SECURITIES
AND EXCHANGE COMMISSION


Washington
D.C.  20549





FORM 10-KSB







x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
      EXCHANGE ACT OF 1934  [FEE
REQUIRED]
 For the
fiscal year ended September 30, 2008
 or
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
      EXCHANGE ACT OF 1934  [NO FEE REQUIRED]For
      the transition period from _____________ to
  _______________


Commission
file number 1-12312


CAMINOSOFT
CORP.


(Name of
small business issuer in its charter)




California
              
              95-3880130(State
      of incorporation)
              
              (I.R.S.
      Employer Identification No.)




600
Hampshire Road, Suite 105, Westlake Village,
California  91361


(Address
of principal executive offices)





Issuer’s
telephone number:   (805) 370-3100


Securities registered under Section
12(b) of the Exchange Act: None


Securities registered under Section
12(8) of the Exchange Act: Common Stock no par value.





Check mark indicates whether the issuer
is not required to file reports pursuant to Section 13 or 15(d) of the latest
Exchange Act. o





Check mark indicates 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





Check mark indicates that the
disclosure of delinquent filers pursuant to Item 405 of Regulation


S-B is
not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
o





Check mark indicates whether the
registrant is a shell company (as defined in Rule 126-2 of the Exchange
Act.)


o x





Issuer’s
revenues for its most recent fiscal year were $1,492,180.





The aggregate market value of the
voting stock held by non-affiliates of the registrant as of December 1, 2008 was
approximately $250,000





Number of
shares outstanding of each of the issuer’s classes of common stock as of
December 1, 2008: 16,781,415 shares of common stock, no par value.





The following documents are
incorporated by reference into this report:  None.









FORWARD-LOOKING
STATEMENTS





In this annual report we make a number
of statements, referred to as “forward-looking statements,”
which are intended to convey our expectations or predictions regarding the
occurrence of possible future events or the existence of trends and factors that
may impact our future plans and operating results.  These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to us in light of our experience and perceptions
of historical trends, current conditions and expected future developments and
other factors we believe to be appropriate in the circumstances.  You
can generally identify forward-looking statements through words and phrases such
as “seek”, “anticipate”,
“believe”, “estimate”, “intend”, “plan”, “budget”, “project”, “may be”, “may
likely result”, and similar expressions.  When reading any
forward looking statement you should remain mindful that all forward-looking
statements are inherently uncertain as they are based on current expectations
and assumptions concerning future events or future performance of our company,
and that actual results or developments may vary substantially from those
expected in or implied by that statement for a number of reasons or factors,
including those expressed in the section entitled “Management’s Discussion and
Analysis and Plan of Operation.”





Each forward-looking statement should
be read in context with, and with an understanding of, the various other
disclosures concerning our company and our business made elsewhere in this
annual report as well as other public reports filed with the United States
Securities and Exchange Commission.  You should not place undue
reliance on any forward-looking statement as a prediction of actual results or
developments.  We are not obligated to update or revise any
forward-looking statement contained in this annual report to reflect new events
or circumstances unless and to the extent required by applicable
law.





PART
I





Item
1.            
DESCRIPTION OF BUSINESS.





BUSINESS




OVERVIEW





We
develop and manufacture software solutions that store, manage, and safeguard
large quantities of data created in a business and application settings. Our
software for Microsoft Windows 2000, 2003, 2008, Novell NetWare and NetApp filer
operating system environments enables organizations to maximize storage
resources, reduce backup and recovery time and control file
retention.  These products are available worldwide through commercial
distributors, value-added resellers, systems integrators and Original Equipment
Manufacturers (“O.E.M.”) partners.





CaminoSoft
Corp. was organized in 1983 as Interscience Computer Services, Inc. to be a
third-party provider of maintenance services for computer hardware and related
peripheral equipment.  During 1998 and 1999 the hardware maintenance
and high speed printing toner and fusing agent businesses were
sold.  On September 17, 1999, we acquired certain assets (the “Camino
Assets”) from Camino Software Systems, Inc. (“Camino”) for 468,000 shares of our
common stock and the assumption of $315,172 of certain Camino
liabilities.  The Camino Assets consisted of the name, Camino Software
Systems, Inc., the Highway Server hierarchical data storage management (“HSM”)
software, certain business contracts, and intangible personal
property.  On April 17, 2000, we changed our name to CaminoSoft Corp.
to reflect the change to a software sales and development firm.





In
November 2001, we entered into a non-exclusive licensing and distribution
agreement with Novell, Inc., which allowed Novell and its distribution channel
partners to sell our suite of software solutions.




-2-





In
January 2002, our “managed server and storage server” products for Novell
NetWare operating systems were included for distribution on the Novell product
price list.  As of June 30, 2003, the products were removed at our
request from the Novell price list and a new agreement, allowing Novell sales
personnel to sell and promote our products, is now in place.  We
actively participate in Novell’s “technology partner” and PartnerNet “marketing
partner” programs.





In July
2002, our products were certified as “ca smart,” Computer Associates’
certification for compatibility with its BrightStor Portal and ARCserve line of
enterprise storage management solutions.  We also became a Computer
Associates “partner,” which opens up additional distribution channels for our
products in conjunction with Computer Associates enterprise
software.





In July
2002, our Managed Server HSMTM for Windows 2000 and 2003 operating systems
received certification for compatibility from Microsoft.  We are a
member of the Microsoft “certified partner” program, which allows distribution
partners to sell and distribute our Windows 2000/2003-based
products.





In
February 2003, we entered into a licensing and distribution agreement with
Legato Systems, Inc. for marketing, distribution, future development and
customer service of certain Legato products for Novell NetWare operating
systems.  The products specified are “Standby ServerTM ” for NetWare,
“SnapShotServerTM ” for NetWare, and “OFFSite ArchiveTM ” for
NetWare.  Legato transitioned all customer service to us as of
February 2003.  We now have a broad base of products and solutions for
the Novell NetWare storage market, which include failover, fault tolerance,
mirroring, offsite archiving, and improved disaster recovery.  We
continue to sell and service these Novell NetWare specific products
currently.





In March
2003, we entered into a distribution agreement with Ingram Micro Inc., pursuant
to which Ingram Micro will distribute our storage management products for
NetWare and Windows 2000/2003 and our acquired Legato products for NetWare in
North America.





In June
2003, we released a new version of OFFSite Archive for
NetWare.  OFFSite Archive 3.0 is the first of a suite of products to
be enhanced and released under the CaminoSoft name. The product provides a
solution for offsite disaster-recovery for Novell server-based networks by
maintaining asynchronous replicas of mission-critical enterprise data in a
secure, offsite location, thereby keeping the information protected and
available.





In
February 2004, we joined EMC Corporation’s Centera Partner Program and completed
the integration of The Managed Server storage management – Centera Edition with
the EMC Centera Compliance Edition content addressed storage or CAS solution.
EMC Centera represents an entirely new software-driven storage architecture
specifically designed to address the information storage requirements of
unchanging digital assets, such as print and mail electronic “reference”
documents.





In
February 2004, we completed the development of a product named Managed Client
HSMTM for Windows XP. Based on our Managed Server HSM for Windows 2000/2003
solution, selected as a SIIA 2004 Codie Award “Best Storage Software” finalist,
this innovative Windows XP-based product brings vital storage management
capabilities to popular Microsoft desktops.





In May
2004, we joined Hewlett Packard’s Information Lifecycle Management Partner
Program.  Our Managed Server HSM software provides a solution for
automatically handling reference file dispersal and retention based on a
consistent set of administrative management policies. By combining our software
with the HP StorageWorks solutions and services portfolio, organizations may
simplify and better control the provisioning and utilization of their data
storage resources.





On June
30, 2005, we signed an OEM licensing and distribution agreement with Computer
Associates International for our Managed Server HSM for Windows 2000 and 2003,
Managed Server Library Edition and Managed Server HSM for Windows XP
products.  The OEM agreement allows Computer Associates to distribute
these products under the BrightStor suite of storage management products for
Computer Associates.




-3-





In July
2005, the Company certified its suite of HSM products for use with the nStor
line of SATA based storage hardware.  nStor’s hardware products are
now certified to work with the Company’s suite of storage management products to
provide Information Lifecycle Management storage hardware and software
solutions.





In July
2005, the Company received “Ready for IBM Tivoli Software” certification for the
HSM suite of data management products for use with IBM Tivoli storage
infrastructures.  The Company is currently distributing Managed Server
HSM Tivoli Edition for use in IBM Tivoli back up and storage
environments.





In August
2005, the Company did a second round of formal certification with EMC Centera
compliance and non compliance storage for our Managed Server HSM
products.  The Company tested its software products with a third party
testing firm and was awarded “Centera Proven Edition” status for our HSM
products.  This EMC certification signifies to storage clients,
current and prospective, that our software is certified and approved for use
with EMC Centera data storage devices.





In
September 2006, the Company announced release of an upgraded version of Managed
Server HSM – Tivoli Edition.  The enhanced version of Managed Server
HSM supports the IBM System Storage DR550.  The IBM System Storage
DR550 is ideal for clients seeking near-line storage application needs at an
entry level price point while capitalizing on mainframe inspired levels of
reliability, security, and functionality.  The Company’s solution,
which has “Ready for IBM Tivoli Software” validation provides a straightforward,
cost-effective solution for managing data storage across multiple tiers,
including the DR550, IBM Tivoli storage pool devices, SAN’s, SATA RAID
subsystems, NAS target appliances, and general purpose servers.





During
September 2006, the Company released Managed Server HSM for
NetApp.  The NetApp edition runs on a Windows 2000/2003 server and
provides true file system integration via NetApp’s FPolicy® application program
interface.  Key advantages for customers include, fast efficient
recall of migrated files, reclamation of NetApp NAS data storage space for
active production file usage, dramatic reduction in the amount of time needed
for backup (and recovery in the event of an outage), and facilitation of
compliance with corporate and industry regulations governing data file retention
and deletion.





During
February 2007, the Company announced a partnership with RAID Inc. to provide
data and storage management solutions.  RAID is a manufacturer of
enterprise class storage with options including fibre channel, SAS and SATA
solutions that deliver scalability, redundancy and
speed.  Organizations can automate file migration and retrieval from
primary to secondary and tertiary storage utilizing the combination of Managed
Server HSM and RAID’s line of storage devices to address the rapid growth of
data while providing storage resource and data management.





During
May 2007, the Company announced support for IBM N series unified storage
products.  The Company successfully completed interoperability testing
with IBM® System StorageTM and has been confirmed as IBM System Storage
Proven.  The program allows IBM and third-party partners to deliver
products and solutions that are tested to work together in IBM storage
environments.  The Company believes the latest certification and
interoperability testing will open additional opportunities for joint selling
with IBM sales teams around the world.





On
September 6, 2007, the Company entered into an Agreement and Plan of Merger with
Shea Development Corp.  Upon closing the Merger the shareholders of
the Company were to retain 4.99% of the fully diluted capital stock after giving
effect to shares of the Company’s Common Stock (i) to be issued to the holders
of Shea Common Stock; (ii) issuable upon conversion of the Shea Preferred Stock;
(iii) issuable upon exercise of the newly issued Shea options and warrants; and
(iv) which will be issued or issuable in connection with financing to be
undertaken between the signing of the Agreement and Closing with gross proceeds
of at least $6,000,000 at a per share price of not less than
$0.50.  It was anticipated that the merger would be concluded during
the first half of calendar year 2008.  On June 20, 2008, the Company
notified Shea Development Corp. it was terminating the agreement and plan of
merger due to Shea’s inability to complete the transaction.




-4-





Research
and Development





Research and development costs, which
consist primarily of software development costs, are expensed as incurred and
amounted to $245,500 and $361,965 for the years ended September 30, 2008 and
2007, respectively.





OUR
PRODUCTS





Our
products are designed to meet the storage management needs of small, medium, and
enterprise organizations.  We serve markets which produce and manage
large amounts of data such as Banking, Financial Services, Healthcare, Legal
Services, Engineering and Architectural Services, Federal and State Government,
and Higher Education.  We believe that our products and solutions
enable organizations to (a) reclaim expensive storage resources, (b) reduce
manual intervention in managing files, (c) reduce the amount of time needed for
back-up and recovery, (d) establish automated policies for compliance with new
laws and regulations governing data retention, and (e) set up data lifecycles
for different types of information in production environments.





Managed
Server HSM





Our
Managed Server HSM software provides a solution for data management. Designed to
meet the data storage management requirements for local area networks (“LAN”),
wide area networks (“WAN”), and intranet environments, Managed Server HSM offers
the ability to manage files on Microsoft Windows, Novell NetWare and NetApp
filer servers in environments where mass storage devices are
deployed.





Our
Managed Server HSM can accommodate large volumes of information.  For
GroupWise customers who just want to manage the growth of their e-mail file
attachments, as opposed to archiving and content searching, Managed Server HSM
can manage GroupWise attachments as it does normal data files without additional
hardware or software.  When clients need to archive the email content
itself we partner with a variety of third party providers of email archiving
software and services.





Our Managed Server HSM-Centera Proven
Edition provides organizations with a storage hierarchy capable of significant
expansion, while addressing regulatory requirements for data
retention.  Once relegated to optical disks, tape archives, or file
cabinets, fixed content data is now being driven to Content Addressable Storage
(“CAS”) solutions.  Organizations running Novell NetWare and Microsoft
Windows server environments can implement a structured, online data repository
through which they can manage, access, and protect their fixed content
data.  All of the standard benefits of Managed Server HSM are now
available for users of the EMC Centera.  By applying a consistent set
of policies, network system administrators can control the migration, location,
and retention of files throughout their lifecycle across all storage tiers,
including high-performance storage area network (“SAN”) and network attached
storage (“NAS”) subsystems, general purpose disk arrays, and EMC Centera
archives.  Files migrated in such a way tend to become more fixed in
nature over time as they move along the storage hierarchy.  The
Centera system’s combined features of fixed content optimization, high
availability, scalability, and cost effectiveness make it very attractive as an
archive solution for controlling the otherwise explosive growth of an
organization’s primary storage infrastructure.





Our Managed Server HSM-Tivoli Edition
directly operates with IBM Tivoli Storage Manager.  It also provides a
straightforward, cost effective solution for managing data storage across
multiple tiers of storage, including Tivoli storage pool devices, SAN’s, RAID
subsystems, NAS target appliances and general purpose
servers.  Managed Server HSM Tivoli Edition allows organizations to
leverage existing investments in Tivoli software and hardware resources by
making use of the storage capacity, high availability, security, and protection
provided the Tivoli Storage Manager policies and infrastructure.  It
also allows organizations to better plan contemplated investment in Tivoli
software and hardware by making available an automated multi-tiered storage
environment based on the current and planned data growth of the
organization.




-5-





StandbyServer
for NetWare





StandbyServer
for NetWare is a server mirroring solution for NetWare servers that connect one
or more primary servers to a standby machine. If a primary server fails, due to
hardware or software failure, the standby machine automatically takes over and
makes the mirrored data and network services available to users in just a few
moments. Data is mirrored between the servers using a dedicated high-speed link,
creating a fully redundant system that protects users against both hardware and
software failures. The StandbyServer configuration consists of three main
elements: a primary server, a standby server, and the communications path that
connects them. The disk devices in the standby machine are treated as external
disk systems to the primary server.





OFFSite
Archive for NetWare





OFFSite
Archive for NetWare is an electronic data vaulting and disaster recovery product
for NetWare servers that protect data in the event of a disaster by
electronically transferring a stable point-in-time image of the data to an
offsite location. OFFSite Archive automatically transfers data to be protected
from a source server to a target server using the IPX or IP protocol over a LAN,
WAN, or Internet connection. The latest version of OFFSite Archive allows
multiple source servers to mirror data to a single remotely-located target
server. OFFSite Archive uses SnapShotServer for NetWare (discussed below)
technology to create snapshots of protected volumes of data. Each snapshot
contains all of the data, or a pointer to the data, on the source server’s
protected volume at the instant the snapshot was taken. This snapshot is then
transferred from the source server to the target server. Through an initial
synchronization, all of the data on the source server is mirrored to the target
server. Then, after the initial synchronization, only the delta changes are sent
to the target server. Since OFFSite Archive does not mirror data in real-time, a
high-speed communications link is not required.





SnapShotServer
for NetWare





SnapShotServer
for NetWare gives an administrator more control of the back-up process. With the
capability to capture live data at any time with SnapShotServer, open files or
“live” databases can be backed-up at the administrator’s convenience. The
program creates “snapshot” images of “live” data volumes at
administrator-defined intervals. These snapshots can then be mounted as regular
NetWare volumes and backed up by any NetWare approved back-up
utility.  When taking a snapshot of a volume, SnapShotServer creates a
virtual image of the volume; there is no actual duplication of the entire
volume. If changes are made to the original data after taking the snapshot, the
program makes a copy of the original data before it is changed and stores that
copy in its buffer. This buffer and the unchanged portions of the disk make up
the snapshot volume, which provides a virtual image of the volume as it was at
the time the snapshot was taken. SnapShotServer works with both StandbyServer
and OFFSite Archive.





COMPETITION





The
competition in the storage systems market consists of a small group of leading
vendors, such as EMC, Hewlett Packard, IBM, Hitachi Data Systems, and Network
Appliance, and a cadre of hardware and software companies who OEM, remarket, or
aggregate storage products from third parties. Our
products compete in the data management software segments. The cost barriers for
entry into these markets are relatively low, which means our competitors can
range from small companies with limited resources to large, more established
companies with substantial resources.  Some competitors have
substantially greater financial, technical, marketing, sales, distribution, and
personnel resources.




-6-





SALES AND
MARKETING STRATEGY





Our sales
and marketing strategy has been to establish partnerships with storage vendors
and storage channel partners worldwide in order to introduce and promote joint
solutions.  We have been targeting large Novell NetWare and GroupWise
customers with Managed Server HSM for NetWare and are also now using the same
strategy to target organizations using Microsoft Windows operating
systems.





Strategic
Partnerships





To take
advantage of the large NetWare customer installed base, we have partnered with
firms such as Novell, Computer Associates, and EMC to solicit introductions into
their accounts as an approved technology partner.  We receive numerous
leads generated from Novell’s website as a result of our partnership, whereby
visitors to their website can search for third-party NetWare solutions and are
provided access to our website link. We are also engaging Novell sales and
service engineers at the field level to gain introductions and access to their
accounts.  Our ability to support both Netware and Windows is an
advantage no matter which operating system an account wishes to
acquire.





We
partner with EMC to promote joint sales of their Centera (magnetic WORM
compliance) subsystem through Managed Server HSM – Centera Proven Edition, which
is EMC certified through strict independent testing.  EMC selected
Veritest to perform integration testing for EMC Centera, which utilize a range
of rigorous test criteria designed by EMC and Veritest to ensure each certified
partner meet a very high level of quality and operability.





The
certification of Managed Server HSM for Windows 2000 and our partnership with
Microsoft was another milestone in our strategic plan for multi-platform
distribution. Adding support for Windows 2003 and 2008 servers has opened up new
partnering opportunities with other strategic storage vendors.





The first
strategic partnership to specifically utilize Managed Server HSM for Windows
technology was with CA under an OEM Licensing and Distribution Agreement signed
on June 30, 2005.  As of the date of this filing CA (formerly known as
Computer Associates) and the Company completed a plan to jointly sell the
Company’s products in conjunction with CA’s line of BrightStor and Unicenter
products.  The Company will now directly sell its products into CA
customer prospects needing the data management and data movement provided by the
Company’s ILM product line.  This allows CA to focus on its suite of
enterprise level products while we focus on the mutli tiered storage environment
solutions within these joint sales.





IBM has
certified our Managed Server products with Ready for IBM Tivoli Software
validation.  The Company can now offer its suite of data management
solutions for use in existing and future IBM Tivoli Storage Manager
environments.  Managed Server HSM Tivoli Edition will provide users of
Tivoli back up and Tivoli storage pools the full range of benefits provided by
automated multi-tiered HSM.  Our strategic plan includes leveraging
these capabilities and IBM’s distribution channel to help the Company promote
this relationship and new product offerings in the upcoming fiscal
year.





Channel
Partnerships





In
addition to working with large storage vendors to gain assess to their installed
base of customers, CaminoSoft is expanding its value added reseller (“VAR”)
program to recruit high-end storage resellers, VARs, and Systems Integrators to
do the same with their customer base.  During the prior fiscal year we
announced a Premier Reseller program to target these high-end channel partners
with a goal of having broad geographic and industry coverage.





Working
with our strategic partner storage vendors, we intend to bring on additional
non-exclusive distributors worldwide that support our strategy and open new
markets for our ILM solutions.  The strategic partner relationships
developed during the current fiscal year will also open additional distribution
channels not previously available to the Company.




-7-





Major
Customer





We currently rely upon two distributors
for approximately 29% of our aggregate gross revenues.  If we were to
lose one or more of these distributors, our operations would be materially
effected.





Technology
Partnerships





To assist
us in providing as much of a complete solution as possible for our target
markets and clients, we will continue to establish technology partnerships that
broaden our product portfolio.  We signed an integration and
distribution agreement with Pegasus Disk Technologies to distribute InveStore
archive management software drivers for UDO, magneto-optical, and DVD
management.  The Company also completed certification testing and
announced solutions combining Managed Server HSM for NetWare and Windows
2000/2003/2008 with nStor’s NexStor® 4700 Serial ATA data storage
systems.  The combination provides users with reliable lower cost
storage, and increased data availability for storing migrated information from
expensive production storage.





We have
also established partnerships with two firms that provide e-mail archiving
solutions: NorthSeas (broad range of e-mail systems) and Executive Technologies
(Microsoft Exchange/Outlook email systems).  Together, we provide the
basic platform for e-mail and electronic document retention policy
compliance.





We have 6
full time employees and employ additional people as consultants on a full time
basis as needed.








Item
2.            
DESCRIPTION OF PROPERTY





As of December 1, 2008, the Company
leases one office facility in Westlake Village, California for the Company’s
executive offices pursuant to a lease extension expiring January 31, 2009, at a
rental rate of $2,500 per month.





Item
3.             LEGAL
PROCEEDINGS





The
Company may, from time to time, be involved in legal proceedings, claims and
litigation arising in the ordinary course of business.  It is possible
the outcome of such legal proceedings, claims and litigation could have a
material effect on the operating results or cash flows when resolved in a future
period.  These matters are not expected to have a material adverse
effect upon the Company’s financial statements.





Currently
the Company has no ongoing legal proceedings.




Item
4.            
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





The Company had no submission of
matters to a vote of security holders during the fourth quarter of the current
fiscal year.




-8-





PART
II





Item
      5.
            MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES





The Common Stock is currently traded in
the OTC Electronic Bulletin Board under the symbol “CMSF”.  The
following table sets forth the high and low sales prices for the Common Stock
during the two most recent fiscal years.  The prices reflect
inter-dealer prices without retail mark-ups, mark-downs or commissions and may
not represent actual transactions.




Common
      Stock Sales PricesSymbol
      “CMSF”
              
              High
              
              
              LowYear Ended September
      30, 2007October
      1, 2006 –December 31, 2006
              
              $
              0.45
              
              
              $
              0.14January
      1, 2007 – March 31, 2007
              
              $
              0.46
              
              
              $
              0.17April
      1, 2007 – June 30, 2007
              
              $
              0.21
              
              
              $
              0.09July
      1, 2007 – September 30, 2007
              
              $
              0.14
              
              
              $
              0.05Year Ended September
      30, 2008October
      1, 2007 – December 31, 2007
              
              $
              0.16
              
              
              $
              0.08January
      1, 2008 – March 31, 2008
              
              $
              0.10
              
              
              $
              0.05April
      1, 2008 – June 30, 2008
              
              $
              0.08
              
              
              $
              0.07July
      1, 2008 – September 30, 2008
              
              $
              0.09
              
              
              $
              0.06




As of
December 2003 the Company issued in a private placement 3,243,243 shares of
common stock and 5 year warrants to purchase 3,243,243 shares with 50% of the
warrants at an exercise price of $0.74 and 50% at an exercise price of $1.11 for
$1,200,000.  The funds will be used to support business expansion and
operations.





During
July 2004, the Company issued 5 year warrants to purchase 1,415,094 shares of
common stock at $0.53 per share.  The warrants were issued in
conjunction with a $750,000 two year loan.  The loan matures on July
19, 2006 at which time the unpaid principal and all accrued and unpaid interest
will become due and payable.  The note calls for monthly interest
payments of 7% of the outstanding principal balance beginning September 1,
2004.





During
the year ended September 30, 2004, the Company issued 2,476,000 options to
purchase the Company’s common stock at prices ranging from $0.41 to $0.63 per
share to employees, consultants and directors under the year 2000 employee stock
option plan.





During
September 2004, the Company issued 340,136 shares of stock as commitment shares
as part of an equity financing.  The commitment shares are part of a
common stock purchase agreement which will allow the Company to draw up to
$6,000,000 through daily sales of its Common Stock.  The Company has
agreed to register 3,680,272 shares which include the commitment shares to sell
during a 30 month period.





During
October 2005, the Company negotiated an extension of the two parts or the
convertible debenture with a total principal balance of
$1,750,000.  Pursuant to a Renewal and Modification agreement dated
October 28, 2005, the lender agreed to extend the maturity date of the two 6%
Convertible Debentures dated November 27, 2002 in the aggregate principal amount
of $1,750,000 to May 27, 2007.  In consideration of such extension,
the Company agreed to grant to the lender a five-year warrant to purchase
175,000 shares of Company Common Stock at an exercise price of $1.14 per share
(subject to adjustment).  The estimated value of the warrant
($166,093) was recorded by the Company as debt discount and was amortized over
the term of the extension. During the years ended September 30, 2008 and 2007,
$0 and $73,817 of discount was amortized and included in the statement of
operations.  On May 7, 2007, RENN Capital Group agreed to extend the
maturity date of $1,750,000 convertible debenture until November 27,
2007.  The Company will continue to pay interest of 6% on the current
outstanding principal balance of $1,750,000, monthly during the term of the
extension.




-9-





During
February 2006, the Company issued to the Renaissance Capital Group managed funds
an aggregate of 150,000 warrants to purchase the Company’s common stock at $0.86
per share in consideration of an agreement to extend the $750,000 loan payable
maturity date for an additional 18 months.  The new maturity date for
the notes will be January 19, 2008.  The Company will continue to pay
7% interest on a monthly basis based on the current outstanding principal
balance of $750,000.  The estimated value of the warrants of $77,663
was recorded on the Company’s financial statements as debt discount and will be
amortized over the term of the extension.  During the years ended
September 30, 2008 and 2007, $14,121 and $42,362 respectively of discount was
amortized and included in the statement of operations.





On
February 7, 2007, the Company received an aggregate of $200,000 from two three
month secured convertible notes from two of RENN Capital Groups managed
funds.  Interest of 8% was paid in monthly installments during the
term of the notes.  The notes matured on May 7, 2007, at which time
all principal and accrued and unpaid interest was due and payable in
full.  The notes are convertible at the option of the holder, into
shares of the Company’s common stock, with an initial conversion price of $0.30
per share.  The funds are being used to support the operations of the
Company.  Each holder of a note may convert in whole or in part the
outstanding principal plus accrued but unpaid interest into the Company’s common
stock at a conversion price of $0.30 per share.  In the event that the
Company issues additional common stock, or securities convertible into common
stock, at a price lower than the conversion price while these notes are
outstanding, the conversion price of these notes will automatically adjust
downward to such price at which new common stock has been issued.  The
conversion price of the note, however, shall never be adjusted to less than
$0.01 per share.  Pursuant to renewal and modification agreements
dated May 7, 2007, the RENN Capital Group agreed to extend the maturity dates of
two $100,000 notes payable until November 7, 2007.  The Company will
continue to pay 8% interest monthly based on the current outstanding principal
balance of $200,000.  Also included in the amendment is a minimum
price per share of not less than $0.01 per share for the $200,000 notes payable,
which have an initial conversion price of $0.30 per share.





Pursuant
to renewal and modification agreements the Company extended the total debt with
an aggregate principal balance of $2,700,000 to February 27, 2008.  In
addition to extending the debt the Company also converted from cash payments of
interest to interest payments in unregistered common stock beginning November 1,
2007.  In October 2007, the Company received an additional $100,000
from RENN Capital Group funds to help pay legal and accounting fees related to
the merger and acquisition process happening at that time with Shea Development
Corp.  Although the funds have no terms or formal agreement, the
Company recorded the deposit as a loan payable and will include the disposition
of the loan with the other debt when paid or otherwise satisfied.





During
the quarter ended March 31, 2008, the Company negotiated to extend the maturity
dates of the entire $2,800,000 of debt then currently due.  Pursuant
to renewal and modification agreements the Company extended the maturity date of
the total debt with an aggregate principal balance of $2,800,000 to May 30,
2008.  The Company will continue interest payments in the form of
unregistered common stock calculated monthly until the notes
mature.  In February 2008, the Company received an additional $50,000
from RENN Capital Group funds to pay for additional legal and accounting fees in
support of the Shea Development merger process.  The deposit was
recorded as a loan payable on the Company’s financial
reports.  Interest of 8% will be paid in monthly installments
beginning March 1, 2008, until the principal balance is paid in
full.  Interest can be paid in cash or in unregistered common stock at
the Company’s discretion.





Pursuant
to renewal and modification agreements dated as of November 12, 2007, all
interest payments commencing on November 1, 2007 or after are due and payable in
either cash or restricted shares of Company common stock at the Company’s
discretion.  The number of shares to be issued shall be equal to the
amount of interest payment due divided by the average of the last sale prices
(or closing bid prices) for the five trading days immediately preceding the
payment date.  As such, during the twelve month period ended September
30, 2008, interest expense of approximately $200,000 was recorded on the
Company’s financial statements and paid with the issuance of 2,522,659 shares of
unregistered common stock.




-10-





Subsequent
to September 30, 2008 and prior to the date of this filing the Company
negotiated an extension of the maturity date of debt with an aggregate value of
$2,850,000.  Pursuant to a renewal and modification agreement dated
October 24, 2008, the Company extended the maturity date of $2,850,000 in loans
payable until April 30, 2009.  All other terms and conditions remain
the same.





All of
the foregoing securities were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder. No commissions
were paid.





As of
September 30, 2008, there were 132 holders of record of the Company’s common
stock. To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock, and the current policy of the Board of Directors is
to retain earnings, if any, to provide for the growth of the
Company.  Consequently, no cash dividends are expected to be paid on
the Common Stock in the foreseeable future.








Item
6.            
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





The following discussion and analysis
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Annual Report.




OVERVIEW





CaminoSoft
Corp. (the “Company”) previously known as Interscience Computer Corporation, was
incorporated under the laws of the State of California on October 14, 1983, to
be a third party provider of maintenance services for computer hardware and
related peripheral equipment.  On September 17, 1999, the Company
acquired the assets (the “Camino Assets”) of Camino Software Systems, Inc.
(“Camino”), a data storage company, for 468,000 shares of the Company’s common
stock and assumed $315,172 of certain Camino liabilities.  The Camino
assets consisted of the name, Camino Software Systems, Inc., the data storage
management software, certain business contracts, and intangible personal
property.  The Company allocated the amount paid and assumed in the
amount of $502,372 to the fair value of the software.





In
December 2003, we completed certification of Pegasus Disk Technologies archive
management software for use in conjunction with our data movement and lifecycle
management solutions.  The partnership allows us to create a
virtualized data pool that expands secondary storage onto any number of archive
devices while simplifying management of those resources.  The combined
solution allows organizations to meet strict compliance regulations and optimize
storage investment and utilization.  Also in December 2003, we
announced completion of the “library edition” which allows comprehensive tape
library management support for our information lifecycle management
solutions.  The Library Edition offers all of the features of our
standard Managed Server HSM software and extends this functionality by providing
the additional capability to migrate files further along a storage hierarchy to
tape libraries, autoloaders, and jukeboxes from leading vendors such as Hewlett
Packard, StorageTek, ADIC and Overland Data.





In
February 2004, we completed integration of the Managed Server HSM software with
EMC Corporations Centera and Centera Compliance edition content addressable
storage.  We also entered into EMC Corporations Centera Partner
Program.  Our Managed Server HSM Centera Edition enables customers to
better manage utilization of storage resources throughout the
enterprise.  Our Managed Server Centera package combines data
management and storage scalability, which are requirements that are increasing
in the markets we serve.  Also in February 2004, we released “Managed
Client HSM(TM)” for Windows XP.  The new product provides the ability
to automatically migrate, recall, and delete files based on age and activity
criteria, supporting standard Windows XP infrastructures including wireless
communications.  “Managed Client HSM(TM)” adds another dimension of
scalability and affordability to our ILM suite of products and
solutions.  “Managed Client HSM(TM)” provides the same type of
automated data movement and management as the managed server products while
running on workstations or home user pc’s or lap tops.  It allows IT
administrators to now protect user information that was stored on the
workstation in the enterprise IT storage environment for back up and
replication.




-11-





On June
30, 2005, the Company signed an OEM software licensing and distribution
agreement with Computer Associates International, Inc. (“CA”).  The
Company will provide Windows HSM, both server and client editions along with
Managed Server Library Edition private labeled for CA’s
distribution.  The Company received a non refundable $250,000 payment
in July 2005 and has delivered, with CA’s full acceptance, the CA branded and
licensed versions of the licensed products.  The agreement called for
two royalty pre-payments, the first for $500,000 was received during October
2005.  The second pre payment of $250,000 was paid on the anniversary
date of the contract, June 30, 2006.  CA  and the Company
have agreed to jointly sell into CA customer prospects.  CA will focus
its sales on the BrightStor and Unicenter suite of products provided by CA, and
the Company will directly sell and focus on sales of the Company’s ILM suite of
products compatible with CA’s BrightStor suite of products.





In July
2005, the Company certified its suite of HSM products for use with the nStor
line of SATA based storage hardware.  nStor’s hardware products are
now certified to work with the Company’s suite of storage management products to
provide Information Lifecycle Management storage hardware and software
solutions.





In July
2005, the Company received “Ready for IBM Tivoli Software” certification for the
HSM suite of data management products for use with IBM Tivoli storage
infrastructures.  The Company is currently distributing Managed Server
HSM Tivoli Edition for use in IBM Tivoli back up and storage
environments.





In August
2005, the Company did a second round of formal certification with EMC Centera
compliance and non compliance storage for our Managed Server HSM
products.  The Company tested its software products with a third party
testing firm and was awarded “Centera Proven Edition” status for our HSM
products.  This EMC certification signifies to storage clients,
current and prospective, that our software is certified and approved for use
with EMC Centera data storage devices.





In
September 2006, the Company announced release of an upgraded version of Managed
Server HSM – Tivoli Edition.  The enhanced version of Managed Server
HSM supports the IBM System Storage DR550.  The IBM System Storage
DR550 is ideal for clients seeking near-line storage application needs at an
entry level price point while capitalizing on mainframe inspired levels of
reliability, security, and functionality.  The Company’s solution,
which has “Ready for IBM Tivoli Software” validation provides a straightforward,
cost-effective solution for managing data storage across multiple tiers,
including the DR550, IBM Tivoli storage pool devices, SAN’s, SATA RAID
subsystems, NAS target appliances, and general purpose servers.





During
September 2006, the Company released Managed Server HSM for
NetApp.  The NetApp edition runs on a Windows 2000/2003 server and
provides true file system integration via NetApp’s FPolicy® application program
interface.  Key advantages for customers include, fast efficient
recall of migrated files, reclamation of NetApp NAS data storage space for
active production file usage, dramatic reduction in the amount of time needed
for backup (and recovery in the event of an outage), and facilitation of
compliance with corporate and industry regulations governing data file retention
and deletion.





During
February 2007, the Company announced a partnership with RAID Inc. to provide
data and storage management solutions.  RAID is a manufacturer of
enterprise class storage with options including fibre channel, SAS and SATA
solutions that deliver scalability, redundancy and
speed.  Organizations can automate file migration and retrieval from
primary to secondary and tertiary storage utilizing the combination of Managed
Server HSM and RAID’s line of storage devices to address the rapid growth of
data while providing storage resource and data management.




-12-





During
May 2007, the Company announced support for IBM N series unified storage
products.  The Company successfully completed interoperability testing
with IBM® System StorageTM and has been confirmed as IBM System Storage
Proven.  The program allows IBM and third-party partners to deliver
products and solutions that are tested to work together in IBM storage
environments.  The Company believes the latest certification and
interoperability testing will open additional opportunities for joint selling
with IBM sales teams around the world.





On
September 6, 2007, the Company entered into an Agreement and Plan of Merger with
Shea Development Corp.  On June 24, 2008, the Company formally
terminated the Agreement and Plan of Merger with Shea Development
Corp.





Our
software provides products and integrated solutions for addressing the
increasing need for management of data.  Today IT departments face a
variety of challenges with some of the most critical relating to data storage
and management.  Two of these challenges are (1) reducing the total
cost of ownership of data storage by better leveraging IT resources, both
hardware and people, and (2) increasing productivity by enabling better access
to information, thereby making quicker and faster decisions.  Our
software virtualizes pools of stored data both to the end-user transparently and
to the IT administrator while integrating with most operating systems and
applications.  We can reduce the back-up window, lower the overall
cost of storage and enhance the value of information across the
organization.  Our strategy has been built on the benefits our
technology brings.




RISK
FACTORS




We
have yet to establish any history of profitable operations.




We have
yet to establish a history of profitable operations.  We have incurred
annual operating losses of $151,103 and $734,851, for fiscal years 2008 and 2007
respectively.  During the year ended September 30, 2008, we earned an
operating profit before interest of $48,885.  As a result, at
September 30, 2008 we had an accumulated deficit of $22,423,597.  Our
revenues have not been sufficient to sustain our operations.  Our
profitability will require the successful commercialization of products,
solutions and services.  No assurances can be given as to if or when
this will occur or that we will ever be profitable.




We
are presently relying on the completion of a merger or sale transaction to
continue our operations.




At
September 30, 2008 we had a cash balance of $157,980.  We had
operating cash flow deficits of $187,113, $375,504 and $569,252 for fiscal years
ended September 30, 2005, 2006 and 2007 and for the year ended September 30,
2008, an operating cash flow deficit of $64,363.  We had entered into
an agreement to merge with Shea Development Corp. which we anticipated would be
completed during the first half of calendar year 2008.  On June 24,
2008, the Company formally terminated the Agreement and Plan of Merger with Shea
Development Corp.





In order
to continue operations the Company will be required to raise
capital.  In the current environment management believes that it is
highly unlikely that such capital will be available.  Accordingly, the
Company is attempting to complete a sale of business.  There can be no
assurance that we will be able to complete a sale of the
business.  Without the timely completion of a sale transaction and
based on our current level of revenue and cash flow, we will have to cease or
substantially curtail our operations on or before April 30, 2009.




-13-




Our
future operating results are unpredictable.




Our
operating results will depend on the enhancement of our existing products and
the ability to market and sell the products. Any future success that we may
achieve will depend upon many factors including factors which may be beyond our
control or which cannot be predicted at this time. Uncertainties and factors
which could cause actual results or events to differ materially from those set
forth or implied include:





·
            Inability
      to acquire new customers;


·
            Inability
      to complete successful implementation of our
  software;


·
            Inability
      to provide applications in a manner that is
  scalable;


·
            Inability
      to offer new services that complement our existing offerings;
      or


·
            Inability
      to increase awareness of our brand.





If
we are unable to adapt our products to rapidly changing technology, our
reputation and our ability to grow our revenues could be harmed.




The
markets we serve are characterized by rapidly changing technology, evolving
industry standards, emerging competition and the frequent introduction of new
software. There is no assurance that we will be able to enhance existing
products or develop new products that meet changing customer needs in a timely
and cost-effective manner. Prolonged delays resulting from our efforts to adapt
to rapid technological change, even if ultimately successful, could harm our
reputation within our industry and our ability to grow our
revenues.




We
face significant competition from other providers of computer
software.




Our
competitors in the storage systems market consists of a small group of leading
vendors, such as EMC, HP, IBM, Hitachi Data Systems, and Network Appliance, and
a cadre of hardware and software companies who OEM, remarket, or aggregate
storage products from third parties.




Our
products compete in the data management and high availability software
segments.  The cost barriers for entry into these markets are
relatively low, which means our competitors range from small companies with
limited resources to large, more established companies with substantial
resources.  However, among all of these competitors (and in some cases
technology partners), we believe none offer a cross-platform Windows/NetWare
solution to round out their Information Lifecycle Management (“ILM”) solution
suites.  Some competitors, regardless of size, have substantially
greater financial, technical, marketing, distribution, personnel and other
resources.  It is possible that we may not have the resources to
effectively compete with these companies.




-14-







The
market for our products is new and emerging, and is characterized by rapid
technological advances, changing customer needs and evolving industry
standards.




We may
not be successful in developing and marketing, on a timely and cost-effective
basis, enhancements to our software products or new products which respond to
technological advances and satisfy increasingly sophisticated customer needs.
Our ability to meet our customers’ needs and evolving industry standards will
depend on our:




·
            Ability
      to timely develop new software products that keep pace with developments
      in technology;





·
            Ability
      to meet evolving customer requirements which are often
      changing;





·
            Success
      at enhancing our current product offerings;
and





·
            Delivering
      those products through appropriate distribution
  channels.




If we
fail to introduce new products or if new industry standards emerge that we do
not anticipate or adapt to, our software products could be rendered obsolete and
our competitive position will be weakened.




We
may face interruption of production and services due to increased security
measures in response to terrorism.




Our
business depends on the free flow of products and services through the channels
of commerce. Recently, in response to terrorists’ activities and threats aimed
at the United States, transportation, mail, financial and other services have
been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the activities and
potential activities. We may also experience delays in receiving payments from
payers that have been affected by the terrorist activities and potential
activities. The U.S. economy in general is being adversely affected by the
terrorist activities and potential activities and any economic downturn could
adversely impact our results of operations, impair our ability to raise capital
or otherwise adversely affect our ability to grow our business.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





We have identified the following
critical accounting policies and estimates that affect our more significant
judgments and estimates used in the preparation of our financial
statements.  The preparation of our financial statements in conformity
with accounting principles generally accepted in the United States of America
requires that we make estimates and judgments that affect the reported amounts
of assets and liabilities.  We evaluate those estimates on an ongoing
basis, including those related to asset impairment, contingencies and
litigation.  These estimates are based on the information that is
currently available to us and on various other assumptions that we believe to be
reasonable under the circumstances.  Actual results could vary from
those estimates under different assumptions or conditions.  We believe
that the following critical accounting policies affect significant judgments and
estimates used in the preparation of our financial statements.





Long Lived
Assets.


·
            We
      review our long-lived assets, which include property and equipment and
      capitalized software, for possible impairment whenever events or changes
      in circumstances indicate that the carrying value of an asset may not be
      recoverable.  If the estimated future cash flows (undiscounted
      and without interest charges) from the use of an asset are less than its
      carrying value, we record a write-down to reduce that asset to its
      estimated fair value.  The fair value is determined based on
      discounted cash flows or appraised values depending on the nature of the
      asset.




-15-




Research and development
costs.


·
            Research
      and development costs, which consist primarily of software development
      costs, are expensed as incurred.  Statement of Financial
      Accounting Standards No. 86, “Accounting for the Cost of Computer Software
      to be Sold, Leased, or Otherwise Marketed” (“SFAS 86”), provides for the
      capitalization of certain software development costs incurred after
      technological feasibility of the software is established.  As of
      September 30, 2008, the Company has capitalized approximately $325,000 of
      such software development costs.  The Company expects to
      continue research and development projects into the future along with
      additional capitalized development as projects reach proof of concept
      stages of development.  The current net balance of capitalized
      software is approximately $19,320.  In the current fiscal year
      the Company has not capitalized any new software
      development.  Software capitalized is stated at
      cost.  Amortization is computed on the straight-line method
      based upon the estimated useful life of the asset, primarily seven
      years.  During the current year the Company had approximately
      $245,500 in R & D expense compared to approximately $362,000 during
      the prior year.  The Company will continue the R & D program
      into the future as new products are developed and integrated into our data
      management suite of solutions.





Revenue.


·
            Revenue
      is recognized when persuasive evidence of an arrangement exists, delivery
      has occurred or services have been provided, the fee is fixed or
      determinable, and collectibility is probable.  We enter into
      certain arrangements where we are obligated to deliver multiple products
      and/or services (multiple elements).  In these transactions, we
      allocate the total revenue among the elements based on the sales price of
      each element when sold separately (vendor-specific objective evidence).
      Revenue for products licensed to original equipment manufacturers (OEM’s),
      and perpetual licenses for current products in our server based data
      management suite of products is recognized as products are
      shipped.  If annual service is a part of the sale agreement that
      portion of the revenue is recorded as unearned due to undelivered elements
      including, annual telephone support and the right to receive unspecified
      upgrades/updates of our data management products on a
      when-and-if-available basis.  Unspecified upgrades, or patches,
      are included in our product support fee.  The upgrades are
      delivered only on a when-and-if-available basis and as defined in SOP
      97-2, are considered Postcontract Customer Support
      (“PCS”).  Vendor-specific objective evidence does exist for
      these services in the aggregate; however, no vendor-specific objective
      evidence exists for the unspecified upgrades on a stand alone
      basis.  When-and-if-available deliverables should be considered
      in determining whether an arrangement includes multiple elements; however,
      SOP 97-2 states that if sufficient vendor-specific objective evidence does
      not exist for the allocation of revenue to the various elements of the
      arrangement, and if the only undelivered element in an arrangement is PCS,
      the entire fee for the support should be recognized
      ratably.  Because the timing, frequency, and significance of
      unspecified upgrades/updates can vary considerably, the point at which
      unspecified upgrades/updates are expected to be delivered should not be
      used to support income recognition on other than a straight-line
      basis.  As such, the Company recognizes the product support fee
      consisting of PCS and unspecified upgrades/updates ratably over the
      service contract period.




-16-





RESULTS
OF OPERATIONS





FISCAL
YEARS ENDED SEPTEMER 30, 2008 AND SEPTEMBER 30, 2007





During the current fiscal year, the
Company continued to focus on development of features and upgrades on products,
while expanding their functionalities to other operating platforms including
completion of our Manager Server products for Network Appliance
filers.  The Company has continued its sales and marketing strategy to
focus on development and support for its data storage and management solutions,
while utilizing its partners’ sales, marketing and distribution
channels.  Revenues for the current fiscal year decreased by
approximately 28%, from $2,079,000 in fiscal year 2007 to $1,492,000 for the
current fiscal year.  The revenue decrease was a result of multiple
factors, including but not limited to transitioning the product line for
enterprise selling opportunities which include bundling our software with
partner software and hardware products.  These enterprise sales have
much longer sales cycles in return for an increase in the average sale
value.  Sales for the Company’s software products were approximately
$807,000 or 54% of the total revenue for the current fiscal year; annual service
contracts constituted approximately 41% or $611,000;  and the
remaining 5% of revenue was derived from installation and other
services.  The high availability products, StandbyServer and OFFSite
Archive for NetWare accounted for approximately 6% of the total product sale
revenue as compared to 15% in the prior fiscal year, with the Company’s core HSM
technology for both NetWare and Windows representing the other 94% of the total
product sale revenue for the current fiscal year.  Billings for annual
service contracts decreased during the current fiscal year due to decreased
product sales.  Deferred revenue decreased from approximately $824,000
in the fiscal year ended September 30, 2007 to approximately $477,000 for the
current fiscal year.  The decrease in deferred revenue was due to the
decrease in product sales revenue during the current fiscal
year.  Cost of sales decreased from approximately $165,000 in the
prior fiscal year to approximately $58,000 in the current fiscal year
representing a decrease of approximately 65%.  Cost of sales as a
percentage of revenue decreased from approximately 8% in fiscal year ended
September 30, 2007 to approximately 4% during the current fiscal
year.  Gross profit decreased by approximately 25% or $479,000 from
$1,914,000 in fiscal year 2007 to $1,435,000 in fiscal year 2008.  The
decrease in gross profit resulted from the Company’s decreased revenue from
product sales during the current fiscal year.





Selling and administrative expenses for
the current year were approximately $1,136,000, a decrease of approximately
$825,000 or 42% as compared to fiscal year 2007.  The decrease was a
result of the Company’s continued effort to minimize overhead expenses while
maintaining sales and marketing support for our partner and channel distribution
strategy.  The change from a direct sales approach to one of a support
role for the Company’s OEM partners sales forces continued during the fiscal
year, which reduced wage expense related to direct selling, while increasing the
expense related to marketing and sales support for our OEM partners distribution
channels.  The Company intends to continue expansion of the sales and
marketing support functions for direct selling and to continue the training for
both technical support teams and sales forces of the Company’s current and
future distribution, and business partners.





Depreciation expense for the current
fiscal year of approximately $4,500 decreased approximately 67% or $9,000 as
compared to fiscal year ended September 30, 2007.  The depreciation
expense decrease is due to the full depreciation of office and test equipment
during the fiscal year.





Research and development expense for
the current year was $245,500 as compared to approximately $362,000 for fiscal
year 2007.  This decrease is due to completion of projects and
reduction of certain non employee technical resources during the current fiscal
year.  The Company began new research and development projects during
the second half of the current year and plans to continue the research and
development program during the coming year.  As projects complete and
become viable the Company expects to capitalize portions of the development
expense.  The Company may also add additional consulting development
resources during the upcoming fiscal year which will contribute to the research
and development expense during the upcoming fiscal year.  These
development project completions have added to the Company’s ability to gain
additional market access through the sales and distribution channels of
companies like EMC, IBM, HP, Network Appliance and Computer
Associates.




-17-





There
were no other income items during the current or prior fiscal
year.  The current fiscal year included approximately $200,000 of
interest expense related to borrowing balances, which is a decrease in interest
expense of approximately $112,000 over fiscal year
2007.  Approximately $23,500 of the total current fiscal year interest
expense was non cash debt discount representing the expense for warrants issued
with debt, which is being expensed over the term of the debentures and loan that
make up the debt.  The amortization of non cash debt discount recorded
as expense during the current fiscal year completed the amortization of all debt
discount.  The remaining interest expense for the current of fiscal
year of approximately $176,500 was interest on loans payable for the current
fiscal year.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company incurred a net loss of $151,103 and $734,851 for the years ended
September 30, 2008 and 2007, respectively, and has an accumulated deficit of
$22,423,597 as of September 30, 2008.We have terminated an
agreement to merge with Shea Development Corp. which we anticipated would be
completed during the first half of calendar year 2008.  There can be
no assurance that we will be able to complete merger or sale transaction to
replace the terminated agreement.    Without the timely
completion of a merger or sale, based on our current level of cash flow, we will
have to cease or substantially curtail our operations on or before January 1,
2009.





During fiscal year 2008, the Company’s
cash position increased by approximately $86,000, from approximately $72,000 at
September 30, 2007 to $158,000 at September 30, 2008.  The Company’s
revenues decreased during the fiscal year and the Company is at a break even
point operationally.  The accounts receivable balance as of September
30, 2008 decreased by approximately $108,000 or 56% as compared to the fiscal
year ended September 30, 2007.





During December 2003, the Company
issued in a private placement, 3,243,243 shares of common stock and 5 year
warrants to purchase 3,243,243 shares with 50% of the warrants at an exercise
price of $0.74 and 50% at an exercise price of $1.11, for
$1,200,000.  The funds were used to support business expansion and
operations.





During July 2004, the Company
received $750,000 from a two year secured loan from Renaissance Capital Group
managed funds.  Interest is being paid at 7% in monthly installments
based on the outstanding principal balance.  As part of the funding,
the Company issued five year warrants to purchase an aggregate of 1,415,094
shares of Common Stock at an exercise price of $0.53 per
share.  During February 2006, the Company issued to the RENN Capital
Group managed funds an aggregate of 150,000 warrants to purchase the Company’s
common stock at $0.86 per share in consideration of an agreement to extend the
maturity date for the $750,000 note payable for an additional 18
months.  The new maturity date for the notes is January 19,
2008.  The Company continued to pay interest at 7% on a monthly basis
based on the current outstanding principal balance of $750,000.  The
estimated value of the warrants of $77,663 was recorded on the Company’s
financial statements as debt discount and was amortized over the term of the
extension.





During
October 2005, the Company negotiated an extension of the two parts of the
convertible debenture with a total principal balance of
$1,750,000.  Pursuant to a Renewal and Modification agreement dated
October 28, 2005, the lender agreed to extend the maturity date of the two 6%
Convertible Debentures dated November 27, 2002 in the aggregate principal amount
of $1,750,000 to May 27, 2007.  In consideration of such extension,
the Company agreed to grant to the lender a five-year warrant to purchase
175,000 shares of Company Common Stock at an exercise price of $1.14 per share
(subject to adjustment).  The estimated value of the warrant
($166,093) was recorded on the Company financial statements as debt discount and
was amortized over the term of the extension.




-18-





During
February 2006, the Company issued to BFS US Special Opportunities Trust PLC and
Renaissance US Growth & Income Trust PLC an aggregate of 697,674 shares of
common stock at a price of $0.86 per share in a private placement for
$600,000.  The Company agreed to register the resale of its shares as
soon as practicable.





On
February 7, 2007, the Company received an aggregate of $200,000 from two three
month secured convertible notes from two funds managed by RENN Capital Group,
Inc.  Interest of 8% will be paid in monthly installments during the
term of the notes.  The notes mature on May 7, 2007, at which time all
principal and accrued and unpaid interest will be due and payable in
full.  The notes are convertible at the option of the holder, into
shares of the Company’s common stock, with an initial conversion price of $0.30
per share.  Each holder of a note may convert in whole or in part the
outstanding principal plus accrued but unpaid interest into the Company’s common
stock at a conversion price of $0.30 per share.  In the event that the
Company issues additional common stock, or securities convertible into common
stock, at a price lower than the conversion price while these notes are
outstanding, the conversion price of these notes will automatically adjust
downward to such price at which the new common stock has been
issued.  The conversion price of the notes, however, shall never be
adjusted to less than $0.01 per share.





Pursuant
to renewal and modification agreements the Company extended the total debt with
an aggregate principal balance of $2,700,000 to February 27, 2008.  In
addition to extending the debt the Company also converted from cash payments of
interest to interest payments in unregistered common stock beginning November 1,
2007.  In October 2007, the Company received an additional $100,000
from RENN Capital Group funds to help pay legal and accounting fees related to
the merger and acquisition process happening at that time with Shea Development
Corp.  Although the funds have no terms or formal agreement, the
Company recorded the deposit as a loan payable and will include the disposition
of the loan with the other debt when paid or otherwise satisfied.





During
the quarter ended March 31, 2008, the Company negotiated to extend the maturity
dates of the entire $2,800,000 of debt then currently due.  Pursuant
to renewal and modification agreements the Company extended the maturity date of
the total debt with an aggregate principal balance of $2,800,000 to May 30,
2008.  The Company will continue interest payments in the form of
unregistered common stock calculated monthly until the notes
mature.  In February 2008, the Company received an additional $50,000
from RENN Capital Group funds to pay for additional legal and accounting fees in
support of the Shea Development merger process.  The deposit was
recorded as a loan payable on the Company’s financial
reports.  Interest of 8% will be paid in monthly installments
beginning March 1, 2008, until the principal balance is paid in
full.  Interest can be paid in cash or in unregistered common stock at
the Company’s discretion.





Pursuant
to renewal and modification agreements dated as of November 12, 2007, all
interest payments commencing on November 1, 2007 or after are due and payable in
either cash or restricted shares of Company common stock at the Company’s
discretion.  The number of shares to be issued shall be equal to the
amount of interest payment due divided by the average of the last sale prices
(or closing bid prices) for the five trading days immediately preceding the
payment date.  As such, during the twelve month period ended September
30, 2008, interest expense of approximately $200,000 was recorded on the
Company’s financial statements and paid with the issuance of 2,522,659 shares of
unregistered common stock.





Subsequent
to September 30, 2008 and prior to the date of this filing the Company
negotiated an extension of the maturity date of debt with an aggregate value of
$2,850,000.  Pursuant to a renewal and modification agreement dated
October 24, 2008, the Company extended the maturity date of $2,850,000 in loans
payable until April 30, 2009.  All other terms and conditions remain
the same.




-19-




Going
Concern





The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America, which contemplates continuation of the
Company as a going concern.  The Company had a net loss of $151,103
and utilized cash of $64,363 in operating activities during the year ended
September 30, 2008, and had a working capital deficiency of $3,409,634 and
shareholders’ deficiency of $3,388,912 at September 30, 2008.  These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.  The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might result
from this uncertainty.





In order
to continue operations the Company will be required to raise
capital.  In the current environment management believes that it is
highly unlikely that such capital will be available.  Accordingly, the
Company is attempting to complete a sale of business.  There can be no
assurance that we will be able to complete a sale of the
business.  Without the timely completion of a sale transaction and
based on our current level of revenue and cash flow, we will have to cease or
substantially curtail our operations on or before April 30, 2009.




CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS





The following summarizes our
contractual obligations at September 30, 2008 and the effects such obligations
are expected to have on liquidity and cash flow in future periods:




Payments
      due by PeriodLess
      than
              
              
              1-3
              
              
              4-5
              
              
              AfterTotal
              
              
              1-year
              
              
              Years
              
              
              Years
              
              
              5 YearsNotes
      payable
              
              $
              2,850,000
              
              
              $
              2,850,000
              
              
              $
              ----
              
              
              $
              ----
              
              
              $
              ----Interest
      on notesPayable
              
              
              103,542
              
              
              
              103,542EmploymentAgreements
              
              
              75,000
              
              
              
              75,000Operating
      leases
              
              
              10,000
              
              
              
              10,000
              
              
              
              ----
              
              
              $
              ----
              
              
              
              ----$
              3,038,542
              
              
              $
              3,038,542
              
              
              $
              ----
              
              
              $
              ----
              
              
              $
              ----


Except for the operating leases and
employment agreements above, the Company has no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the
Company’s financial condition, changes in financial condition, revenues,
expenses, results of operations, liquidity, capital expenditures or capital
resources.




NEW
ACCOUNTING PRONOUNCEMENTS





In
September 2006, the Financial Accounting Standards Board issued Statement No.
157 (“SFAS 157”), “Fair Value Measurements.” FAS 157 establishes a formal
framework for measuring fair value under GAAP.  It defines and
codifies the many definitions of fair value included among various other
authoritative literature, clarifies and, in some instances, expands on the
guidance for implementing fair value measurements, and increases the level of
disclosure required for fair value measurements.  Although SFAS No.
157 applies to and amends the provisions of existing FASB and AICPA
pronouncements, it does not, of itself, require any new fair value measurements,
nor does it establish valuation standards.  SFAS No. 157 applies to
all other accounting pronouncements requiring or permitting fair value
measurements, except for: SFAS No. 123 (R), share-based payment and related
pronouncements, the practicability exceptions to fair value determinations
allowed by various other authoritative pronouncements, and AICPA Statements of
Position 97-2 and 98-9 that deal with software revenue
recognition.  This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.




-20-




In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an amendment of FASB Statement No. 115” (SFAS
159).  SFAS 159, which becomes effective for the Company on January 1,
2008, permits companies to choose to measure many financial instruments and
certain other items at fair value and report unrealized gains and losses in
earnings.  Such accounting is optional and is generally to be applied
instrument by instrument.





In December 2007, the FASB issued FASB
Statement No. 141 (R), “Business Combinations” (FAS 141(R)), which establishes
accounting principles and disclosure requirements for all transactions in which
a company obtains control over another business.  Statement 141 (R)
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  Earlier adoption is prohibited.





In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51”.  SFAS No. 160 establishes accounting and
reporting standards that require that the ownership interests in subsidiaries
held by parties other than the parent be clearly identified, labeled, and
presented in the consolidated statement of financial position within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
and changes in a parent’s ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for
consistently.  SFAS No. 160 also requires that any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value when a subsidiary is deconsolidated.  SFAS No. 160 also
sets forth the disclosure requirements to identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  SFAS No. 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but will
affect only those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary.  SFAS No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  Earlier adoption is
prohibited.  SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements.  The presentation and
disclosure requirements are applied retrospectively for all periods
presented.





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
requires enhanced disclosures about an entity’s derivative and hedging
activities, including (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS
133), and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows.  SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008.





The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated financial position,
results of operations, or cash flows.





Item
7.             FINANCIAL
STATEMENTS





The following is a list of financial
statements filed herewith:





Consolidated Balance Sheets as of
September 30, 2008 and September 30, 2007





Consolidated Statements of Operations
for the years ended September 30, 2008 and 2007




-21-





Consolidated
Statements of Shareholders’ Deficiency for the years ended September 30, 2008
and 2007





Consolidated Statements of Cash Flows
for the years ended September 30, 2008 and 2007





Notes to Consolidated Financial
Statements




Item
      8.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTSON
      ACCOUNTING AND FINANCIAL DISCLOSURE





During the Company’s fiscal years ended
September 30, 2007 and 2008, there were no disagreements with Weinberg on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure, which disagreements if not resolved to the
satisfaction of Weinberg would have caused it to make reference thereto in its
reports on the Company’s financial statements.  In addition, for the
same periods, there have been no reportable events (as defined in Regulation S-B
Item 304(a)(1)(iv)(B)).





Item
      8 A(T)
            .       
             CONTROLS AND
    PROCEDURES





(a)
            Evaluation
      of Disclosure Controls and
Procedures





Disclosure
Controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms.  Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports filed under the Exchange Act is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures.





The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures as of the end of the period covered by this
report.  Based upon and as of the date of that evaluation, the CEO and
CFO concluded that the Company’s disclosure controls and procedures had the
material weaknesses in our financial reporting discussed below, our CEO and CFO
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of September 30, 2008.





Management’s
Report on Internal Control over Financial Reporting





Our
management, under the supervision of our CEO and CFO, is responsible for
establishing and maintaining adequate control over financial
reporting.  Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with GAAP.  Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with existing
policies or procedures may deteriorate.




-22-





Our CEO
and CFO conducted an assessment of our internal control over financial reporting
as of September 30, 2008 based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).  A material weakness is a deficiency or a
combination of deficiencies in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be prevented or
detected.





Based
upon that assessment, we have identified the following material
weaknesses:





Lack
of documented internal control system.





We have a
material weakness due to the lack of a documented and reviewed system of
internal controls.  We have determined that to perform the processes
and remediate this internal control deficiency, we will either need to engage an
internal control consultant or reassign existing personnel.  The
complete remediation of these deficiencies may take several
quarters.





Lack
of segregation of duties.





We have
limited staff in our corporate offices and, as such, there is a lack of
segregation of duties.  Many functions including; purchasing, accounts
payable, bank reconciliations, revenue recognition and month end closings, are
not adequately segregated.  The lack of a proper segregation of duties
can lead to individuals performing incompatible functions such as approving
vendor invoices and signing checks.  Due to our limited number of
personnel and until such time as we have additional employees, we may require
additional oversight from our board of directors in addressing certain
weaknesses related to a proper segregation of duties.





Lack
of controls over purchasing, accounts payable and disbursements.





Our
employees are authorized to purchase goods and services and approve the related
invoices for payment without obtaining supervisory approval or pursuant to a
delegation of authority.  Additionally, one employee is allowed to
order goods and services, approve invoices and sign checks.  Only one
signature is required on disbursement checks.  This lack of control
and lack of segregation of duties can lead to errors and
irregularities.  There is no review of invoices that are coded into
the general ledger.  Therefore, it is possible that expenses might be
posted to the wrong account and the error would not be identified.





Inadequate
safeguards over the Company’s proprietary software





Controls
are inadequate to assure that customers are billed whenever service department
employees provide software access information to
customers.  Therefore, it is possible that customers might obtain the
use of software without compensating the Company.  Additionally, it is
also possible that employees might sell Company software for their own
benefit.




-23-





Lack
of controls over payroll processing.





One
employee is authorized to individually initiate and approve payrolls and related
payroll functions.  Additionally, the same individual is responsible
for tracking accrued sick and vacation accruals without
supervision.  The lack of supervision could allow errors and
irregularities related to payroll processing to go undetected.





Lack
of controls over cash receipts.





One
employee is responsible for opening the mail, preparing the deposit and
depositing the checks into the bank.  The lack of segregation of
duties prevents the identification of errors and irregularities.





Our
information technology system lacks appropriate application and general
controls.





The
application and general controls over our information and technology systems are
not adequate.  Our accounting software lacks appropriate controls and
most computer generated reports are reviewed by the author without independent
verification.  To partially compensate for this weakness, the
Company’s board of directors receives quarterly financial statements that
compare actual results to budgeted results and variances are
analyzed.





Inadequate
controls over month-end financial reporting.





Our CEO
is responsible for closing the Company’s books on a monthly basis and reporting
the results to the board of directors without adequate
review.  Monthly financial statements prepared for internal use are
not adequately reviewed.  Without adequate review, it is possible that
errors and irregularities will go undetected.








(b)
            Changes
      in Internal Controls





There
were no changes in the Company’s internal control over financial reporting or in
other factors that occurred during the Company’s last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.




-24-





PART
III





Item
      9.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE
ACT





As of September 30, 2008, the directors
and executive officers of the Company are as follows:




Name
              
              Age
              
              PositionRobert
      Pearson
              
              72
              
              DirectorStephen
      Crosson
              
              49
              
              Chief
      Executive Officer,Chief
      Financial Officer,Secretary
      & DirectorRussell
      Cleveland
              
              69
              
              Director71Lee
      Pryor
              
              
              
              Director





Robert Pearson.  Mr. Pearson,
who became a director in 1997, has been associated with Renaissance Capital
Group (“RCG”) since April 1994.  RCG is the investment advisor of the
largest shareholders of the Company.  Presently, Mr. Pearson serves as
a Senior Vice President and Director of Corporate Finance of RCG.  He
served as Executive Vice President of the Thomas Group from May 1990 to March
1994.  For 25 years, Mr. Pearson held various senior management
positions at Texas Instruments, including Vice President of Finance from October
1983 to June 1985.  Mr. Pearson holds directorships in the following
companies:  Poore Brothers, a manufacturer of snack food products;
Advanced Power Technology, Inc., a power semiconductor manufacturer; eOriginal,
Inc., a privately owned developer of technology and software for creation of
electronic contracts; Laserscope, Inc., a marketer and manufacturer of lasers
for medial use; Simtek Corporation, a fables semiconductor company that designs
and markets non-volatile static random access memories and Shea Development
Corp., a business process management software and services firm.





Stephen
Crosson.  Mr. Crosson joined the Company in March 1985 and was manager
of accounting and government contracts and logistics.  In September
1989, Mr. Crosson became a financial analysis officer with First Interstate
Banks Controller’s office.  In March 1992, Mr. Crosson returned to the
Company as Director of Operations.  In April 1995, he became Vice
President of Operations.  In January of 1997, Mr. Crosson became
Corporate Secretary and in April 1998 he became Chief Operating Officer and
Treasurer.  In January 2003, Mr. Crosson became the Chief Executive
Officer, and in August 2003, Mr. Crosson was elected a director.  In
April 2004, Mr. Crosson became the Chief Financial Officer.  Currently
Mr. Crosson is the Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer and Corporate Secretary.





Russell
Cleveland.  Mr. Cleveland became a director in February
2004.  Mr. Cleveland is the President, Chief Executive Officer, sole
director, and the majority shareholder of the RENN Capital Group,
Inc.  Mr. Cleveland has been with RENN Group in these capacities for
over ten years since the first fund was formed in 1994.  He is a
Chartered Financial Analyst with more than 35 years experience as a specialist
in investments for smaller capitalization companies.  A graduate of
the Wharton School of Business, Mr. Cleveland serves on the Boards of Directors
of Renaissance US Growth Investment Trust PLC, BFS US Special Opportunities
Trust PLC, Renaissance Capital Growth & Income Fund III, Inc., Integrated
Security Systems, Inc., Tutogen Medical, Inc., Digital Recorders, Inc., and
Cover-All Technologies, Inc.





Lee
Pryor.  Mr. Pryor became a director in March 2006.  Mr.
Pryor is founder and chief executive officer of Interventures, LLC, an advisory
and coaching services firm assisting start-up and late-stage entrepreneurial
companies.  During the past five years Mr. Pryor has provided advisory
services to businesses for strategy evaluation, marketing programs and
management best practices.  Mr. Pryor also gives speeches on
management and entrepreneurship and provides seminars and workshops on the
topics of management, marketing and strategy to his clients.  Mr.
Pryor attended Johns Hopkins University, the U.S. Naval Academy, and
Northwestern University.  He is a frequent speaker at venture capital
conferences, association meetings, and business schools on such topics as
strategy, leadership, and managing for success.




-25-




FAMILY
RELATIONSHIPS





There are
no family relationships between or among the directors, executive officers or
persons nominated or charged by us to become directors or executive
officers.




MEETINGS;
ATTENDANCE; COMMITTEES





The Board
has an Audit Committee.  The duties of the Audit Committee include (i)
recommending to the Board the engagement of the independent auditors, (ii)
reviewing the scope and results of the yearly audit by the independent auditors,
(iii) reviewing our system of internal controls of procedures, and (iv)
investigating, when necessary, matters relating to the audit functions. It
reports to the Board concerning its activities.  The current member of
this Committee is Mr. Pryor.  The Board of Directors has determined
that the Audit Committee does not currently have a Financial Expert under
applicable rules.  Mr. Pryor serves as the audit committee
chairman.  The audit committee held two meetings during the current
fiscal year.





The Board
also has a Compensation Committee.  The Compensation Committee makes
recommendations to the Board concerning compensation and other matters relating
to employees.  The Committee also grants options under, and
administers, our Stock Option Plan.  The current member of the
Committee is Mr. Pryor.  Mr. Pryor serves as chairman of the
compensation committee.  The Compensation Committee held one meeting
during the current fiscal year.





DIRECTOR
COMPENSATION





Directors do not receive any annual
compensation.  Outside directors receive $1,000 each for each meeting
attended and reimbursement for out-of-pocket expenses for attending
meetings.   Mr. Pearson and Mr. Cleveland have waived the meeting
fees.  The board held ten meetings during the current fiscal
year.





EMPLOYMENT
AGREEMENTS





During the fiscal year ended September
30, 2003, the Company entered into a two year employment agreement with Mr.
Stephen Crosson to be Chief Executive Officer of the Company reporting to the
Chairman of the Board of Directors.  The contract was for two years
beginning August 1, 2003, with an annual salary of $150,000 per year with the
possibility of bonuses at the discretion of the Board of
Directors.  The agreement was amended on April 19,
2004.  Mr. Crosson is currently the Chief Financial Officer and Chief
Operating Officer of the Company and will receive $12,500 per month for an
indeterminate period of time.  The contract includes a bonus fee of 1%
of any acquisition price or licensing fee over $1,000,000 paid to the
Company.  If Mr. Crosson is terminated without cause he will receive
salary and benefits for up to 6 months after termination.





COMPLIANCE
WITH SECTION 16(a)





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
executive officers and directors and persons who own more than 10% of a
registered class of the Company’s equity securities to file with the Securities
and Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of common
stock and other equity securities of the Company, on Forms 3, 4 and 5
respectively.  Executive officers, directors and greater than 10%
shareholders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file.




-26-





CODE OF
ETHICS





The Company has adopted a code of
ethics that applies to the Company’s principal executive officer, principal
financial officer and principal accounting officer.  We have
previously filed a copy of our Code of Ethics as an Exhibit to our Annual Report
on Form 10-KSB for our fiscal year 2004, and the same is incorporated herein by
this reference.  In addition, a copy of our code of ethics can be
obtained by writing our company at 600 Hampshire Road, Suite 105, Westlake
Village, California 91361.








Item
10.           EXECUTIVE
COMPENSATION





The following tables and discussion set
forth information with respect to all compensation awarded to, earned by or paid
to our Chief Executive Officer and up to four of our executive officers whose
annual salary and bonus exceeded $100,000 during our last completed fiscal year
(collectively referred to in this discussion as the ‘named executive
officers”).  The officer designation indicates positions held as of
September 30, 2008, the end of our last fiscal year.




-27-





Summary
Compensation Table




ANNUAL
      COMPENSATIONFISCAL
      YEAR
              
              
              
              
              
              
              
              ALLNAME
      AND
              ENDED
              
              
              
              
              
              
              
              OTHERPRINCIPAL
      POSITION
              SEPTEMBER
      30,
              
              SALARY
              
              
              BONUS
              
              
              COMPENSATION
              
              
              Total
      ($)Stephen
      Crosson,
              2008
              
              $
              150,000
              
              
              
              ----
              
              
              
              ----
              
              
              $
              150,000Chief
      Executive Officer,Chief
      Financial Officer,Corporate
      Secretary &Director






Discussion
of Compensation





Our compensation program consists of
the following three components:


·
            base
      salary;


·
            bonuses;
      and


·
            awards
      of restricted stock or stock options from our Year 2000 Employee Stock
      Option Plan.  On July 1, 2008 the board passed a resolution
      terminating the plan, including all vested and unvested options
      outstanding, therefore there were no options awarded or
    vested





We believed that a combination of cash
and common stock or options will allow us to attract and retain the services of
the individuals who will help us achieve our business objectives, thereby
increasing value for our shareholders.  Stock and business performance
deteriorated during the fiscal year, with no opportunity or value to holders of
granted options.  Therefore, management and board of directors agreed
to terminate the plan.





In our fiscal year ended September 30,
2008, there was no restricted stock, stock options or bonuses issued to the
named executive officers.  Compensation for Mr. Crosson consisted to
annual base salary only.  Mr. Crosson has taken a 25% pay reduction
and other remaining employee’s have taken a 20% pay reduction since the fiscal
year end.





Director
Compensation





During the current fiscal year there
were no fees or options issued to directors as compensation for services
rendered.  The Company intends to reinstate the compensation plan for
directors in the future including fees for meetings attended and annual stock
options.





The Year
2000 employee stock option plan was terminated as of July 1,
2008.  There are currently no outstanding equity awards exercisable or
unexercisable at the fiscal year ended September 30, 2008.




-28-








Item
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND
      MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





The following table sets forth certain
information regarding the beneficial ownership of the Company’s Common Stock as
of September 30, 2008 by (I) each person who is known by the Company to own
beneficially more than 5% of the Company’s outstanding Common Stock; (ii) each
of the Company’s directors; (iii) the named Executive Officers; and (iv)
executive officers and directors of the Company as a group:




COMMON STOCK (1)NUMBER
      OF
              
              
              PERCENTAGE
    OFNAME AND ADDRESS (2)
              
              SHARES
              
              
              OUTSTANDING
      (3)Robert
      Pearson (4)
              
              
              ----
              
              
              
              ----Russell
      Cleveland (4)
              
              
              ----
              
              
              
              ----Lee
      Pryor
              
              
              ----
              
              
              
              ----Stephen
      Crosson
              
              
              222,770
              (5)
              
              
              1.33Renaissance
      Capital Growth &Income
      Fund III, Inc.
              
              
              5,413,556
              (6)
              
              
              29.358080
      N. Central ExpresswaySuite 210Dallas, Texas
      75206Renaissance
      US Growth &Income
      Trust PLC
              
              
              4,961,458
              (7)
              
              
              26.908080
      N. Central ExpresswaySuite 210Dallas, Texas
      75206Global
      Special OpportunitiesTrust
      PLC
              
              
              8,818,433
              (8)
              
              
              40.298080
      N. Central ExpresswaySuite 210Dallas, Texas
      75206All
      executive officers anddirectors as a
      group(4
persons)
              
              
              222,770
              
              
              
              1.33





(1)
            As
      used herein, the term beneficial ownership is defined by Rule 13d-3 under
      the Securities Exchange Act of 1934 as consisting of sole or shared voting
      power and/or sole or shared investment power subject to community property
      laws where applicable.


(2)
            Except
      as indicated, the address of each person is c/o the Company at 600
      Hampshire Road, #105, Westlake Village, California
  91361.


(3)
            Based
      on 16,781,415 shares of Common Stock outstanding as of September 30,
      2008.


(4)
            Does
      not include any shares owned by the Renaissance Funds described in the
      table.  Mr. Pearson is an executive officer of Renaissance
      Capital Group, Inc. (“RCG”) which is the investment advisor to the
      Renaissance Funds and BFS US and the investment manager of Renaissance
      U.S.


(5)
            Includes
      222,770 shares of our common stock


(6)
            RCG
      is the investment advisor of the Renaissance Funds.  The Common
      Shares deemed to be beneficially owned by the Renaissance Capital Growth
      and Income Fund III, are comprised of 3,752,444 shares of our Common
      Stock, warrants to purchase 540,541 shares at $0.74 per share, warrants to
      purchase 540,540 shares at $1.11 per share, warrants to purchase 471,698
      shares at $0.53 per share, warrants to purchase 58,333 shares at $1.14 per
      share and warrants to purchase 50,000 shares at $0.86 per
      share.  All of such securities are owned by the Renaissance
      Funds as described herein.


(7)
            RCG
      is the Investment Manager of Renaissance US.  The Common Shares
      deemed to be beneficially owned by the Renaissance US Fund are comprised
      of 3,300,345 shares of our Common Stock and warrants to purchase 540,541
      shares at $0.74 per share, warrants to purchase 540,540 shares at $1.11
      per share, warrants to purchase 471,698 shares at $0.53 per share,
      warrants to purchase 58,334 shares at $1.14 per share and warrants to
      purchase 50,000 shares at $0.86 per
share.


(8)
            RCG
      is the Investment Advisor for BFS US.  The Common Shares deemed
      to be beneficially owned by BFS US are comprised of 3,711,222 shares of
      Common Stock and 3,446,099 shares of Common Stock issuable upon conversion
      of an aggregate of $1,750,000 of 6% Convertible Debenture at a weighted
      average conversion price of $0.51 per share.  Also includes
      warrants to purchase 540,541 shares at $0.74 per share, warrants to
      purchase 540,540 shares at $1.11 per share, warrants to purchase 471,698
      shares at $0.53 per share, warrants to purchase 58,333 shares at $1.14 per
      share and warrants to purchase 50,000 shares at $0.86 per
      share.




-29-




Equity
Compensation Plan Information





The following table sets forth certain
information regarding warrants outstanding, the Year 2000 employee stock option
plan was terminated as of July 1, 2008.  All information set forth
below is as of September 30, 2008, pursuant to applicable
regulations.




Number of securities
      remainingNumber
      of Securities to
              
              Weighted-average
              
              available for future issuance
      underBe
      issued upon exercise
              
              exercise
      price of
              
              equity compensation plans
      (excludingOf
      outstanding options,
              
              outstanding
      options,
              
              securities warrants and rights
      warrantsWarrants
      and rights
              
              warrants
      and rights
              
              and rights reflected in (a)) (a)
      (b)(a)
              
              (b)
              
              (c)Equity
      compensationPlans
      approved by
              
              
              4,983,337
              
              $
              0.82
              
              --Security
      holdersEquity
      compensationPlans
      not approved by
              
              
              --
              
              
              --
              
              --HoldersTOTAL
              
              
              4,983,337
              
              $
              0.82
              
              --


-30-





Shareholder
Approved Plans:





The 2000
Stock Option Plan





The Company’s shareholders approved the
2000 Stock Option Plan as amended (the “Plan”) in April 2001.  The
Plan and all options granted under the plan have been terminated during the
current fiscal year.





Non-Shareholder-Approved
Plans:





There are no Non-Shareholder Approved
Plans as of September 30, 2008 .




Item
12.           CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





On November 27, 2002, the Company
entered into a $1,000,000 6% Convertible Debenture Agreement with BFS US (the
“BFS US Debenture”).  The full amount was drawn during the fiscal year
ended September 30, 2003.  Interest of 6% per annum will be paid in
monthly installments for three years based on the unpaid principal
balance.  The BFS US Debenture originally matured on November 27,
2005, at which time the unpaid Principal Amount, and all accrued and unpaid
interest and other charges, fees, and payments was due and
payable.  The conversion price is set at $1.00 unless, however, the
five (5)-day average closing price for the Company’s common stock immediately
prior to a disbursement is below $1.00, in which case, such five (5)-day average
shall become the Conversion Price.  As of September 30, 2004, we had a
note payable principal balance of $1,000,000 in connection with this convertible
debenture and no further funds available to borrow on this
debenture.  The debenture has certain non-operating covenants
associated with the loan.  During the fiscal year and as of September
30, 2008, the Company was in compliance with these covenants.





During July 2003, the BFS US entered
into a $750,000 6% Convertible Debenture with the Company.  The full
amount was drawn during the fiscal year ended September 30,
2003.  Interest at a rate of 6% per annum is payable in monthly
installments for 26 months based on the unpaid principal balance.  The
debenture originally matured on November 27, 2005, at which time the unpaid
Principal Amount, and all accrued and unpaid interest and other charges, fees,
and payments then due under the debenture was due and payable in
full.  The debenture is convertible, at the option of the holder into
shares of the Company’s common stock, with an initial conversion price of $0.50
per share.  However, if the five (5)-day average closing price for the
Common Stock immediately prior to each disbursement is below the $0.50 initial
conversion price, the average closing price for such period shall become the
conversion price.  As of September 30, 2004, we had a note payable
principal balance of $750,000 in connection with this convertible debenture and
no further funds available to borrow on this debenture.   The
debenture has certain non-operating covenants associated with the
loan.  During the fiscal year and as of September 30, 2008, the
Company was in compliance with these covenants.




-31-





During
October 2005, the Company negotiated an extension of the two parts of the
Convertible Debenture with a total principal balance of
$1,750,000.  Pursuant to a Renewal and Modification agreement dated as
of October 28, 2005, the lender agreed to extend the maturity date of certain 6%
Convertible Debentures in the aggregate principal amount of $1,750,000 to May
27, 2007.  In consideration of such extension, the Company agreed to
grant lender a five-year warrant to purchase 175,000 shares of Company Common
Stock at an exercise price of $1.14 per share (subject to
adjustment).  The estimated value of the warrant ($166,093) was
recorded on the Company financial statements as debt discount, and was amortized
over the term of the extension.  On May 7, 2007, the lender agreed to
extend the maturity date of the $1,750,000 Convertible Debenture until November
27, 2007.





On December 18, 2003 the Company issued
to the Renaissance Funds, BFS US and Renaissance US in a private placement an
aggregate of 3,243,243 shares of common stock and 5-year warrants to purchase an
aggregate of 3,243,243 shares with 50% of the warrants at an exercise price of
$0.74 per share and 50% at an exercise price of $1.11 per share for
$1,200,000.  The investors are affiliated with Renaissance Capital
Group, Inc.  See “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.”





During July 2004, the Company received
$750,000 from a two year secured loan from Renaissance Capital Group, Inc.
managed funds.  Interest is payable at 7% per annum in monthly
installments based on the outstanding principal balance.  As part of
the funding, the Company issued five year warrants to purchase an aggregate of
1,415,094 shares of Common Stock at an exercise price of $0.53 per
share.





On
February 21, 2006, the Company issued to Renaissance Capital, BFS US and
Renaissance US an aggregate of 150,000 warrants to purchase shares of common
stock at $0.86 per share in consideration of the agreement to extend notes
payable to Renaissance Capital, BFS US and Renaissance US in the aggregate
principal amount of $750,000 for an 18 month extension of the maturity
date.  The new maturity date for the notes will be January 19,
2008.  The Company will continue to pay 7% interest on a monthly basis
based on the current outstanding principal balance of $750,000.





On February 21, 2006, the Company
issued to BFS US and Renaissance US an aggregate of 697,674 shares of common
stock at a price of $0.86 per share in a private placement for
$600,000.





On February 7, 2007, the Company
received an aggregate of $200,000 from two three month secured convertible notes
from two of RENN Capital Groups managed funds.  Interest of 8% will be
paid in monthly installments during the term of the notes.  The notes
mature on May 7, 2007, at which time all principal and accrued and unpaid
interest will be due and payable in full.  The notes are convertible
at the option of the holder, into shares of Company common stock, with an
initial conversion price of $0.30 per share.  Each holder of a note
may convert in whole or in part the outstanding principal plus accrued but
unpaid interest into Company common stock at a conversion price of $0.30 per
share.  In the event that the Company issues additional common stock,
or securities convertible into common stock, at a price lower than the
conversion price while these notes are outstanding, the conversion price of
these notes will automatically adjust downward to such price at which the new
common stock has been issued.  The conversion price of the note,
however, shall never be adjusted to less than $0.01 per
share.  Pursuant to renewal and modification agreements dated May 7,
2007, the RENN Capital Group has agreed to extend the maturity dates of the two
$100,000 notes payable until November 7, 2007.  CaminoSoft will
continue to pay 8% interest monthly based on the current outstanding principal
balance of $200,000.





During the quarter ended December 31,
2007, the Company negotiated to extend the maturity dates of debt due before
January 31, 2008.  Pursuant to renewal and modification agreements the
Company extended the total debt with an aggregate principal balance of
$2,700,000 to February 27, 2008.  In addition to extending the due
date the Company also converted from cash payments of interest to interest
payments in unregistered common stock beginning with all interest due and
payable during the current quarter.  In October 2007, the Company
received an additional $100,000 from RENN Capital Group funds via wire transfer
to help pay for legal and accounting fees relating to the merger and acquisition
previously in process with Shea Development previously
disclosed.  Although the funds have no terms or interest due, the
Company recorded it as a loan payable and plans to repay or write off the
balance due at the time the other debt is paid or otherwise
satisfied.




-32-





During the quarter ended March 31,
2008, the Company negotiated to extend the maturity dates of the entire
$2,800,000 of debt that was due January 31, 2008.  Pursuant to renewal
and modification agreements signed during the quarter, the Company extended the
total debt with an aggregate principal balance of $2,800,000 to May 30,
2008.  In February 2008, the Company received an additional $50,000
from RENN Capital Group funds to pay for legal and accounting fees and support
operations. The note was recorded as a loan payable on the Company’s financial
reports.  Interest of 8% will be paid in monthly installments
beginning March 1, 2008, until the principal balance is paid in
full.  Interest may be paid in cash or in unregistered common stock at
the Company’s discretion.





Subsequent
Event





Pursuant to a Renewal and Modification
Agreement dated October 24, 2008 (“Modification Agreement I”)  among
BFS US Special Opportunities Trust PLC (“BFS”), Renaissance Capital Growth
Income Fund III (“RENN III”) and Renaissance US Growth Investment Trust PLC
(“RUSGIT”) (collectively the “Renaissance Lenders”), on the one hand, and
CaminoSoft Corp. (“CaminoSoft”), on the other hand, the Renaissance Lenders
agreed to extend the maturity dates of the $750,000 of secured subordinated
promissory notes from May 30, 2008 to April 30, 2009.





Pursuant to a Renewal and Modification
Agreement dated October 24, 2008 (“Modification Agreement II”) between US
Special Opportunities Trust PLC (“USOT”) and CaminoSoft, USOT agreed to extend
the maturity date of the $1,750,000 Convertible Debentures from May 30, 2008 to
April 30, 2009.





Pursuant to a Renewal and Modification
Agreement dated October 24, 2008 (“Modification Agreement III”) between
Renaissance US Growth Investment Trust PLC (“RUSGIT”) and CaminoSoft, RUSGIT
agreed to extend the maturity date of the convertible promissory note of
$100,000 from May 30, 2008 to April 30, 2009.





Pursuant to a Renewal and Modification
Agreement dated October 24, 2008 (“Modification Agreement IV”) between US
Special Opportunities Trust PLC (“USOT”) and CaminoSoft, USOT agreed to extend
the maturity date of the convertible promissory note of $100,000 from May 30,
2008 to April 30, 2009.





Director
Independence





As of the date of this Annual Report,
only Mr. Pryor is considered “independent” as defined under the Nasdaq Stock
Market’s listing standards. In determining independence, the Board of Directors
reviews whether directors have any material relationship with us. The Board of
Directors considers all relevant facts and circumstances. In assessing the
materiality of a director’s relationship to us, the Board of Directors is guided
by the standards set forth below and considers the issues from the director’s
standpoint and from the perspective of the persons or organizations with which
the director has an affiliation. The Board of Directors reviews commercial,
industrial, banking, consulting, legal, accounting, charitable and familial
relationships, if applicable. An independent director must not have any material
relationship with us, either directly or indirectly as a partner, stockholder or
officer of an organization that has a relationship with us, or any other
relationship that would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.





A director will not be considered
independent in the following circumstances:





(1)           The
director is, or has been in the past three years, an employee of the Company, or
a family member of the director is, or has been in the past three years, an
executive officer of the Company.




-33-





(2)           The
director has received, or has a family member who has received, compensation
from us in excess of $100,000 in any 12 month period in the past three years,
other than compensation for board service, compensation received by the
director’s family member for service as a non-executive employee, and benefits
under a tax-qualified plan or other non-discretionary compensation.





(3)           The
director is, or has a family member who is, a current partner of our outside
auditor, or was a partner or employee of our outside auditor, who worked on our
audit at any time during any of the past three years.





(4)           The
director is a family member of an individual who is, or at any time during the
past three years was, employed by the company as an executive
officer.





(5)           The
director is, or has a family member who is, employed as an executive officer of
another entity where, at any time during the past three years, any of our
executive officers served on the compensation committee of that other
entity.





(6)           The
director is, or a family member is, a partner in, or a controlling stockholder
or an executive officer of, any organization to which we made or from which we
received, payments for property or services in the current or any of the past
three fiscal years that exceed the greater of 5% of the recipient’s consolidated
gross revenues for that year, or $200,000.




Item
13.          EXHIBITS





(a)
            Exhibits




Exhibit
      31
              Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002Exhibit
      32
              Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2003




-34-





Item
14           PRINCIPAL
ACCOUNTANT FEES AND SERVICES





AUDIT
FEES





During the Company’s prior fiscal year,
Weinberg & Company, P.A., was the principal accountant and billed $66,758
for professional services for the audit of the Company’s annual financial
statements and review of the Company’s financial statements included in the
Company’s Form 10-QSB’s.  The estimated fees for professional services
associated with the audit of the Company’s annual financial statements and
review of the Company’s financial statements included in the Company’s Form
10-QSB’s for the upcoming fiscal year are $70,000.


The Audit
Committee approves in advance audit and non-audit services to be provided by
Weinberg & Co. P.A.  In other cases, in accordance with Rule
2-01(c)(7) of Securities and Exchange Commission Regulation S-X, the Audit
Committee has delegated pre-approval authority to the Chairman of the Audit
Committee for matters which arise or otherwise require approval between
regularly scheduled meetings of the Audit Committee, provided that the Chairman
report such approvals to the Audit Committee at the next regularly scheduled
meeting of the Audit Committee.




SIGNATURES





In accordance with Section 13 or 15 (d)
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.




CAMINOSOFT
CORPBy:
              /s/ STEPHEN
      CROSSONChief
      Financial Officer andChief
      Executive OfficerDate:
      January 9, 2009




In accordance with the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.




Signature
              
              Capacity
              
              Date/s/
      ROBERT PEARSON
              
              Director
              
              January
      9, 2009Robert
      Pearson/s/
      STEPHEN CROSSON
              
              Chief
      Financial Officer,
              
              January
      9, 2009Stephen
      Crosson
              
              Chief
      Executive Officer
                Secretary, Treasurer and Director/s/
      RUSSELL CLEVELAND
              
              Director
              
              January
      9, 2009Russell
      Cleveland/s/
      LEE PRYOR
              
              Director
              
              January
      9, 2009Lee
      Pryor




-35-




CAMINOSOFT
CORP





CONTENTS




Report
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets as of September 30, 2008and
      September 30, 2007
              F-3Consolidated
      Statements of Operations for the years endedSeptember
      30, 2008 and 2007
              F-4Consolidated
      Statements of Shareholders’ Deficiency for theyears
      ended September 30, 2008 and 2007
              F-5Consolidated
      Statements of Cash Flows for the years endedSeptember
      30, 2008 and 2007
              F-6Notes
      to Consolidated Financial Statements
              F-7


F-1




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors of


CaminoSoft
Corp.





We have
audited the accompanying consolidated balance sheets of CaminoSoft Corp. and
Subsidiary (the "Company"), as of September 30, 2008 and 2007 and the related
consolidated statements of operations, changes in shareholders' deficiency and
cash flows for the years then ended.  These consolidated financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.







We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for effectiveness of the
Company’s internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly
in all material respects, the financial position of CaminoSoft Corp. and
Subsidiary as of September 30, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.







The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has had recurring losses
from operations and had an accumulated deficit as of September 30,
2008.  These factors raise substantial doubt about the Company’s
ability to continue as a going concern.  Management’s plans concerning
this matter are also described in Note 1.  The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.








WEINBERG
& COMPANY, P.A.








Los
Angeles, CA


January
6, 2009




F-2





CAMINOSOFT
      CORP.CONSOLIDATED
      BALANCE SHEETS




September
      30,
            
            
            September
      30,2008
            
            
            2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            157,980
            
            
            $
            72,343Accounts
      receivable, net of allowance of $5,000 and $20,000
            
            
            83,066
            
            
            
            190,607Total
      Current Assets
            
            
            241,046
            
            
            
            262,950Property
      and Equipment, net of accumulated depreciation of
            
            
            297
            
            
            
            4,727$89,615
      and $85,185Software,
      net of accumulated amortization of
            
            
            19,320
            
            
            
            65,724$808,070
      and $761,666Deposits
            
            
            1,105
            
            
            
            9,582Total
      Assets
            
            $
            261,768
            
            
            $
            342,983LIABILITIES
      AND SHAREHOLDERS' DEFICIENCYCurrent
      Liabilities:Accounts
      payable
            
            $
            223,309
            
            
            $
            239,531Accrued
      liabilities
            
            
            99,980
            
            
            
            46,326Deferred
      revenue
            
            
            477,391
            
            
            
            702,417Notes
      payable, net of discountof
      $0 and $23,581
            
            
            2,850,000
            
            
            
            2,676,419Total
      Current Liabilities
            
            
            3,650,680
            
            
            
            3,664,693Deferred
      revenue
            
            
            -
            
            
            
            121,875Total
      Liabilities
            
            
            3,650,680
            
            
            
            3,786,568Shareholders'
      DeficiencyCommon
      stock, no par value; authorized 100,000,000 shares;issued
      and outstanding 16,781,415 and 14,258,756 shares
            
            
            19,034,685
            
            
            
            18,828,909Accumulated
      Deficit
            
            
            (22,423,597
            )
            
            
            (22,272,494
            )Total
      Shareholders' Deficiency
            
            
            (3,388,912
            )
            
            
            (3,443,585
            )Total
      Liabilities and Shareholders' Deficiency
            
            $
            261,768
            
            
            $
            342,983





See
accompanying notes to Consolidated Financial Statements




F-3




CAMINOSOFT
    CORP.CONSOLIDATED
      STATEMENTS OF OPERATIONS




Years
      EndedSeptember
      30,2008
            
            
            2007SALES
            
            $
            1,492,180
            
            
            $
            2,078,690COST
      OF SALES
            
            
            57,531
            
            
            
            164,901GROSS
      PROFIT
            
            
            1,434,649
            
            
            
            1,913,789OPERATING
      EXPENSESSales
      and administrative
            
            
            1,135,834
            
            
            
            1,960,738Depreciation
            
            
            4,430
            
            
            
            13,577Research
      and Development
            
            
            245,500
            
            
            
            361,965Total
      Operating Expenses
            
            
            1,385,764
            
            
            
            2,336,280Income
      (loss) From Operations
            
            
            48,885
            
            
            
            (422,491
            )OTHER
      INCOME (EXPENSE)Interest
      expense
            
            
            (200,000
            )
            
            
            (312,378
            )Interest
      income
            
            
            12
            
            
            
            18Total
      Other Expense
            
            
            (199,988
            )
            
            
            (312,360
            )Net
      Loss
            
            $
            (151,103
            )
            
            $
            (734,851
            )Weighted
      average number of common shares outstanding:(basic
      and diluted):
            
            
            15,202,336
            
            
            
            14,258,756Net
      loss per common share:(basic
      and diluted)
            
            $
            (0.01
            )
            
            $
            (0.05
            )








F-4





CAMINOSOFT
      CORPCONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' DEFICIENCY
              For
      the Years Ended September 30, 2008 and
2007




Common
      Stock
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Deficit
            
            
            TotalBalance
      at October 1, 2006
            
            
            14,258,756
            
            
            $
            18,669,092
            
            
            $
            (21,537,643
            )
            
            $
            (2,868,551
            )Fair
      value of options issued to employees and consultants
            
            
            -
            
            
            
            159,817
            
            
            
            -
            
            
            
            159,817Net
      loss for the year ended September 30, 2007
            
            
            -
            
            
            
            -
            
            
            
            (734,851
            )
            
            
            (734,851
            )Balance
      at September 30, 2007
            
            
            14,258,756
            
            
            
            18,828,909
            
            
            
            (22,272,494
            )
            
            
            (3,443,585
            )Fair
      value of options issued to employees and consultants
            
            
            -
            
            
            
            13,562
            
            
            
            -
            
            
            
            13,562Fair
      value of stock issued for payment of interest expense
            
            
            2,522,659
            
            
            
            192,214
            
            
            
            -
            
            
            
            192,214Net
      loss for the year ended September 30, 2008
            
            
            -
            
            
            
            -
            
            
            
            (151,103
            )
            
            
            (151,103
            )Balance
      at September 30, 2008
            
            
            16,781,415
            
            
            $
            19,034,685
            
            
            $
            (22,423,597
            )
            
            $
            (3,388,912
            )




See
accompanying notes to Consolidated Financial Statements
  F-5




CAMINOSOFT
      CORP.CONSOLIDATED
      STATEMENTS OF CASH FLOWS




Years
      EndedSeptember
      30,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (151,103
            )
            
            $
            (734,851
            )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization
            
            
            50,834
            
            
            
            60,017Fair
      value of common stock options issued to employeesand
      consultants
            
            
            13,562
            
            
            
            159,817Fair
      value of common stock issued for payment of interest
    expense
            
            
            192,214
            
            
            
            -Amortization
      of debt discount
            
            
            23,581
            
            
            
            144,533Bad
      debt expense
            
            
            -
            
            
            
            45,559Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            107,541
            
            
            
            12,506Accounts
      payable and accrued liabilities
            
            
            37,432
            
            
            
            53,283Deposits
            
            
            8,477
            
            
            
            -Deferred
      revenue
            
            
            (346,901
            )
            
            
            (310,116
            )Net
      cash used in operating activities
            
            
            (64,363
            )
            
            
            (569,252
            )CASH
      FLOWS FROM FINANCING ACTIVITIESBorrowing
      on notes payable
            
            
            150,000
            
            
            
            200,000Net
      cash provided by financing activities
            
            
            150,000
            
            
            
            200,000NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            85,637
            
            
            
            (369,252
            )CASH
      AND CASH EQUIVALENTS, beginning of year
            
            
            72,343
            
            
            
            441,595CASH
      AND CASH EQUIVALENTS, end of year
            
            $
            157,980
            
            
            $
            72,343Cash
      paid for:Interest
            
            $
            -
            
            
            $
            167,845Income
      taxes
            
            $
            866
            
            
            $
            1,600





See
accompanying notes to Consolidated Financial Statements




F-6


CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


Note 1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





DESCRIPTION
OF BUSINESS AND NATURE OF OPERATIONS





CaminoSoft
Corp. (the “Company”) previously known as Interscience Computer Corporation, was
incorporated under the laws of the State of California on October 14, 1983, to
be a third party provider of maintenance services for computer hardware and
related peripheral equipment.  On September 17, 1999, the Company
acquired the assets (the “Camino Assets”) of Camino Software Systems, Inc.
(“Camino”), a data storage company.  The Camino assets consisted of
the name, Camino Software Systems, Inc., the data storage management software,
certain business contracts and intangible personal property.





During
the year ended September 30, 2000, the Company changed its name to CaminoSoft
Corp. to reflect the focus on the data management software
business.  The Company is now distributing and developing data
management software purchased from Camino, which will work with Windows 2000 and
Novell operating systems and with Computer Associates, Veritas, EMC, IBM and
other enterprise software.





The
Company is primarily engaged in the business of developing and marketing data
management software.  The Company’s product line includes multiple
versions of our core HSM technology compatible with operating systems from
Novell, Microsoft, Network Appliance and for use with a variety of computer
hardware storage devices, including products from EMC, IBM, HP, Hitachi, NetWork
Appliance, Dell and others.  The Company sells and distributes its
products through major technology distribution partners including Stack Computer
Solutions and Tectrade in the UK, Orchestra in Germany, Amitron in the
Netherlands and many other resellers and value added distributors.





In July
2003, the Company incorporated a subsidiary CM Medical Systems, Inc., under the
General Corporation Law of California.  As of the date of this filing
the Company formally dissolved CM Medical Systems, Inc., as a
corporation.  In 2007 the Company incorporated a subsidiary CC Merger
Corp. under the General Corporation Law of Nevada.  Currently the
subsidiary has no employees, has not issued stock and has not begun
operations.





GOING
CONCERN





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplates continuation of the Company as a going
concern.  The Company had a net loss of $151,103 and utilized cash of
$64,363 in operating activities during the year ended September 30, 2008, and
had a working capital deficiency of $3,409,634 and shareholders’ deficiency of
$3,388,912 at September 30, 2008.  These factors raise substantial
doubt about the Company’s ability to continue as a going concern.  The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this
uncertainty.




The
Company’s working capital requirements in the foreseeable future will depend on
a variety of factors including its ability to sustain its business
operations.  On September 6, 2007, the Company entered into an
Agreement and Plan of Merger with Shea Development Corp.  On June 24,
2008, the Company formally terminated the Agreement and Plan of Merger with Shea
Development Corp.  The Company is currently working on merger, sale
and investment opportunities to replace the failed merger with Shea Development
Corp.  The Company spent significant time and expense to accommodate
the requirements to complete the merger with Shea, including but limited to,
significant legal and accounting expense, the opportunity cost of well over a
year of limited progress or support by Shea and its management
team.  The Company must raise additional capital, complete a merger or
sale transaction or it is possible the Company will have to significantly limit
or sustain its operations by the end of January 2009.  The Company
plans to continue to focus on the integration of its products and solutions with
O.E.M. partner products for sales and distribution.  This includes
selling products through the distribution channels of the
partners.  The Company has new arrangements, which it believes will
generate higher levels of revenue in fiscal 2009.  If the Company is
unable to achieve projected operating results and/or obtain such additional
financing if and when needed, management will be required to curtail growth
plans and scale back or discontinue development activities during the first
quarter of 2009.  No assurances can be given that the Company will
achieve increased revenues.  Further, no assurances can be given that
the Company’s current sales pipeline of prospects will be sufficient to support
the Company’s planned level of operations.  If revenue is not
sustained at current levels or if adequate funds are not available or are not
available at acceptable terms, the Company’s ability to continue as a going
concern is in question.




F-7


CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


USE OF
ESTIMATES





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of assets and liabilities, revenues and expenses during the
reporting period.  Accordingly, actual results could differ from those
estimates.





CASH AND
CASH EQUIVALENTS





The
Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.





TRADE
RECEIVABLES





Trade
receivables are recorded at net realizable value consisting of the carrying
amount less an allowance for uncollectible accounts, as needed.





The
Company uses the allowance method to account for uncollectible trade receivable
balances. Under the allowance method, if needed, an estimate of uncollectible
customer balances is made based upon specific account balances that are
considered uncollectible. Factors used to establish an allowance include the
credit quality of the customer and whether the balance is significant. At
September 30, 2008 and 2007, trade receivables had a net balance in the amount
of $83,066 and $190,607, net of allowances of $5,000 and $20,000,
respectively.





PROPERTY
AND EQUIPMENT





Property
and equipment is stated at cost.  Depreciation is calculated using
accelerated methods based upon the estimated useful lives of the related assets,
primarily three years.





SOFTWARE





Software
capitalization is stated at cost.  Amortization is computed on the
straight-line method based upon the estimated useful life of the asset,
primarily seven years.  Statement of Financial Accounting Standards
No. 86, “Accounting for the Cost of Computer Software to be Sold, Leased, or
Otherwise Marketed”, provides for the capitalization of certain software
development costs incurred after technological feasibility of the software is
established.  The Company capitalized no development costs during the
years ended September 30, 2008 and September 30, 2007.





IMPAIRMENT
OF LONG-LIVED ASSETS





Management
regularly reviews long-lived assets for possible impairment.  This
review occurs annually, or more frequently if events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable.  If
there is an indication of impairment, management prepares an estimate of future
cash flows (undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition.  If these cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized to write down the asset to its estimated fair value.  Based
on managements assessment there was no impairment at September 30, 2008 or
2007.




F-8


CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


INCOME
TAXES





The
Company uses the asset and liability method of accounting for income
taxes.  Deferred income taxes are recognized based on the differences
between financial statement and income tax valuations of assets and liabilities
using applicable tax rates for the year in which the differences are expected to
reverse.  Valuation allowances are established, when necessary, to
reduce deferred tax asset amounts to the amount expected to be
realized.  The provision for income taxes represents the tax payable
(or benefit) for the period and the change in deferred tax assets and
liabilities during the year.





REVENUE
RECOGNITION





Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the fee is fixed or determinable, and
collectibility is probable.  We enter into certain arrangements where
we are obligated to deliver multiple products and/or services (multiple
elements).  In these transactions, we allocate the total revenue among
the elements based on the sales price of each element when sold separately
(vendor-specific objective evidence).





Revenue
for products licensed to original equipment manufactures (OEM’s), and perpetual
licenses for current products in our server based data management suite of
products is recognized as products are shipped or electronically delivered, the
fees are fixed or determinable, collection of the resulting receivable is
probable and no other significant obligations remain undelivered.  If
annual service is a part of the sale agreement that portion of the revenue is
recorded as unearned due to undelivered elements including, annual telephone
support and the right to receive unspecified upgrades/updates of our data
management products on a when-and-if-available basis.  Unspecified
upgrades, or patches, are included in our product support fee.  The
upgrades are delivered only on a when-and-if-available basis and as defined in
SOP 97-2, are considered, Postcontract Customer Support
(“PCS”).  Vendor-specific objective evidence does exist for these
services in the aggregate; however, no vendor-specific objective evidence exists
for the unspecified upgrades on a stand-alone
basis.  When-and-if-available deliverables should be considered in
determining whether an arrangement includes multiple elements; however, SOP 97-2
states that if sufficient vendor-specific objective evidence does not exist for
the allocation of revenue to the various elements of the arrangement, and if the
only undelivered element in an arrangement is PCS, the entire fee for the
support should be recognized ratably.  Because the timing, frequency,
and significance of unspecified upgrades/updates can vary considerably, the
point at which unspecified upgrades/updates are expected to be delivered should
not be used to support income recognition on other than a straight-line
basis.  As such, the Company recognizes the product support fee
consisting of PCS and unspecified upgrades/updates ratably over the service
contract period.





Revenues
from services are comprised of consulting and implementation services, and to a
limited extent training.  Services are generally charged on a
time-and-materials or fixed fee basis and include a range of services including,
installation of software, establishing software policies and limited
training.  Services are generally separable from the other elements
under the arrangement since the performance of the services is not essential to
the functionality of any other element of the transaction.  Revenues
for services are recognized as the services are performed.




RESEARCH
AND DEVELOPMENT





Research
and development costs, which consist primarily of software development costs,
are expensed as incurred and amounted to $245,500 and $361,965 for the years
ended September 30, 2008 and 2007, respectively.




F-9




CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


ADVERTISING





Advertising
costs are charged to expense as incurred and such costs were $986 and $4,652 for
the years ended September 30, 2008 and 2007, respectively.





STOCK-BASED
COMPENSATION





The
Company periodically issued stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs.  The Company uses the modified prospective method in which
compensation cost is recognized beginning with the effective date (a) based on
the requirements of SFAS No. 123R for all share-based payments granted after the
effective date and (b) based on the requirements of SFAS No. 123R for all awards
granted to employees prior to the effective date of SFAS No. 123R that remain
unvested on the effective date.  The Company accounts for stock option
and warrant grants issued and vesting to non-employees in accordance with EITF
No 96-18: “Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring , or in Conjunction with Selling, Goods or Services” and
EITF No. 00-18 “Accounting Recognition for Certain Transactions involving Equity
Instruments Granted to Other Than Employees” whereas the value of the stock
compensation is based upon the measurement date as determined at either a) the
date at which a performance commitment is reached, or b) at the date at which
the necessary performance to earn the equity instruments is
complete.





As of
July 1, 2008, the Company terminated the Year 2000 Employee Stock Option plan
completely.  All options granted under the plan were deemed to be of
no current or future value.  All employees and consultants who had
been issued options under the plan consented to the termination of the plan and
all options granted under the plan were cancelled.





CONSOLIDATION





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary.  Intercompany balances and
transactions have been eliminated in consolidation.





FAIR
VALUE OF FINANCIAL INSTRUMENTS





Statement
of Financial Accounting Standards No. 107, “Disclosures About Fair Value of
Financial Instruments,” requires disclosure of the fair value of certain
financial instruments.  Accounts receivable, accounts payable, accrued
liabilities and deferred revenues as reflected in the financial statements
approximate fair value because of the short-term maturity of these
instruments.  The estimated fair value of notes payable is based on
borrowing rates currently available to the Company for loans with similar terms
and maturities.





CONCENTRATIONS





The
Company’s cash balances on deposit with banks are guaranteed by the Federal
Deposit Insurance Corporation up to $250,000.  The Company may be
exposed to risk for the amount of funds held in one bank in excess of the
insurance limit.  In assessing the risk, the Company’s policy is to
maintain cash balances with high quality financial institutions.  The
Company did not have cash balances in excess of the $250,000 guarantee during
the year ended September 30, 2008.





During
the year ended September 30, 2008, the Company had two customers that accounted
for 16% and 13%  of the Company’s total revenue. During the year ended
September 30, 2007, the Company had three customers that accounted for 18%, 13%,
and 12% of the total revenue.  As of September 30, 2008 and 2007 the
Company had $22,395 (25%) and $19,595 (22%) and $41,292 (20%), 30,512 (14%), and
$74,008 (35%), respectively, of gross accounts receivable due for its largest
customers.




F-10




CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


EARNINGS
(LOSS) PER SHARE





The
Company computes earnings (loss) per common share under Statement of Financial
Accounting Standards No. 128, “Earnings per Share” (SFAS No. 128), which
requires presentation of Basic and Diluted earnings (loss) per
share.  Basic earnings (loss) per share is computed by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding for the period.  Diluted earnings per share
reflects the potential dilution of securities that could share in the earnings
of an entity, such as stock options, warrants or convertible debentures, unless
antidilutive.





At
September 30, 2008 and 2007, options, warrants and convertible debentures to
purchase 9,096,103 and 12,745,603 shares, respectively, were outstanding, but
were not included in the computation of diluted loss per common share as the
effect would be antidilutive.





REPORTING
SEGMENT





Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” (“SFAS No. 131”) requires certain
disclosures of operating segments, as defined in SFAS No.
131.  Management has determined that the Company has only one
operating segment and therefore is not required to disclose operating segment
information.





RECENT
ACCOUNTING PRONOUNCEMENTS





In
September 2006, the Financial Accounting Standards Board issued Statement No.
157 (“SFAS No. 157”), “Fair Value Measurements.”  SFAS No. 157
establishes a formal framework for measuring fair value under
GAAP.  It defines and codifies the many definitions of fair value
included among various other authoritative literature, clarifies and, in some
instances, expands on the guidance for implementing fair value measurements, and
increases the level of disclosure required for fair value
measurements.  Although SFAS No. 157 applies to and amends the
provisions of existing FASB and AICPA pronouncements, it does not, of itself,
require any new fair value measurements, nor does it establish valuation
standards.  SFAS No. 157 applies to all other accounting
pronouncements requiring or permitting fair value measurements, except for SFAS
No. 123 (R), share-based payment and related pronouncements, the practicability
exceptions to fair value determinations allowed by various other authoritative
pronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal with
software revenue recognition.  This statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years.





In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an amendment of FASB Statement No. 115” (SFAS
159).  SFAS 159, which becomes effective for the Company on January 1,
2008, permits companies to choose to measure many financial instruments and
certain other items at fair value and report unrealized gains and losses in
earnings.  Such accounting is optional and is generally to be applied
instrument by instrument.  The company does not anticipate that
election, if any, of this fair-value option will have a material effect on its
consolidated results of operations, financial position, or cash flows or
disclosures.





In
December 2007, the FASB issued FASB Statement No. 141 (R), “Business
Combinations” (FAS 141(R)), which establishes accounting principles and
disclosure requirements for all transactions in which a company obtains control
over another business.  Statement 141 (R) applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.  Earlier adoption is prohibited.




F-11




CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”.  SFAS
No. 160 establishes accounting and reporting standards that require that the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity; the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income; and changes in a parent’s ownership interest
while the parent retains its controlling financial interest in its subsidiary be
accounted for consistently.  SFAS No. 160 also requires that any
retained noncontrolling equity investment in the former subsidiary be initially
measured at fair value when a subsidiary is deconsolidated.  SFAS No.
160 also sets forth the disclosure requirements to identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  SFAS No. 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but will
affect only those entities that have an outstanding noncontrolling interest in
one or more subsidiaries or that deconsolidate a subsidiary.  SFAS No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  Earlier adoption is
prohibited.  SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements.  The presentation and
disclosure requirements are applied retrospectively for all periods
presented.





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 requires enhanced disclosures about an entity’s
derivative and hedging activities, including (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (SFAS 133), and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.








The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated financial position,
results of operations, or cash flows.





NOTE 2 –
PROPERTY AND EQUIPMENT





Property
and equipment consists of the following:




September
      30,2008
              
              
              2007Furniture
      and fixtures
              
              $
              13,084
              
              
              $
              13,084Test
      and training equipment
              
              
              76,828
              
              
              
              76,82889,912
              
              
              
              89,912Less
      accumulated depreciation
              
              
              (89,615
              )
              
              
              (85,185
              )$
              297
              
              
              $
              4,727


Depreciation
expense was $4,430 and $13,577 for the years ending September 30, 2008 and 2007,
respectively.





NOTE 3 –
SOFTWARE





On
September 17 1999, the Company acquired the assets (the “Camino Assets”) of
Camino Software Systems, Inc. (“Camino”) for 468,000 shares of the Company’s
common stock valued at $187,200 and assumed $315,172 of certain Camino
liabilities.  The Camino Assets consisted of the name, Camino Software
Systems, Inc., the data storage management software, certain business contracts
and intangible personal property.  The Company has allocated the
amounts paid and assumed in the amount of $502,372 to the fair value of the
software acquired.  The software is being amortized on a straight line
basis over seven years.  Net book value of the original purchased
software at September 30, 2008 and 2007 was $0.





During
the years ended September 30, 2008 and 2007 there was no development cost
capitalized.  The net book value for software at September 30, 2008
and 2007 is $19,320 and $65,724, respectively, which includes additional
software capitalization prior to fiscal year 2003.




September
      30,2008
            
            
            2007Software
            
            $
            827,390
            
            
            $
            827,390Less
      accumulated amortization
            
            
            (808,070
            )
            
            
            (761,666
            )$
            19,320
            
            
            $
            65,724




F-12





CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007
 
 Amortization
expense was $46,404 and $46,440 for the years ending September 30, 2008 and
2007, respectively.





NOTE 4 –
NOTES PAYABLE




In
December 2002, the Company issued a 6% unsecured convertible debenture for
$1,000,000 to RENN Capital Group.  Interest of 6% per annum will be
paid in monthly installments for three years based on the unpaid principal
balance.  The full $1,000,000 was borrowed during the year ended
September 30, 2003 and was outstanding as of September 30, 2008 and
2007.  The debenture matured on November 27, 2005, at which time the
unpaid principal amount and all accrued and unpaid interest would have become
due and payable in full.  The debenture is convertible, at the option
of the holder, into shares of the Company’s common stock, with a conversion
price of $0.62 per share.  As part of the funding during fiscal year
ended September 30, 2003, the Company issued 5 year warrants to the lender to
purchase 500,000 shares of the Company’s common stock.  The warrants
were valued at $176,224 and recorded as debt discount, and were fully amortized
as of November 27, 2005, the initial life of the loan.





In July
2003, the Company issued another 6% unsecured convertible debenture to RENN
Capital Group for up to $750,000.  Interest at a rate of 6% per annum
is payable in monthly installments for 26 months based on the unpaid principal
balance.  The debenture matured on November 27, 2005, at which time
the unpaid principal amount and all accrued and unpaid interest would have
become due and payable in full.  The debenture is convertible, at the
option of the holder, into shares of the Company’s common stock, with a
conversion price of $0.41 per share.  At September 30, 2008, the
Company had borrowed $750,000, the entire amount available.





Pursuant
to a Renewal and Modification agreement dated October 28, 2005, the Company
negotiated an extension of the two convertible debentures referenced above with
a total principal balance of $1,750,000.  The lender agreed to extend
the maturity date of the two 6% Convertible Debentures dated November 27, 2002
in the aggregate principal amount of $1,750,000 to May 27, 2007.  In
consideration of such extension, the Company granted the lender a five-year
warrant to purchase 175,000 shares of the Company’s common stock at an exercise
price of $1.14 per share (subject to adjustment).  The estimated value
of the warrant of $166,093 was recorded by the Company as debt discount and was
amortized over the term of the extension.  During the years ended
September 30, 2008 and 2007, $0 and $73,817, respectively, of discount was
amortized and included in the statement of operations. On May 7, 2007 RENN
Capital Group agreed to extend the maturity date of $1,750,000 convertible
debenture until November 27, 2007.  The Company will continue to pay
interest of 6% on the current outstanding principal balance of $1,750,000,
monthly during the term of the extension.





During
July 2004, the Company received $750,000 from a two year secured loan from
Renaissance Capital Group managed funds.  Interest is paid at 7% in
monthly installments based on the outstanding principal balance.  As
part of the funding, the Company issued five-year warrants to purchase an
aggregate of 1,415,094 shares of common stock at an exercise price of $0.53 per
share.  The estimated value of the warrants of $311,953 was recorded
on the Company’s financial statements as debt discount and was amortized over
the life of the loan.  During the years ended September 30, 2008 and
2007, $9,453 and $28,359, respectively, of discount was amortized and included
in the statement of operations.





During
February 2006, the Company issued to the Renaissance Capital Group managed funds
an aggregate of 150,000 warrants to purchase the Company’s common stock at $0.86
per share in consideration of an agreement to extend the $750,000 loan payable
maturity date for an additional 18 months.  The new maturity date for
the notes was January 19, 2008.  The Company will continue to pay 7%
interest on a monthly basis based on the current outstanding principal balance
of $750,000.  The estimated value of the warrants of $77,663 was
recorded on the Company’s financial statements as debt discount and is being
amortized over the term of the extension.  During the years ended
September 30, 2008 and 2007, $14,121 and $42,362 respectively, of discount was
amortized and included in the statement of operations.





On
February 7, 2007, the Company received an aggregate of $200,000 from two three
month secured convertible notes from two of RENN Capital Groups managed
funds.  Interest of 8% will be paid in monthly installments during the
term of the notes.  The notes were to mature on May 7, 2007, at which
time all principal and accrued and unpaid interest was due and payable in
full.  The notes are convertible at the option of the holder, into
shares of the Company’s common stock, with an initial conversion price of $0.30
per share.  The funds are being used to support the operations of the
Company.  Each holder of a note may convert in whole or in part the
outstanding principal plus accrued but unpaid interest into the Company’s common
stock at a conversion price of $0.30 per share.  In the event that the
Company issues additional common stock, or securities convertible into common
stock, at a price lower than the conversion price while these notes are
outstanding, the conversion price of these notes will automatically adjust
downward to such price at which the new common stock has been
issued.  The conversion price of the note, however, shall never be
adjusted to less than $0.01 per share.  Pursuant to renewal and
modification agreements dated May 7, 2007, the RENN Capital Group has agreed to
extend the maturity dates of two $100,000 notes payable until November 7,
2007.  The Company will continue to pay 8% interest monthly based on
the current outstanding principal balance of $200,000.




F-13


CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


During
the quarter ended December 31, 2007, the Company negotiated with RENN Capital
Group to extend the maturity dates of all outstanding debt due before January
31, 2008.  Pursuant to renewal and modification agreements the Company
extended the total debt with an aggregate principal balance of $2,700,000 to
February 27, 2008.  In addition to extending the due date the Company
also converted from cash payments of interest to interest payments in
unregistered common stock beginning with all interest due and payable during the
current quarter.  In October 2007, the Company received an additional
$100,000 from RENN Capital Group funds via wire transfer to help pay for legal
and accounting fees relating to the merger and acquisition previously in process
with Shea Development previously disclosed.  Although the funds have
no terms or interest due, the Company recorded it as a loan payable and plans to
repay or write off the balance due at the time the other debt is paid or
otherwise satisfied.





During
the quarter ended March 31, 2008, the Company negotiated to extend the maturity
dates of the entire $2,800,000 of debt that was due January 31,
2008.  Pursuant to renewal and modification agreements signed during
the quarter, the Company extended the total debt with an aggregate principal
balance of $2,800,000 to May 30, 2008.  In February 2008, the Company
received an additional $50,000 from RENN Capital Group funds to pay for legal
and accounting fees and support operations. The note was recorded as a loan
payable on the Company’s financial reports.  Interest of 8% will be
paid in monthly installments beginning March 1, 2008, until the principal
balance is paid in full.  Interest may be paid in cash or in
unregistered common stock at the Company’s discretion.





Pursuant
to the Renewal and Modification Agreements dated as of November 12, 2007, all
interest payments commencing on November 1, 2007 are due and payable in
restricted shares of Company common stock or cash at the Company’s
discretion.  The number of shares to be issued shall be equal to the
amount of interest payment due divided by the average of the last sales prices
(or closing bid prices) for the five trading days immediately preceding the
payment date.  As such, during the year ending September 30, 2008,
interest expense accruing to the note holders was converted into shares of
common stock.




Subsequent
to September 30, 2008, pursuant to the Renewal and Modification Agreement dated
October 24, 2008 the Company negotiated to extend the maturity dates of the
entire $2,850,000 of debt from May 31, 2008 to April 30, 2009.




Annual
principal payments for fiscal year 2009 are as follows:




Year
      ending September 30,
              
              Principal
              
              
              Debt
      Discount
              
              
              Net2009
              
              $
              2,850,000
              
              
              
              --
      --
              
              
              $
              2,850,000Total
              
              $
              2,850,000
              
              
              
              --
      --
              
              
              $
              2,850,000


NOTE 5 –
SHAREHOLDER’S DEFICIENCY





During
the fiscal year ended September 30, 2008, the Company issued 2,522,659 shares of
unregistered common stock as payment of interest on notes payable for the year
ended September 30, 2008.




F-14




CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


STOCK
OPTIONS AND WARRANTS





During
the year ended September 30, 2008, the Company, with the consent of all option
grant holders under the plan, terminated the Year 2000 Employee Stock Option
Plan.  No options were exercisable or unexercisable as of September
30, 2008.  During the year ended September 30, 2007, the Company
granted no options or warrants.  The aggregate value of the options
vesting from October 1, 2007 to June 30, 2008 and during the year ended
September 30, 2007 was $13,562 and $159,817, respectively and has been reflected
as compensation cost.  As of September 30, 2008, there were no options
outstanding and therefore no future amounts will be amortized as compensation
expense.  The Company had 6,000,000 shares approved for issuance as
part of the employee stock option plan which has been terminated as of September
30, 2008.




The
option summary and changes during the years ended September 30, 2008 and 2007
are presented below:




WeightedAverageNumber
      of
              
              
              ExerciseShares
              
              
              PriceOptions
      outstandingAt
      September 30, 2006
              
              
              4,903,500
              
              
              $
              1.10Options
      granted
              
              
              ----
              
              
              
              ----Options
      expired
              
              
              (1,254,000
              )
              
              $
              1.61Options
      outstandingAt
      September 30, 2007
              
              
              3,649,500
              
              
              $
              0.92Options
      cancelled
              
              
              (3,649,500
              )
              
              $
              0.92Options
      outstandingAt
      September 30, 2008
              
              
              ----
              
              
              $
              ----Options
      exercisableAt
      September 30, 2007
              
              
              3,037,750
              
              
              $
              0.94
  F-15


The
warrant summary and changes during the years ended September 30, 2008 and 2007
are presented below:




WeightedAverage
              
              
              Aggregate
              
              
              Weighted
      averageNumber
      of
              
              
              Exercise
              
              
              Intrinsic
              
              
              Remaining
      contractualShares
              
              
              Price
              
              
              value
              
              
              term
    (months)Warrants
      outstandingAt
      September 30, 2006
              
              
              5,003,337
              
              
              $
              0.82Warrants
      granted
              
              
              ----
              
              
              
              ----Warrants
      expired
              
              
              20,000
              
              
              $
              0.51Warrants
      outstandingAt
      September 30, 2007
              
              
              4,983,337
              
              
              $
              0.82
 
 Warrants
      granted
              
              
              ----
              
              
              
              ----Warrants
      expired
              
              
              ----
              
              
              
              ----Warrants
      outstandingAt
      September 30, 2008
              
              
              4,983,337
              
              
              $
              0.82
              
              
              $
              ----
              
              
              
              6Warrants
      exercisableAt
      September 30, 2008
              
              
              4,983,337
              
              
              $
              0.82
              
              
              $
              ----
              
              
              
              6Warrants
      exercisableAt
      September 30, 2007
              
              
              4,983,337
              
              
              $
              0.82


The
following table summarizes information about warrants outstanding at September
30, 2008.


Outstanding and
      ExercisableWeighted
      AverageExercise
              
              
              
              
              
              Life
              
              
              ExercisePrice
              
              
              Warrants
              
              
              (Months)
              
              
              Price0.53
              
              
              
              1,415,094
              
              
              
              10
              
              
              
              0.530.74
              
              
              
              1,621,623
              
              
              
              3
              
              
              
              0.740.86
              
              
              
              150,000
              
              
              
              29
              
              
              
              0.861.11
              
              
              
              1,621,620
              
              
              
              3
              
              
              
              1.111.14
              
              
              
              175,000
              
              
              
              25
              
              
              
              1.14$
              0.53 - 1.14
              
              
              
              4,983,337
              
              
              
              
              
              
              $
              0.82


F-16




CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007


NOTE 6 –
COMMITMENTS AND CONTINGENCIES





OPERATING
LEASES





The
Company leases its facility under a noncancelable operating lease expiring at
January 31, 2009.  Future minimum rental payments required under
noncancelable operating leases at September 30, 2008 are as
follows:


Year Ending September 30,
              
              Amount2009
              
              
              10,000$
              10,000


Total
rent expense for the years ended September 30, 2008 and 2007 amounted to $56,696
and $125,777, respectively.





EMPLOYMENT
CONTRACTS





During
the fiscal year ended September 30, 2003, the Company signed a two year
employment agreement with Mr. Stephen Crosson to be the Chief Executive Officer
of the Company reporting to the Chairman of the Board of
Directors.  The contract is for two years beginning August 1, 2003,
with an annual salary of $150,000 per year and the possibility of bonuses at the
discretion of the Board of Directors.  The agreement was amended on
April 19, 2004.  Mr. Crosson will receive $12,500 per month for an
indeterminate period of time and will receive a bonus fee of 1% of any
acquisition price or licensing fee over $1,000,000 paid to the
Company.  If Mr. Crosson is terminated without cause he will receive
salary and benefits for up to 6 months after termination.





LITIGATION





The
Company may, from time to time, be involved in legal proceedings, claims and
litigation arising in the ordinary course of business.  It is possible
the outcome of such legal proceedings, claims and litigation could have a
material effect on the operating results or cash flows when resolved in a future
period.  These matters are not expected to have a material adverse
effect upon the Company’s financial statements.





NOTE 7 –
INCOME TAXES





The
Company’s net deferred tax assets (using a federal corporate income rate of 34%)
consist of the following at September 30, 2008 and 2007:




2008
            
            
            2007Benefit
      of operating loss carryforward
            
            $
            7,200,000
            
            
            $
            7,200,000Valuation
      allowance
            
            
            (7,200,000
            )
            
            
            (7,200,000
            )Net
      deferred tax asset
            
            $
            -
            
            
            $
            -




The
effective tax rate on loss before income taxes differed from the federal
statutory tax rate.  The following summary reconciles income taxes at
the federal statutory tax rate with the actual taxes and the effective tax
rate:




September 30,2008
            
            
            2007Federal
      statutory tax rate
            
            
            (34
            %)
            
            
            (34
            %)State
      tax, net of federal benefit
            
            
            (5
            %)
            
            
            (5
            %)Permanent
      differences
            
            
            (1
            %)
            
            
            (1
            %)(40
            %)
            
            
            (40
            %)Change
      in valuation allowance
            
            
            40
            %
            
            
            40
            %Effective
      tax rate
            
            
            -
            %
            
            
            -
            %




F-17


CAMINOSOFT
CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED SEPTEMBER 30, 2008 AND 2007




At
September 30, 2008, the Company has available net operating loss carry-forwards
of approximately $19,000,000 for federal income tax purposes which expire in
varying amounts through 2028.  The Company’s ability to utilize NOL
carry-forwards may be limited in the event that a change in ownership, as
defined in the Internal Revenue Code, has or does occur in the
future.





Deferred
tax assets, before valuation allowance, as of September 30, 2008 were
approximately $7,200,000 and primarily arise from the Company’s net operating
loss carry forwards.  A valuation allowance of approximately
$7,200,000 was provided because management believes that the deferred tax assets
are more likely than not to be unrealized.





Effective
October 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, the Company may recognize
the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. At the date of
adoption, and as of September 30, 2008, the Company does not have a liability
for unrecognized tax benefits, and no adjustment was required at
adoption.





The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. federal or state income tax examinations
by tax authorities for years after 2002. During the periods open to examination,
the Company has net operating loss and tax credit carry-forwards for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these net operating loss and tax credit carry-forwards may be utilized in future
periods, they remain subject to examination.





The
Company’s policy is to record interest and penalties on uncertain tax provisions
as income tax expense. As of September 30, 2008, the Company has no accrued
interest or penalties related to uncertain tax positions.




F-18




Exhibit
31


CERTIFICATION


PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the accompanying
Annual Report on Form 10-KSB of CaminoSoft Corp., (the “Company”) for the year
ended September 30, 2008, as filed with the Securities and Exchange Commission
on the date hereof, the undersigned, in the capacity and date indicated below,
hereby certifies that:





1.
            I
      have reviewed this annual report on Form 10-KSB of CaminoSoft
      Corp.;





2.
            Based
      on my knowledge, this annual report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      annual report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this annual report, fairly present in all material respects
      the financial condition, results of operations and cash flows of the
      Company as of, and for, the periods presented in this annual
      report.





4.
            The
      Company’s other certifying officer and I are responsible for establishing
      and maintaining disclosure controls and procedures (as defined in Exchange
      Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
      reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
      the Company and have:





a.
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Company, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;


b.
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;


c.
            evaluated
      the effectiveness of the Company’s disclosure controls and procedures and
      presented in this report our conclusions about the effectiveness of the
      disclosure controls and procedures, as of the end of the period covered by
      this report based on such evaluation;
and


d.
            disclosed
      in this report any change in the Company’s internal control over financial
      reporting that occurred during the Company’s most recent fiscal quarter
      (the Company’s fourth fiscal quarter in the case of an annual report) that
      has materially affected or is reasonably likely to materially affect, the
      Company’s internal control over financial reporting;
  and









5.
            The
      Company’s other certifying officer and I have disclosed, based on our most
      recent evaluation of internal control over financial reporting, to the
      Company’s auditors and the audit committee of the Company’s board of
      directors (or persons performing the equivalent
  function):





a.
            all
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Company’s ability to record,
      process, summarize and report financial information;
  and


b.
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Company’s internal control
      over financial reporting.




January
9, 2009


By:
              /s/
      Stephen CrossonChief
      Financial Officer andChief
      Executive Officer