SECURITIES
      AND EXCHANGE COMMISSION


**Washington
      D.C. 20549**







FORM
      10-KSB/A







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, 2005




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 (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 issuer has filed all documents and reports required
      to
      be filed by Section 12, 13 or 15(d) of the Exchange Act after distribution
      of
      securities under a plan confirmed by a court.


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.
      x





Check
      mark indicates whether the registrant is a shell company (as defined in Rule
      126-2 of the Exchange Act.) Yes o NO x





Issuer’s
      revenues for its most recent fiscal year were $2,637,201.





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of December 1, 2005 was approximately $3,300,000.





Number
      of
      shares outstanding of each of the issuer’s classes of common stock as of
      December 1, 2005: 13,551,082 shares of common stock, no par value.





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












FORWARD-LOOKING
      STATEMENTS





In
      addition to historical information, this Annual Report contains forward-looking
      statements. The forward-looking statements contained herein are subject to
      certain risks and uncertainties that could cause actual results to differ
      materially from those reflected in the forward-looking statements. Factors
      that
      might cause such a difference include, but are not limited to, those discussed
      in the section entitled “Management’s Discussion and Analysis and Plan of
      Operation.” Readers are cautioned not to place undue reliance on these
      forward-looking statements, which reflect management’s analysis only as of the
      date hereof. CaminoSoft Corp undertakes no obligation to publicly revise these
      forward-looking statements to reflect events or circumstances that arise after
      the date hereof. Readers should carefully review the risks described in other
      documents the Company files from time to time with the Securities and Exchange
      Commission, including the Quarterly Reports on Form 10-QSB and any Current
      Reports on Form 8-K.





This
      Amendment is being filed to correct certain disclosures in Item 8A and make
      technical corrections to Exhibits 31.1 and 31.2.





**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 and 2003 and Novell NetWare environments
      that enable organizations to maximize storage resources, reduce backup and
      recovery time and control file retention and 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 CaminoSoft’s suite of software solutions.





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.


2





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 has
      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 CaminoSoft’s 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.





In
      July
      2005, the Company certified it 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.


3





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 and prospects that our software
      is
      certified and approved for use with EMC Centera data storage
      devices.





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, and 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 and Novell NetWare servers
      in
      environments where mass storage devices are deployed.





Our
      Managed Server HSM can accommodate large volumes of information. We have
      partnered with The Messaging Architects’ to provide a Novell GroupWise e-mail
      archiving solution. Their GWArchive product in conjunction with Managed Server
      HSM, addresses the archival and compliance needs of GroupWise e-mail users.
      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.





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 are 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.


4





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.





OUR
      STRATEGY





Our
      goal
      is to be a leading supplier of data management solutions that work seamlessly
      with major operating system and storage vendors’ hardware and software solutions
      and deliver advanced storage management for small, medium, and enterprise
      organizations.





As
      part
      of our current strategy:





·
            We
                intend to continue to increase and leverage our base of partners,
                including OEMs, distributors, and value-added resellers (VARs).




5





·
            We
                intend to further expand our international presence and partner base
                worldwide.





·
            We
                intend to continue to focus on systems integrators and other strategic
                partners to open new avenues of distribution for our products and
                solutions.





·
            Working
                at the field sales level with our strategic partners, we intend to
                leverage their expertise to provide joint solutions to their customer
                base.





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.





SALES
      AND
      MARKETING STRATEGY





Our
      sales
      and marketing strategy is to further establish strong 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 now also are 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 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 and the most important strategic partnership developed during the
      current fiscal year is the OEM Licensing and Distribution Agreement signed
      on
      June 30, 2005, with Computer Associates. As of the date of this filing Computer
      Associates has launched BrightStor HSM for Windows using a private labeled
      version of our HSM for Windows technology. The Company is currently working
      with
      Computer Associates to train the technical and sales personnel who will be
      selling and promoting this new BrightStor storage platform offering. The Company
      intends to further develop and promote this relationship during the fiscal
      year
      to include additional Company products and additional integration with the
      Computer Associates other BrightStor storage related products.


6





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.





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 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: The Messaging Architects (Novell GroupWise 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.





Item
      2. DESCRIPTION
      OF PROPERTY





As
      of
      December 1, 2005, the Company leases one office facility in Westlake Village,
      California for the Company’s executive offices pursuant to a lease extension
      expiring January 31, 2008, at a rental rate of $9,368 per month. As of December
      1, 2005 the Company leases a development and customer service office in Orem,
      Utah pursuant to a lease expiring on December 31, 2005, at a rental rate of
      $1,700 per month. The lease is extendable pursuant to two one year lease
      extensions.





Item
      3. LEGAL
      PROCEEDINGS





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
      current fiscal year.


7





**PART
      II**





Item
      5. MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





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 commission and may
      not represent actual transactions.





Common
                Stock Sales PricesSymbol
                “CMSF”
            
            High
            
            LowOctober
                1, 2003 - December 31, 2003
            
            $
            0.45
            
            $
            0.36January
                2, 2004 - March 31, 2004
            
            $
            0.62
            
            $
            0.38April
                1, 2004 - June 30, 2004
            
            $
            0.63
            
            $
            0.40July
                1, 2004 - September 30, 2004
            
            $
            0.65
            
            $
            0.39October
                1, 2004 - December 31, 2004
            
            $
            0.85
            
            $
            0.35January
                3, 2005 - March 31, 2005
            
            $
            0.75
            
            $
            0.42April
                1, 2005 - June 30, 2005
            
            $
            0.68
            
            $
            0.35July
                1, 2005 - September 30, 2005
            
            $
            1.90
            
            $
            0.55October
                1, 2005 - December 15, 2005
            
            $
            1.40
            
            $
            1.10





As
      of
      December 15, 2005, there were 149 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.


8





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.





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 calls for two royalty pre-payments, the first for $500,000 was
      received during October 2005. The second scheduled pre payment of $250,000
      is
      due on the anniversary date of the contract, June 30, 2006. As of the date
      of
      this filing CA has launched BrightStor HSM as part of the CA, BrightStor suite
      of products. The Company will receive quarterly royalty payments for CA’s sales
      of the licensed products. The initial agreement is for three years and is
      automatically renewable in one year increments.





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. CaminoSoft can reduce
      the back-up window, lower the overall cost of storage and enhance the value
      of
      information across the organization. Our strategy is built on the benefits
      our
      technology brings, our expanding distribution channel, and our ability to
      execute. As part of our current strategy:





·
            We
                intend to continue to expand and leverage our base of partners (OEMs,
                distributors, and value-added resellers, or VAR’s) to sell additional
                products to end users. We intend to enhance our international presence
                and
                partner base as we internationalize, localize and bring to market
                existing
                and new products. We intend to focus on systems integrators and other
                strategic partners to open new avenues of distribution for our products
                and solutions.


9





·
            We
                intend to focus and expand on our core strengths in today’s soft economic
                environment. IT spending is tight and customers require products
                and
                solutions with attractive price points and demonstrable value. We
                can
                leverage success in one department or work group to demonstrate the
                value
                of our storage management solution, then use the success in that
                area to
                expand to other departments, workgroups or the enterprise. We believe
                our
                cost effective data management solutions can then be repeated in
                other
                areas of the organization for other types of information and compliance
                requirements.





·
            We
                intend to leverage our position as a provider of email storage and
                management solutions to grow in the messaging market. With Managed
                Servers
                extended storage functions for Novell, GroupWise email systems, we
                have
                taken the first step to capitalize on this growing market for automated
                data storage management for Novell GroupWise email systems. We intend
                to
                utilize this same approach with other email platforms focused on
                providing
                automated data management for users of other email messaging systems
                such
                as Microsoft Exchange and Lotus Notes. We believe this vertical approach
                will broaden the adoption of our solutions in the electronic collaboration
                market, allowing our partners to remain focused on their core strengths
                in
                the markets they serve.





·
            We
                intend to increase our international markets. Europe, the Middle
                East,
                Africa, Japan and Asia represent active markets for expansion, with
                Europe
                representing the first market outside North America we will focus
                on. We
                intend to continue to internationalize and localize our products
                and
                solutions to penetrate this marketplace.





RISK
      FACTORS




**We
      have yet to establish any history of profitable
      operations.**




We
      have
      yet to establish any history of profitable operations. We have incurred annual
      operating losses of $2,164,199 and $1,943,716, for fiscal years 2003 and 2004
      respectively. During the year ended September 30, 2005 we incurred an operating
      loss of $507,708. As a result, at September 30, 2005 we had an accumulated
      deficit of $19,825,390. 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
      will require additional financing to sustain our operations and without it
      we
      will not be able to continue operations.**




At
      September 30, 2005 we had a cash balance of $220,186. We had operating cash
      flow
      deficits of $2,223,765, $1,866,295 and $1,935,774 for fiscal years ended
      September 30, 2002, 2003 and 2004 and for the year ended September 30, 2005,
      an
      operating cash flow deficit of $187,113. We will require additional financing
      in
      order to expand our business and continue operations. Our working capital
      requirements in the foreseeable future will depend on a variety of factors
      including our ability to implement our sales and marketing plan. There can
      be no
      assurance that we will be able to successfully negotiate or obtain additional
      financing or the terms thereof. Our ability to obtain additional capital will
      be
      dependent on the implementation of our business plan, market conditions, the
      national economy and other factors outside our control. If adequate funds are
      not available or are not available at acceptable terms, our ability to finance
      our expansion, develop or enhance services or products or respond to competitive
      pressures would be significantly limited.




10




**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.




CaminoSoft’s
      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.





**Our
      earnings growth is dependent upon acceptance of our products and our ability
      to
      increase demand for data storage and management software
      products.**




Our
      ability to generate profits depends primarily upon market acceptance of our
      data
      storage and management software products and the continued upgrade and sale
      of
      our high availability software products. Our products may not be able to be
      successfully marketed or achieve customer acceptance, and we may be unable
      to
      increase demand for our products. Our strategy to increase our customer base
      includes investment in programs designed to heighten consumer awareness of
      our
      products and services. If we do not successfully develop new products that
      keep
      pace with technology, our competitive position will be weakened.




**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;


11





·
            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.





**Our
      business will suffer if our software development is
      delayed.**




Any
      failure to release new products and upgrades on time may result in:




-
            customer
                dissatisfaction;


-
              cancellation
                  of orders;
 -
                negative
                    publicity;
 -
                  loss
                      of revenue; and
 -
                    slower
                        market acceptance.


**Our
      performance is substantially dependent on the continued services and the
      performance of our senior management and other key
      personnel.**




Our
      performance is substantially dependent on the continued services and the
      performance of our senior management and other key personnel. Our performance
      also depends on our ability to retain and motivate our other officers and key
      employees. The loss of the services of any of our executive officers or other
      key employees could have a material adverse effect on our business, prospects,
      financial condition and results of operations. Our future success also depends
      on our ability to identify, attract, hire, train, retain and motivate other
      highly skilled technical, managerial and marketing personnel. Competition for
      such personnel is intense, and there can be no assurance that we can attract
      and
      retain the necessary technical, managerial and marketing personnel and this
      could have a material adverse effect on our business, prospects, financial
      condition and results of operations.




**We
      could incur substantial costs defending our intellectual property from claims
      of
      infringement.**




The
      software industry is characterized by frequent litigation regarding copyright,
      patent, trademark and other intellectual property rights. We may be subject
      to
      future litigation based on claims that our own intellectual property rights
      are
      invalid. We expect that software product developers will increasingly be subject
      to infringement claims as the number of products and competitors in our industry
      segment grows and the functionality of products overlaps. Claims of infringement
      could require us to re-engineer or rename our products or seek to obtain
      licenses from third parties in order to continue offering our products. These
      claims could also result in significant expense to us and the diversion of
      our
      management and technical resources, even if we ultimately prevail. Licensing
      or
      royalty agreements, if required, may not be available on terms acceptable to
      us
      or at all.


12




**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.





·
            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.


·
            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, 2005, 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 $230,000.
                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 $474,000 in R & D expense compared to approximately
                $284,000 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
                is recognized when persuasive evidence of an arrangement exists,
                delivery
                has occurred, 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).


13





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.





RESULTS
      OF OPERATIONS





FISCAL
      YEARS ENDED SEPTEMER 30, 2005 AND SEPTEMBER 30, 2004





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 Windows 2000. The Company has continued
      its
      sales and marketing strategy to focus on development and support for its data
      storage and management solutions and high availability solutions, while
      utilizing its partners’ sales, marketing and distribution channels. Revenues for
      the current fiscal year increased by approximately 110%, from $1,254,000 in
      fiscal year 2004 to $2,637,000 for the current fiscal year. The revenue increase
      was a result of an increase in sales of the Company’s Managed Server HSM
      products for Novell NetWare and Microsoft Windows operating systems. Sales
      for
      the Company’s software products were approximately $2,011,000 or 76% of the
      total revenue for the current fiscal year; annual service contracts constituted
      approximately 21% or approximately $556,000, and the remaining 3% of revenue
      was
      derived from installation and other services. The high availability products,
      StandbyServer and OFFSite Archive for NetWare accounted for approximately 13%
      of
      the total product sale revenue as compared to 26% in the prior fiscal year,
      with
      the Company’s core HSM technology for both NetWare and Windows representing the
      other 87% of the total product sale revenue for the current fiscal year.
      Billings for annual service contracts increased during the current fiscal year
      due to increased product sales of the Company’s HSM product line. Deferred
      revenue increased from approximately $250,000 in the fiscal year ended September
      30, 2004 to approximately $1,278,000 for the current fiscal year. The large
      increase in deferred revenue was due to several factors including $750,000
      in
      deferred revenue from committed royalty prepayments from Computer Associates
      which accounted for approximately 59% of the total deferred revenue. The
      remaining increase in deferred revenue of approximately $278,000 is due to
      increased sales of the Company’s HSM products during the current fiscal year.
      Cost of sales decreased from approximately $247,500 in the last fiscal year
      to
      approximately $213,000 in the current fiscal year representing a decrease of
      approximately 14%, the reduction is due to a decrease in additional sales of
      hardware during the current fiscal year, which create additional cost of sales
      with each sale that includes hardware. Cost of sales as a percentage of revenue
      decreased from approximately 20% in fiscal year ended September 30, 2004 to
      approximately 8% during the current fiscal year. Gross profit increased by
      approximately 141% or $1,418,000 from $1,006,000 in fiscal year 2004 to
      $2,424,000 in fiscal year 2005 the increase in gross profit results from the
      Company’s increased revenue from product sales during the current fiscal year.


14





Selling
      and administrative expenses for the current year were approximately $2,439,000,
      a decrease of approximately $217,000 or 8% as compared to fiscal year 2004.
      The
      decrease was a result of the Company’s continued effort to minimize overhead
      expenses while maintaining revenue gains from its 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 areas to train both technical support teams and
      sales forces for the Company’s current and future distribution, and business
      partners.





Depreciation
      and amortization expense for the fiscal year of $19,000 showed an increase
      of
      approximately 94% or $9,200 as compared to fiscal year ended September 30,
      2004.
      The depreciation expense increase is due to additional office and test equipment
      purchased during the current fiscal year.





Research
      and development expense for the current year was approximately $474,000 as
      compared to approximately $284,000 for fiscal year 2004. This increase is part
      of the ongoing plan to stabilize the product line, while adding features and
      upgrades and additional partner product integration to the original HSM software
      products. During the current fiscal year, the Company completed and certified
      its Managed Server HSM with EMC Centera, creating Managed Server HSM Centera
      Proven Edition. During the current fiscal year the Company also certified its
      Managed Server HSM products with IBM Tivoli storage resource manager. The
      Company now offers Managed Server HSM Tivoli Edition. During the current fiscal
      year the Company also developed through a development outsourcing contract
      a
      direct CIFS connection technology to connect Novell NetWare servers to Microsoft
      Windows servers. This contract was started and completed during the year for
      a
      total price of $50,000. 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 at an increased rate during the coming year. As projects
      complete and become viable the Company expects to capitalize portions of the
      development expense during the upcoming fiscal year. The Company has also added
      additional consulting development resources during the current fiscal year
      which
      contributed to the increase in research and development expense during the
      current 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 and Computer Associates.





There
      was
      no other income during the current fiscal year. The current fiscal year included
      approximately $263,000 of interest expense related to borrowing balances, which
      is an increase in interest expense of approximately $63,000 over fiscal year
      2004. Approximately $101,000 of the total fiscal year interest expense was
      non
      cash debt discount representing the warrant expense for debt which are being
      expensed over the term of the debentures and loan.





LIQUIDITY
      AND CAPITAL RESOURCES





The
      Company incurred a net loss of $770,409 and $2,144,075 for the years ended
      September 30, 2005 and 2004, respectively, and has an accumulated deficit of
      $19,825,390 as of September 30, 2005. The Company will require additional
      financing in order to expand its business and continue operations. The Company’s
      working capital requirements in the foreseeable future will depend on a variety
      of factors including its ability to implement its sales and marketing plan.
      If
      adequate funds are not available or are not available at acceptable terms,
      the
      Company’s ability to finance its expansion, develop or enhance services or
      products or respond to competitive pressures would be significantly limited.





During
      fiscal year 2005, the Company’s cash position decreased by approximately
      $201,000, from approximately $421,000 on September 30, 2004 to $220,000 on
      September 30, 2005. The Company increased revenues during the fiscal year yet
      is
      still not at a break even point operationally resulting in the decrease in
      cash.
      The accounts receivable balance as of September 30, 2005 increased by
      approximately $829,000 or 388% as compared to the fiscal year ended September
      30, 2004. The increase in receivables is due to $750,000 in guaranteed pre-paid
      royalties from the CA licensing and distribution agreement which are due during
      the upcoming fiscal year and approximately $80,000 increase in the normal
      operating receivables in connection with increased sales during the current
      fiscal year.


15





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
      September 2004, the Company issued 340,136 shares of common stock to Fusion
      Capital Partners, LLC. as commitment shares in conjunction with a stock purchase
      agreement with Fusion Capital Fund II, LLC pursuant to which Fusion Capital
      agreed to purchase on each trading day during the term of the agreement $10,000
      of our common stock up to an aggregate of $6,000,000. The $6,000,000 of common
      stock is to be purchased over a 30-month period, subject to a three month
      extension or earlier termination at the Company’s discretion. The purchase price
      of the shares of common stock will be equal to a price based upon the future
      market price of the common stock without any fixed discount to the market price.
      Fusion Capital does not have the right or the obligation to purchase shares
      of
      the Company’s common stock in the event that the market price of the common
      stock is less than $0.25 per share. Fusion’s obligations under the stock
      purchase agreement are conditioned on the Company having an effective
      registration statement covering the resale of the shares issued to Fusion
      Capital. As of the date of this filing the registration statement has been
      declared effective and the common stock purchase agreement will be completed
      and
      effective by calendar year end adding a very important financing resource for
      the Company. The Company will utilize this financing on an as needed basis
      for
      funding of operations.





On
      March
      17, 2005, the Company received $125,000 from a four month secured loan from
      an
      individual investor. On July 29, 2005 the Company paid in full the principal
      and
      all accrued and unpaid interest due under the terms of the loan agreement.
      After
      completion of its payment obligations the Company did not renew additional
      financing or an extension of this loan.





Subsequent
      to the current fiscal year end of September 30, 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) will be booked on
      the
      Company financial statements as debt discount and will be amortized over the
      term of the extension.





If
      the
      Company’s revenue projections for 2006 are not met, the operating plan calls for
      expense reductions in all non-technical and sales related functions. Without
      a
      continued increase in revenues during fiscal year 2006, the Company will reduce
      expenses to compensate for lack of continued revenue growth. No assurances
      can
      be given that the Company will continue to achieve increased revenues or achieve
      profitability in 2006. The Company may require additional financing in order
      to
      expand its business and continue operations. Our working capital requirements
      in
      the foreseeable future will depend on a variety of factors including our ability
      to implement our sales and marketing plan. There can be no assurance that we
      will be able to successfully negotiate or obtain additional financing or the
      terms thereof. Our ability to obtain additional capital will be dependent on
      the
      implementation of our business plan, market conditions, the national economy
      and
      other factors outside our control. If adequate funds are not available or are
      not available at acceptable terms, our ability to finance our expansion, develop
      or enhance services or products or respond to competitive pressures would be
      significantly limited. The failure to secure necessary financing will have
      a
      material adverse effect on our business, prospects, financial condition and
      results of operations. Management believes the Common Stock Purchase Agreement
      now in place with Fusion Capital Partners, LLC will supply the Company with
      the
      additional funding needed for continued operations into the foreseeable
      future.


16





CONTRACTUAL
      OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS





The
      following summarizes our contractual obligations at September 30, 2005 and
      the
      effects such obligations are expected to have on liquidity and cash flow in
      future periods:





Payments
                due by PeriodTotal
            
            Less
                than
              1-year
            
            1-3
                Years
            
            4-5
                Years
            
            After
                5 YearsNotes
                payable
            
            $
            2,500,000
            
            $
            750,000
            
            $
            1,750,000
            
            $
            —
            
            $
            —Interest
                notesPayable
            
            
            218,750
            
            
            148,750
            
            
            70,000EmploymentAgreements
            
            
            159,000
            
            
            159,000Operating
                leases
            
            
            283,440
            
            
            119,258
            
            
            164,182
            
            
            —
            
            
            —$
            3,161,190
            
            $
            1,177,008
            
            $
            1,984,182
            
            $
            —
            
            $
            —





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
      December 2004, the FASB issued SFAS 123R “Share-Based Payment,” a revision to
      FASB No. 123, SFAS 123R replaces existing requirements under SFAS No. 123 and
      APB Opinion NO. 25, and requires public companies to recognize the cost of
      employee services received in exchange for equity instruments, based on the
      grant-date fair value of those instruments, with limited exceptions. SFAS 123R
      also affects the pattern in which compensation cost is recognized, the
      accounting for employee share purchase plans, and the accounting for income
      tax
      effects of share-based payment transactions. For small-business filers, SFAS
      123R will be effective for interim periods beginning after December 15, 2005.
      The Company anticipates expense will increase based on the number of options
      vesting during future fiscal years.





In
      March
      2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
      Bulletin No. 107 (“SAB 107”) which provides guidance regarding the application
      of SFAS 123R. SAB 107 expresses views of the Staff regarding the interaction
      between SFAS No. 123R and certain SEC rules and regulations, and provides the
      Staff’s views regarding the valuation of share-based payment arrangements for
      public companies. In particular, SAB 107 provides guidance related to
      share-based payment transactions with nonemployees, the transition from
      nonpublic to public entity status, valuation methods (including assumptions
      such
      as expected volatility and expected term), the accounting for certain redeemable
      financial instruments issued under share-based payment arrangements, the
      classification of compensation expense, non-GAAP financial measures, first-time
      adoption of SFAS 123R in an interim period, capitalization of compensation
      cost
      related to share-based payment arrangements, the accounting for income tax
      effects of share-based payment arrangements upon adoption of SFAS 123R, the
      modification of employee share options prior to adoption of SFAS 123R, and
      disclosures in Management’s Discussion and Analysis (“MD&A”) subsequent to
      adoption of SFAS 123R.


17





In
      December 2004, the FASB issued Statement of Accounting Standard (“SFAS”) No. 153
“Exchanges of Nonmonetary Assets”. This Statement amends Opinion 29 to eliminate
      the exception for nonmonetary exchanges of similar productive assets and
      replaces it with a general exception for exchanges of nonmonetary assets that
      do
      not have commercial substance. A nonmonetary exchange has commercial substance
      if the future cash flows of the entity are expected to change significantly
      as a
      result of the exchange. The provisions of this Statement are effective for
      nonmonetary asset exchanges occurring in fiscal periods beginning after June
      15,
      2005. Earlier application is permitted for nonmonetary asset exchanges occurring
      in fiscal periods beginning after December 16, 2004. The provisions of this
      Statement should be applied prospectively. The adoption of this pronouncement
      is
      not expected to have a material effect on the Company’s financial
      statements.





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement No.
      154
      (“SFAS No. 154”), Accounting Changes and Error Corrections, which replaced
      Accounting Principles Board Opinion No. 20, Accounting Changes, and FASB
      Statement No. 3, Reporting Changes in interim Financial Statements. SFAS No.
      154
      requires retrospective application to prior periods’ financial statements of
      voluntary changes in accounting principles and changes required by a new
      accounting standard when the standard does not include specific transition
      provisions. Previous guidance required most voluntary changes in accounting
      principle to be recognized by including in net income of the period in which
      the
      change was made the cumulative effect of changing to the new accounting
      principle. SFAS No. 154 carries forward existing guidance regarding the
      reporting of the correction of an error and a change in accounting estimate.
      SFAS No. 154 is effective for accounting changes and corrections of errors
      made
      in fiscal years beginning after December 15, 2005. Adoption of SFAS No. 154
      as
      of January 1, 2006 is not expected to have a material effect on the Company’s
      financial statements.





Item
      7. FINANCIAL
      STATEMENTS





The
      following is a list of financial statements filed herewith:





Consolidated
      Balance Sheets as of September 30, 2005 and September 30, 2004





Consolidated
      Statements of Operations for the years ended September 30, 2005 and
      2004





Consolidated
      Statements of Shareholders’ Deficiency for the years ended September 30, 2005
      and 2004





Consolidated
      Statements of Cash Flows for the years ended September 30, 2005 and
      2004





Notes
      to
      Consolidated Financial Statements





Item
      8. CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE





On
      October 25, 2005 the Audit Committee of the Company’s Board of Directors
      dismissed BDO Seidman, LLP (“BDO”) as its independent accountants. On October
      25, 2005, the Audit Committee of the Company’s Board of Directors engaged
      Weinberg & Company, P.A. to serve as the Company’s independent accountants
      and to audit its financial statements for the fiscal year ended September 30,
      2005. During the Company’s two prior fiscal years and the period from October 1,
      2005 through the date of its dismissal, there have been no disagreements with
      BDO on any matter of accounting principles or practices, financial statement
      disclosure, or auditing scope or procedure, which disagreements if not resolved
      to the satisfaction of BDO 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)).


18





Item
      8
      A.  CONTROLS
      AND PROCEDURES





(a)         
       Ev aluation
      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 and Chief Financial Officer, 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 Chief Executive Officer and Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures are effective to
      ensure that the information required to be disclosed in the reports the Company
      files and submits under the exchange act is recorded, processed, summarized,
      and
      reported as and when required.





(b)
            Changes
                in Internal Controls





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





**PART
      III**





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





As
      of
      December 15, 2005, the directors and executive officers of the Company are
      as
      follows:





Name
            
            Age
            
            PositionRobert
                Pearson
            
            69
            
            DirectorSteven
                Spector
            
            58
            
            Chairman
                of the BoardRobert
                Degan
            
            66
            
            DirectorWalter
                Kornbluh
            
            74
            
            DirectorStephen
                Crosson
            
            46
            
            Chief
                Financial Officer,Chief
                Operating Officer,Secretary
                & DirectorRussell
                Cleveland
            
            66
            
            DirectorMichael
                Skelton
            
            57
            
            Chief
                Executive Officer,Director




19




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: Digital
      Learning Management Corporation; 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, and Simtek Corporation,
      a
      fables semiconductor company that designs and markets non-volatile static random
      access memories.





Steven
      Spector, Mr. Spector became a director in February 2000. Since 1971, Mr. Spector
      has practiced finance, banking and corporate reorganization law, most recently
      as a partner in the Los Angeles Office of Jeffer, Mangels, Butler and Marmaro,
      LLP. In addition to practicing law, Mr. Spector is a partner in the investment
      group of LBS Investments, LLC, and a trustee of The Joseph B. Gould Charitable
      Foundation. Mr. Spector has lectured and taught extensively in his legal
      specialties of finance, banking and corporate reorganization. In September
      2003,
      Mr. Spector was elected as Chairman of the Board of Directors.





Robert
      Degan, Mr. Degan became a director in January 2001. From 1989 to 1996, Mr.
      Degan
      was President and Chief Executive Officer of Tylink Corporation, a private
      company, which designs, manufactures and markets digital access products. In
      August, 1996, Tylink Corporation was acquired by Sync Research a public company.
      From August 1996 to December 1996 Mr. Degan was Executive Vice President of
      Sync
      Research. From 1997 to 1998, Mr. Degan was Chairman, President and Chief
      Executive Officer of Summa Four Inc., a public company, which is a leading
      provider of switching platforms. In 1998 Summa Four, Inc. was acquired by Cisco
      Systems, Inc. and from 1998 through 1999 Mr. Degan was General Manger of the
      Enhanced Services and Migration business unit of Cisco Systems, Inc. From 2000
      to the present Mr. Degan has been a private investor. Mr. Degan holds a
      directorship with Overland Storage, a data storage manufacturing
      firm.




Walter
      Kornbluh, Mr. Kornbluh joined the Company in May 1997 and became a director
      in
      April 1998. Mr. Kornbluh is a licensed Certified Public Accountant in the States
      of California and New York. For the past 10 years he has been the President
      and
      majority owner of Workout Specialist Inc., a firm that specializes in assisting
      companies with financial problems. He spent 17 years as President of Marathon
      Office Supply, Inc., a public company whose stock was listed on the American
      Stock Exchange.




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.





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. 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.


20





Michael
      Skelton, Mr. Skelton joined the Company in April 2004 as the Chief Executive
      Officer. From August 2001 to April 2004, Mr. Skelton was an interim executive
      management consultant working with public and private technology companies.
      From
      1987 to 1992, Mr. Skelton was Vice President and General Manager of TAB Products
      Co. a records management company. From 1993 to 1995, Mr. Skelton was Vice
      President of Sales and Marketing for SCO Inc., a company that provides UNIX
      operating system software. From 1996 to 1997 Mr. Skelton was President and
      C.E.O. of TracePoint Technology, Inc., a provider of software developer tools.
      From 1998 to 1999, Mr. Skelton was Vice President of Sales for NetManage, Inc.,
      a provider of enterprise application integration software and services. From
      January 2000 to July 2001, Mr. Skelton was President and C.E.O. of Menta
      Software, Ltd., which provided technology to web enable Microsoft Windows
      applications.




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 members of this Committee
      are Messrs. Kornbluh, Spector and Degan. The Board of Directors has determined
      that Walter Kornbluh is the Audit Committee Financial Expert Mr. Kornbluh is
      not
      deemed to be independent under applicable rules. The audit committee held 6
      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 members of the Committee are Messrs. Degan,
      Kornbluh and Spector. The Compensation Committee has held two meetings during
      the current fiscal year.




DIRECTOR
      COMPENSATION





Directors
      do not receive any annual compensation. Outside directors receive $1,000 each
      for each meeting attended, $500 each for each committee meeting and
      reimbursement for out-of-pocket expenses for attending meetings. Mr. Pearson
      and
      Mr. Cleveland have waived the meeting fees. During the current fiscal year,
      the
      directors waived director fees for meetings held between October 2004 and August
      2005.





EMPLOYMENT
      AGREEMENTS





During
      the fiscal year ended September 30, 2004, the Company entered into an employment
      agreement with Michael Skelton (C.E.O. & Director), Mr. Skelton will receive
      $14,000 per month salary for an indeterminate period of time. The contract
      may
      be terminated by the Company or Mr. Skelton at any time. If Mr. Skelton is
      terminated without cause he will receive salary and benefits for up to 6 months
      after termination. During the fiscal year ended September 30, 2005, the Company
      reimbursed Mr. Skelton $24,000 for apartment rental expense. The rental
      reimbursement expired during October 2005 and was not extended.





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.


21





During
      the fiscal year ended September 30, 2003, the Company entered into a consulting
      agreement with Mr. Walter Kornbluh (director), to provide consulting services
      to
      the Company reporting to the Chairman of the Board of Directors and the Chief
      Executive Officer. The contract was for two years beginning August 1, 2003
      at a
      rate of $2,500 per month. During the fiscal years ended September 30, 2005
      and
      2004, the Company paid Mr. Kornbluh $29,450 and $30,750 in consulting fees,
      respectively.





During
      the fiscal years ended September 30, 2005 and 2004, the Company paid Mr. Steven
      Spector, Chairman of the Board of Directors consulting fees of $19,250 and
      $27,500 for consulting services rendered during the fiscal years,
      respectively.




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. During the current fiscal year, the Chief
      Executive Officer and the Chief Operating Officer filed amended form 4A and
      form
      5 with the Commission for bonus shares received from the Company. These filings
      were not filed timely as required by Section 16(a) of the Securities and
      Exchange Act of 1934, as amended.





Item
      10. EXECUTIVE
      COMPENSATION





The
      following table sets forth the compensation paid by the Company for its fiscal
      years ended September 30, 2005, 2004, and 2003 to its Chief Executive Officer
      and Chief Financial Officer (the “Named Executive Officers”). No other executive
      officer received compensation which exceeded $100,000 for the fiscal year ended
      September 30, 2005.





ANNUAL
                COMPENSATION
            
            Long
                Term CompensationNAME
                ANDPRINCIPAL
                POSITION
            
            FISCAL
                YEAR ENDEDSEPTEMBER 30,
            
            SALARY
            
            BONUS
            
            ALL
                OTHERCOMPENSATION
            
            Awards
                Securities
                Underlying
                Options
                SARsMichael
                Skelton,
            
            
            2005
            
            $
            168,000
            
            
            39,000
            
            
            —
            
            
            —Chief
                Executive Officer
            
            
            2004
            
            $
            168,000
            
            
            —
            
            
            
            
            
            1,400,000Stephen
                Crosson,
            
            
            2005
            
            $
            150,000
            
            
            39,000
            
            
            —
            
            
            100,000Chief
                Financial Officer,
            
            
            2004
            
            $
            150,000
            
            
            —
            
            
            —
            
            
            300,000Chief
                Operating Officer, Corporate Secretary &Director
            
            
            2003
            
            $
            137,500
            
            
            —
            
            
            —
            
            
            200,000




22





OPTION
      GRANTS IN 2005





The
      following table sets forth certain information regarding option grants to the
      Named Executive Officers during the fiscal year ended September 30,
      2005.





NAME
            
            Number
                of Securities Underlying OptionsGranted
            
            Percentage
                of Total Options Granted to EmployeesIn
                2004
            
            Average
                Exercise PricePer
                Share
            
            ExpirationDateMichael
                Skelton
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stephen
                Crosson
            
            
            —
            
            
            —
            
            
            —
            
            
            —




OPTION
      EXERCISES AND FISCAL YEAR-END VALUES





Shares
            
            
            
            Number
                of Securities Underlying Unexercised Options at Year-End
            
            Value
                of Unexercised in the Money Options at Year-EndName
            
            Acquired
              On
                Exercise
            
            Value
              Realized
            
            Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableMichael
                Skelton
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stephen
                Crosson
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —





There
      were no options exercised by the Named Executive Officers during fiscal year
      2005.





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.





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 December 1, 2005 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)NAME
                  AND ADDRESS (2)
              
              NUMBER
                  OF SHARES
              
              PERCENTAGE
                  OF OUTSTANDING (3)Robert
                  Pearson (4)
              
              
              —
              
              
              —Robert
                  Degan
              
              
              268,000
              (5)
              
              —Steven
                  Spector
              
              
              357,600
              (6)
              
              —Walter
                  Kornbluh
              
              
              1,079,245
              (7)
              
              7.50Stephen
                  Crosson
              
              
              1,205,770
              (8)
              
              8.30Renaissance
                    Capital Growth &Income
                    Fund III, Inc
              
              
              5,161,311
              (9)
              
              34.028080
                  N. Central ExpresswaySuite
                  210Dallas,
                  Texas 75206Renaissance
                    US Growth &Income
                    Trust PLC
              
              
              4,210,527
              (10)
              
              27.888080
                  N. Central ExpresswaySuite
                  210Dallas,
                  Texas 75206BFSUS
                    Special Opportunities Trust PLC
              
              
              6,605,112
              (11)
              
              36.318080
                  N. Central ExpresswaySuite
                  210Dallas,
                  Texas 75206Michael
                  Skelton
              
              
              1,441,785
              (12)
              
              9.64All
                  executive officers anddirectors
                  as a group(5
                  persons)
              
              
              4,352,400
              
              
              25.18





23




(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
      13,551,082 shares of Common Stock outstanding, as of December 1, 2005.


(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
      four year non-qualified options from the Company to purchase 50,000 shares
      at
      $.95 per share, 35,000 shares from the Company at $.61 per share, 85,000 shares
      from the Company at $.44 per share and options to purchase 85,000 shares from
      the Company at $0.41 per share.


(6)  Includes
      four year non-qualified options from the Company to purchase 50,000 shares
      at
      $.95 per share, 35,000 shares from the Company at $.61 per share, 85,000 from
      the Company at $.44 per share, options to purchase 100,000 shares at $0.41
      per
      share.


(7)  Includes
      currently exercisable options to purchase 92,000 shares from the Company at
      $.56
      per share, 180,000 shares from the Company at $3.87 per share, 90,000 shares
      from the Company at $5.00 per share, 180,000 shares from the Company at $1.55
      per share, 50,000 shares from the Company at $.95 per share, 100,000 shares
      from
      the Company at $.61 per share, 50,000 shares from the Company at $.44 per share
      and options to purchase 85,000 shares at $0.41 per share.


(8)  Includes
      currently exercisable options to purchase 48,000 shares from the Company at
      $.56
      per share, 120,000 shares from the Company at $3.87 per share, 60,000 shares
      from the Company at $5.00 per share, 120,000 shares from the Company at $1.55
      per share, 50,000 shares from the Company at $.95 per share, 100,000 shares
      from
      the Company at $.61 per share, 100,000 shares from the Company at $.44 per
      share, options to purchase 300,000 shares at $0.55 per share and options to
      purchase 85,000 shares at $0.41 per share.


(9)  According
      to Schedule 13D, dated January 15, 2003, 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 3,539,414
      shares of our Common Stock, options to purchase 26,500 shares at $0.95 per
      share, options to purchase 4,368 shares at $0.61 per share, options to purchase
      38,250 shares at $0.44 per share, warrants to purchase 540,541 shares at $0.74
      per share, warrants to purchase 540,540 shares at $1.11 per share and warrants
      to purchase 471,698 shares at $0.53 per share.


(10)
       According to a Schedule 13D, dated January 15, 2003, RCG is the Investment
      Manager of Renaissance US. The Common Shares deemed to be beneficially owned
      by
      the Renaissance US Fund are comprised of 2,657,748 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 and warrants to purchase 471,698 shares at
      $0.53 per share.


24





(11)  According
      to a Schedule 13D, dated January 15, 2003, RCG is the Investment Advisor for
      BFS
      US. The Common Shares deemed to be beneficially owned by BFS US are comprised
      of
      1,963,981 shares of Common Stock and 3,088,352 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 $0.63 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 and warrants to purchase 471,698 shares at $0.53 per
      share.


(12)  Includes
      options from the Company to purchase 1,400,000 shares at $0.63 per share.
      Currently 350,000 options are vested and exercisable.





Equity
      Compensation Plan Information





The
      following table sets forth certain information regarding the Company’s 2000
      Stock Option Plan. All information set forth below is as of September 30, 2005,
      pursuant to applicable regulations.





Number
                of Securities to Be issued upon exercise Of outstanding options,
                Warrants
                and rights (a)
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
                (b)
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities warrants and rights warrants
                and
                rights reflected in (a)) (a) (b) (c)Equity
                compensationPlans
                approved bySecurity
                holders
            
            
            9,281,587
            
            $
            0.93
            
            
            1,396,750Equity
                compensationPlans
                not approved byHolders
            
            
            —
            
            
            —
            
            
            —TOTAL
            
            
            9,281,587
            
            $
            0.93
            
            
            1,396,750





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. Currently, the Plan authorizes the grant of options to
      purchase up to 6,000,000 shares of the Company’s Common Stock, of which options
      to purchase 1,018,750 shares were available for future issuance as of December
      15, 2005.





Non-Shareholder-Approved
      Plans:





There
      are
      no Non-Shareholder Approved Plans as of December 15, 2005.





Item
      12. CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS




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 matures on November 27, 2005, at which
      time the unpaid Principal Amount, and all accrued and unpaid interest and other
      charges, fees, and payments will be 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, 2005, 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, 2005,
      the Company was in compliance with these covenants.


25





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 matures 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 will be 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, 2005, the Company was in compliance
      with
      these covenants.





Subsequent
      to September 30, 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)
      will be recorded on the Company financial statements as debt discount, and
      will
      be amortized over the term of the extension.





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.





Item
      13. EXHIBITS
      AND REPORTS ON FORM 8-K





(a)
            Exhibits





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





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





(b) Reports
      on Form 8-K.





None





26





Item
        14. PRINCIPAL
        ACCOUNTANT FEES AND SERVICES
  AUDIT
        FEES





During
      the Company’s prior fiscal year, BDO Seidman LLP, was the Company’s principal
      accountant and billed $60,000 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. On October 25, 2005 the
      Audit Committee of the Company’s Board of Directors dismissed BDO Seidman, LLP
      as its independent accountants. On October 25, 2005, the Audit Committee of
      the
      Company’s Board of Directors engaged Weinberg & Company, P.A. (“Weinberg”)
      to serve as the Company’s independent accountants and to audit its financial
      statements for the fiscal year ended September 30, 2005. 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 $56,000.





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.





27




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




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/
                  STEPHEN CROSSON
              
              Chief
                  Financial Officer,
              
              October
                  19, 2006Stephen
                  Crosson
              
              Chief
                  Operating OfficerSecretary,
                  Treasurer and
                  Director/s/
                  ROBERT PEARSON
              
              Director
              
              October
                  19, 2006Robert
                  Pearson/s/
                  ROBERT DEGAN
              
              Chairman
                  of the Board
              
              October
                  19, 2006Robert
                  Degan/s/
                  RUSSELL CLEVELAND
              
              Director
              
              October
                  19, 2006Russell
                  Cleveland/s/
                  MICHAEL SKELTON
              
              Chief
                  Executive Officer,
              
              October
                  19, 2006Michael
                  Skelton
              
              Director/s/
                  Lee Pryor
              
              Director
              
              October
                  19, 2006Lee
                  Pryor




28




CAMINOSOFT
      CORP





CONTENTS





Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets as of September 30, 2005 and September 30,
                2004
            F-4Consolidated
                Statements of Operations for the years ended September 30, 2005 and
                2004
            F-5Consolidated
                Statements of Shareholders’ Deficiency for the years ended September 30,
                2005 and 2004
            F-6Consolidated
                Statements of Cash Flows for the years ended September 30, 2005 and
                2004
            F-7Notes
                to Consolidated Financial Statements
            F-8


F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors:


CaminoSoft
      Corporation





We
      have
      audited the accompanying consolidated balance sheet of CaminoSoft Corporation
      as
      of September 30, 2005 and the related consolidated statements of
      operations, shareholders’ deficiency and cash flows for the year 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 audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audit provides a reasonable basis for our
      opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of CaminoSoft
      Corporation, as of September 30, 2005, and the results of their operations,
      and
      their cash flows for the year then ended, in conformity with accounting
      principles generally accepted in the United States of America.




WEINBERG &
      COMPANY, P.A.




Boca
      Raton, Florida


November
      22, 2005


F-2





REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and Shareholders


CaminoSoft
      Corp.





We
      have
      audited the accompanying consolidated balance sheet of CaminoSoft Corp. as
      of
      September 30, 2004 and the related statements of operations, stockholders’
deficit, and cash flows for the year then ended. These financial statements
      are
      the responsibility of the Company’s management. Our responsibility is to express
      an opinion on these financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 controls
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also 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 audit provides 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. at
      September 30, 2004 and the results of its operations and its cash flows for
      the
      year 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
      financial statements, the Company has suffered recurring losses from operations
      and has a net capital deficiency that raise substantial doubt about its ability
      to continue as a going concern. Management’s plans in regard to these matters
      are also described in Note 1. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




/s/
      BDO
      Seidman, LLP





Los
      Angeles, California


November
      24, 2004


F-3




CAMINOSOFT
        CORP.
 CONSOLIDATED
        BALANCE SHEETS
 September
                    30,2005
                
                
                2004ASSETSCurrent
                    Assets:Cash
                    and cash equivalents
                
                $
                220,186
                
                $
                421,344Accounts
                    receivable, net of allowance of $20,000 and $20,000
                    respectively
                
                
                1,043,176
                
                
                213,678Total
                    Current Assets
                
                
                1,263,362
                
                
                635,022Property
                    and Equipment, net of accumulated depreciation of $50,678 and
                    $31,730
                
                
                36,147
                
                
                41,050Software,
                    net of accumulated amortization of, $597,041 and $478,829
                
                
                230,349
                
                
                348,561Deposits
                
                
                11,282
                
                
                11,642Deferred
                    Financing Costs
                
                
                262,075
                
                
                187,075Total
                    Assets
                
                $
                1,803,215
                
                $
                1,223,350LIABILITIES
                    AND SHAREHOLDERS' DEFICIENCYCurrent
                    Liabilities:Accounts
                    payable
                
                $
                191,285
                
                $
                91,319Accrued
                    liabilities
                
                
                116,238
                
                
                145,733Deferred
                    revenues
                
                
                1,278,290
                
                
                250,304Notes
                    payable, current portion, net of discount of $129,980 and
                    $0
                
                
                620,020
                
                
                -Total
                    Current Liabilities
                
                
                2,205,833
                
                
                487,356Notes
                    Payable, net of discount of $14,689 and $359,386
                
                
                1,735,311
                
                
                2,140,614Total
                    Liabilities
                
                
                3,941,144
                
                
                2,627,970Common
                    stock, no par value; authorized 100,000,000 shares; issued and
                    outstanding
                    13,551,082 and 13,462,750 shares
                
                
                17,687,461
                
                
                17,650,361Accumulated
                    Deficit
                
                
                (19,825,390
                )
                
                (19,054,981
                )Total
                    Shareholders' Deficiency
                
                
                (2,137,929
                )
                
                (1,404,620
                )Total
                    Liabilities and Shareholders' Deficiency
                
                $
                1,803,215
                
                $
                1,223,350


See
      accompanying notes to consolidated financial statements.




F-4


CAMINOSOFT
                CORP.CONSOLIDATED
                STATEMENTS OF OPERATIONS




YEARS
                  ENDEDSEPTEMBER
                  30,2005
              
              2004SALES
              
              $
              2,637,201
              
              $
              1,253,610COST
                  OF SALES
              
              
              213,423
              
              
              247,515GROSS
                  PROFIT
              
              
              2,423,778
              
              
              1,006,095OPERATING
                  EXPENSESSales
                  and administrative
              
              
              2,438,708
              
              
              2,655,657Depreciation
              
              
              18,948
              
              
              9,744Research
                  & Development
              
              
              473,830
              
              
              284,410Total
                  Operating Expenses
              
              
              2,931,486
              
              
              2,949,811Loss
                  From Operations
              
              
              (507,708
              )
              
              (1,943,716
              )OTHER
                  INCOME (EXPENSE)Interest
                  expense
              
              
              (262,717
              )
              
              (200,380
              )Interest
                  income
              
              
              16
              
              
              21Total
                  Other Income (Expense)
              
              
              (262,701
              )
              
              (200,359
              )Net
                  Loss
              
              
              ($770,409
              )
              
              ($2,144,075
              )Weighted
                  average number of common shares outstanding:(basic
                  and diluted):
              
              
              13,506,795
              
              
              12,390,202Net
                  loss per common share:(basic
                  and diluted)
              
              
              ($0.06
              )
              
              ($0.17
              )


See
                accompanying notes to Consolidated Financial
                Statements




F-5


CAMINOSOFT
                CORP.CONSOLIDATED
                STATEMENTS OF SHAREHOLDERS'
                DEFICIENCY




Common
                Stock
            
            AccumulatedShares
            
            Amount
            
            Deficit
            
            TotalBalance,
                at October 1, 2003
            
            
            9,879,371
            
            $
            15,951,333
            
            
            ($16,910,906
            )
            
            ($959,573
            )Common
                stock and warrants issued in private placement
            
            
            3,243,243
            
            
            1,200,000
            
            
            
            
            
            1,200,000Common
                stock issued for equity line
            
            
            340,136
            
            
            187,075
            
            
            
            
            
            187,075Warrant
                to purchase common stock issued in connection with
                financing
            
            
            
            
            
            311,953
            
            
            
            
            
            311,953Net
                loss
            
            
            
            
            
            
            
            
            (2,144,075
            )
            
            (2,144,075
            )Balance,
                at September 30, 2004
            
            
            13,462,750
            
            
            17,650,361
            
            
            (19,054,981
            )
            
            (1,404,620
            )Common
                stock issued for legal services
            
            
            4,762
            
            
            2,000
            
            
            
            
            
            2,000Common
                stock issued for employee bonus
            
            
            83,570
            
            
            35,100
            
            
            
            
            
            35,100Net
                loss
            
            
            
            
            
            
            
            
            (770,409
            )
            
            (770,409
            )Balance,
                at September 30, 2005
            
            
            13,551,082
            
            $
            17,687,461
            
            
            ($19,825,390
            )
            
            ($2,137,929
            )


See
      accompanying notes to Consolidated Financial Statements


F-6


CAMINOSOFT
                CORP.CONSOLIDATED
                STATEMENTS OF CASH FLOWS




YEARS
                  ENDEDSEPTEMBER
                  30,2005
              
              2004CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              
              ($770,409
              )
              
              ($2,144,075
              )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Change
                  in allowance for doubtful accounts
              
              
              -
              
              
              14,313Depreciation
                  and amortization
              
              
              137,160
              
              
              127,956Common
                  stock issued for services and bonus
              
              
              37,100
              
              
              -Amortization
                  of debt discount
              
              
              214,717
              
              
              84,736Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (829,498
              )
              
              23,046Prepaid
                  expense
              
              
              (75,000
              )
              
              6,000Deposits
                  and other
              
              
              360
              
              
              150Accounts
                  payable and accrued expenses
              
              
              70,471
              
              
              (33,649
              )Deferred
                  revenue
              
              
              1,027,986
              
              
              (14,251
              )Net
                  cash used in operating activities
              
              
              (187,113
              )
              
              (1,935,774
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESAcquisition
                  of fixed assets
              
              
              (14,045
              )
              
              (29,664
              )Net
                  cash used in investing activities
              
              
              (14,045
              )
              
              (29,664
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESBorrowings
                  on notes payable
              
              
              125,000
              
              
              750,000Repayment
                  on notes payable
              
              
              (125,000
              )
              
              -Proceeds
                  from the issuance of common stock
              
              
              -
              
              
              1,200,000Net
                  cash provided by financing activities
              
              
              -
              
              
              1,950,000NET
                  DECREASE IN CASH AND CASH EQUIVALENTS
              
              
              (201,158
              )
              
              (15,438
              )CASH
                  AND CASH EQUIVALENTS, beginning of year
              
              
              421,344
              
              
              436,782CASH
                  AND CASH EQUIVALENTS, end of year
              
              $
              220,186
              
              $
              421,344Supplemental
                  non-cash financing and investing activitiesCash
                  paid for:Interest
              
              $
              161,510
              
              $
              115,644Income
                  taxes
              
              $
              0
              
              $
              0




See
      accompanying notes to Consolidated Financial
      Statements




F-7


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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, 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
      amounts paid and assumed in the amount of $502,372 to the value of the software
      acquired.





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.





In
      July
      2003, the Company incorporated a subsidiary CM Medical Systems, Inc., under
      the
      General Corporation Law of California. Currently the subsidiary has no
      employees, has not issued stock and has not begun operations.




The
      Company’s working capital requirements in the foreseeable future will depend on
      a variety of factors including its ability to implement its sales and marketing
      plan. 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 2006. Management has developed additional contingency plans
      to
      ensure expenses can be reduced and brought in line with revenues achieved during
      2006, allowing the Company to extend the operating capital. The Company
      currently expects that the new financing will provide sufficient cash to fund
      its projected operations for the immediately foreseeable future and believes
      additional financing will be available if and when needed (See Note 9). 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 development activities. No assurances can be given
      that the Company will achieve increased revenues. Further, no assurances can
      be
      given that the Company’s current financing will be sufficient to support the
      Company’s planned level of operations. If adequate funds are not available or
      are not available at acceptable terms, the Company’s ability to finance its
      expansion, develop or enhance services or products or respond to competitive
      pressures would be significantly limited.


F-8





CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





BASIS
      OF
      PRESENTATION





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.





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 and disclosures. 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. Such cash
      equivalents, at times, may exceed federally insured limits. The Company
      maintains its accounts with financial institutions with high credit ratings.





CONCENTRATION
      OF CREDIT RISK





The
      Company's financial instruments that are exposed to concentrations of credit
      risk consist of cash in what it believes to be credit-worthy financial
      institutions. However, cash balances have exceeded FDIC insured levels at
      various times. The Company has not experienced any losses in such accounts
      and
      believes it is not exposed to any significant risk in cash. The Company's trade
      receivables result primarily from sale and annual service of software products,
      and the concentration of credit risk is limited to a broad customer base located
      through out the World.




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. Cash and cash equivalents, 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 long term obligations is based on
      borrowing rates currently available to the Company for loans with similar terms
      and maturities





PROPERTY
      AND EQUIPMENT





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


F-9


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




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” (“SFAS 86”),
      provides for the capitalization of certain software development costs incurred
      after technological feasibility of the software is established. The Company
      capitalized no development cost during the years ended September 30, 2005 and
      September 30, 2004. The Company evaluates the net realizable value of the
      capitalized software based on estimated future undiscounted cash
      flows.





REVENUE
      RECOGNITION





Revenue
      is recognized when persuasive evidence of an arrangement exists, delivery has
      occurred, 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. 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.


F-10


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




ACCOUNTS
      RECEIVABLE





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, 2005 and 2004, trade receivables had a net balance in the amount
      of $1,043,176 and $213,678, net of allowances of $20,000 and $20,000,
      respectively.




CONCENTRATIONS





During
      the years ending September 30, 2005 and 2004, the Company had 2 major customers
      each year whose revenue volume comprised approximately 58% and 27%,
      respectively, of the Company’s total revenue. As of September 30, 2005 and 2004
      the amounts due from these customers was $53,340 and $77,748, respectively,
      and
      is included in accounts receivable in the accompanying financial
      statements.





RESEARCH
      AND DEVELOPMENT





Research
      and development costs, which consist primarily of software development costs,
      are expensed as incurred and amounted to $473,830 and $284,410 for the years
      ended September 30, 2005 and 2004 respectively.





ADVERTISING





Advertising
      costs are charged to expense as incurred and such costs were $30,017 and $35,044
      for the years ended September 30, 2005 and 2004, respectively.





IMPAIRMENT
      OF LONG-LIVED ASSETS





The
      Company periodically assesses the recoverability of the carrying amounts of
      long-lived assets, including intangible assets. A loss is recognized when
      expected undiscounted future cash flows are less than the carrying amount of
      the
      asset. The impairment loss is the difference by which the carrying amount of
      the
      asset exceeds its fair value.





STOCK-BASED
      COMPENSATION





The
      Company accounts for employee stock options or similar equity instruments in
      accordance with Statement of Financial Accounting Standards No. 123, “Accounting
      for Stock-Based Compensation” (“SFAS No. 123”) and Interpretation No. 44,
“Accounting for Certain Transactions Involving Stock Compensation, in
      Interpretation of APB 25” (“FIN 44”). SFAS No. 123 defines a fair-value-based
      method of accounting for employee stock options or similar equity instruments.
      This statement gives entities a choice to recognize related compensation expense
      by adopting the new fair-value method or to measure compensation using the
      intrinsic value method under Accounting Principles Board Opinion No. 25
“Accounting for Stock Issued to Employees”, (“APB25”) the former standard. If
      the former standard for measurement is elected, SFAS No. 123 requires
      supplemental disclosure to show the effect of using the new measurement
      criteria. The Company currently uses the disclosure standards of SFAS 123,
      as
      amended by SFAS 144, but accounts for stock based compensation using APB
      25.


F-11


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





All
      stock
      options issued to employees have an exercise price not less than the fair market
      value of the Company’s common stock on the date of the grant, and in accordance
      with accounting for such options utilizing the intrinsic value method there
      is
      no related compensation expense recorded in the Company’s financial statements.
      Had compensation cost for stock-based compensation been determined based on
      the
      fair value on the grant dates consistent with the method of SFAS 123, the
      Company’s net loss and loss per share for the years ended September 30, 2005 and
      2004 would have been increased to the pro forma amounts
      presented:




2005
            
            2004Net
                loss, as reported
            
            $
            (770,409
            )
            $
            (2,144,075
            )Add:
                Stock-based employee compensationincluded
                in reported net loss
            
            
            —
            
            
            —Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all award
            
            
            (180,650
            )
            
            (541,950
            )Net
                loss, pro forma
            
            $
            (951,059
            )
            $
            (2,686,025
            )Basic
                  and diluted net loss per common share, as reported
            
            $
            (.06
            )
            $
            (.17
            )pro
                forma
            
            $
            (.07
            )
            $
            (.22
            )





The
      fair
      value of option grants is estimated on the date of grant utilizing the
      Black-Scholes option-pricing model with the following weighted average
      assumptions for grants in 2004, expected life of options were between 3 years
      and 5 years, expected volatility ranged from 95.3% to 95.37%, risk-free interest
      rate of 2.41% to 3.18% and a 0% dividend yield. The weighted average fair value
      on the date of grants for options and warrants granted during 2004 was $0.52
      per
      unit. The Company granted no options or warrants during the fiscal year ended
      September 30, 2005.


F-12


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




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 includes no dilution and is computed by dividing
      income (loss) available to common shareholders by the weighted average number
      of
      common shares outstanding for the period. Diluted earnings (loss) 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, 2005 and 2004, options and warrants to purchase
      9,281,587 and 10,289,337 shares, respectively were outstanding, but were not
      included in the computation of diluted (loss) per common share as the effect
      would be antidilutive.





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.





NEW
      ACCOUNTING PRONOUNCEMENTS





In
      December 2004, the FASB issued SFAS 123R “Share-Based Payment,” a revision to
      FASB No. 123, SFAS 123R replaces existing requirements under SFAS No. 123 and
      APB Opinion NO. 25, and requires public companies to recognize the cost of
      employee services received in exchange for equity instruments, based on the
      grant-date fair value of those instruments, with limited exceptions. SFAS 123R
      also affects the pattern in which compensation cost is recognized, the
      accounting for employee share purchase plans, and the accounting for income
      tax
      effects of share-based payment transactions. For small-business filers, SFAS
      123R will be effective for interim periods beginning after December 15, 2005.
      The Company anticipates expense will increase based on the number of options
      vesting during future fiscal years.





In
      March
      2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
      Bulletin No. 107 (“SAB 107”) which provides guidance regarding the application
      of SFAS 123R. SAB 107 expresses views of the Staff regarding the interaction
      between SFAS No. 123R and certain SEC rules and regulations, and provides the
      Staff’s views regarding the valuation of share-based payment arrangements for
      public companies. In particular, SAB 107 provides guidance related to
      share-based payment transactions with nonemployees, the transition from
      nonpublic to public entity status, valuation methods (including assumptions
      such
      as expected volatility and expected term), the accounting for certain redeemable
      financial instruments issued under share-based payment arrangements, the
      classification of compensation expense, non-GAAP financial measures, first-time
      adoption of SFAS 123R in an interim period, capitalization of compensation
      cost
      related to share-based payment arrangements, the accounting for income tax
      effects of share-based payment arrangements upon adoption of SFAS 123R, the
      modification of employee share options prior to adoption of SFAS 123R, and
      disclosures in Management’s Discussion and Analysis (“MD&A”) subsequent to
      adoption of SFAS 123R.


F-13


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





In
      December 2004, the FASB issued Statement Accounting Standard (“SFAS”) No. 153
“Exchanges of Nonmonetary Assets”. This Statement amends Opinion 29 to eliminate
      the exception for nonmonetary exchanges of similar productive assets and
      replaces it with a general exception for exchanges of nonmonetary assets that
      do
      not have commercial substance. A nonmonetary exchange has commercial substance
      if the future cash flows of the entity are expected to change significantly
      as a
      result of the exchange. The provisions of this Statement are effective for
      nonmonetary asset exchanges occurring in fiscal periods beginning after June
      15,
      2005. Earlier application is permitted for nonmonetary asset exchanges occurring
      in fiscal periods beginning after December 16, 2004. The provisions of this
      Statement should be applied prospectively. The adoption of this pronouncement
      is
      not expected to have material effect on the Company’s financial
      statements.





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement No.
      154
      (“SFAS No. 154”), Accounting Changes and Error Corrections, which replaced
      Accounting Principles Board Opinion No. 20, Accounting Changes, and FASB
      Statement No. 3, Reporting Changes in Interim Financial Statements. SFAS No.
      154
      requires retrospective application to prior periods’ financial statements of
      voluntary changes in accounting principles and changes required by a new
      accounting standard when the standard does not include specific transition
      provisions. Previous guidance required most voluntary changes in accounting
      principle to be recognized by including in net income of the period in which
      the
      change was made the cumulative effect of changing to the new accounting
      principle. SFAS No. 154 carries forward existing guidance regarding the
      reporting of the correction of an error and a change in accounting estimate.
      SFAS No. 154 is effective for accounting changes and corrections of errors
      made
      in fiscal years beginning after December 15, 2005. Adoption of SFAS No. 154
      as
      of January 1, 2006 is not expected to have material effect on the Company’s
      financial statements.




NOTE
      2 -
      PROPERTY AND EQUIPMENT





Property
      and equipment consists of the following:





September
                30,2005
            
            2004Furniture
                and fixtures
            
            $
            13,084
            
            $
            13,084Test
                and training equipment
            
            
            73,741
            
            
            59,69686,825
            
            
            72,780Less
                accumulated depreciation
            
            
            (50,678
            )
            
            (31,730
            )$
            36,147
            
            $
            41,050




F-14


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





Property
      and equipment are depreciated on an accelerated basis with an average useful
      life of three years. Depreciation expense of $18,948 and $9,744 for the years
      ending September 30, 2005 and 2004 has been reflected in the accompanying
      statement of operations.





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, 2005 and 2004
      is
      $71,745 and $143,517, respectively.





During
      the years ended September 30, 2005 and 2004 there was no development cost
      capitalized. The net book value for software at September 30, 2005 and 2004
      is
      $230,349 and $348,561, respectively, which includes the original software
      purchase of the Camino Assets plus additional capitalization prior to fiscal
      year 2003.




September
                30,2005
            
            2004Software
            
            $
            827,390
            
            $
            827,390Less
                accumulated amortization
            
            
            (597,041
            )
            
            (478,829
            )$
            230,349
            
            $
            348,561





Amortization
      expense of $118,212 and $118,212 for the years ending September 30, 2005 and
      2004 has been reflected in cost of sales in the accompanying statement of
      operations.


F-15


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4 -
      NOTES PAYABLE




In
      December 2002, the Company issued a 6% unsecured convertible debenture for
      up to
      $1,000,000. The Company made monthly draws based on cash flow to replenish
      operating funds. 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
      debenture matures on November 27, 2005, at which time the unpaid principal
      amount and all accrued and unpaid interest will become due and payable in full.
      The debenture is convertible into shares of the Company’s common stock, with the
      initial conversion price of $1.00 per share. However if the five day average
      closing price for the Company’s common stock immediately prior to a disbursement
      is below the $1.00 initial conversion price, the average closing price for
      such
      period shall become the conversion price. The funds were used to help fund
      operations and accelerate the business plan. As of September 30, 2005, the
      Company 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, 2005, the Company was
      in
      compliance with these covenants. Subsequent to the current fiscal year end
      of
      September 30, 2005 the Company negotiated an extension of the convertible
      debenture until May 27, 2007(See Note 9).





During
      July 2003, the Company issued another 6% unsecured convertible debenture for
      up
      to $750,000. The Company made a single draw for the full amount of the debenture
      to replenish operating funds. Interest at a rate of 6% per annum is payable
      in
      monthly installments for 26 months based on the unpaid principal balance. The
      debenture matures on November 27, 2005, at which time the unpaid principal
      amount and all accrued and unpaid interest will 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 an initial conversion price of $0.50 per share.
      However, if the five 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, 2005 the Company had borrowed $750,000, the entire amount
      available. The debenture has certain non-operating covenants associated with
      the
      loan. During the fiscal year and as of September 30, 2005, the Company was
      in
      compliance with these covenants. Subsequent to the current fiscal year end
      of
      September 30, 2005 the Company negotiated an extension of the convertible
      debenture until May 27, 2007 (See Note 9).





During
      July 2004, the Company was issued a $750,000 two year unsecured 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.
      In connection with the loan, the Company issued 5 year warrants to purchase
      1,415,094 shares of its common stock at $0.53 per share. The warrants issued
      were valued at $311,953 using the Black Scholes method, and have been recorded
      on the Company’s financial statements as debt discount, and are being expensed
      ratably over the term of the loan. As of September 30, 2005, the unamortized
      portion of the debt discount was $129,890.


F-16


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





Annual
      principal payments for fiscal years 2006 and 2007, after the loan extensions
      described above and in Note 9, are as follows:





Year
                ending September 30,2006
            
            $
            750,0002007
            
            
            1,750,000Total
            
            $
            2,500,000




NOTE
      5 -
      SHAREHOLDER’S DEFICIENCY





During
      the year ended September 30, 2004, the Company issued 3,243,243 warrants to
      purchase the Company’s common stock at prices ranging from $0.74 to $1.11 to
      investors in a private placement of 3,243,243 shares of the Company’s common
      stock for $1,200,000.





During
      the year ended September 30, 2004, the Company issued 1,415,094 warrants to
      purchase the Company’s common stock at $0.53 per share with a fair value of
      $311,953 in connection with a 7% 2 year $750,000 loan to the Company (Note
      4).
      The fair value was recorded as debt discount on the Company’s financial
      statements and is being amortized over the term of the loan.





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 the Common Stock. The Company has agreed to register 3,680,272
      shares which include the commitment shares to sell during a 30 month period.
      The
      fair value of the 340,136 issued shares was $187,075, based upon the fair value
      of the common stock at the date of issuance. The fair value of the shares issued
      in September 2004 of $187,075, and $75,000 of legal and professional fees
      incurred in fiscal 2005 relating the registration, have been recorded as
      deferred financing costs on the Company’s financial statements and will be
      amortized against proceeds received over the term of the commitment.





During
      the year ended September 30, 2005, the Company issued 4,762 shares of restricted
      common stock for legal services rendered. The fair value of the issued shares
      was $2,000, this amount was recorded as legal expense on the Company’s financial
      statements. During the year ended September 30, 2005, the Company issued 85,370
      shares of restricted common stock to the named executives as bonus compensation.
      The fair value of the issued shares was $35,100, this amount was recorded as
      compensation expense on the Company’s financial statements.


F-17


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





STOCK
      OPTIONS





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 to
      employees and directors under the year 2000 employee stock option plan. The
      Company granted no options or warrants during the fiscal year ended September
      30, 2005.





The
      option summary and changes during the year are presented below:





Number
                of
              Shares
            
            Weighted
              Average
              Exercise
              PriceOptions
                outstanding
              At
                September 30, 2003
            
            
            2,773,000
            
            $
            1.69Options
                granted
            
            
            2,476,000
            
            
            0.56Options
                expired
            
            
            (265,000
            )
            
            2.92Options
                outstanding
              At
                September 30, 2004
            
            
            4,984,000
            
            $
            1.07Options
                granted
            
            
            —
            
            
            —Options
                expired
            
            
            (380,750
            )
            
            1.10Options
                outstanding
              At
                September 30, 2005
            
            
            4,603,250
            
            $
            1.06Options
                exercisable
              At
                September 30, 2005
            
            
            3,359,500
            
            $
            1.23Options
                exercisable
              At
                September 30, 2004
            
            
            2,739,000
            
            $
            1.46





The
      following table summarizes information about employee’s stock options
      outstanding at September 30, 2005.





Outstanding
            
            ExercisableWeighted
                AverageExercise
              Price
            
            Options
            
            Life
              (Months)
            
            Exercise
              Price
            
            Options
            
            Exercise
              Price$
            0.41
            
            
            538,000
            
            
            51
            
            $
            0.41
            
            
            464,500
            
            $
            0.410.44
            
            
            548,750
            
            
            51
            
            
            0.44
            
            
            477,250
            
            
            0.440.52
            
            
            85,000
            
            
            51
            
            
            0.52
            
            
            85,000
            
            
            0.520.55
            
            
            302,000
            
            
            51
            
            
            0.55
            
            
            300,500
            
            
            0.550.56
            
            
            147,000
            
            
            51
            
            
            0.56
            
            
            147,000
            
            
            0.560.61
            
            
            340,000
            
            
            51
            
            
            0.61
            
            
            340,000
            
            
            0.610.63
            
            
            1,400,000
            
            
            51
            
            
            0.63
            
            
            350,000
            
            
            0.630.90
            
            
            70,000
            
            
            51
            
            
            0.90
            
            
            35,000
            
            
            0.900.95
            
            
            310,000
            
            
            51
            
            
            0.95
            
            
            307,750
            
            
            0.951.25
            
            
            25,000
            
            
            51
            
            
            1.25
            
            
            18,750
            
            
            1.251.30
            
            
            15,000
            
            
            51
            
            
            1.30
            
            
            11,250
            
            
            1.301.55
            
            
            300,000
            
            
            51
            
            
            1.55
            
            
            300,000
            
            
            1.553.38
            
            
            2,000
            
            
            51
            
            
            3.38
            
            
            2,000
            
            
            3.383.56
            
            
            54,000
            
            
            51
            
            
            3.56
            
            
            54,000
            
            
            3.563.87
            
            
            316,500
            
            
            51
            
            
            3.87
            
            
            316,500
            
            
            3.875.00
            
            
            150,000
            
            
            51
            
            
            5.00
            
            
            150,000
            
            
            5.
                00$
            0.41-$5.00
            
            
            4,603,250
            
            
            
            
            $
            1.06
            
            
            3,359,500
            
            $
            1.23




F-18





CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





The
      warrant summary and changes during the year are presented below:




Number
                of
              Shares
            
            Weighted
              Average
              Exercise
              PriceWarrants
                outstanding
              At
                September 30, 2003
            
            
            892,000
            
            $
            1.75Warrants
                granted
            
            
            4,658,337
            
            
            0.81Warrants
                expired
            
            
            (245,000
            )
            
            3.56Warrants
                outstanding
              At
                September 30, 2004
            
            
            5,305,337
            
            $
            0.84Warrants
                exercisable
              At
                September 30, 2004
            
            
            5,305,337
            
            $
            0.84Warrants
                granted
            
            
            —
            
            
            —Warrants
                expired
            
            
            (627,000
            )
            
            1.09Warrants
                outstanding
              At
                September 30, 2005
            
            
            4,678,337
            
            $
            0.80Warrants
                exercisable
              At
                September 30, 2005
            
            
            4,678,337
            
            $
            0.80




The
      following table summarizes information about warrants outstanding at September
      30, 2005.




Outstanding
                and Exercisable
              Weighted
                AverageExercise
              Price
            
            Warrants
            
            Life
              (Months)
            
            Exercise
              Price0.51
            
            
            20,000
            
            
            51
            
            $
            0.510.53
            
            
            1,415,094
            
            
            46
            
            
            0.530.74
            
            
            1,621,623
            
            
            39
            
            
            0.741.11
            
            
            1,621,620
            
            
            39
            
            
            1.11$
            0.51
                - $1.11
            
            
            4,678,337
            
            
            
            
            $
            0.80





NOTE
      6 -
      RELATED PARTY TRANSACTION





During
      the fiscal year ended September 30, 2003, the Company signed a consulting
      agreement with Mr. Walter Kornbluh (director), to provide consulting services
      to
      the Company reporting to the Chairman of the Board of Directors and the Chief
      Executive Officer. The contract is for two years beginning August 1, 2003,
      at a
      rate of $2,500 per month. During the fiscal years ended September 30, 2005
      and
      2004, the Company paid Mr. Kornbluh $29,450 and $30,750 in consulting fees,
      respectively.


F-19


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





During
      the fiscal years ended September 30, 2005 and 2004, the Company paid Mr. Steven
      Spector, Chairman of the Board consulting fees of $19,250 and $27,500 for
      services rendered during the fiscal year, respectively.





NOTE
      7 -
      COMMITMENTS AND CONTINGENCIES





OPERATING
      LEASES





The
      Company leases its facilities under noncancelable operating leases expiring
      at
      various dates through 2008. Future minimum rental payments required under
      noncancelable operating leases at September 30, 2005 are as
      follows:





Year
                Ending September 30,
            
            Amount2006
            
            
            119,2582007
            
            
            122,8352008
            
            
            41,347$
            283,440





Total
      rent expense for the years ended September 30, 2005 and 2004 amounted to
      $163,667 and $153,658, 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.





During
      the Fiscal year ended September 30, 2004, the Company entered into an at will
      employment agreement with Michael Skelton (C.E.O. & Director), Mr. Skelton
      will receive $14,000 per month salary for an indeterminate period of time.
      The
      contract may be terminated by the Company or Mr. Skelton at any time. If Mr.
      Skelton is terminated without cause he will receive salary and benefits for
      up
      to 6 months after termination. During the fiscal year ended September 30, 2005,
      the Company reimbursed Mr. Skelton $24,000 for apartment rental expense. The
      rental expense reimbursement expired during October 2005.


F-20


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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
      8 -
      INCOME TAXES





The
      Company’s net deferred tax assets consist of the following at September 30, 2005
      and 2004:




2005
            
            2004Benefit
                of operating loss caryforward
            
            $
            6,500,000
            
            $
            6,241,558Valuation
                allowance
            
            
            (6,500,000
            )
            
            (6,241,558
            )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
                30,2005
            
            2004Federal
                statutory tax rate
            
            
            (34
            %)
            
            (34
            %)State
                tax, net of federal benefit
            
            
            (6
            %)
            
            (6
            %)Permanent
                differences
            
            
            (1
            %)
            
            (1
            %)(40
            %)
            
            (40
            %)Change
                in valuation allowance
            
            
            40
            %
            
            40
            %Effective
                tax rate
            
            
            -
            %
            
            -
            %








At
      September 30, 2005, the Company has available net operating loss carry-forwards
      of approximately $17,600,000 for federal income tax purposes which expire in
      varying amounts through 2024. 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, 2005 were
      approximately $6,500,000 and primarily arise from the Company’s net operating
      loss carry forwards. A valuation allowance of approximately $6,500,000 was
      provided because management believes that the deferred tax assets are more
      likely than not to be unrealized.


F-21


CAMINOSOFT
      CORP.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





Note
      9  SUBSEQUENT
      EVENTS





Subsequent
      to September 30, 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)
      will be recorded on the Company financial statements as debt discount, and
      will
      be amortized over the term of the extension.





Subsequent
      to September 30, 2005, the Securities and Exchange Commission declared effective
      a registration statement for 17,960,204 shares of the Company’s common stock. Of
      the shares being offered, 3,680,272 shares are being offered by Fusion Capital
      to support a common stock purchase agreement entered into on January 31, 2005,
      between Fusion Capital Fund II, LLC, and the Company. Fusion Capital has agreed
      to purchase, on each trading day, $10,000 of our common stock up to an
      aggregate, under certain conditions, of $6,000,000. The remaining 14,279,932
      shares are being offered by funds managed by Renaissance Capital Group.
      Renaissance Capital Growth & Income Fund III, Inc., for 3,842,193 shares
      being offered, Renaissance US Growth & Investment Trust PLC for 4,090,527
      shares being offered and BFSUS Special Opportunities Trust PLC for 6,347,212
      shares being offered. Since 2000, the Company has issued 8,161,143 shares of
      our
      common stock to the Renaissance Funds in private placements at varying purchase
      prices





F-22