**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 (MARK
        ONE)
 
 **[X]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE**
 **ACT
        OF 1934**
 
 For
        the
        quarterly period ended September 30, 2008
 
 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
 
 **KALEIDOSCOPE
        VENTURE CAPITAL INC.**
 
 (Exact
        name of registrant as specified in its charter)
   **NEVADA**
              **98-0207554**(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
  282
        Katonah Ave, #200
 Katonah,
        New York 10536
 (Address
        of principal executive offices, zip code)
 
 (914)
        448-7600
 (Registrant’s
        telephone number, including area code)
 
 170
        E.
        Post Road, Suite 206
 White
        Plains, New York 10601
 (Former
        name, former address and former fiscal year,
 if
        changed since last report)
 
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
        (or for such shorter period that the registrant was required to file such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days. Yes x No
o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Exchange
        Act Rule 12b-2 of the Exchange Act):    Yeso No
x
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date.
 
 As
        of
        November 18, 2008, there were 1,901,395 shares of the issuer’s common stock, par
        value $0.001 per share, outstanding, 350 shares of Series A Convertible
        Preferred Stock outstanding, and 100,000,000 shares of Class A Common Stock,
        par
        value $0.001 per share, outstanding.
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act. (check one):
  Large accelerated filer  o
              Accelerated filer  o
              Non-accelerated filer o
              Smaller reporting company  x
 (Do
        not
        check if a smaller reporting company)
 
 
 **KALEIDOSCOPE
        VENTURE CAPITAL INC.**
 **QUARTERLY
        REPORT ON FORM 10-Q**
 **FOR
        THE PERIOD ENDED SEPTEMBER 30, 2008**
 
 **INDEX**
 
 
 **Index**
              
              
              **Page****Part
                  I.**
              **Financial
                  Information**Item
                  1.Financial
                  Statements
              
              F-1Consolidated
                  Balance Sheet as of September 30, 2008 (unaudited)
              
              F-2Consolidated
                  Statements of Operations - for the three and nine months ended
                  September
                  30, 2008 and 2007 (unaudited)
              
              F-3Consolidated
                  Statements of Cash Flows for the nine months ended September 30,
                  2008 and
                  2007 (unaudited)
              
              F-4Notes
                  to Consolidated Financial Statements (unaudited)
              
              F-5Item
                  2.Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              4Item
                  3.Controls
                  and Procedures
              
              7**Part
                  II.**
              **Other
                  Information**Item
                  1.Legal
                  Proceedings
              
              7Item
                  2.Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              7Item
                  3. Defaults Upon Senior Securities
              
              7Item
                  4. Submission of Matters to a Vote of Security Holders
              
              7Item
                  5. Other Information
              
              7Item
                  6.Exhibits
              
              8**Signatures**
              
              
              9**Certifications**
 
 2
  CAUTIONARY
        NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
        Quarterly Report on Form 10-Q contains “forward-looking statements.” In some
        cases, you can identify forward-looking statements by terminology such as
“may,”
“will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” or “continue” or the negative
        of such terms and other comparable terminology. These forward-looking statements
        include, without limitation, statements about our market opportunity, our
        strategies, competition, expected activities and expenditures as we pursue
        our
        business plan, and the adequacy of our available cash resources. Although
        we
        believe that the expectations reflected in the forward-looking statements
        are
        reasonable, we cannot guarantee future results, levels of activity, performance
        or achievements. Actual results may differ materially from the predictions
        discussed in these forward-looking statements. The economic environment within
        which we operate could materially affect our actual results. Additional factors
        that could materially affect these forward-looking statements include, among
        other things, the company’s ability to (i) adapt to rules and regulations that
        may be promulgated that affect how Kaleidoscope Venture Capital must conduct
        its
        Voice-over-Internet Protocol business and operations; (ii) market and distribute
        its Voice-over-Internet Protocol services; (iii) secure capital to continue
        operations; (iv) achieve and manage growth; and (v) develop or acquire new
        technology to effectively provide new and/or better services. Additional
        factors
        that will impact the company’s success include the company’s ability to attract
        and retain qualified personnel; the voting decisions of Robert Koch, who
        controls approximately 50% **** of
        the
        voting power of all securities of Kaleidoscope Venture Capital; and other
        factors discussed in Kaleidoscope Venture Capital’s filings with the Securities
        and Exchange Commission (“SEC”).
 
 Our
        management has included projections and estimates in this Form 10-Q, which
        are
        based primarily on management’s experience in the industry, assessments of our
        results of operations, discussions and negotiations with third parties and
        a
        review of information filed by our competitors with the Securities and Exchange
        Commission or otherwise publicly available. We caution readers not to place
        undue reliance on any such forward-looking statements, which speak only as
        of
        the date made. We disclaim any obligation subsequently to revise any
        forward-looking statements to reflect events or circumstances after the date
        of
        such statements or to reflect the occurrence of anticipated or unanticipated
        events.
 
 3


**Kaleidoscope
      Venture Capital Inc. and Subsidiary**


**(Formerly
        known as Vocalscape Networks, Inc)**
 **Consolidated
        Financial Statements**
 **For
        the Three and Nine Months ended September 30, 2008 and
        2007**
 **(Unaudited)**









**PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS.**


**Kaleidoscope
      Venture Capital Inc. and Subsidiary**


**(Formerly
      known as Vocalscape Networks, Inc)**




Index
      to
      Consolidated Financial Statements




Page(s)Consolidated
                Balance Sheets (Unaudited)
            F-2Consolidated
                Statements of Operations (Unaudited)
            F-3Consolidated
                Statements of Cash Flows (Unaudited)
            F-4Notes
                to Consolidated Financial Statements (Unaudited)
            F-5




F-1




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Consolidated
        Balance Sheets**


**September
                  30, 2008**
              
              **December
                  31, 2007**(Unaudited)**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              1,780
              
              $
              236Total
                  current assets
              
              
              1,780
              
              
              236Investment
                  in non-marketable equity securities
              
              
              19,148
              
              
              18,656Property
                  and equipment, net
              
              
              13,015
              
              
              18,074Total
                  assets
              
              $
              33,943
              
              $
              36,966**LIABILITIES
                  AND STOCKHOLDER'S DEFICIT****Current
                  liabilities:**Loans
                  and notes payable
              
              $
              1,867,000
              
              $
              1,767,000Loans
                  and notes payable, related parties
              
              
              170,886
              
              
              160,486Loan
                  payable due for software purchase
              
              
              131,746
              
              
              131,746Accounts
                  payable
              
              
              317,563
              
              
              285,379Accounts
                  payable, related parties
              
              
              306,180
              
              
              240,779Accrued
                  expenses
              
              
              1,488,299
              
              
              1,270,289Accrued
                  expenses, related parties
              
              
              588,342
              
              
              272,304Convertible
                  debentures
              
              
              84,912
              
              
              84,912Payable
                  to shareholder
              
              
              900,027
              
              
              900,027Embedded
                  conversion option liability
              
              
              -
              
              
              193,375Other
                  liablilities
              
              
              14,289
              
              
              14,289Total
                  current liabilities
              
              
              5,869,244
              
              
              5,320,586Commitments
                  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, 350 and 250 shares issued and outstanding (liquidation
                    value $100.00 per share)
              
              
              -
              
              
              -Common
                    stock, $0.001 par value, 400,000,000 authorized, 1,901,395
                    and 1,364,680 issued and outstanding
              
              
              1,901
              
              
              1,365Common
                  stock issuable, at par value (550,025 and 40,025 shares)
              
              
              550
              
              
              40Common
                  stock , Class A non voting, $.001 par value, 100,000,000 shares
                  authorized, 100,000,000 shares issued and outstanding
              
              
              100,000
              
              
              100,000Common
                  stock and Common Stock, Class A subscriptions receivable
              
              
              (1,165,000
              )
              
              (1,165,000
              )Additional
                  paid-in capital
              
              
              11,250,021
              
              
              7,881,916Accumulated
                  deficit
              
              
              (16,022,773
              )
              
              (12,101,941
              )Total
                  stockholders' deficit
              
              
              (5,835,301
              )
              
              (5,283,620
              )Total
                  liabilities and stockholders' deficit
              
              $
              33,943
              
              $
              36,966




See
        accompanying notes to consolidated financial statements
  F-2




**Kaleidoscope
      Venture Capital, Inc. and Subsidiary**


**(Formerly
        known as Vocalscape Networks, Inc)**
 **Consolidated
        Statements of Operations**
 **(Unaudited)**




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              **September
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Revenue
              
              $
              -
              
              $
              4,000
              
              $
              7,461
              
              $
              53,761Cost
                  of revenue
              
              
              -
              
              
              739
              
              
              -
              
              
              2,217Gross
                  profit
              
              
              -
              
              
              3,261
              
              
              7,461
              
              
              51,544Costs
                  and expenses:Compensation
              
              
              116,100
              
              
              148,035
              
              
              540,897
              
              
              491,832Consulting
              
              
              6,311
              
              
              51,876
              
              
              1,136,159
              
              
              307,229Professional
                  fees
              
              
              31,314
              
              
              24,050
              
              
              791,299
              
              
              72,453General
                  and administration
              
              
              22,253
              
              
              51,307
              
              
              67,971
              
              
              166,122175,978
              
              
              275,268
              
              
              2,536,326
              
              
              1,037,636Loss
                  from operations
              
              
              (175,978
              )
              
              (272,007
              )
              
              (2,528,865
              )
              
              (986,092
              )Other
                  income (expense)Interest
                  expense
              
              
              (62,907
              )
              
              (111,685
              )
              
              (235,763
              )
              
              (411,108
              )Change
                    in fair value of embedded conversion option
                    liability
              
              
              -
              
              
              1,028
              
              
              (1,156,696
              )
              
              (62,752
              )Foreign
                  currency transaction gain (loss), net
              
              
              (1,480
              )
              
              -
              
              
              492
              
              
              (3,269
              )Total
                  other income (expense)
              
              
              (64,387
              )
              
              (110,657
              )
              
              (1,391,967
              )
              
              (477,129
              )Net
                  loss
              
              $
              (240,365
              )
              $
              (382,664
              )
              $
              (3,920,832
              )
              $
              (1,463,221
              )Net
                  loss per share - basic and diluted
              
              $
              (0.11
              )
              $
              (0.48
              )
              $
              (2.09
              )
              $
              (7.06
              )Weighted
                    average shares outstanding during the period - basic and
                    diluted
              
              
              2,170,985
              
              
              799,674
              
              
              1,877,853
              
              
              207,359




See
      accompanying notes to consolidated financial
      statements




F-3




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Consolidated
        Statements of Cash Flows**
 (Unaudited)




**Nine
                  Months Ended**
                **September
                  30,****2008**
              
              **2007****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (3,920,832
              )
              $
              (1,463,221
              )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Stock
                  options granted for services
              
              
              490,816
              
              
              14,175Stock
                  option exercises paid for with services
              
              
              15,000
              
              
              5,050Deferred
                  consulting amortization
              
              
              -
              
              
              146,667Common
                  stock granted for services
              
              
              1,392,000
              
              
              -Preferred
                  stock granted for services
              
              
              2,500
              
              
              -Non-cash
                  loan fee
              
              
              25,000
              
              
              20,000Non-cash
                  revenues
              
              
              -
              
              
              (17,290
              )Foreign
                  currency transaction loss (gain)
              
              
              (492
              )
              
              1,143Amortization
                  of debt discount to interest expense
              
              
              -
              
              
              220,607Depreciation
                  and amortization
              
              
              5,059
              
              
              7,276Change
                  in fair value of embedded conversion option liability
              
              
              1,156,696
              
              
              62,752Changes
                  in operating assets and liabilities:Increase
                  (Decrease) in:Accounts
                  payable
              
              
              32,184
              
              
              55,133Accounts
                  payable, related party
              
              
              65,401
              
              
              13,919Accrued
                  interest and expenses
              
              
              144,472
              
              
              -Accrued
                  expenses, related aprties
              
              
              311,846
              
              
              234,928Accrued
                  interest - related party
              
              
              4,192
              
              
              -Other
                  accrued liabilities
              
              
              73,538
              
              
              (93,883
              )Accrued
                  expenses
              
              
              -
              
              
              104,737Net
                  cash used in operations
              
              
              (202,620
              )
              
              (688,007
              )**Cash
                  Flows from investing activities:**Equipment
                  purchase
              
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              -
              
              
              -**Cash
                  flows from financing activities:**Bank
                  overdraft
              
              
              -
              
              
              (180
              )Loan
                  proceeds from related party, net
              
              
              10,400
              
              
              26,152Loan
                  proceeds
              
              
              75,000
              
              
              330,000Loan
                  repayments to related parties
              
              
              -
              
              
              -Proceeds
                  from common stock sales
              
              
              118,764
              
              
              317,338Repayment
                  of notes payable
              
              
              -
              
              
              -Net
                  cash provided by financing activities
              
              
              204,164
              
              
              673,310Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,544
              
              
              (14,697
              )Cash
                  and cash equivalents, beginning of period
              
              
              236
              
              
              14,697**Cash
                  and cash equivalents, end of period**
              
              $
              1,780
              
              $
              -**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
              
              $
              -
              
              $
              120,000Recording
                  of beneficial conversion value to debt discount and APIC
              
              $
              -
              
              $
              60,000Record
                  initial fair value of embedded conversion option as debt
                  discount
              
              $
              -
              
              $
              150,000Exchange
                  of accounts payable for common stock on exercise of options
              
              $
              -
              
              $
              37,900Recording
                  of deferred consulting
              
              $
              -
              
              $
              60,000Sale
                  of common stock Class A for subscription receivable
              
              $
              -
              
              $
              1,000,000Reclassification
                  of embedded conversion option liability to equity
              
              $
              1,350,071
              
              $
              -


See
      accompanying notes to consolidated financial
      statements


F-4




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)


**1.**
            **NATURE
                OF BUSINESS AND GOING
                CONCERN**





Organization
      - Kaleidoscope Venture Capital, Inc. (“KVI” or the “Company”) is a Nevada
      corporation, which was incorporated on June 12, 1998. On July 14, 2008
      Vocalscape Networks, Inc. filed an amendment with the Nevada Secretary of State
      to change its name to Kaleidoscope Venture Capital, Inc.





Vocalscape
      Networks Operating Subsidiary, Inc. (VNOS), our wholly-owned subsidiary, is
      a
      Nevada corporation, which was incorporated on February 5, 2003.





KVI
      has
      announced a change in its current business direction after officially changing
      its name to Kaleidoscope Venture Capital Inc. KVI plans to take advantage of
      certain strategic business relationships and opportunities. While maintaining
      its interest in VNOS, Kaleidoscope Venture Capital Inc. plans to foster
      early-stage companies through the developmental phases until such time as these
      companies have sufficient financial, human and physical resources to function
      on
      their own."





**Nature
      of Business and Current Operations -** Our
      subsidiary, VNOS is a developer of Voice over Internet Protocol (VoIP) telephony
      solutions. VNOS provides VoIP telephony solutions and communications software
      for Internet Service Providers (ISPs), Internet Telephony Service Providers
      (ITSPs) and Telecommunications companies worldwide. VNOS develops VoIP and
      interactive communications software, including Soft phone applications, Customer
      Acquisition and Billing Systems, SIP Servers, Gatekeepers and Virtual Calling
      Cards. VNOS’s strategy is to focus on VoIP software and Long Distance
      termination solutions that bring together a full range of communications
      solutions and services thereby providing a turn-key VoIP infrastructure for
      ISP’s, ITSP’s and Telecommunications companies.





On
      July
      14, 2008 Vocalscape Networks, Inc. filed an amendment with the Nevada Secretary
      of State to change its name to Kaleidoscope Venture Capital, Inc. and to do
      a 1
      for 200 reverse split on both its common stock and its Series A Convertible
      preferred stock. The Class A Common Stock was not part of the reverse split.
      Due
      to the reverse split all share and per share data has been retroactively
      restated in the accompanying consolidated financial statements and footnotes
      to
      conform to the post split share amounts.





**Going
      Concern -** The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America, which
      contemplate continuation of the Company as a going concern. The Company had
      a
      net loss for the nine months ended September 30, 2008 of $3,920,832, net cash
      used in operations for the nine months ended September 30, 2008 of $202,620,
      and
      working capital deficit of $5,867,464, accumulated deficit of $16,022,773 and
      stockholders’ deficit of $5,835,301 at September 30, 2008. In addition, the
      Company was in default on $436,746 of promissory notes and loans at September
      30, 2008.




F-5




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)




These
      conditions raise substantial doubt about the Company’s ability to continue as a
      going concern. These consolidated financial statements do not include any
      adjustments to reflect the possible future effect on the recoverability and
      classification of assets or the amounts and classifications of liabilities
      that
      may result from the outcome of these uncertainties.




In
      order
      to execute its business plan, the Company will need to raise additional working
      capital and generate additional revenues. There can be no assurance that the
      Company will be able to obtain the necessary working capital or generate
      additional revenues to execute its business plan. During 2008, the Company
      generated revenues from customer consulting agreements and raised capital
      through initiating a Regulation S offering by VSI.  Management
      believes the continuation of revenues combined with additional capital raises
      and additional promissory notes will provide the Company the ability to continue
      as a going concern.





**2.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING PRINCIPLES**





**Principles
      of Consolidation -** The
      consolidated financial statements include the accounts of KVI and it’s wholly
      owned subsidiary VNOS. All material intercompany balances and transactions
      have
      been eliminated in consolidation.




**Cash
      and Cash Equivalents -** The
      Company classifies as cash equivalents any investments which can be readily
      converted to cash and have an original maturity of less than three months.
      At
      times cash and cash equivalent balances at a limited number of banks and
      financial institutions may exceed insurable amounts. The Company believes it
      mitigates its risks by depositing cash or investing in cash equivalents in
      major
      financial institutions.




**Investments** -
      Certain securities that the Company may invest in may be determined to be
      non-marketable. Non-marketable securities where the Company owns less than
      20%
      of the investee are accounted for at cost pursuant to APB No. 18, "The Equity
      Method of Accounting for Investments in Common Stock" ("APB 18").




Management
      determines the appropriate classification of its investments at the time of
      acquisition and reevaluates such determination at each balance sheet date.
      The
      cost of investments sold is based on the specific identification
      method.




The
      Company periodically reviews its investments in non-marketable securities and
      impairs any securities whose value is considered non-recoverable. The Company's
      determination of whether a security is other than temporarily impaired
      incorporates both quantitative and qualitative information. GAAP requires the
      exercise of judgment in making this assessment for qualitative information,
      rather than the application of fixed mathematical criteria. The Company
      considers a number of factors including, but not limited to, the length of
      time
      and the extent to which the fair value has been less than cost, the financial
      condition and near term prospects of the issuer, the reason for the decline
      in
      fair value, changes in fair value subsequent to the balance sheet date, and
      other factors specific to the individual investment. The Company's assessment
      involves a high degree of judgment and accordingly, actual results may differ
      materially from the Company's estimates and judgments.




F-6




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)




**Fair
      Value of Financial Instruments -** The
      following methods and assumptions were used by the Company in estimating its
      fair value disclosures for financial instruments:




·
            Cash
                and cash equivalents: The carrying amount reported in the balance
                sheet
                for cash approximates its fair
                value.


·
            Accounts
                payable: Due to their short-term nature, the carrying amounts reported
                in
                the balance sheet for accounts payable approximate their fair value.


·
            Notes
                payable: The carrying amount of the Company’s notes payable approximate
                their fair value.




**Property
      and Equipment -** Property
      and equipment are recorded at cost, net of accumulated depreciation.
      Depreciation is calculated by using the straight-line method over the estimated
      useful lives of the assets, which is five to seven years for all categories
      except for internal use computer software, which is depreciated over three
      years. Leasehold improvements are amortized over the life of the lease if it
      is
      shorter than the estimated useful life. Repairs and maintenance are charged
      to
      expense as incurred. Expenditures for betterments and renewals are capitalized.
      The cost of property and equipment and the related accumulated depreciation
      are
      removed from the accounts upon retirement or disposal with any resulting gain
      or
      loss being recorded in operations.




**Impairment
      of Long-Lived Assets -** The
      Company evaluates its long-lived assets and intangible assets for impairment
      whenever events or change in circumstances indicate that the carrying amount
      of
      such assets may not be recoverable. Recoverability of assets to be held and
      used
      is measured by a comparison of the carrying amount of the asset to the future
      net undiscounted cash flows expected to be generated by the asset. If such
      assets are considered to be impaired, the impairment to be recognized is the
      excess of the carrying amount over the fair value of the asset.





**Software
      Development Costs -** Costs
      incurred in connection with the development of software products are accounted
      for in accordance with Statement of Financial Accounting Standards (“SFAS”) No.
      86, *“Accounting
      for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.”* Costs
      incurred prior to the establishment of technological feasibility are charged
      to
      research and development expense. Software development costs are capitalized
      after a product is determined to be technologically feasible and is in the
      process of being developed for market. Amortization of capitalized software
      development costs begins upon initial product shipment. Capitalized software
      development costs are amortized over the estimated life of the related product
      (generally thirty-six months), using the straight-line method. The Company
      evaluates its software assets for impairment whenever events or change in
      circumstances indicate that the carrying amount of such assets may not be
      recoverable. Recoverability of software assets to be held and used is measured
      by a comparison of the carrying amount of the asset to the future net
      undiscounted cash flows expected to be generated by the asset. If such software
      assets are considered to be impaired, the impairment to be recognized is the
      excess of the carrying amount over the fair value of the software asset.




F-7


**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)


No
      software development costs were amortized during the years ended December 31,
      2004 and 2003 as the product was not considered to be generally released until
      2005. The sales recorded during 2004 occurred prior to the general release.
      Amortization was recorded in 2006 and 2007 and is included in cost of
      revenues.





**Intangible
                Assets -**The Company records goodwill and intangible assets arising from business
                combinations in accordance with SFAS No. 141 “Business Combinations”
                (“SFAS 141”) which requires that the purchase method of accounting be used
                for all business combinations initiated after June 30, 2001. SFAS
                141 also
                specifies the criteria applicable to intangible assets acquired in
                a
                purchase method business combination to be recognized and reported
                apart
                from goodwill.




The
      Company accounts for goodwill and intangible assets in accordance with SFAS
      142.
      In accordance with SFAS 142, the Company does not amortize goodwill. SFAS 142
      requires that goodwill and intangible assets with indefinite useful lives no
      longer be amortized, but instead be tested at least annually for impairment.
      SFAS 142 also requires that intangible assets with definite useful lives be
      amortized over their respective estimated useful lives to their estimated
      residual values, and be reviewed for impairment.





**Accounting
      for Derivatives** - The
      Company evaluates its convertible debt, options, warrants or other contracts
      to
      determine if those contracts or embedded components of those contracts qualify
      as derivatives to be separately accounted for under Statement of Financial
      Accounting Standards 133 “ *Accounting
      for Derivative Instruments and Hedging Activities* ”
and
      related interpretations including EITF 00-19 “ *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ”.
      The
      result of this accounting treatment is that the fair value of the derivative
      is
      marked-to-market each balance sheet date and recorded as a liability. In the
      event that the fair value is recorded as a liability, the change in fair value
      is recorded in the statement of operations as other income or expense. Upon
      conversion or exercise of a derivative instrument, the instrument is marked
      to
      fair value at the conversion date and then that fair value is reclassified
      to
      equity. Equity instruments that are initially classified as equity that become
      subject to reclassification under SFAS 133 are reclassified to liability at
      the
      fair value of the instrument on the reclassification date.




F-8


**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)


**Contingencies** -
      Certain
      conditions may exist as of the date financial statements are issued, which
      may
      result in a loss to the Company, but which will only be resolved when one or
      more future events occur or fail to occur. Company management and its legal
      counsel assess such contingent liabilities, and such assessment inherently
      involves an exercise of judgment. In assessing loss contingencies related to
      legal proceedings that are pending against the Company or unasserted claims
      that
      may result in such proceedings, the Company's legal counsel evaluates the
      perceived merits of any legal proceedings or unasserted claims as well as the
      perceived merits of the amount of relief sought or expected to be sought
      therein. If the assessment of a contingency indicates that it is probable that
      a
      liability has been incurred and the amount of the liability can be estimated,
      then the estimated liability would be accrued in the Company's financial
      statements. If the assessment indicates that a potentially material loss
      contingency is not probable but is reasonably possible, or is probable but
      cannot be estimated, then the nature of the contingent liability, together
      with
      an estimate of the range of possible loss if determinable would be
      disclosed.





**Revenue
      Recognition** -
      The
      Company is engaged as a seller of VoIP telephony solutions. The Company
      generally recognizes revenue in accordance with Securities and Exchange
      Commission Staff Accounting Bulletin 104, *“Revenue
      Recognition”* when
      persuasive evidence of an arrangement exists, delivery has occurred, the fee
      is
      fixed or determinable and collectibility is probable. Specifically, the Company
      recognizes software revenue in accordance with Statement of Position (“SOP”)
      97-2, *“Software
      Revenue Recognition,”* as
      amended by SOP 98-4, “ *Deferral
      of the Effective Date of a Provision of SOP 97-2* ,”
and
      SOP 98-9, “ *Modification
      of SOP 97-2 With Respect to Certain Transactions* ”
and *EITF
      00-21 “Revenue Arrangements with Multiple Deliverables”.*





The
      Company sells bundled solutions which may consist of the software, configuration
      services, support services, customization and future upgrades. The Company
      defers recognition of the software sales until configuration is completed as
      they are considered one unit of accounting. Support services are considered
      a
      separate unit of accounting and such fees are recognized as services are
      provided. Future upgrades or enhancements and customizations are considered
      separate units of accounting and related fees are recognized as those upgrades
      or enhancements are provided.





**Stock
      Based Compensation -** On
      January 1, 2006, the Company implemented Statement of Financial Accounting
      Standard 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment” which
      replaced SFAS 123 “Accounting for Stock-Based Compensation” and superseded APB
      Opinion No. 25, “Accounting for Stock Issued to Employees.” In
      March
      2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding
      its
      interpretation of SFAS 123R. SFAS
      123(R) and related interpretations requires the fair value of all stock-based
      employee compensation awarded to employees to be recorded as an expense over
      the
      related requisite service period. The statement also requires the recognition
      of
      compensation expense for the fair value of any unvested stock option awards
      outstanding at the date of adoption. The Company values any employee or
      non-employee stock based compensation at fair value using the Black Scholes
      Pricing Model. In adopting SFAS 123(R), the Company used the modified
      prospective application (“MPA”). MPA requires the Company to account for all new
      stock based compensation to employees using fair value, and for any portion
      of
      awards prior to January 1, 2006 for which the requisite service has not been
      rendered and the options remain outstanding as of January 1, 2006, the Company
      should recognize the compensation cost for that portion of the award that the
      requisite service was rendered on or after January 1, 2006. The fair value
      for
      these awards is determined based on the grant-date. There was no accounting
      effect of applying the MPA method.




F-9


**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (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 did maintain one Canadian dollar bank
      account and engages in various transactions resulting in deposits and
      disbursements to and from that bank account. The Canadian dollar bank account
      was closed in the second quarter of 2007. The Company also holds one investment
      in non-marketable equity securities which is denominated in a foreign currency
      and translated to U.S dollars at each reporting date with any gain or loss
      recorded in operations.





Revenue
      and expense items transacted in Canadian dollars are translated using the
      average rate of exchange prevailing during the period. Gains and losses
      resulting from foreign currency transactions are recognized in operations of
      the
      period incurred.





**Income
      Taxes -** The
      Company accounts for income taxes using the liability method, which requires
      the
      determination of deferred tax assets and liabilities based on the differences
      between the financial and tax bases of assets and liabilities, using enacted
      tax
      rates in effect for the year in which differences are expected to reverse.
      Deferred tax assets are adjusted by a valuation allowance, if based on the
      weight of available evidence it is more likely than not that some portion or
      all
      of the deferred tax assets will not be realized.





**Use
                of Estimates in Financial Statements -**The presentation of financial statements in conformity with accounting
                principles generally accepted in the United States of America requires
                management to make estimates and assumptions that affect the reported
                amounts of assets and liabilities and disclosure of contingent assets
                and
                liabilities at the date of the financial statements and the reported
                amounts of revenues and expenses during the reporting period. Actual
                results could differ from those estimates. Significant estimates
                in 2008
                and 2007 include the valuation of the investment in non-marketable
                equity
                securities, valuation of stock-based payments, valuation of beneficial
                conversion feature on convertible debt, fair value of the embedded
                conversion option liability, and valuation allowance on deferred
                tax
                assets.





F-10
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


**Net
      Earnings (Loss) Per Share -** Basic
      earnings (loss) per common share is based on the weighted-average number of
      all
      common shares and Class A Common Shares outstanding. The computation of diluted
      earnings (loss) per share does not assume the conversion, exercise or contingent
      issuance of securities that would have an anti-dilutive effect on earnings
      (loss) per share.




Class
      A
      Common Stock was issued in May and October 2007 with a majority of it issued
      into escrow. The subscription receivable has not been received as of November
      14, 2008. Accordingly, for purposes of the computation of net loss per share,
      Class A Common Shares are not considered issued and outstanding and not included
      in the computation of weighted average shares outstanding for the period ended
      September 30, 2008.





As
      of
      September 30, 2008, there were warrants exercisable into 6 common shares and
      there were promissory notes convertible into 29,290 common shares that may
      dilute future earnings per share.





**Recently
      Issued Accounting Standards -**





In
      July
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes — an Interpretation of FASB Statement No. 109, Accounting for
      Income Taxes” (FIN 48) to create a single model to address accounting for
      uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes
      by prescribing a minimum recognition threshold a tax position is required to
      meet before being recognized. FIN 48 also provides guidance on derecognizing,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. We are currently evaluating the impact of
      adopting FIN 48 and do not expect the adoption of FIN 48 will have a material
      impact on our Consolidated Financial Statements.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
      No. 157 defines fair value and applies to other accounting pronouncements that
      require or permit fair value measurements and expands disclosures about fair
      value measurements. SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. We are
      currently evaluating the impact of adopting SFAS No. 157 on our Consolidated
      Financial Statements.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, to
      address diversity in practice in quantifying financial statement misstatements
      and the potential for the build up of improper amounts on the balance sheet.
      SAB
      No. 108 identifies the approach that registrants should take when evaluating
      the
      effects of unadjusted misstatements on each financial statement, the
      circumstances under which corrections of misstatements should result in a
      revision to financial statements, and disclosures related to the correction
      of
      misstatements. SAB No. 108 is effective for the fiscal year ending December
      31,
      2006. The adoption of SAB No. 108 did not have a material impact on our
      Consolidated Financial Statements.




F-11


**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)


In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
      2007), *Business Combinations* ,
      which
      replaces SFAS No 141. The statement retains the purchase method of accounting
      for acquisitions, but requires a number of changes, including changes in the
      way
      assets and liabilities are recognized in the purchase accounting. It also
      changes the recognition of assets acquired and liabilities assumed arising
      from
      contingencies, requires the capitalization of in-process research and
      development at fair value, and requires the expensing of acquisition-related
      costs as incurred. SFAS No. 141R is effective for us beginning
      January 1, 2009. We do not expect it to have a material effect on our
      consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements, an amendment
      of
      ARB 51* ,
      which
      changes the accounting and reporting for minority interests. Minority interests
      will be recharacterized as non-controlling interests and will be reported as
      a
      component of equity separate from the parent’s equity, and purchases or sales of
      equity interests that do not result in a change in control will be accounted
      for
      as equity transactions. In addition, net income attributable to the
      noncontrolling interest will be included in consolidated net income on the
      face
      of the income statement and, upon a loss of control, the interest sold, as
      well
      as any interest retained, will be recorded at fair value with any gain or loss
      recognized in earnings. SFAS No. 160 is effective for us beginning
      January 1, 2009 and will apply prospectively, except for the presentation
      and disclosure requirements, which will apply retrospectively. We do not expect
      it to have a material effect on our consolidated financial
      statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161).
      This statement is intended to improve transparency in financial reporting by
      requiring enhanced disclosures of an entity’s derivative instruments and hedging
      activities and their effects on the entity’s financial position, financial
      performance, and cash flows. SFAS 161
      applies to all derivative instruments within the scope of SFAS 133, “Accounting
      for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
      hedged items, bifurcated derivatives, and nonderivative instruments that are
      designated and qualify as hedging instruments. Entities with instruments subject
      to SFAS 161
      must
      provide more robust qualitative disclosures and expanded quantitative
      disclosures. SFAS 161
      is
      effective prospectively for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008, with early application
      permitted. We are currently evaluating the disclosure implications of this
      statement.





**Reclassifications**





Certain
      amounts in the 2007 consolidated financial statements have been reclassified
      to
      conform with the 2008 presentation.





F-12
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


**3.**  **INVESTMENT
      IN NON-MARKETABLE EQUITY SECURITIES**





The
      composition of non-marketable securities at September 30, 2008 is as follows:




**Cost**
              
              **Fair
                  Value**Equity
                securities
              
              $
              19,148
              
              $
              19,148




During
      April 2007 the Company received 2.1 million equity securities of a customer
      based in Europe. These securities were received from this private company as
      payment for services rendered. The value of the securities could not be
      determined and the value of the services was also not determinable, therefore
      the Company valued the securities at a nominal value equal to the par value
      of
      the securities or $17,290 which the Company believes is below the value of
      services provided. This amount was recorded as revenues. At December 31, 2007
      the cost and fair value were increased by $1,366 to reflect the increase due
      to
      changes in the exchange rates. At March 31, 2008 the cost and fair value were
      increased by $ 2,460 to reflect the increase due to changes in the exchange
      rates. At June 30, 2008 the cost and fair value were decreased by $488 to
      reflect the decrease due to changes in the exchange rates. At September 30,
      2008
      the cost and fair value were decreased by $1,480 to reflect the decrease due
      to
      changes in the exchange rates.





**4.**  **PROPERTY
      AND EQUIPMENT**





Property
      and equipment at September 30, 2008, consists of the following:




Office
              equipment
            
            $
            $35,854Accumulated
              depreciation
            
            
            (22,839
            )Property
                and equipment, net
            
            $
            13,015




Depreciation
      during the three and nine months ended September 30, 2008 were $1,686 and
      $5,059, respectively.





**5.**  **DEVELOPMENT
      COSTS**





Capitalized
                software development cost consists of the following at September
                30,
                2008:







Cost
            
            $
            8,869Accumulated
              amortization
            
            
            (8,869
            )Software,
                net
            
            $
            0




F-13




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)





During
      January 2004 the Company capitalized $136,538 relating to a suite of software
      products purchased by a related party and assigned to the Company with the
      related liabilities (see Note 7). The related non-interest bearing liabilities
      of $131,746 due to the seller are collateralized by the purchased software.
      These products had already reached the point of technological feasibility prior
      to the Company’s purchase and needed some modifications by the Company to bring
      the product to market. Accordingly, no amortization had been charged to
      operations as of December 31, 2004. Due to the lack of available resources
      during 2004 and subsequent, the Company did not allocate the resources to this
      project and instead allocated resources to other software projects being
      developed internally. Accordingly, since the Company could not reliably project
      any positive cash flows from this asset, the Company had recorded an impairment
      loss of $136,538 at December 31, 2004. During December 2004, the Company
      recorded $8,869 of software costs for certain VoIP products, which it had been
      developing internally and had reached technological feasibility. During the
      year
      ended December 31, 2004, the Company had no amortization expense. During 2005
      the Company recognized $ 2,956 of amortization expense, upon general release
      of
      the software product. During 2006 the Company recognized $2,956 of amortization
      expense. During 2007 the Company recognized $2,956 of amortization
      expense.





**6.**
            **NOTES
                PAYABLE, NOTES PAYABLE RELATED PARTIES AND CONVERTIBLE
                DEBENTURES**




Notes
      payable to related and unrelated parties consists of the following at September
      30, 2008:





Note
                payable to the related party principal shareholder and officer of
                the
                Parent and to companies owned or controlled by him; due on demand;
                unsecured; with interest at prime plus 2% to 3% (7.% to 8.% at September
                30, 2008)
            
            $
            111,886Note
                payable to law firm, due on demand, non-interest bearing
            
            
            59,000Subtotal
                - Notes payable related parties
            
            
            170,886Notes
                payable to two individuals - non interest bearing-in
                default
            
            
            145,000Notes
                payable to two individuals with interest at 10.50%-Due March 2008
                - in
                default
            
            
            160,000Notes
                payable to two individuals with interest accruing at 10%
            
            
            159,000Notes
                payable to six individuals; due on demand; unsecured; with interest
                at
                prime plus 3% (8.0% at September 30, 2008)
            
            
            1,403,000Subtotal
                - Notes payable unrelated parties
            
            
            1,867,000Total
                Notes Payable
            
            $
            2,037,886




F-14
 
  **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)





The
      weighted average interest rate on short term outstanding as of September 30,
      2008 was 7.84 %.





At
      December 31, 2007, $145,000 of the above promissory notes were in default.
      At
      September 30, 2008, $405,000 of the above promissory notes were in
      default.





**Convertible
      Debentures** - In
      October 2005, upon recapitalization, the Company assumed four 10% one-year
      convertible debentures to four individuals for $11,698, $60,705, $6,121 and
      $6,388 cash. These debentures had been issued in October and November 2004.
      The
      debentures are convertible into 10 common shares based on a conversion rate
      of
      $8,000 per share. The embedded conversion options were determined not to be
      derivatives at the issuance date or as of September 30, 2008 since the debt
      qualifies as conventional convertible debt. Based upon the conversion rate
      at
      the issuance date, there was no beneficial conversion feature
      recorded.





**Convertible
      Promissory Notes and Conversions**





In
      March
      2006, the Company issued a convertible promissory note for $150,000 with
      interest payable at maturity at 10.5% per annum. The note matures and is due
      March 3, 2008. The note principal is convertible to common stock at a fixed
      price of $23.60 per share which equates to 6,356 common shares. Management
      has
      determined that this note qualifies as conventional convertible debt pursuant
      to
      SFAS 133 and EITF 00-19 and accordingly the embedded conversion option is not
      a
      derivative. The convertible promissory note was converted into common stock
      in
      March 2006. The Company computed a beneficial conversion value of $150,000
      based
      on the quoted stock price on the grant date of $120 per share. The $150,000
      was
      recorded as a debt discount and credited to additional paid-in capital. The
      debt
      discount was amortized to interest expense in March 2006 when the note was
      converted. The note is guaranteed by Azatel Communications Inc. (the “Acquiree”)
      with the note holder holding a first security interest in substantially all
      assets of the Acquiree and the Company has guaranteed the
      conversion.




In
      March
      2006, the Company issued a convertible promissory note for $10,000 with interest
      payable at maturity at 10.5% per annum. The note matures and is due March 15,
      2008. The note principal is convertible to common stock at a fixed price of
      $23.60 per share which equates to 429 common shares. Management has determined
      that this note qualifies as conventional convertible debt pursuant to SFAS
      133
      and EITF 00-19 and accordingly the embedded conversion option is not a
      derivative. The convertible promissory note was converted into common stock
      in
      March 2006. The Company computed a beneficial conversion value of $10,000 based
      on the quoted stock price on the grant date of $120 per share. The $10,000
      was
      recorded as a debt discount and credited to additional paid-in capital. The
      debt
      discount was amortized to interest expense in March 2006 when the note was
      converted.




F-15
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


In
      late
      2007, the Company was notified by the above lenders that the lenders had not
      converted and the shares issued to them were pursuant to a collateral
      arrangement. Although management believes the conversion occurred, they have
      reclassified the $160,000 into loans payable and removed them from the issued
      and outstanding shares as of December 31, 2007





On
      January 9, 2007, the Company received cash and issued a promissory note for
      $30,000 which bears interest at prime plus three percent and is due within
      90
      day of written demand.





On
      January 10, 2007, the Company received cash and issued a promissory note for
      $30,000 which bears interest at prime plus three percent and due within 90
      day
      of written demand.





In
      February 2007, the Company issued a convertible promissory note for $120,000
      with no specified term or interest rate and thus it is considered due on demand.
      The note principal is convertible into 15,000 shares of common stock and
      collateralized by such shares which were to be issued as security. Management
      has determined that this note qualifies as conventional convertible debt
      pursuant to SFAS 133 and EITF 00-19 and accordingly the embedded conversion
      option is not a derivative. The Company computed a beneficial conversion value
      of $60,000 based on the quoted stock price on the grant date of $12 per share.
      The $60,000 was recorded as a debt discount and credited to additional paid-in
      capital and then charged to interest expensed immediately since the note is
      due
      on demand. The Company received proceeds on the note of $100,000 and they were
      charged $20,000 as a loan fee. The loan fee was charged to interest expense
      in
      March 2007 since the note is due on demand.





On
      April
      30, 2007 the Company issued a convertible promissory note for $150,000. The
      Company received $100,000 of the proceeds from this note during the second
      quarter and $50,000 in July 2007 (see below). The note bears interest at prime
      plus three percent, is due on demand and is collateralized by non-marketable
      equity securities owned by the Company (see Note 3). The note holder has the
      option to convert the note into Common Stock of the Company within 365 days
      of
      the note date at the lessor of 50% of the closing market price of the Common
      Stock on the date the written notice is provided by the holder of the note
      or
      $0.10 per share. Management of the Company has determined that the note is
      a
      derivative and contains an embedded conversion option since the variable
      conversion rate causes an inability to guarantee that there will be enough
      authorized shares available if the holder elects to convert. The Company
      recorded an embedded conversion option liability on this note of $169,596.
      This
      created a change in fair value of the embedded conversion options of $69,596
      that was recorded as an other expense. Since the note is due on demand, the
      Company recognized $100,000 of interest expense on the debt discount. At June
      30, 2007 the Company adjusted the embedded conversion option liability to fair
      value and decreased it by $5,816 due to changes in market value. The $5,816
      was
      credited to expense in June 2007. The embedded conversion option was valued
      using the Black-Scholes model with the following assumptions in May 2007 and
      June 30, 2007: stock price $4.00 and $3.00, exercise price of $2.00 and $1.50,
      volatility of 242%, term of 1 year and .83 years, and interest rate of 4.8%.
      At
      September 30, 2007 the Company adjusted the embedded conversion option liability
      to fair value and decreased it by $21,945 due to changes in market value. The
      $21,945 was credited to expense in September 2007. At December 31, 2007 the
      Company adjusted the embedded conversion option liability to fair value and
      decreased it by $12,918 due to changes in market value. The $12,918 was credited
      to expense in December 2007. At March 31, 2008 the Company adjusted the embedded
      conversion option liability to fair value and decreased it by $22,349 due to
      changes in market value. The $22,349 was credited to expense in March 2008.
      At
      April 30, 2008 the Company adjusted the embedded conversion option liability
      to
      fair value and increased it by $793,480 due to changes in market value. The
      $793,480 was charged to expense in April 2008. At April 30, 2008 the conversion
      option expired and the balance of the liability was reclassified to additional
      paid in capital.




F-16
 
  **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)




On
      July
      2, 2007 the Company received the $50,000 balance of the above note payable.
      Management of the Company has determined that the note is a derivative and
      contains an embedded conversion option since the variable conversion rate causes
      an inability to guarantee that there will be enough authorized shares available
      if the holder elects to convert. The Company recorded an embedded conversion
      option liability on this note of $81,825. This created a change in fair value
      of
      the embedded conversion option of $31,825 that was recorded as an other expense.
      Since the note is due on demand, the Company recognized $50,000 of interest
      expense on the debt discount. At September 30, 2007 the Company adjusted the
      embedded conversion option liability to fair value and decreased it by $10,908
      due to changes in market value. The $10,908 was credited to expense in September
      2007. The embedded conversion option was valued using the Black-Sholes model
      with the following assumptions in July 2007 and September 2007: stock price
      of
      $2.80 and $5.20, exercise price of $1.40 and $2.60, volatility of 204%, term
      of
      .83 and .58 years, and interest rate of 4.80%. At December 31, 2007 the Company
      adjusted the embedded conversion option liability to fair value and decreased
      it
      by $6,459 due to changes in market value. The $6,459 was credited to expense
      in
      December 2007. At March 31, 2008 the Company adjusted the embedded conversion
      option liability to fair value and decreased it by $11,175 due to changes in
      market value. The $11,175 was credited to expense in March 2008. At April 30,
      2008 the Company adjusted the embedded conversion option liability to fair
      value
      and increased it by $396,740 due to changes in market value. The $396,740 was
      charged to expense in April 2008. At April 30, 2008 the conversion option
      expired and the balance of the liability was reclassified to additional paid
      in
      capital.





The
      Company also determined that all other common stock equivalent securities
      including the convertible debentures, warrants and options, but excluding
      conventional convertible debt, may require classification as liabilities due
      to
      the authorized shares problem. However, due to the relatively large conversion
      and exercise prices of these other instruments, the fair value of the
      liabilities at all dates from April 2007 through September 30, 2008 was
      zero.




F-17
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


On
      October 11, 2007, the Company received $20,000 on a note payable. The Company
      was charged a $5,000 loan fee for the note. The note was due on November 11,
      2007 and is in default at December 31, 2007. The note does not bear interest
      but
      is secured by a Pledge and Security agreement covering 7,500 shares of the
      capital stock of KVI.





On
      November 2, 2007, the Company received $100,000 and issued a promissory note
      for
      $120,000 which includes a $20,000 loan fee. The loan is non-interest bearing
      and
      due in 30-days or on December 2, 2007. At September 30, 2008 the loan was in
      default.





In
      May,
      2008 the Company received $75,000 on a promissory note. The note is for
      $100,000, without interest, but with a loan fee of $25,000. The loan is due
      on
      July 13, 2008. The loan is currently in default.





**7.**  **LOAN
      PAYABLE FOR SOFTWARE PURCHASE**





In
      2004 a
      liability was recorded relating to a software purchase. The software purchase
      price was $200,000 Canadian dollars (“CA$”) payable with CA$26,096 down payment
      and CA$10,842 payable per quarter commencing May 1, 2004 and on August 1,
      November 1, February 1 and May 1 in each year thereafter until the purchase
      price is paid in full. In accordance with APB 21, “Interest on Receivables and
      Payables,” the Company imputed interest at 6% or CA$21,845 on this loan payable.
      This resulted in an initial loan payable balance translated to US dollars of
      $136,538, net of discount of $16,742, an initial payment made of $20,000
      (recorded as a note payable to the related party assignor of the purchase
      agreement) and quarterly payments of approximately $8,309 as adjusted for
      foreign currency transaction gains or losses.





The
      loan
      payable balance at September 30, 2008 was as follows:





Loan
                payable
            
            $
            131,746Debt
                discount
            
            
            (0
            )Loan
                payable, net of discount
            
            $
            131,746





This
      loan
      payable is collateralized by the software asset. Additional interest in the
      amount of $7,698 was accrued in 2007. The loan is currently in
      default.





**8.**  **STOCKHOLDERS’
      DEFICIT**





**Authorized
      Shares** - In
      January 2007, the Company amended its Articles of Incorporation to increase
      the
      number of authorized common shares to 400,000,000. The Company also authorized
      100,000,000 new Class A common shares at a par value of $0.001 per share. The
      Class A has the same rights, terms, and preferences, as common stock except
      it
      is non-voting. The changes in capitalization are reflected retroactively in
      the
      accompanying consolidated Balance Sheet.




F-18
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


**Reverse
      Stock Split** - On
      July 14, 2008 Vocalscape Networks, Inc. filed an amendment with the Nevada
      Secretary of State to change its name to Kaleidoscope Venture Capital, Inc.
      and
      to do a 1 for 200 reverse split on both its common stock and its Series A
      Convertible preferred stock. The Class A Common Stock was not part of the
      reverse split. Due to the reverse split all share and per share data has been
      retroactively restated in the accompanying consolidated financial statements
      and
      footnotes to conform to the post split share amounts.





**Preferred
      Stock -** The
      Company has authorized 25,000,000 shares of preferred stock. The Board of
      Directors at its discretion may determine the rights and preferences of the
      preferred stock. In December 2005 the Company designated 100,000 shares as
      Series A Convertible Preferred Stock (“Series A shares”). The Series A shares
      upon issuance and consideration received by the Company is convertible to common
      stock on a one-for-one basis at a minimum of 50 shares per conversion. The
      conversion rate is not adjustable except for standard anti-dilution provisions,
      such as stock splits, reorganization or recapitalizations. Upon liquidation
      the
      Series A stockholders would receive $100 per share plus any unpaid dividends.
      Each Series A share has voting rights equal to 25 common shares. On January
      20,
      2006 the Company accepted a subscription from its CEO to purchase 100 Series
      A
      shares in exchange for a $5,000 portion of a promissory note due to the CEO.
      Such note was previously due to a controlled affiliate of the CEO and assigned
      to the CEO by that affiliate. In October 2006, the CEO resigned and executed
      an
      employment agreement as Head of Business Development. Among other compensation
      the employment agreement grants 75 Series A preferred shares as compensation.
      The shares were valued at $50 per share, the same amount he previously paid
      and
      expensed immediately in 2006 since it was not material. In November 2007 another
      50 Series A Preferred Shares were granted to this former CEO and 25 shares
      to
      another director for services rendered. The shares were valued at an estimated
      $100 per share based on their liquidation value and expensed immediately. In
      April, 2008 the Company sold 50 shares to the former CEO for $50 per share.
      In
      May 2008 another 50 shares were granted to the former CEO under his employment
      contract. The expense of $2,500 was not material.





**Common
      Stock and Class A Common Stock Issued for Cash and Subscriptions
      Receivable**





During
      2007, the Company sold 1,033,401 common shares for net proceeds of $459,470
      pursuant to a Regulation S Stock Purchase Agreement.





In
      May
      2007, the Company entered into a subscription agreement with an individual
      to
      purchase 100,000,000 shares of the Class A non voting common stock of the
      Company. The total sales price is $1,000,000. It is to be paid in four blocks.
      The Company issued the first block of 25,000,000 shares on July 11, 2007. The
      remaining 75,000,000 shares were issued on October 1, 2007. All 100,000,000
      shares are reflected in the accompanying balance sheet as common stock Class
      A
      non-voting and a subscription receivable at September 30, 2008.




F-19
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


In
      September 2007, the Company executed a settlement agreement with an individual
      who had subscribed to 15,000 common shares for a $120,000 promissory note in
      2006, which shares were issued to him, and never paid the subscription price.
      The settlement resulted in the return of the shares to the Company and
      cancellation of the subscription promissory note.





During
      February and March 2008, the Company sold 321,715 common shares for net proceeds
      of $109,785 pursuant to a Regulation S Stock Purchase Agreement. In September
      2008 the Company sold 300,000 common shares for $8,980.





**Common
      Stock Issued as Settlement**





In
      late
      2007, the Company agreed to issue an investor 10,000 shares that had been paid
      for in 2006 but never issued but had been reflected as issuable in prior
      financial statements. As settlement compensation, the Company also issued the
      investor another 5,000. These were valued at the quoted trading price of $4.60
      on the settlement date resulting in an expense of $23,000. The total 15,000
      were
      issued by the transfer agent in 2008.





**Common
      Stock Issued for Services**





During
      the third quarter of 2006, 1,000 shares were issued pursuant to a consulting
      agreement that runs from July 15, 2006 through January 15, 2007. These shares
      were valued at $80 per share based on the quoted trading price on the agreement
      date and $33,333 was recorded as expense in the quarter and $46,667 was recorded
      as Deferred Consulting Fees. The Deferred Consulting was fully amortized during
      2007.





In
      March
      2008 the Company granted 17,500 common shares to a consultant for services
      rendered. The shares were valued at the $4.80 quoted trading price on the grant
      date resulting in an expense of $84,000. The shares are reflected as issuable
      as
      of June 30, 2008.





In
      April
      2008, the Company issued 37,500 and 80,000 common shares to two consultants,
      respectively, pursuant to consulting agreements. The shares were valued at
      the
      $4.20 quoted trading price for a total of $493,500 to be recognized over the
      service period. The consulting agreements have not been finalized at this time
      so the total amount of $493,500 was recorded as an expense in the second quarter
      of 2008.




F-20
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


In
      April
      2008 the Company issued 50,000 options and 50,000 common shares and another
      100,000 options to a related party director for services his law firm rendered.
      The options were valued at $469,814 using the Black-Sholes method with
      volatility of 214%, expected term of 5 years and interest rate of 4.8%. The
      shares were valued at the $4.20 quoted trading price or $210,000 and expensed
      immediately pursuant to the services agreement with the related party (see
      Note
      9)





In
      April
      2008 the Company granted 232,500 common shares to various employees and lenders.
      The shares were valued at the $2.60 quoted trading price or $604,000 and
      expensed. As of September 30, 2008 these shares have not been issued and are
      shown in the accompanying consolidated financial statements as issuable
      shares.





**Common
      Stock Issued for Exercise of Stock Options**





In
      January 2007, the Company issued 1,125 common shares upon exercise of a stock
      option at $8.00 per share. The exercise price of $9,000 was paid for with a
      payable that was due to the option holder. In May 2007, the company issued
      2,875
      common shares to the same option holder upon exercise of a stock option at
      $2.00
      per share in exchange for a payable of $5,750.





In
      March
      2007, the Company issued 15,000 common shares upon exercise of stock options
      at
      $2.00 per share and received the $30,000 exercise price in cash.





In
      March
      2007, the Company issued 5,000 common shares upon exercise of stock options
      at
      $4.00 per share which was paid for $18,150 with a payable due to the option
      holder and the remaining $1,850 was expensed as a professional fee.





In
      June
      2007, the Company issued 2,500 common shares upon exercise of stock options
      at
      $2.00 per share in exchange for a payable of $5,000.





In
      August
      2007, the Company issued 1,000 common shares upon exercise of stock options
      at
      $3.20 per share in exchange for a payable of $3,200.





In
      April
      2008 a consultant exercised an option for 7,500 common shares and paid for
      them
      with $15,000 of services which were expensed.





**Grants
      of Options to Purchase Common Stock**





In
      January 2007, the Company granted 1,125 common stock options to a law firm
      for
      services provided. The options were valued at $7,876 ($7 per option) using
      a
      Black-Scholes option pricing model with the following assumptions: stock price
      $15, exercise price of $8.00, volatility of 282%, term of 1 day, and interest
      rate of 4.8%. The term of 1 day was used since as intended the recipient
      exercised their options immediately on the grant date. (See above) The Company
      recognized $7,876 in expense.




F-21
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


In
      March
      2007, the Company granted options for 15,000 common shares at an exercise price
      of $2.00 per share pursuant to a consulting agreement. The options were valued
      at $60,000 ($4.00 per option), using a Black-Scholes option pricing model with
      the following assumptions: stock price $6.00, exercise price of $2.00,
      volatility of 282%, term of 1 day, and interest rate of 4.8%. The term of 1
      day
      was used since as intended the recipient exercised their options immediately
      on
      the grant date (see above). The value is to be recognized over the requisite
      service period and accordingly, $50,000 was deferred as of March 31, 2007.
      During the second quarter of 2007 $50,000 of the deferred consulting was
      expensed.





In
      March
      2007, the Company granted 5,000 common stock options to a consultant for
      services. The options were valued at $0.36 per option or $1,763 using a
      Black-Scholes option pricing model with the following assumptions: stock price
      $4.20, exercise price of $4.00, volatility of 282%, term of 1 day, and interest
      rate of 4.8%. The term of 1 day was used since as intended the recipient
      exercised their options immediately on the grant date. (See above) The Company
      recognized $1,763 in expense.





In
      May
      2007, the Company granted 2,875 options to a law firm for services provided.
      The
      options were valued at $2,877 ($1.00 per option) using a Black-Scholes option
      pricing model with the following assumptions: stock price $3.00, exercise price
      of $2.00, volatility of 242%, term of 1 day, and interest rate of 4.8%. The
      term
      of 1 day was used since as intended the recipient exercised their options
      immediately on the grant date. The Company recognized $2,877 in
      expense





In
      June
      2007, the Company granted 2,500 options to a consultant for services provided.
      The options were valued at $0.60 per option or $1,513 using a Black-Sholes
      Option Pricing Model with the following assumptions: stock price $2.60, exercise
      price of $2.00, volatility of 242%, term of 1 day, and interest rate of 4.8%.
      The term of 1 day was used since as intended the recipient exercised their
      options immediately on the grant date. The Company recognized $1,513 in
      expense.





In
      August
      2007, the Company granted 1,000 options to a consultant for services provided.
      The options were valued at $1.40 per option or $146 using a Black-Sholes Option
      Pricing Model with the following assumptions: stock price of $3.20, exercise
      price of $3.20, volatility of 220%, term of 1 day and interest rate of 4.8%.
      The
      term of 1 day was used since as intended the recipient exercised their options
      immediately on the grant date. The Company recognized $146 in
      expense.





In
      March
      2008, the Company granted 7,500 options and 17,500 common shares to a consultant
      for services rendered. The options were valued at $21,002 using a Black-Sholes
      option pricing model with the following assumptions: stock price of $4.80 and
      exercise price of $2.00, volatility of 214%, term of 1 day and interest rate
      of
      4.8%. The term of 1 day was used since the recipient exercised their options
      shortly after the grant date in April 2008. The shares were valued at the $4.80
      quoted trading price or $84,000 and both amounts were expensed as
      compensation





F-22
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


**Warrants** - Upon
      the recapitalization in October 2005, the Company assumed outstanding warrants.
      As of December 31, 2006, all warrants had expired except for 6 warrants at
      an
      exercise price of $20,000 which expire December 31, 2009.


**Options** - On
        September 30, 2008, 11 common stock options expired. There were no options
        outstanding at September 30, 2008.


**9.**  **RELATED
      PARTY TRANSACTIONS**





In
      October 2006, the Company accepted a $165,000 subscription promissory note
      from
      a Director (former officer) as payment for the exercise of his 15,000 stock
      options. Management believes this amount may be materially offset, with the
      director’s approval, against loans and accrued compensation due to this director
      or his controlled affiliates. Loans and accrued compensation due to this
      director at September 30, 2008 was $620,947.





Notes
      payable to a related party director or his affiliates were $111,886 at September
      30, 2008





At
      September 30, 2008, accrued expenses to related parties amounted to $588,342
      which includes $28,403 of accrued interest





Certain
      officers and directors of the Company remain as officers and directors of the
      former parent, Vocalscape, Inc. now known as Nevstar.





The
      Company has an agreement with a related party director dated August 25, 2005
      for
      legal services with his law firm whereby the related party is periodically
      issued vested non-forfeitable common shares of the Company so the director
      shall
      hold 4.9% of the issued and outstanding common shares and any proceeds from
      the
      sale of such shares by the related party are credited against invoice amounts
      due to that related party for legal services. The agreement has no stated term.
      Due to the contingent nature of the proceeds and the unstated term of the legal
      service agreement, the fair value of any shares issued will be expensed when
      issued. The related party invoices are accrued to accounts payable, periodically
      paid in cash and the accounts payable and legal expenses are credited for any
      proceeds in the period the proceeds are received by the related party and
      reported to the Company. As of September 30, 2007 proceeds in the amount of
      $
      42,871 were reported to the Company in 2007. These proceeds were credited to
      legal expenses and reduced the payable to the related party. No additional
      shares were issued as the director held in excess of 4.9% of the common stock
      of
      the Company. At December 31, 2007 and September 30, 2008 accounts payable to
      this law firm were $240,779 and $306,180 and included in accounts payable,
      related parties. In addition a loan payable to the law firm was $59,000 and
      included in loans and notes payable, related parties. Expenses incurred by
      the
      Company during 2007 to this law firm were $33,352 after the $42,871 credit
      above. Expenses in 2008 were $65,400 primarily relating to interest on
      outstanding invoice balances. See Note 8 for common share grants to this related
      party.





F-23
 
 **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)


**10.**  **COMMITMENTS
      AND CONTINGENCIES**





**Commitments**





The
      Company is a party to a five-year office lease agreement covering 2,238 square
      feet, which commenced July 1, 2005, for the office in Vancouver, British
      Columbia. The lease provides for 22 monthly payments of $2,238 Canadian dollars
      (“CDN”) with two free months during the first 24 months of the agreement; 24
      monthly payments of $2,331 CDN during the third and fourth years of the
      agreement; and 12 monthly payments of $2,425 CDN during the final year of the
      agreement. In addition, the agreement provides for a monthly common area
      maintenance charge of $1,585 CDN. The Company moved out of this office in April
      2008. The office has been leased by the landlord and the Company is negotiating
      the final amounts due under the lease.





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 moved out of this office in September
      2008.





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, 2008.





**Legal
      Matters**





The
      Company continues to receive claims from a prior director of Dtomi, Inc.
      relating to periods prior to the October 2005 recapitalization transaction
      with
      the Company.  The cash amounts the director claims he is due total
      approximately $520,000 and the total shares he claims he is due are estimated
      by
      the Company to be approximately 6,300. These amounts appear to relate to prior
      license or other alleged agreements between the director and the Company. 
The Company has accrued $86,000 in prior license fees due and has accounted
      for,
      in a prior period of Dtomi, Inc. approximately 15,278 common shares issued
      by
      the transfer agent in the director’s name. The director claims he never received
      2,778 of the 15,278 shares or other anti-dilution shares.  Management of
      the Company disputes the remaining cash amounts and believes no anti-dilution
      shares are due (which would account for the remaining 3,522 shares) since the
      license agreement was terminated in early 2005 by the licensor.  Management
      believes it will prevail in this matter.  Accordingly, no accruals have
      been made for the disputed amounts. The termination of the Patent License
      Agreement terminates these and other obligations during 2005. In May of 2006
      the
      director entered into an agreement with a third party whereby the director
      assigned his rights to any financial obligations made by the Company. In
      consideration of such assignment to such third party, the director was to
      receive a payment of $15,000.




F-24
 
  **Kaleidoscope
          Venture Capital, Inc. and Subsidiary**
 **(Formerly
          known as Vocalscape Networks, Inc.)**
 **Notes
          to Consolidated Financial Statements**
 **September
          30, 2008**
 (Unaudited)





In
      July
      and August 2005, the Company received correspondence from a former officer
      and
      former employee regarding threatened material litigation relating to alleged
      compensation due to each employee. Although the Company disputes such amounts,
      these amounts aggregating $ 687,407 had been previously accrued in a period
      prior to 2005 and are included in accrued expenses.





In
      late
      2007, the Company was notified by the certain lenders of $160,000 that the
      lenders had not converted and the shares issued to them were pursuant to a
      collateral arrangement. Although management believes the conversion occurred,
      they have reclassified the $160,000 into loans payable and removed them from
      the
      issued and outstanding shares as of December 31, 2007 and September 30, 2008.
      (see Note 6) The lenders have threatened litigation, however, as of the date
      of
      this report, the Company has not been served.





**11.**  **ACCRUED
      EXPENSES**




Accrued
      expenses at September 30, 2008 consist of the following:




Accrued
              license fees
            
            $
            $36,000Accrued
              interest
            
            
            585,003Accrued
              compensation
            
            
            687,407Accrued
              expenses - other
            
            
            179,889Total
            
            $
            1,488,299




**12.**  **PAYABLE
      TO SHAREHOLDER**





During
      the second quarter of 2006 one of the shareholders of the Company, who is a
      former director who resigned during the second quarter, was assigned certain
      debts of the company pursuant to assignment agreements between the shareholder
      and creditors as follows:




Payable
              to Vocalscape, Inc. former parent (n.k.a.
              Nevstar)
            
            $
            265,617Former
              officer note payable and accrued
              compensation
            
            
            214,410Accounts
              payable to related party
              attorney
            
            
            420,000Total
            
            $
            900,027




There
      was
      no consideration given by the Company to assign these debts. They were assigned
      from the vendors directly to the shareholder in a private transaction between
      those parties.




F-25




**Kaleidoscope
        Venture Capital, Inc. and Subsidiary**
 **(Formerly
        known as Vocalscape Networks, Inc.)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 (Unaudited)


**13.**
            **SUBSEQUENT
                EVENTS**





On
      October 14, 2008 the Board of Directors of the Company approved the issuance
      of
      18,500,000 common shares of stock for consulting and advisory services and
      2,000,000 common shares for payment against debt of the Company. The shares
      issued for the consulting and advisory services will be expensed in the fourth
      quarter for $1,110,000.




F-26


**ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS.**
 
 **MANAGEMENT’S
        DISCUSSION AND ANALYSIS**
  You
        should read the following discussion and analysis of our financial condition
        and
        results of operations together with our financial statements and related
        notes
        appearing elsewhere in this Form 10-Q. This discussion and analysis contains
        forward-looking statements that involve risks, uncertainties and assumptions.
        Our actual results may differ materially from those anticipated in these
        forward-looking statements.
  **OVERVIEW**
 
 The
        following discussion relates to the business of Kaleidoscope Venture Capital
        Inc., which includes the operations of its wholly owned subsidiary Vocalscape
        Operating Subsidiary, Inc., which holds assets through which Kaleidoscope
        provides services in connection with its business. Kaleidoscope is a next
        generation communications provider that provides Voice over Internet Protocol
        (“VoIP”) solutions. We were named “Vocalscape Networks, Inc.” until July 14,
        2008, at which time we changed our name to “Kaleidoscope Venture Capital
        Inc.”
 
 **PRODUCTS
        AND SERVICES**
  Kaleidoscope
        provides VoIP telephony solutions and communications software for Internet
        Service Providers (“ISPs”), Internet Telephony Service Providers (“ITSPs”) and
        telecommunications companies worldwide. Kaleidoscope develops VoIP and
        interactive communications software including Softphone applications, Customer
        Acquisition and Billing Systems, SIP Servers, Gatekeepers and Virtual Calling
        Cards. Kaleidoscope’s strategy is to focus on VoIP software and long distance
        termination solutions that bring together a full range of communications
        solutions and services thereby providing a turn-key VoIP infrastructure for
        ISPs, ITSPs and Telecommunications companies. Additionally, Kaleidoscope
        is
        actively seeking and negotiating strategic alliances with
        companies.
 
 4
 **COMPETITION**
 
 The
        market for VoIP telephony software and services is relatively new and is
        quickly
        evolving and subject to rapid technological change. The VoIP telephony market
        has also seen significant consolidation and this trend is projected to continue.
        The companies following companies are not meant to be an exhaustive list
        of
        competitors to Kaleidoscope, but represent the largest and most active
        participants in this market: Deltathree, VocalTec Communications Ltd. and
        Net2Phone.
 
 Kaleidoscope’s
        software solutions operate on the customer’s choice of hardware. Our software
        solutions support our customer’s choice of business models including, pre-paid,
        post-paid or monthly subscriber billing systems. Kaleidoscope’s product
        offerings are designed to streamline subscriber provisioning and subscriber
        services online.
 
 **DISTRIBUTION
        & MARKETING**
 
 Kaleidoscope
        has a direct sales team and will build an indirect or reseller sales force.
        Direct resources will target the ISP’s, ITSP’s and Alternative Providers with
        the residential VoIP solution. Indirect channels will include VARs that supply
        the growing VoIP provider market with IP PBX solutions.
 
 The
        direct sales force will also utilize web based leads (generated by search
        engine, blog, publication and email marketing) and outbound telemarketing
        to go
        directly after the solution sales clients. A select number of tradeshows
        will be
        attended to build the Kaleidoscope brand and the awareness of the solutions
        and
        product offerings from the company.
  **GOING
        CONCERN**
  Our
        company has nominal revenues and has incurred net losses in the third quarter
        of
        $240,365 and net cash used in operations of $202,620 in the nine months ended
        September 30, 2008. Our current liabilities exceed our current assets by
        $5,867,464 and we have an accumulated deficit and stockholder’s deficit of
        $16,022,773 and $5,835,301 respectively, at September 30, 2008. These conditions
        give rise to substantial doubt about Kaleidoscope’s ability to continue as a
        going concern. Kaleidoscope’s ability to continue developing its operations and
        generate revenues or its ability to obtain additional funding will determine
        its
        ability to continue as a going concern. Our consolidated financial statements
        do
        not include any adjustments that might result from the outcome of this
        uncertainty.
  **RESULTS
        OF OPERATIONS**
  The
        Company recorded revenues of $0 for the quarter ending September 30, 2008,
        as
        compared to revenues of $4,000 for the quarter ending September 30,
        2007.
  General
        and administrative expenses decreased to $22,253 for the quarter ending
        September 30, 2008, a decrease of 56% over expenses of $ 51,307 for the quarter
        ending September 30, 2007. General and administrative expenses in this third
        quarter of 2008 consist primarily of rent, telephone, travel sales and other
        general corporate and office expenses.
  5
 Interest
        expense was $62,907 for the quarter ending September 30, 2008, an decrease
        of
        43% over expense of $111,685 for the quarter ending September 30, 2007. This
        interest expense consists of interest on various loans, and convertible
        debentures.
  Compensation
        expense for the quarter ending September 30, 2008, was $116,100, as compared
        to
        $148,035 for the quarter ending September 30, 2007. Compensation expense
        for the
        current quarter consists of salaries paid to the Company’s employees and
        officers.
  Professional
        fees increased to $31,314 for the quarter ending September 30, 2008, compared
        to
        $24,050 for the quarter ending September 30, 2007. These expenses consist
        primarily of legal and accounting fees in 2008 as a result of the Company
        being
        a reporting issuer under the Securities Exchange Act of 1934, as
        amended.
  Consulting
        fees expense for the quarter ending September 30, 2008 was $6,311, a decrease
        of
        --88% over expenses of $51,876 for the quarter ending September 30, 2007.
        The
        consulting fees in this third quarter of 2008 primarily relate to amounts
        paid
        to non-officer and director persons performing services on behalf of
        Kaleidoscope and includes $0 of stock based expenses.
  Depreciation
        expense for the nine months ending September 30, 2008 was $5,059 compared
        to
        $7,276 for the nine months ending September 30, 2007.
  The
        net
        loss for the quarter ending September 30, 2008 is $240,365 (net loss per
        share
        of $--0.11) compared to a net loss for quarter ending September 30, 2007
        of
        $382,664 (net loss per share of $0.48).
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  The
        Company has cash and cash equivalents of $1,780, total current liabilities
        of
        $5,869,244 and total assets of $33,943 at September 30, 2008. The Company
        continues to incur costs, but has not secured adequate new revenue to cover
        the
        costs. The Company does not currently have an adequate source of reliable,
        long-term revenue to fund operations. As a result, Kaleidoscope is completely
        dependent on outside sources of capital funding to continue operations. There
        can be no assurances that the company will in the future achieve a consistent
        and reliable revenue stream adequate to support continued operations. In
        addition, there are no assurances that the Company will be able to secure
        adequate sources of new capital funding, whether it is in the form of share
        capital, debt, or other financing sources.
  **PLAN
        OF OPERATION FOR THE NEXT 12 MONTHS**
  Kaleidoscope
        has limited cash and will only be able to satisfy its cash requirements through
        raising additional funds in the next 12 months.
 
 The
        company recognizes that, without additional financing, the success of
        Kaleidoscope’s VOIP business is highly uncertain and Kaleidoscope must adapt its
        business operations to this reality. We are therefore seeking to broaden
        and
        transform our business base through the acquisition of innovative,
        value-differentiated products and services. Our focus is on revenue generating
        businesses poised for rapid growth that can benefit from being part of a
        public
        company and benefit from the sharing of resources and the sharing of costs
        associated with public filings and compliance.
 
 We
        have
        limited funds with which to pursue the acquisition of new business
        opportunities, as we have generated losses since our inception. In our pursuit
        of acquiring new business opportunities, we anticipate needing additional
        funds
        to cover legal and accounting expenses, due diligence expenses and other
        costs.
        Subject to the availability of adequate financing, Kaleidoscope will continue
        to
        focus on providing services to our existing customers, marketing and selling
        our
        products to new customers and the continuous development of our products
        and
        services.
 
 6
 **EVENTS
        SUBSEQUENT TO THE QUARTER ENDED SEPTEMBER 30, 2008**
 
 None.
 
 **ITEM
        3. CONTROLS AND PROCEDURES.**
 
 We
        maintain disclosure controls and procedures, which are designed to ensure
        that
        information required to be disclosed in the reports we file or submit under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
        processed, summarized and reported within the time periods specified in the
        Securities and Exchange Commission’s rules and forms, and that such information
        is accumulated and communicated to our management, including our President,
        who
        also acts as our principal financial officer, as appropriate, to allow timely
        decisions regarding required disclosure.
 
 Under
        the
        supervision and with the participation of our management, including our
        President and principal financial officer, an evaluation was performed on
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures as of the end of the period covered by this quarterly report.
        Based
        on that evaluation, our management, including our President, who also acts
        as
        our principal financial officer, concluded that our disclosure controls and
        procedures were effective as of the end of the period covered by this report
        for
        the purpose of gathering, analyzing and disclosing of information that
        Kaleidoscope is required to disclose in the reports it files under the
        Securities Exchange Act of 1934, within the time periods specified in the
        SEC’s
        rules and forms.
 
 There
        were no changes in the Company’s internal controls over financial reporting
        during the most recently completed fiscal quarter that have materially affected
        or are reasonably likely to materially affect the Company’s internal control
        over financial reporting.
 
 **PART
        II. OTHER INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS.**
 
 The
        Company is not currently subject to any legal proceedings. From time to time,
        the Company may become subjected to litigation or proceedings in connection
        with
        its business, as either a plaintiff or defendant. There are no such pending
        legal proceedings to which the Company is a party that, in the opinion of
        management, is likely to have a material adverse effect on the Company’s
        business, financial condition or results of operations.
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS.**
 
 None.
 
 **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES.**
 
 None.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 None.
 
 **ITEM
        5. OTHER INFORMATION.**
 
 None.
 
 7
 **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).  3.1.6
              Certificate of Amendment to Articles
                of
                Incorporation of the Company effective July 14, 2008 (incorporated
                by
                reference to the Company’s Current Report on Form 8-K filed on July 15,
                2008).  3.1.7
              Certificate of Change (incorporated
                by
                reference to the Company’s Current Report on Form 8-K filed on July 15,
                2008).  3.2.1
              Bylaws
                  (incorporated by reference to the Company’s Registration Statement on Form
                  10-SB 12G/A filed on November 26, 1999).  31.1
              Certification of Principal Executive
                Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.  31.2
              Certification of Principal Financial
                Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.  32.1
              Certification of Principal Executive
                Officer
                and Principal Financial Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.
  8
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
  Kaleidoscope
                  Venture Capital Inc.
                (Name
                  of Registrant)Date: November
                19, 2008
              By:
              /s/ Ron
                McIntyreRon
                McIntyrePresident  9
  **EXHIBIT
        INDEX**
  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).  3.1.6
                Certificate of Amendment to Articles
                  of
                  Incorporation of the Company effective July 14, 2008 (incorporated
                  by
                  reference to the Company’s Current Report on Form 8-K filed on July 15,
                  2008).  3.1.7
                Certificate of Change (incorporated
                  by
                  reference to the Company’s Current Report on Form 8-K filed on July 15,
                  2008).  3.2.1
                Bylaws
                    (incorporated by reference to the Company’s Registration Statement on Form
                    10-SB 12G/A filed on November 26, 1999).  31.1
                Certification of Principal Executive
                  Officer
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.  31.2
                Certification of Principal Financial
                  Officer
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.  32.1
                Certification of Principal Executive
                  Officer
                  and Principal Financial Officer Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.
  10