of the Securities and Exchange
        Commission for interim reporting and include all adjustments (consisting
        only of
        normal recurring adjustments) that are, in the opinion of management, necessary
        for a fair presentation.
 
 Certain
        information and footnote disclosures normally included in financial statements
        prepared in accordance with accounting principles generally accepted in the
        United States of America have been condensed or omitted pursuant to such
        rules
        and regulations for interim reporting. The Company believes that the disclosures
        contained herein are adequate to make the information presented not misleading.
        However, these financial statements should be read in conjunction with the
        consolidated financial statements and notes thereto included in the Company’s
        Annual Report for the period ended December 31, 2005, which is included in
        the
        Company’s Form 10-KSB.
 
 **Principles
        of Consolidation -** The
        consolidated financial statements include the accounts of Vocalscape Networks,
        Inc. (the “Company” or “VNI” or “Vocalscape”) and its wholly owned subsidiary
        Vocalscape Networks Operating Subsidiary, Inc. (“VNOS”). All material
        intercompany balances and transactions have been eliminated in consolidation.
 
 **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 transaction closed on October 4, 2005 and the 1,138,889 common
        shares are included in common stock issuable at par as of March 31, 2006.
        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**
 **June
        30, 2006**
 **(Unaudited)**
 
 **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 and began operations on February 5,
        2003.
 
 **Going
        Concern -** The
        accompanying financial statements have been prepared in conformity with
        accounting principles generally accepted in the United States of America,
        which
        contemplate continuation of the Company as a going concern. The Company had
        a
        net loss for the six months ended June 30, 2006 of $2,511,490, net cash used
        in
        operations in the six months ended June 30, 2006 of $574,243, and working
        capital deficit of $4,039,003, accumulated deficit of $4,935,587 and
        stockholders’ deficit of $4,025,199 at June 30, 2006.
 
 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 revenues. There can be no assurance that the Company
        will
        be able to obtain the necessary working capital or generate revenues to execute
        its business plan. The Company generated revenues from customer license
        agreements in 2006, entered into additional promissory notes in 2006 and
        has
        been raising additional capital under a Regulation S offering.  Management
        believes the revenues combined with the capital raised and its plan to raise
        additional capital will provide the Company with the ability to continue
        as a
        going concern.
 
 **2.**  **PROPERTY
        AND EQUIPMENT**
 
 Property
        and equipment at June 30, 2006, consists of the following:
 
 Office
                  equipment
              
              $
              35,854Accumulated
                  depreciation
              
              
              (7,661
              )Property
                  and equipment, net
              
              $
              28,193
  6
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 Depreciation
        expense for the six months ending June 30, 2006 and 2005, were $3,373 and
        $1,417, respectively.
 
 **3.**  **DEVELOPMENT
        COSTS**
 
 Capitalized
        software development cost consists of the following at June 30,
        2006:
 
 Cost
              
              $
              8,870Accumulated
                  amortization
              
              
              (4,436
              )Software,
                  net
              
              $
              4,434
 
 During
        the six months ended June 30, 2005 the Company recognized $1,478 of amortization
        expense, upon general release of the software product.
 
 **4.**
              **LOANS
                  AND NOTES PAYABLE, LOANS AND NOTES PAYABLE RELATED PARTIES, AND
                  CONVERTIBLE DEBENTURES**
 
 Loans
        and
        notes payable to related and unrelated parties consists of the following
        at June
        30, 2006:
 
 Note
                  payable to the related party former director of the Company; due
                  on
                  demand; unsecured; with interest at prime plus 3% (11.25% at June
                  30,
                  2006)
              
              
              718,000Note
                  payable to the related party principal shareholder/officer of the
                  Company
                  and to companies owned or controlled by him; due on demand; unsecured;
                  with interest at prime plus 2% to 3% (10.25% to 11.25% at June
                  30,
                  2006)
              
              
              133,140Loan
                  payable to wife of a director, with interest at 10%, due March
                  31,
                  2006
              
              
              27,500Loan
                  payable to law firm, due on demand, non-interest bearing
              
              
              59,000Subtotal
                  - Notes payable related parties
              
              
              937,640Loans
                  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% (11.25% at June 30, 2006)
              
              
              150,000Subtotal
                  - Notes payable unrelated parties
              
              
              309,000Total
                  Notes Payable
              
              $
              1,246,640
  7
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 The
        weighted average interest rate on short term outstanding as of June 30, 2006
        was
        10.14%.
 
 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 June 30, 2006 since the debt qualifies
        as conventional convertible debt. Based upon the conversion rate at the issuance
        date, there was no beneficial conversion feature recorded.
 
 **Convertible
        Promissory Notes** - In
        March 2006, the Company issued a convertible promissory note for $150,000
        with
        interest payable at maturity at 10.5% per annum. The note matures and is
        due
        March 3, 2008. The note principal is convertible to common stock at a fixed
        price of $.118 per share which equates to 1,271,186 common shares. Management
        has determined that this note qualifies as conventional convertible debt
        pursuant to SFAS 133 and EITF 00-19 and accordingly the embedded conversion
        option is not a derivative. The convertible promissory note was converted
        into
        common stock in March 2006. The Company computed a beneficial conversion
        value
        of $150,000 based on the quoted stock price on the grant date of $.60 per
        share.
        The $150,000 was recorded as a debt discount and credited to additional paid-in
        capital. The debt discount was amortized to interest expense in March 2006
        when
        the note was converted. The note is guaranteed by, Azatel Communications
        Inc.
        (the “Acquiree ”) (see note 11) with the note holder holding a first security
        interest in substantially all assets of the Acquiree and the Company has
        guaranteed the conversion.
 
 In
        March
        2006, the Company issued a convertible promissory note for $10,000 with interest
        payable at maturity at 10.5% per annum. The note matures and is due March
        15,
        2008. The note principal is convertible to common stock at a fixed price
        of
        $.118 per share which equates to 85,746 common shares. Management has determined
        that this note qualifies as conventional convertible debt pursuant to SFAS
        133
        and EITF 00-19 and accordingly the embedded conversion option is not a
        derivative. The convertible promissory note was converted into common stock
        in
        March 2006. The Company computed a beneficial conversion value of $10,000
        based
        on the quoted stock price on the grant date of $.60 per share. The $10,000
        was
        recorded as a debt discount and credited to additional paid-in capital. The
        debt
        discount was amortized to interest expense in March 2006 when the note was
        converted.
 
 **5.**  **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.
  8
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
  The
        loan
        payable balance at June 30, 2006 was as follows:
 
 Loan
                  payable
              
              $
              103,352Debt
                  discount
              
              
              (11,694
              )Loan
                  payable, net of discount
              
              $
              91,658Less:
                  current portion
              
              
              (69,781
              )Loan
                  payable, long term
              
              $
              21,877
 
 Amortization
        of debt discount recorded as interest expense was $0 and $5,048 in 2005 and
        2004, respectively. This loan payable is collateralized by the software asset.
        Additional interest in the amount of $5,584 was accrued in the six months
        ended
        June 30, 2006. The loan is currently in default.
 
 **6.**  **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)
 
 **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. The issuance of these shares increases
        the CEO’s voting control of the Company to approximately 88%.
 
 **Common
        Stock -** During
        the first quarter of 2006 the Company received $91,961, net of offering costs
        of
        approximately $133,000 from the sale of common stock through a Regulation
        S
        Stock Purchase Agreement. The Company issued 1,749,826 common shares and
        has
        issuable 215,500 common shares.
  9
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 During
        March 2006, the Company issued 1,271,186 common shares upon conversion of
        a
        convertible note (see Note 4).
 
 During
        March 2006, the Company issued 85,746 common shares upon conversion of a
        convertible note (see Note 4).
 
 During
        the second quarter of 2006 the Company received $ 73,436 from the sale of
        common
        stock through a Regulation S Stock Purchase Agreement. The Company issued
        1,991,625 common shares and has issuable 634,000 common shares. During the
        second quarter the Company reclassified $ 16,159 from liabilities to additional
        paid in capital to reflect a correction on the amount of proceeds due to
        the
        Company on the Reg S shares sold in the first quarter. This is reflected
        above
        in the $91,961 proceeds in the first quarter.
 
 During
        the second quarter loans payable of $ 75,000 were converted to 500,000 common
        shares at a valuation of $ 295,000 or $0.59 per share based on the quoted
        trade
        price on the conversion date. A loss on conversion of $220,000 was recognized.
 
 During
        the second quarter 800,000 shares were issued under a consulting agreement
        valued at $240,000 based on the $0.30 quoted trade price on the grant date.
        The
        $240,000 is being recognized over the 6-month term with $60,000 expensed
        as of
        June 30, 2006.
 
 During
        the second quarter 5,000,000 shares were issued to settle $86,000 of recorded
        and $300,000 of disputed liabilities. The settlement was valued at $1,500,000
        based on the quoted trade price of $0.30 per share on the settlement date
        resulting in a loss of $1,414,000.
 
 **Shares
        Issuance Authorized** - During
        February 2006, the Company authorized 1,550,000 common shares to be issued
        for
        services. The shares will be valued at the quoted market prices on the
        respective measurements dates and the resulting expense will be recognized
        over
        the service periods. The shares have not been issued or accounted as of the
        date
        of this report.
 
 **7.**  **RELATED
        PARTY TRANSACTIONS**
 
 Notes
        payable to our CEO or his affiliates were $133,140 at June 30,
        2006.
 
 During
        January 2006, the Company received a loan of $27,500 from the wife of a
        director, which bears interest at 10% and is due March 31, 2006. The proceeds
        from the loans were $25,000 with $2,500 of the related party loan being a
        loan
        fee. As of the date of this report, the loan has not been repaid.
 
 For
        purposes of these consolidated financial statements, during 2005, the Company
        has recorded allocated expenses, which were paid by the former parent using
        the
        specific identification method. Management believes the allocation is
        reasonable.
  10
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 Certain
        officers and directors of the Company remain as officers and directors of
        the
        former parent, Vocalscape, Inc.
 
 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 June 30, 2006 no proceeds were reported to
        the
        Company and no additional shares were issued as the director held in excess
        of
        4.9% of the common stock of the Company. At June
        30, 2006, accounts payable to this law firm were $372,939 which is included
        in
        accounts payable, related party. In addition, the Company has a loan payable
        to
        the law firm in the amount of $59,000 which is included in loans and notes
        payable, related parties. Expenses incurred by the Company during 2006 to
        this
        law firm were $73,464.
 
 Loans
        payable to related parties were $937,640 at June 30, 2006.
 
 Other
        payables to a former director related party were $900,027 at June 30,
        2006.
 
 **8.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 Legal
        Matters
 
 From
        time
        to time we may become subject to proceedings, lawsuits and other claims in
        the
        ordinary course of business. Such matters are subject to many uncertainties,
        and
        outcomes are not predictable with assurance.
  The
        Company is subject to a claim from a consultant vendor for approximately
        $12,200. The Company has filed a counterclaim to recover approximately $21,000
        previously paid to this consultant for non-performance of services. The Company
        previously accrued the $12,200 in 2005, which remains accrued at June 30,
        2006.
        Management believes it will prevail in this matter.
  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. These amounts relate to periods of Dtomi,
        Inc. prior to the recapitalization transactions of October 2005. Although
        the
        Company disputes such amounts, these amounts aggregating $687,407 had been
        previously accrued by Dtomi, Inc. in a period prior to 2005 and are reflected
        in
        accrued expenses at June 30, 2006.
  11
  **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 The
        Company has received claims from a prior director of Dtomi, Inc. relating
        to
        periods prior to the October 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 terminated these and other
        obligations during 2005.
  Other
        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 CA$2,238 Canadian
        dollars (approximately $1,850 U.S. dollars) with two free months during the
        first 24 months of the agreement; 24 monthly payments of CA$2,331 (approximately
        $1,930 U.S. dollars) during the third and fourth years of the agreement;
        and 12
        monthly payments of CA$2,425 (approximately $2,000 U.S. dollars) during the
        final year of the agreement. In addition, the agreement provides for a monthly
        common area maintenance charge of CA$1,585 (approximately $1,315 U.S.
        dollars).
 
 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
        Company enters into sales agent and distributor agreements to sell its products.
        These agreements are primarily commission based. There were no commissions
        payable as of June 30, 2006.
 
 In
        November 2005 the Company executed a Merchant Banking and Consultant Agreement
        whereby the consultant will provide various services to the Company. The
        consultant is to be compensated in 5% cash and 5% capital stock of the value
        of
        any transaction introduced by the consultant to the Company. Such fee would
        be
        payable at the closing of such transaction.
 
 In
        May,
        2006 the Company entered into a consulting agreement with a former officer
        of
        Dtomi wherein he is to be issued 50,000 common shares of stock for providing
        consulting services to the Company for two months starting on May 15, 2006.
        The
        Board of Directors has not approved this contract and has not recognized
        the
        expense or issuance of the shares as of June 30, 2006, pending Board approval
        of
        the contract.
  12
 
 **Vocalscape
        Networks, Inc. and Subsidiary**
 **Notes
        to Consolidated Financial Statements**
 **June
        30, 2006**
 **(Unaudited)**
 
 **9.**  **CONCENTRATIONS**
 
 **Revenues
        -** During
        the six months ending June 30, 2005, the company had revenue of $59,232.
        During
        the six months ending June 30, 2006 the company had revenues of $144,318.
        In the
        six months ending June 30, 2006, 100% of revenues were from five customers
        as
        follows; Customer 1: 52%, customer 2: 27%, customer 3: 17%, customer 4: 2%
        and
        customer 5: 2%.
 
 **10.**  **ACCRUED
        EXPENSES**
 
 Accrued
        expenses at June 30, 2006 consist of the following:
 
 Accrued
                  compensation
              
              $
              687,407Accrued
                  license fees
              
              
              36,000Accrued
                  interest
              
              
              228,033Accrued
                  expenses - other
              
              
              88,457Total
              
              $
              1,039,897
 
 **11.**  **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 has taken the position that the Share
        Exchange Agreement is terminated.  Vocalscape does not believe that the
        Share Exchange Agreement is terminated. The Agreement is currently on hold
        and
        management is uncertain whether it will be consummated or not. Therefore,
        the
        company has 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.
 
 **12.**  **PAYABLE
        TO SHAREHOLDER**
 
 During
        the second quarter 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 assignments with the Company as
        follows:
  13
  **Vocalscape
          Networks, Inc. and Subsidiary**
 **Notes
          to Consolidated Financial Statements**
 **June
          30, 2006**
 **(Unaudited)**
 Payable
                  to Vocalscape, Inc.
              
              $
              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 vendor directly to the shareholder.
 
 **13.**  **SUBSEQUENT
        EVENTS**
 
 **Consulting
        Agreement -** In July,
        the Company approved a consulting agreement effective July 18, 2006 with
        a
        consultant wherein the Company agreed to issue him 200,000 shares of common
        stock during the six month term of the agreement. The grant will be accounted
        for at the quoted trading price of the common stock at the grant date for
        shares
        issued to the consultant and such expense will be recgnized over the term
        of the
        agreement.On July 18, 2006 the Company accepted a subscription agreement
        to sell
        2,000,000 shares of common stock for $0.15 per share. These shares have not
        been
        issued nor are they reflected in the attached statements.
  14




**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. This second fiscal
      quarter of 2006 is the second full quarterly report since the merger was
      consummated.





**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.




15




**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
      independent registered public accounting firm has added an explanatory paragraph
      to their audit opinion in connection with the December 31, 2005 consolidated
      financial statements, which states that our company has nominal revenues and
      has
      incurred net losses of $1,890,435 and net cash used in operations of $683,398
      in
      the year ended December 31, 2005. Our current liabilities exceed our current
      assets by $3,867,254 and we have an accumulated deficit and stockholder’s
      deficit of $2,424,097 and $3,859,107 at December 31, 2005.





The
      Company has a net loss and cash used in operations of $2,511,490 and $574,243,
      respectively for the six months ended June 30, 2006 and a working capital
      deficit, accumulated deficit and stockholders’ deficit of $4,039,003, $
      4,935,587 and $4,025,199 at June 30, 2006. These conditions give rise to
      substantial doubt about Vocalscape’s ability to 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.




16




**RESULTS
      OF OPERATIONS**




The
      Company recorded revenues of $43,351 and $144,318 for the three and six months
      ending June 30, 2006, as compared to $59,232 and $59,332 of revenue for the
      same
      periods ending June 30, 2005.





Compensation
      expense for the three and six months ending June 30, 2006, was $85,646 and
      $118,969, as compared to $0 for the same periods ending June 30, 2005. In 2005
      we primarily used consultants in our operations. Compensation expense for the
      current 2006 periods consists of salaries paid to the Company’s
      officers.





Consulting
      fees expense for the three and six months ending June 30, 2006 was $172,760
      and
      $284,294, an increase of 57% and 90%, respectively, over expenses of $110,075
      and $149,620 for the same periods ending June 30, 2005. The consulting fees
      in
      2006 primarily relate to amounts paid to non-officer and director persons
      performing services on behalf of Vocalscape.





Professional
      fees increased to $75,036 and $207,129 for the three and six months ending
      June
      30, 2006, a increase of 277% and 669%, respectively, of such costs for the
      same
      periods ending June 30, 2005 at $19,899 and $26,917. These consist of primarily
      of legal and accounting fees in 2006 as a result of us becoming a publicly
      held
      company.





General
      and administrative expenses increased to $75,690 and $160,784 for the three
      and
      six months ending June 30, 2006, an increase of 3% and 35%, respectively, over
      expenses of $73,370 and $119,428 for the same periods ending June 30, 2005.
      General and administrative expenses in this second quarter of 2006 consist
      primarily of rent, telephone, travel and other general corporate and office
      expenses.








There
      was
      bad debt expense in the six months ended June 30, 2006 of $22,602 relating
      to an
      other receivable, from a Company we were going to acquire, for which an
      allowance was established in the first quarter of 2006. During the second
      quarter of 2006, $20,873 of this amount was recovered and recorded as bad debt
      recovery.




Interest
      expense was $32,715 and $225,760 for the three and six months ending June 30,
      2006, an increase of 154% and 862%, respectively, over expense of $12,878 and
      $23,467 for the same periods ending June 30, 2005. This interest expense
      consists of interest on various loans, and convertible debentures which
      increased in 2006 plus $160,000 of beneficial conversion value expensed due
      to
      the conversion of convertible notes in the first quarter of 2006.





During
      the second quarter of 2006, the Company recognized a settlement expense of
      $1,414,000 relating to the issuance of 5,000,000 common shares issued in
      settlement of $86,000 of accrued expenses and $300,000 of unrecorded disputed
      amounts. The stock was valued at $1,500,000 based on the quoted trading price
      on
      the settlement date.





During
      the second quarter the Company recognized $220,000 loss on conversion of $75,000
      of promissory notes in exchange for 500,000 of the Company’s common shares. The
      shares were valued at $.59 per shares based on the quoted trading price at
      the
      conversion agreement date.




17




The
      net
      loss for the three and six months ending June 30, 2006 is $2,018,221 (net loss
      per share of $0.24) and $2,511,490 (net loss per share of $0.46) compared to
      the
      same periods ending June 30, 2005, $153,287 (net loss per share of $0.13) and
      $256,501 (net loss per share of $0.23)




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company has cash and cash equivalents of $34,403, total current liabilities
      of
      $4,075,906 and total assets of $72,584 at June 30, 2006. 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.





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 JUNE 30, 2006**





On
      July
      18, 2006 the Company accepted a subscription agreement to sell 2,000,000 shares
      of common stock for $0.15 per share. These shares have not been issued nor
      are
      they reflected in the attached financial statements for periods ending June
      30,
      2006.





**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.**




18





The
      Company is not currently subject to any legal proceedings. From time to time,
      the Company may become subjected to litigation or proceedings in connection
      with
      its business, as either a plaintiff or defendant. There are no such pending
      legal proceedings to which the Company is a party that, in the opinion of
      management, is likely to have a material adverse effect on the Company’s
      business, financial condition or results of operations.




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





None.





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





None.





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





None.




**ITEM
      5. OTHER INFORMATION.**





None.





**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K.**





(a)
      Form
      8-K Filings





On
      June
      26, 2006, Vocalscape filed a Form 8-K disclosing the termination of that
      certain Share
      Exchange Agreement dated February
      26, 2006 by and among the Company, Azatel
      Communications Inc., a British Columbia corporation (“Azatel”), and all
      of the
      shareholders of Azatel.





On
      June
      1, 2006, Vocalscape filed a Form 8-K disclosing the resignation of Ryan Gibson
      as a director of Vocalscape.





On
      April
      27, 2006, Vocalscape filed an Amendment No. 1 to a Form 8-K filed o n
      October
      12, 2005, disclosing certain financial information regarding that certain
      Agreement and Plan of Reorganization dated August 25, 2005 by and among Dtomi,
      Inc., a Nevada corporation, Dtomi Acquisition Corp., a Nevada corporation,
      and
      the Company, as amended.





(b)
      Exhibits





Exhibit
                Number
            
            Description3.1.1
            
            Articles
                of Incorporation of the Company (incorporated by reference to the
                Company’s Registration Statement on Form 10-SB 12G/A filed on November 26,
                1999).3.1.2
            
            Certificate
                of Amendment to Articles of Incorporation of the Company (incorporated
                by
                reference to the Company’s Registration Statement on Form 10-SB 12G/A
                filed on November 26, 1999).3.1.3
            
            Certificate
                of Amendment to Articles of Incorporation of the Company filed October
                25,
                2001 (incorporated by reference to the Company’s Quarterly Report on Form
                10-QSB filed on December 18, 2001).3.1.4
            
            Certificate
                of Amendment to Articles of Incorporation of the Company filed November
                6,
                2005 (incorporated by reference to the Company’s Annual Report on Form
                10-KSB filed on May 18, 2006).




19


3.2.1
                
                Bylaws
                    of Dtomi (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:
              August 14, 2006
            By:
            /s/
              Ron
              McIntyreRon McIntyre
              President




20





**EXHIBIT
      INDEX**





**Exhibit**
                    **Number**
                  
                  **Description**3.1.1
                  
                  Articles of Incorporation of the
                    Registrant
                    (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 Dtomi (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 Dtomi 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).3.2.1
                  
                  Bylaws
                      of Dtomi (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.





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