10-Q 1 v115232_10q.htm

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 March 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to ____

Commission File No. 000-27277

VOCALSCAPE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

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

170 E. Post Road, Suite 206
White Plains, New York 10601
(Address of principal executive offices, zip code)

(914) 448-7600
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of May 16, 2008, there were 383,783,937 shares of the issuer’s common stock, par value $0.001 per share, outstanding, 60,000 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)
 
 
VOCALSCAPE NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2008

INDEX
 
Index
    
Page
       
Part I.
 Financial Information  
 
Item 1.
Financial Statements
1
   
 
  
   
Consolidated Balance Sheet as of March 31, 2008 (unaudited)
F-2
   
 
  
   
Consolidated Statements of Operations - for the three months ended March 31, 2008 and 2007 (unaudited)
F-3
   
 
  
   
Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)
F-4
   
 
  
   
Notes to Consolidated Financial Statements (unaudited)
F-5
   
 
  
  Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2
       
  Item 3.
Controls and Procedures
5
       
Part II.
 Other Information  
  Item 1.
Legal Proceedings
5
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6
       
 
Item 3.
Defaults Upon Senior Securities
6
       
  Item 4.
Submission of Matters to a Vote of Security Holders
6
       
  Item 5.
Other Information
6
       
  Item 6.
Exhibits
7
       
Signatures
    
7
       
Certifications
      
 
 
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 Vocalscape must conduct its Voice-over-Internet Protocol business and operations; (ii) market and distribute its Voice-over-Internet Protocol services; (iii) secure capital to continue operations; (iv) achieve and manage growth; and (v) develop or acquire new technology to effectively provide new and/or better services. Additional factors that will impact the company’s success include the company’s ability to attract and retain qualified personnel; the voting decisions of Robert Koch, who controls approximately 37.86% of the voting power of all securities of Vocalscape; and other factors discussed in Vocalscape’s filings with the Securities and Exchange Commission (“SEC”).

Our management has included projections and estimates in this Form 10-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.


ITEM 1. FINANCIAL STATEMENTS.
 
Vocalscape Networks, Inc. and Subsidiary
Consolidated Financial Statements
For the Three Months ended March 31, 2008 and 2007
(Unaudited)

1

Vocalscape Networks, Inc. and Subsidiary
 
Index to Consolidated Financial Statements

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

F-1

Vocalscape Networks, Inc. and Subsidiary
Consolidated Balance Sheets
 
   
(Unaudited)
      
   
March 31, 2008
  
December 31, 2007
  
ASSETS
              
Current assets:
              
Cash and cash equivalents
  
$
210
  
$
236
  
Total current assets
    
210
    
236
  
Investment in non-marketable equity securities
    
21,116
    
18,656
  
Property and equipment, net
    
16,388
    
18,074
  
Development costs, net
    
-
    
-
  
Total assets
  
$
37,714
  
$
36,966
  
               
LIABILITIES AND STOCKHOLDER'S DEFICIT
              
Current liabilities:
              
Loans and notes payable
  
$
1,767,000
  
$
1,767,000
  
Loans and notes payable, related parties
    
160,486
    
160,486
  
Loan payable due for software purchase, net of discount
    
131,746
    
131,746
  
Accounts payable
    
296,671
    
285,379
  
Accounts payable, related parties
    
260,802
    
240,779
  
Accrued expenses
    
1,358,856
    
1,270,289
  
Accrued expenses, related parties
    
348,025
    
272,304
  
Convertible debentures
    
84,912
    
84,912
  
Payable to shareholder
    
900,027
    
900,027
  
Embedded conversion option liability
    
159,851
    
193,375
  
Other liablilities
    
14,289
    
14,289
  
Total current liabilities
    
5,482,665
    
5,320,586
  
               
               
Commitments and contingencies (Note 11)
              
               
STOCKHOLDERS' DEFICIT
              
Preferred stock, $0.001 par value, 25,000,000 authorized Series A, voting convertible preferred stock, 100,000 shares authorized, 50,000 shares issued and outstanding (liquidation value $0.50 per share)
    
50
    
50
  
Common stock, $0.001 par value, 400,000,000 authorized, 337,278,968 and 272,935,968 issued and outstanding at March 31, 2008 and December 31, 2007, respectively
    
337,279
    
272,937
  
Common stock issuable, at par value (11,504,969 and 8,004,969 shares at March 31, 2008 and December 31, 2007, respectively)
    
11,505
    
8,005
  
Common stock , Class A non voting, $.001 par value, 100,000,000 shares authorized, 100,000,000 shares issued and outstanding
      100,000    
100,000
  
Common stock and Common Stock, Class A subscriptions receivable
    
(1,165,000
)
  
(1,165,000
)
Additional paid-in capital
    
7,749,274
    
7,602,329
  
Accumulated deficit
    
(12,478,059
)
  
(12,101,941
)
Total stockholders' deficit
    
(5,444,951
)
  
(5,283,620
)
Total liabilities and stockholders' deficit
  
$
37,714
  
$
36,966
  

See accompanying notes to consolidated financial statements

F-2

Vocalscape Networks, Inc. and Subsidiary
Consolidated Statements of Operations

   
Three Months Ended March 31,
  
   
2008
  
2007
  
   
(Unaudited)
  
(Unaudited)
  
           
Revenue
  
$
6,275
  
$
10,511
  
Cost of revenue
    
-
    
739
  
Gross profit
    
6,275
    
9,772
  
               
Costs and expenses:
              
Compensation
    
167,997
    
176,857
  
Consulting
    
126,548
    
153,616
  
Professional fees
    
12,293
    
(17,182
)
General and administration
    
25,945
    
66,845
  
     
332,783
    
380,136
  
Loss from operations
    
(326,508
)
  
(370,364
)
               
Other income (expense)
              
Loss on conversion
    
-
    
(80,000
)
Interest expense
    
(85,594
)
  
(61,230
)
Change in fair value of embedded conversion option liability
    
33,524
    
-
  
Foreign currency transaction gain (loss), net
    
2,460
    
(3,284
)
Total other income (expense)
    
(49,610
)
  
(144,514
)
               
Net loss
  
$
(376,118
)
$
(514,878
)
               
Net loss per share - basic and diluted
  
$
(0.00
)
$
(0.01
)
               
Weighted average shares outstanding during the period - basic and diluted
    
321,504,168
    
68,818,277
  

See accompanying notes to consolidated financial statements

F-3

Vocalscape Networks, Inc. and Subsidiary
Consolidated Statements of Cash Flows
 
   
Three Months Ended March 31,
  
   
2008
  
2007
  
     
 (unaudited)
    
  (unaudited)
  
Cash flows from operating activities:
              
Net loss
  
$
(376,118
)
$
(514,878
)
Adjustments to reconcile net loss to net cash used by operating activities:
              
Depreciation and amortization
    
1,686
    
2,425
  
Amortization of debt discount
    
-
    
68,431
  
Deferred consulting amortization
    
-
    
96,667
  
Stock issued for services
    
84,000
    
-
  
Stock options exercises paid for with services
    
-
    
1,850
  
Stock options granted for services
    
21,002
    
9,639
  
Foreign currency transaction loss (gain)
    
(2,460
)
  
1,143
  
Change in fair value of embedded conversion option liability
    
(33,524
)
  
-
  
Non-cash loan fee
    
-
    
20,000
  
Changes in other assets and liabilities:
              
Accounts payable
    
11,292
    
(32,737
)
Accounts payable, related party
    
20,023
    
(23,250
)
Other accrued liabilities
    
24,466
    
(14,888
)
Accrued interest - related party
    
1,471
    
3,547
  
Accrued expenses
    
64,101
    
28,720
  
Accrued expenses, related aprties
    
74,250
    
68,668
  
Net cash used in operations
    
(109,811
)
  
(284,663
)
               
Cash flows from financing activities:
              
Bank overdraft
    
-
    
(4,175
)
Loan proceeds from related party
    
-
    
16,000
  
Proceeds from common stock sales
    
109,785
    
82,620
  
Loan proceeds
    
-
    
180,000
  
Net cash provided by financing activities
    
109,785
    
274,445
  
Net increase (decrease) in cash and cash equivalents
    
(26
)
  
(10,218
)
Cash and cash equivalents, beginning of period
    
236
    
14,697
  
Cash and cash equivalents, end of period
  
$
210
  
$
4,479
  
               
Supplemental disclosure of cash flow information:
              
               
Cash paid during the period for:
              
Interest
  
$
-
  
$
-
  
Income taxes
  
$
-
  
$
-
  
               
Supplemental disclosure of non-cash investing and financing activities:
              
Recording of beneficial conversion value to debt discount and APIC
  
$
-
  
$
60,000
  
Conversion of note to common stock
  
$
-
  
$
120,000
  
Exchange of accounts payable for common stock on exercise of warrants
  
$
-
  
$
27,150
  
Recording od deferred consulting
  
$
-
  
$
60,000
  

See accompanying notes to consolidated financial statements

F-4

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

1.
NATURE OF BUSINESS AND GOING CONCERN

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

Organization – VNI is a Nevada corporation, which was incorporated on June 12, 1998.

VNOS is a Nevada corporation, which was incorporated on February 5, 2003.

Recapitalization - On October 28, 2005, Vocalscape, Inc. (“VSI”) and Dtomi, Inc. (“Dtomi”) announced that on October 4, 2005, Dtomi and its wholly owned subsidiary Vocalscape Networks, Inc. (Subsidiary) (“VNI OLD”) effected a merger pursuant to that certain Agreement and Plan of Reorganization (the “Agreement”) by and between Dtomi and VSI dated August 25, 2005. Effective October 4, 2005, the date that Articles of Merger effecting the merger were filed with the Nevada Secretary of State, VNI OLD became a wholly owned subsidiary of Dtomi. Pursuant to the amended Agreement, Dtomi issued shares of its common stock with voting rights equal to 82% (1,138,889 common shares) of the voting power of the stockholders of Dtomi, to VSI in exchange for VNI OLD merging into a wholly owned subsidiary of Dtomi. The business of VNI OLD became the primary business of Dtomi. Subsequent to the recapitalization, Dtomi changed its name to Vocalscape Networks, Inc. and the subsidiary changed its name to Vocalscape Networks Operating Subsidiary, Inc.

Due to the change in control of Dtomi, the transaction was accounted for as a recapitalization of VNI OLD.

Accordingly, the financial statements of the Company consists of the historical operations of VNI OLD from its inception, and the operations of Dtomi from the recapitalization date. The Company assumed approximately $2.3 million of liabilities and deferred stock based costs of approximately $842,000 and is deemed to have issued 250,129 common shares to the existing pre-recapitalization shareholders of Dtomi. All share and per share data in the accompanying financial statements has been retroactively adjusted for the effect of the recapitalization.

F-5

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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 three months ended March 31, 2008 of $376,118, net cash used in operations for the three months ended March 31, 2008 of $109,811, and working capital deficit of $5,482,455, accumulated deficit of $12,478,059 and stockholders’ deficit of $5,444,951 at March 31, 2008. In addition, the Company was in default on $436,746 of promissory notes and loans at March 31, 2008.
 
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.
 
In order to execute its business plan, the Company will need to raise additional working capital and generate additional revenues. There can be no assurance that the Company will be able to obtain the necessary working capital or generate additional revenues to execute its business plan. During 2008, the Company generated revenues from customer consulting agreements and raised capital through initiating a Regulation S offering by VSI. Management believes the continuation of revenues combined with additional capital raises and additional promissory notes will provide the Company the ability to continue as a going concern.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Consolidation – The consolidated financial statements include the accounts of Vocalscape Networks, Inc. (the “Company” or “VNI” or “Vocalscape”) and it’s wholly owned subsidiary Vocalscape Networks Operating Subsidiary, Inc. (“VNOS”). All material intercompany balances and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents - The Company classifies as cash equivalents any investments which can be readily converted to cash and have an original maturity of less than three months. At times cash and cash equivalent balances at a limited number of banks and financial institutions may exceed insurable amounts. The Company believes it mitigates its risks by depositing cash or investing in cash equivalents in major financial institutions.

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

F-6

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008
 
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.
 
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.

F-7

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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

No software development costs were amortized during the years ended December 31, 2004 and 2003 as the product was not considered to be generally released until 2005. The sales recorded during 2004 occurred prior to the general release. Amortization was recorded in 2006 and 2007 and was 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
 
Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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

Revenue Recognition – The Company is engaged as a seller of VoIP telephony solutions. The Company generally recognizes revenue in accordance 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

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

Foreign Currency Transactions - The Company’s corporate offices are located in New York in the United States and its operating offices are located in Canada. Although the Company’s accounts are maintained in U.S. dollars, the Company does maintain one Canadian dollar bank account and engages in various transactions resulting in deposits and disbursements to and from that bank account. The Canadian dollar bank account was closed in the second quarter of 2007. 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

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

Net Earnings (Loss) Per Share - Basic earnings (loss) per common share is based on the weighted-average number of all common shares and Class A Common Shares outstanding. The computation of diluted earnings (loss) per share does not assume the conversion, exercise or contingent issuance of securities that would have an anti-dilutive effect on earnings (loss) per share.
 
Class A Common Stock was issued in May and October 2007 with a majority of it issued into escrow. The subscription receivable has not been received as of December 31, 2007 nor as of May 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 March 31, 2008.

As of March 31, 2008, there were warrants and options convertible to 1,250 and 2,276 common shares and there were promissory notes convertible into 20,855,932 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

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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

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

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

F-12

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

Reclassifications

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

3.
INVESTMENT IN NON-MARKETABLE EQUITY SECURITIES

The composition of non-marketable securities at March 31, 2008 is as follows:

   
Cost 
 
Fair Value
  
           
Equity securities
  
$
21,116
  
$
21,116
  

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.

4.
PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2008, consists of the following:

Office equipment
  
$
35,854
  
Accumulated depreciation
    
(19,466
)
Property and equipment, net
  
$
16,388
  

Depreciation during the three months ended March 31, 2008 and 2007 were $1,686 and $ 1,686, respectively.

5.
DEVELOPMENT COSTS

   
Capitalized software development cost consists of the following at March 31, 2008:

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

F-13
 
Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

During January 2004 the Company capitalized $136,538 relating to a suite of software products purchased by a related party and assigned to the Company with the related liabilities (see Notes 7 and 10). The related liabilities due to the seller are collateralized by the purchased software. These products had already reached the point of technological feasibility prior to the Company’s purchase and needed some modifications by the Company to bring the product to market. Accordingly, no amortization had been charged to operations as of December 31, 2004. Due to the lack of available resources during 2004 and subsequent, the Company did not allocate the resources to this project and instead allocated resources to other software projects being developed internally. Accordingly, since the Company could not reliably project any positive cash flows from this asset, the Company 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 March 31, 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% (7.25% to 8.25% at March 31, 2008)
  
$
101,486
  
Note payable to law firm, due on demand, non-interest bearing
    
59,000
  
Subtotal – Notes payable related parties
    
160,486
  
Notes payable to two individuals – non interest bearing-in default
    
145,000
  
Notes payable to two individuals with interest at 10.50%-Due March 2008 – in default
    
160,000
  
         
Notes payable to two individuals with interest accruing at 10%
    
159,000
  
Notes payable to six individuals; due on demand; unsecured; with interest at prime plus 3% (8.25% at March 31, 2008)
    
1,303,000
  
         
Subtotal – Notes payable unrelated parties
    
1,767,000
  
         
Total Notes Payable
  
$
1,927,486
  

The weighted average interest rate on short term outstanding as of March 31, 2008 was 8.39 %.

F-14

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

At December 31, 2007, $145,000 of the above promissory notes were in default. At March 31, 2008, $305,000 of the above promissory notes were in default.

Convertible Debentures - In October 2005, upon recapitalization, the Company assumed four 10% one-year convertible debentures to four individuals for $11,698, $60,705, $6,121 and $6,388 cash. These debentures had been issued in October and November 2004. The debentures are convertible into 2,123 common shares based on a conversion rate of $40 per share. The embedded conversion options were determined not to be derivatives at the issuance date or as of March 31, 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 $.118 per share which equates to 1,271,186 common shares. Management has determined that this note qualifies as conventional convertible debt pursuant to SFAS 133 and EITF 00-19 and accordingly the embedded conversion option is not a derivative. The convertible promissory note was converted into common stock in March 2006. The Company computed a beneficial conversion value of $150,000 based on the quoted stock price on the grant date of $.60 per share. The $150,000 was recorded as a debt discount and credited to additional paid-in capital. The debt discount was amortized to interest expense in March 2006 when the note was converted. The note is guaranteed by, Azatel Communications Inc. (the “Acquiree”) with the note holder holding a first security interest in substantially all assets of the Acquiree and the Company has guaranteed the conversion.
 
In March 2006, the Company issued a convertible promissory note for $10,000 with interest payable at maturity at 10.5% per annum. The note matures and is due March 15, 2008. The note principal is convertible to common stock at a fixed price of $.118 per share which equates to 85,746 common shares. Management has determined that this note qualifies as conventional convertible debt pursuant to SFAS 133 and EITF 00-19 and accordingly the embedded conversion option is not a derivative. The convertible promissory note was converted into common stock in March 2006. The Company computed a beneficial conversion value of $10,000 based on the quoted stock price on the grant date of $.60 per share. The $10,000 was recorded as a debt discount and credited to additional paid-in capital. The debt discount was amortized to interest expense in March 2006 when the note was converted.

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

F-15

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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

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

In February 2007, the Company issued a convertible promissory note for $120,000 with no specified term or interest rate and thus it is considered due on demand. The note principal is convertible into 3,000,000 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 $.06 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 $0.02 and $.015, exercise price of $.01 and $.0075, volatility of 242%, term of 1 year and .83 years, and interest rate of 4.8%. At September 30, 2007 the Company adjusted the embedded conversion option liability to fair value and decreased it by $21,945 due to changes in market value. The $21,945 was credited to expense in September 2007. 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.

F-16

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

On July 2, 2007 the Company received the $50,000 balance of the above note payable. Management of the Company has determined that the note is a derivative and contains an embedded conversion option since the variable conversion rate causes an inability to guarantee that there will be enough authorized shares available if the holder elects to convert. The Company recorded an embedded conversion option liability on this note of $81,825. This created a change in fair value of the embedded conversion option of $31,825 that was recorded as an other expense. Since the note is due on demand, the Company recognized $50,000 of interest expense on the debt discount. At September 30, 2007 the Company adjusted the embedded conversion option liability to fair value and decreased it by $10,908 due to changes in market value. The $10,908 was credited to expense in September 2007. The embedded conversion option was valued using the Black-Sholes model with the following assumptions in July 2007 and September 2007: stock price of $0.014 and $0.026, exercise price of $0.007 and $0.013, volatility of 204%, term of .83 and.58 years, and interest rate of 4.80%. 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.

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 March 31, 2008 was zero.

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 1,500,000 shares of the capital stock of Vocalscape Networks, Inc.

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 March 31, 2008 the loan was in default.

F-17

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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 March 31, 2008 was as follows:

Loan payable
  
$
131,746
  
Debt 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

Recapitalization - In October 2005, VNI OLD was acquired by Dtomi, Inc., a public shell, in a transaction accounted for as a recapitalization of the Company. All authorized, issued and outstanding share and per share data in the accompanying consolidated financial statements has been retroactively adjusted to reflect the recapitalization. (See Note 1)

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

Preferred Stock - The Company has authorized 25,000,000 shares of preferred stock. The Board of Directors at its discretion may determine the rights and preferences of the preferred stock. In December 2005 the Company designated 100,000 shares as Series A Convertible Preferred Stock (“Series A shares”). The Series A shares upon issuance and consideration received by the Company is convertible to common stock on a one-for-one basis at a minimum of 50 shares per conversion. The conversion rate is not adjustable except for standard anti-dilution provisions, such as stock splits, reorganization or recapitalizations. Upon liquidation the Series A stockholders would receive $0.50 per share plus any unpaid dividends. Each Series A share has voting rights equal to 5,000 common shares. On January 20, 2006 the Company accepted a subscription from its CEO to purchase 20,000 Series A shares in exchange for a $5,000 portion of a promissory note due to the CEO. Such note was previously due to a controlled affiliate of the CEO and assigned to the CEO by that affiliate. In October 2006, the CEO resigned and executed an employment agreement as Head of Business Development. Among other compensation the employment agreement grants 15,000 Series A preferred shares as compensation. The shares were valued at $0.25, the same amount he previously paid and expensed immediately in 2006 since it was not material. In November 2007 another 10,000 Series A Preferred Shares were granted to this former CEO and 5,000 shares to another director for services rendered. The shares were valued at an estimated $.50 per share based on their liquidation value and expensed immediately.

F-18
 
Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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

During 2007, the Company sold 206,680,139 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 March 31, 2008.

In September 2007, the Company executed a settlement agreement with an individual who had subscribed to 3,000,000 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 64,343,000 common shares for net proceeds of $109,785 pursuant to a Regulation S Stock Purchase Agreement.

Common Stock Issued as Settlement

In late 2007, the Company agreed to issue an investor 2,000,000 shares that had been paid for in 2006 but never issued and are reflected as issuable in the accompanying statement of financial statements. As settlement compensation, the Company also issued the investor another 1,000,000. These were valued at the quoted trading price of $0.023 on the settlement date resulting in an expense of $23,000. The total 3,000,000 were issued by the transfer agent in 2008.

F-19
 
Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

Common Stock Issued for Services

In March 2008 the Company granted 3,500,000 common shares to a consultant for services rendered. The shares were valued at the $.024 quoted trading price on the grant date resulting in an expense of $84,000.

Common Stock Issued for Exercise of Stock Options

In January 2007, the Company issued 225,000 common shares upon exercise of a stock option at $.04 per share. The exercise price of $9,000 was paid for with a payable that was due to the option holder. In May 2007, the company issued 575,000 common shares to the same option holder upon exercise of a stock option at $.01 per share in exchange for a payable of $5,750.

In March 2007, the Company issued 3,000,000 common shares upon exercise of stock options at $.01 per share and received the $30,000 exercise price in cash.

In March 2007, the Company issued 1,000,000 common shares upon exercise of stock options at $.02 per share which was paid for $18,150 with a payable due to the option holder and the remaining $1,850 was expensed as a professional fee.

In June 2007, the Company issued 500,000 common shares upon exercise of stock options at $.01 per share in exchange for a payable of $5,000.

In August 2007, the Company issued 200,000 common shares upon exercise of stock options at $0.016 per share in exchange for a payable of $3,200.

Grants of Options to Purchase Common Stock

In January 2007, the Company granted 225,000 common stock options to a law firm for services provided. The options were valued at $7,876 ($.035 per option) using a Black-Scholes option pricing model with the following assumptions: stock price $0.075, exercise price of $.04, volatility of 282%, term of 1 day, and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date. (See above) The Company recognized $7,876 in expense.

In March 2007, the Company granted options for 3,000,000 common shares at an exercise price of $.01 per share pursuant to a consulting agreement. The options were valued at $60,000 ($.02 per option), using a Black-Scholes option pricing model with the following assumptions: stock price $0.03, exercise price of $.01, volatility of 282%, term of 1 day, and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date (see above). The value is to be recognized over the requisite service period and accordingly, $50,000 was deferred as of March 31, 2007. During the second quarter of 2007 $50,000 of the deferred consulting was expensed.

F-20

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

In March 2007, the Company granted 1,000,000 common stock options to a consultant for services. The options were valued at $0.0018 per option or $1,763 using a Black-Scholes option pricing model with the following assumptions: stock price $0.021, exercise price of $.02, volatility of 282%, term of 1 day, and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date. (See above) The Company recognized $1,763 in expense.

In May 2007, the Company granted 575,000 options to a law firm for services provided. The options were valued at $2,877 ($.005 per option) using a Black-Scholes option pricing model with the following assumptions: stock price $0.015, exercise price of $.01, volatility of 242%, term of 1 day, and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date. The Company recognized $2,877 in expense

In June 2007, the Company granted 500,000 options to a consultant for services provided. The options were valued at $0.003 per option or $1,513 using a Black-Sholes Option Pricing Model with the following assumptions: stock price $0.013, exercise price of $.01, volatility of 242%, term of 1 day, and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date. The Company recognized $1,513 in expense.

In August 2007, the Company granted 200,000 options to a consultant for services provided. The options were valued at $0.007 per option or $146 using a Black-Sholes Option Pricing Model with the following assumptions: stock price of $0.016, exercise price of $0.016, volatility of 220%, term of 1 day and interest rate of 4.8%. The term of 1 day was used since as intended the recipient exercised their options immediately on the grant date. The Company recognized $146 in expense.

In March 2008 the Company granted 1,500,000 options for services rendered. The options were valued at $21,002 using a Black-Sholes option pricing model with the following assumptions: stock price of $0.024 and exercise price of $0.01, 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 grant date in April, 2008. The $21,002 was expensed.

Warrants - Upon the recapitalization in October 2005, the Company assumed outstanding warrants as follows: At December 31, 2005 there were warrants to purchase 41,347 shares at an exercise price of $72.00 expiring December 31, 2006; 214 shares at an exercise price of $.40 expiring December 31, 2006 and 1,250 shares at an exercise price of $100.00 expiring December 31, 2009. Total warrants outstanding at December 31, 2005 were 42,811. At December 31, 2005, 2,632 options exercisable at $72.00 had expired and are excluded from the above balance. As of December 31, 2006, all warrants had expired except for the 1,250 at an exercise price of $100 which expire December 31, 2009. (See Note 6)

F-21

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 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 3,000,000 stock options. Management believes this amount may be materially offset, with the director’s approval, against loans and accrued compensation due to this director or his controlled affiliates. Loans and accrued compensation due to this director at March 31, 2008 was $410,792.

Notes payable to a related party director or his affiliates were $101,486 at March 31, 2008

At March 31, 2008, accrued expenses to related parties amounted to $348,025 which includes $25,682 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 accounts payable to this law firm were $240,779 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. See Note 8 for common share grants to this related party.

10.
COMMITMENTS AND CONTINGENCIES

Commitments

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

F-22

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

The Company is a party to a second office lease agreement, with a two-year term, covering 1,435 square feet, which commenced March 1, 2005, for the office in White Plains, New York. The agreement calls for monthly rental of $2,350. The lease expired on February 28, 2007 and the Company pays $2,500 per month, on a month to month basis.

The Company enters into sales agent and distributor agreements to sell its products. These agreements are primarily commission based. There were no commissions payable as of March 31, 2008.

Legal Matters

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

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

F-23

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

11.
ACCRUED EXPENSES

Accrued expenses at March 31, 2008 consist of the following:

Accrued license fees
  
$
36,000
  
Accrued interest
    
504,632
  
Accrued compensation
    
687,407
  
Accrued expenses - other
    
130,817
  
Total
  
$
1,358,856
  

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:

 
$
265,617
  
Former officer note payable and accrued compensation
    
214,410
  
   
420,000
  
Total
  
$
900,027
  

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

13.
SUBSEQUENT EVENTS

In April 2008, the Company issued 7,500,000 and 16,000,000 common shares to two consultants, respectively, pursuant to consulting agreements. The shares were valued at the $0.021 quoted trading price for a total of $493,500 and will be recognized over the service period.

In April 2008, the Company issued 10,000,000 options and 10,000,000 shares and another 20,000,000 options to a related party director for services his law firm rendered. The options were valued at $470,000 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 $0.021 quoted trading price or $210,000 and both amounts are to be applied to accounts payable to this related party.

In April 2008, the Company granted 10,000 Series A Preferred Shares to the former CEO and current Chairman for $2,500.

In April 2008, the Company granted 46,500,000 common shares to various employees and lenders. The shares were valued at the $0.013 quoted trading price or $604,000 and expensed.

F-24

Vocalscape Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2008

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 $30,000. The loan is due on July 13, 2008. The Company expects to receive the balance of the funding of $25,000 shortly.

F-25
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

The following discussion relates to the business of Vocalscape Networks, Inc., which includes the operations of its wholly owned subsidiary Vocalscape Operating Subsidiary, Inc., which holds assets through which Vocalscape provides services in connection with its business. Vocalscape is a next generation communications provider that provides Voice over Internet Protocol (“VoIP”) solutions. The current business of Vocalscape is the result of a merger of Dtomi, Inc. with Vocalscape Networks, Inc. on October 4, 2005, a date prior to which Vocalscape Networks, Inc. was not affiliated with the Company, and the Company was named “Dtomi, Inc.” Until October 4, 2005, the Company was named “Dtomi, Inc.”, and was a Florida-based, company that was developing the Air Spring Axle system, a suspension system for small and medium sized trailers.

 
2
 
 
Vocalscape provides VoIP telephony solutions and communications software for Internet Service Providers (“ISPs”), Internet Telephony Service Providers (“ITSPs”) and telecommunications companies worldwide. Vocalscape develops VoIP and interactive communications software including Softphone applications, Customer Acquisition and Billing Systems, SIP Servers, Gatekeepers and Virtual Calling Cards. Vocalscape’s strategy is to focus on VoIP software and long distance termination solutions that bring together a full range of communications solutions and services thereby providing a turn-key VoIP infrastructure for ISPs, ITSPs and Telecommunications companies. Additionally, Vocalscape is actively seeking and negotiating strategic alliances with companies.
   
COMPETITION

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

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

DEVELOPMENT

Vocalscape has a team of engineers with software and systems industry experience. These engineers and management have significant experience in telecommunications, communication and control systems development. Vocalscape will be able to bring to market its products in a timely fashion while retaining the IP, and producing a superior product with high reliability and quality. Our core team is overseeing the development of: 1) a seamless 911 Dashboard designed to integrate multiple 911 service providers and 2) an IP PBX subscriber system, enabling resellers to service business customers online with a self-managed telephone system.
 

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

The direct sales force will also utilize web based leads (generated by search engine, blog, publication and email marketing) and outbound telemarketing to go directly after the solution sales clients. A select number of tradeshows will be attended to build the Vocalscape brand and the awareness of the solutions and product offerings from the company.
 
GOING CONCERN
 
Our company has nominal revenues and has incurred net losses in the first quarter of $376,118 and net cash used in operations of $109,811 in the three months ended March 31, 2008. Our current liabilities exceed our current assets by $5,482,455 and we have an accumulated deficit and stockholder’s deficit of $12,478,049 and $5,444,951 respectively, at March 31, 2008. These conditions give rise to substantial doubt about Vocalscape’s ability to continue as a going concern. Vocalscape’s ability to continue developing its operations and generate revenues or its ability to obtain additional funding will determine its ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
 
The Company recorded revenues of $6,275 for the quarter ending March 31, 2008, as compared to revenues of $10,511 for the quarter ending March 31, 2007.
 
3
 
General and administrative expenses decreased to $25,945 for the quarter ending March 31, 2008, a decrease of 61% over expenses of $66,845 for the quarter ending March 31, 2007. General and administrative expenses in this first quarter of 2008 consist primarily of rent, telephone, travel sales and other general corporate and office expenses.
 
Interest expense was $85,594 for the quarter ending March 31, 2008, an increase of 39% over expense of $61,230 for the quarter ending March 31, 2007. This interest expense consists of interest on various loans, and convertible debentures.
 
Compensation expense for the quarter ending March 31, 2008, was $167,997, as compared to $176,857 for the quarter ending March 31, 2007. Compensation expense for the current quarter consists of salaries paid to the Company’s employees and officers.
 
Professional fees increased to $12,293 for the quarter ending March 31, 2008, compared to a credit of $(17,182) for the quarter ending March 31, 2007. These expenses consist primarily of legal and accounting fees in 2007 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 March 31, 2008 was $126,548, a decrease of 18% over expenses of $153,616 for the quarter ending March 31, 2007. The consulting fees in this first quarter of 2007 primarily relate to amounts paid to non-officer and director persons performing services on behalf of Vocalscape and includes $105,002 of stock based expenses.
 
Depreciation expense for the quarter ending March 31, 2008 was $1,686 compared to $1,686 for the quarter ending March 31, 2007.
 
The net loss for the quarter ending March 31, 2008 is $376,118 (de minimis net loss per share) compared to a net loss for quarter ending March 31, 2007 of $514,878 (net loss per share of $0.01).
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Company has cash and cash equivalents of $210, total current liabilities of $5,482,665 and total assets of $37,714 at March 31, 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, Vocalscape is completely dependent on outside sources of capital funding to continue operations. There can be no assurances that the company will in the future achieve a consistent and reliable revenue stream adequate to support continued operations. In addition, there are no assurances that the Company will be able to secure adequate sources of new capital funding, whether it is in the form of share capital, debt, or other financing sources.
 
PLAN OF OPERATION FOR THE NEXT 12 MONTHS
 
Vocalscape has limited cash and will only be able to satisfy its cash requirements through raising additional funds in the next 12 months.

The company recognizes that, without additional financing, the success of Vocalscape’s VOIP business is highly uncertain and Vocalscape must adapt its business operations to this reality. We are therefore seeking to broaden and transform our business base through the acquisition of innovative, value-differentiated products and services. Our focus is on revenue generating businesses poised for rapid growth that can benefit from being part of a public company and benefit from the sharing of resources and the sharing of costs associated with public filings and compliance.
We have limited funds with which to pursue the acquisition of new business opportunities, as we have generated losses since our inception. In our pursuit of acquiring new business opportunities, we anticipate needing additional funds to cover legal and accounting expenses, due diligence expenses and other costs. Subject to the availability of adequate financing, Vocalscape will continue to focus on providing services to our existing customers, marketing and selling our products to new customers and the continuous development of our products and services.

4
 
EVENTS SUBSEQUENT TO THE QUARTER ENDED MARCH 31, 2008

In April 2008, the Company issued 7,500,000 and 16,000,000 common shares to two consultants, respectively, pursuant to consulting agreements. The shares were valued at the $0.021 quoted trading price for a total of $493,500 and will be recognized over the service period.
 
In April 2008, the Company issued 10,000,000 options and 10,000,000 shares and another 20,000,000 options to a related party director for services his law firm rendered. The options were valued at $470,000 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 $0.021 quoted trading price or $210,000 and both amounts are to be applied to accounts payable to this related party.
 
In April 2008, the Company granted 10,000 Series A Preferred Shares to the former CEO and current Chairman for $2,500.
 
In April 2008, the Company granted 46,500,000 common shares to various employees and lenders. The shares were valued at the $0.013 quoted trading price or $604,000 and expensed.
 
In May, 2008 the Company entered into a promissory note for $100,000, without interest, but with a loan fee of $30,000. On May 13, 2007 the Company received $75,000. The loan is due on July 13, 2008. The Company expects to receive the $25,000 balance of the promissory note prior to the end of May.
 
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 Vocalscape is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.

There 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

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.

5
 
 
During February and March 2008, the Company sold 64,343,000 common shares for net proceeds of $109,785. The Company made such sale of pursuant to Rule 903(b)(3) of Regulation S, promulgated pursuant to the Securities Act, on the basis that the sale was made offshore of the United States, to a non-United States person, where no directed selling efforts were made in the United States and offering restrictions were implemented.
 
In March 2008, the Company granted an option to purchase 1,500,000 shares of common stock and 3,500,000 shares of common stock to a consultant for services rendered. The Company made such sale of pursuant to Rule 903(b)(3) of Regulation S, promulgated pursuant to the Securities Act, on the basis that the sale was made offshore of the United States, to a non-United States person, where no directed selling efforts were made in the United States and offering restrictions were implemented.
 
In April 2008, the Company issued 7,500,000 and 16,000,000 shares of common stock to two consultants, respectively, pursuant to consulting agreements. The shares were valued at the $0.021 quoted trading price for a total of $493,500 and will be recognized over the service period. The offer was made pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D, promulgated thereunder, as each offeree wan was an “accredited investor” within the meaning of SEC Rule 501(a).

In April 2008 the Company issued an option to purchase 10,000,000 shares of common stock and 10,000,000 shares of common stock and second option to purchase 20,000,000 shares of common stock to David Otto, a director of the Company, for services his law firm rendered to the Company. The options were valued at $0.021 per option or $470,000. The shares were valued at the $0.021 quoted trading price or $210,000 and both amounts are to be applied to accounts payable to this related party. The offer and sale was made pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D, promulgated thereunder, as the offeree wan was an “accredited investor” within the meaning of SEC Rule 501(a).

In April 2008, the Company granted 10,000 shares of Series A Preferred Stock to Robert Koch, the Chairman of the Board of Directors, for aggregate proceeds of $2,500. The offer and sale was made pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D, promulgated thereunder, as the offeree wan was an “accredited investor” within the meaning of SEC Rule 501(a).

In April 2008 the Company granted 46,500,000 shares of common stock to various employees and lenders. The shares were valued at the $0.013 quoted trading price or $604,000 and expensed. The offer to employees was made pursuant to Rule 903(b)(3) of Regulation S, promulgated pursuant to the Securities Act on the basis that the sale was made offshore of the United States, to a non-United States person, where no directed selling efforts were made in the United States and offering restrictions were implemented. The offer and sale to lenders was made pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D, promulgated thereunder, as the offeree was an “accredited investor” within the meaning of SEC Rule 501(a).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.


None.
 
ITEM 5. OTHER INFORMATION.

None.

6
 
ITEM 6. EXHIBITS.
 
Exhibit
Number
Description
 
3.1.1
Articles of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form 10-SB 12G/A filed on November 26, 1999).

3.1.2
Certificate of Amendment to Articles of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form 10-SB 12G/A filed on November 26, 1999).

3.1.3
Certificate of Amendment to Articles of Incorporation of the Company filed October 25, 2001 (incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on December 18, 2001).

3.1.4
Certificate of Amendment to Articles of Incorporation of the Company filed November 6, 2005 (incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on May 18, 2006).

3.1.5
Certificate of Amendment to Articles of Incorporation of the Company filed January 3, 2007 (incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 17, 2007).

3.2.1
Bylaws (incorporated by reference to the Company’s Registration Statement on Form 10-SB 12G/A filed on November 26, 1999).

31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
 
Vocalscape Networks, Inc.
(Name of Registrant)
 
 		  
 		  
 
Date: May 20, 2008 By:   /s/ Ron McIntyre
 
Ron McIntyre
  President

7
 
EXHIBIT INDEX
 
3.1.1
Articles of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form 10-SB 12G/A filed on November 26, 1999).

3.1.2
Certificate of Amendment to Articles of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form 10-SB 12G/A filed on November 26, 1999).

3.1.3
Certificate of Amendment to Articles of Incorporation of the Company filed October 25, 2001 (incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on December 18, 2001).

3.1.4
Certificate of Amendment to Articles of Incorporation of the Company filed November 6, 2005 (incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on May 18, 2006).

3.1.5
Certificate of Amendment to Articles of Incorporation of the Company filed January 3, 2007 (incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on April 17, 2007).

3.2.2
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