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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   -----------
                                   FORM 10-KSB
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      |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
                  For the fiscal year ended September 30, 2005
                                       or
      |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

         For the transition period from _____________ to _______________

                         Commission file 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 |_|

      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 |_|

      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 |_| 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.

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<PAGE>

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.

                                     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.

      In July 2002, our Managed Server HSM(TM) 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.

                                       2
<PAGE>

      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 Server(TM) " for NetWare,
"SnapShotServer(TM) " for NetWare, and "OFFSite Archive(TM) " 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 HSM(TM) 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
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      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
<PAGE>

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:

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

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


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<PAGE>

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

      o     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.

      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.


                                       6
<PAGE>

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(R) 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.


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<PAGE>

                                     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 Prices

Symbol "CMSF"                                      High                   Low
                                                   ----                   ---

October 1, 2003 - December 31, 2003                $0.45                 $0.36

January 2, 2004 - March 31, 2004                   $0.62                 $0.38

April 1, 2004 - June 30, 2004                      $0.63                 $0.40

July 1, 2004 - September 30, 2004                  $0.65                 $0.39

October 1, 2004 - December 31, 2004                $0.85                 $0.35

January 3, 2005 - March 31, 2005                   $0.75                 $0.42

April 1, 2005 - June 30, 2005                      $0.68                 $0.35

July 1, 2005 - September 30, 2005                  $1.90                 $0.55

October 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.



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<PAGE>

      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:

      o     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.

      o     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.



                                       9
<PAGE>

      o     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.

      o     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.

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:

      o     Inability to acquire new customers;

      o     Inability to complete successful implementation of our software;



                                       10
<PAGE>

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

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

      o     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:

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

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

      o     Success at enhancing our current product offerings; and



                                       11
<PAGE>

      o     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.

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.



                                       12
<PAGE>

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.

      o     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.

      o     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.

      o     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 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.


                                       13
<PAGE>

                             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.

      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.



                                       14
<PAGE>

      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.

      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.



                                       15
<PAGE>

      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
<PAGE>

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 Period
                                 Less than       1-3        4-5      After
                     Total        1-year        Years      Years    5 Years
                   ----------   ----------   ----------   -------   -------
Notes payable      $2,500,000   $  750,000   $1,750,000   $    --   $    --
Interest notes
     Payable          218,750      148,750       70,000
Employment
     Agreements       159,000      159,000
Operating 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.

      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.



                                       17
<PAGE>

      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)).

Item  8 A. CONTROLS AND PROCEDURES

      (a)   Evaluation of Disclosure Controls and Procedures

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



                                       18
<PAGE>

            Within the 90 days prior to this report, 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. 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 controls or in other
            factors that could have significantly affected those controls 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                 Position
----                             ---                 --------
Robert Pearson                    69                 Director

Steven Spector                    58                 Chairman of the Board

Robert Degan                      66                 Director

Walter Kornbluh                   74                 Director

Stephen Crosson                   46                 Chief Financial Officer,
                                                     Chief Operating Officer,
                                                     Secretary & Director

Russell Cleveland                 66                 Director

Michael Skelton                   57                 Chief Executive Officer,
                                                     Director

      Robert Pearson, Mr. Pearson, who became a director in 1997, has been
associated with Renaissance Capital Group ("RCG") since April 1994. RCG is the
investment advisor of the largest shareholders of the Company. Presently, Mr.
Pearson serves as a Senior Vice President and Director of Corporate Finance of
RCG. He served as Executive Vice President of the Thomas Group from May 1990 to
March 1994. For 25 years, Mr. Pearson held various senior management positions
at Texas Instruments, including Vice President of Finance from October 1983 to
June 1985. Mr. Pearson holds directorships in the following companies: 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.



                                       19
<PAGE>

      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.

      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.



                                       20
<PAGE>

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
<PAGE>

      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.

<TABLE>
<CAPTION>
                                                                                        Long Term
                                                                                      Compensation
                           ANNUAL COMPENSATION                                           Awards
-------------------------------------------------------------------------------        Securities
                             FISCAL YEAR                               ALL             Underlying
NAME AND                       ENDED                                  OTHER              Options
PRINCIPAL POSITION         SEPTEMBER 30,    SALARY       BONUS     COMPENSATION            SARs
------------------         ------------   ----------  ----------   ------------     ------------------
<S>                        <C>            <C>         <C>          <C>              <C>
Michael Skelton,               2005        $168,000     39,000           --                      --
Chief Executive Officer        2004        $168,000         --                            1,400,000
Stephen Crosson,               2005        $150,000     39,000           --                 100,000
Chief Financial Officer,       2004        $150,000         --           --                 300,000
Chief Operating Officer,       2003        $137,500         --           --                 200,000
Corporate Secretary &
Director
</TABLE>

                              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.

                       Number of     Percentage of
                       Securities    Total Options    Average
                       Underlying    Granted to       Exercise
                       Options       Employees        Price        Expiration
NAME                   Granted       In 2004          Per Share    Date
----                   ----------    -------------    ---------    ----------
Michael Skelton           --             --              --          --
Stephen Crosson           --             --              --          --


                                       22
<PAGE>

                   OPTION EXERCISES AND FISCAL YEAR-END VALUES

<TABLE>
<CAPTION>
                                                     Number of Securities               Value of
                                                    Underlying Unexercised       Unexercised in the Money
                      Shares                         Options at Year-End           Options at Year-End
                     Acquired         Value       --------------------------     --------------------------
Name               On Exercise       Realized     Exercisable  Unexercisable     Exercisable  Unexercisable
----               -----------       --------     -----------  -------------     -----------  -------------
<S>                <C>               <C>          <C>                            <C>
Michael Skelton         --              --             --           --               --            --
Stephen Crosson         --              --             --           --               --            --
</TABLE>

      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 OWNERS AND 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)
                              --------------------------------
                                NUMBER OF       PERCENTAGE OF
    NAME AND ADDRESS (2)         SHARES         OUTSTANDING(3)
    --------------------      ------------      --------------
Robert Pearson(4)                       --                  --

Robert Degan                       268,000(5)               --

Steven Spector                     357,600(6)               --

Walter Kornbluh                  1,079,245(7)             7.50

Stephen Crosson                  1,205,770(8)             8.30

Renaissance Capital Growth &     5,161,311(9)            34.02
Income Fund III, Inc.
  8080 N. Central Expressway
  Suite 210
  Dallas, Texas 75206

Renaissance US Growth &          4,210,527               27.88
Income Trust PLC
  8080 N. Central Expressway
  Suite 210
  Dallas, Texas 75206

BFSUS Special Opportunities      6,605,112               36.31
Trust PLC
  8080 N. Central Expressway
  Suite 210
  Dallas, Texas 75206

Michael Skelton                  1,441,785                9.64

All executive officers and
  directors as a group
  (5 persons)                    4,352,400               25.18



                                       23
<PAGE>

(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.

(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.



                                       24
<PAGE>

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.

<TABLE>
<CAPTION>
                                                                                 Number of securities remaining
                         Number of Securities to      Weighted-average           available for future issuance under
                         Be issued upon exercise      exercise price of          equity compensation plans (excluding
                         Of outstanding options,      outstanding options,       securities warrants and rights warrants
                         Warrants and rights          warrants and rights        and rights reflected in (a)) (a)(b)
                                 (a)                          (b)                               (c)
<S>                      <C>                           <C>                        <C>

Equity compensation
Plans approved by            9,281,587                        $0.93                          1,396,750
Security holders

Equity compensation
Plans not approved by               --                           --                                 --
Holders

   TOTAL                     9,281,587                        $0.93                          1,396,750
</TABLE>

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
<PAGE>

      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

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.



                                       26
<PAGE>

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

                                   SIGNATURES

      In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                 CAMINOSOFT CORP

                                 By /s/STEPHEN CROSSON
                                    ------------------------------------
                                    Chief 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.

<TABLE>
<CAPTION>
         Signature                          Capacity                        Date
         ---------                          --------                        ----
<S>                                         <C>                             <C>
/s/ STEVEN SPECTOR                          Chairman of the Board           December 27, 2005
--------------------------------------
Steven Spector

/s/ WALTER KORNBLUH                         Director                        December 27, 2005
--------------------------------------
Walter Kornbluh

/s/ STEPHEN CROSSON                         Chief Financial Officer,        December 27, 2005
--------------------------------------      Chief Operating Officer
Stephen Crosson                             Secretary, Treasurer
                                            and Director

/s/ ROBERT PEARSON                          Director                        December 27, 2005
--------------------------------------
Robert Pearson

/s/ ROBERT DEGAN                            Director                        December 27, 2005
--------------------------------------
Robert Degan

/s/ RUSSELL CLEVELAND                       Director                        December 27, 2005
--------------------------------------
Russell Cleveland

/s/ MICHAEL SKELTON                         Chief Executive Officer,        December 27, 2005
--------------------------------------      Director
Michael Skelton
</TABLE>

                                       27


<PAGE>

                                 CAMINOSOFT CORP

                                    CONTENTS


Report of Independent Registered Public Accounting Firm                     F-2

Consolidated Balance Sheets as of September 30, 2005
         and September 30, 2004                                             F-4

Consolidated Statements of Operations for the years ended
         September 30, 2005 and 2004                                        F-5

Consolidated Statements of Shareholders' Deficiency for the
         years ended September 30, 2005 and 2004                            F-6

Consolidated Statements of Cash Flows for the years ended
         September 30, 2005 and 2004                                        F-7

Notes to Consolidated Financial Statements                                  F-8


                                      F-1
<PAGE>

             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
<PAGE>

             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
<PAGE>

                                CAMINOSOFT CORP.
                           CONSOLIDATED BALANCE SHEETS

                                                         September 30,
                                                 ----------------------------
ASSETS                                               2005            2004
                                                 ------------    ------------

Current Assets:
  Cash and cash equivalents                      $    220,186    $    421,344
  Accounts receivable, net of allowance
    of $20,000 and $20,000 respectively             1,043,176         213,678
                                                 ------------    ------------

Total Current Assets                                1,263,362         635,022

Property and Equipment, net of accumulated
  depreciation of $50,678 and $31,730                  36,147          41,050


Software, net of accumulated amortization of,
     $597,041 and $478,829                            230,349         348,561

Deposits                                               11,282          11,642

Deferred Financing Costs                              262,075         187,075
                                                 ------------    ------------

Total Assets                                     $  1,803,215    $  1,223,350
                                                 ============    ============

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current Liabilities:
  Accounts payable                               $    191,285    $     91,319
  Accrued liabilities                                 116,238         145,733
  Deferred revenues                                 1,278,290         250,304
  Notes payable, current portion, net of
    discount of $129,980 and $0                       620,020              --
                                                 ------------    ------------

Total Current Liabilities                           2,205,833         487,356

Notes Payable, net of discount
     of $14,689 and $359,386                        1,735,311       2,140,614
                                                 ------------    ------------

Total Liabilities                                   3,941,144       2,627,970
                                                 ------------    ------------

  Common stock, no par value; authorized
    100,000,000 shares; issued and outstanding
    13,551,082 and 13,462,750 shares               17,687,461      17,650,361

  Accumulated 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
<PAGE>


                                CAMINOSOFT CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                             YEARS ENDED
                                            SEPTEMBER 30,
                                    ----------------------------

                                        2005            2004
                                    ------------    ------------

SALES                               $  2,637,201    $  1,253,610

COST OF SALES                            213,423         247,515
                                    ------------    ------------

GROSS PROFIT                           2,423,778       1,006,095
                                    ------------    ------------

OPERATING EXPENSES
  Sales and administrative             2,438,708       2,655,657
  Depreciation                            18,948           9,744
  Research & Development                 473,830         284,410
                                    ------------    ------------

Total Operating Expenses               2,931,486       2,949,811
                                    ------------    ------------

Loss From Operations                    (507,708)     (1,943,716)
                                    ------------    ------------

OTHER INCOME (EXPENSE)
  Interest expense                      (262,717)       (200,380)
  Interest income                             16              21
                                    ------------    ------------

Total 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      12,390,202
                                    ============    ============
Net loss per common share:
  (basic and diluted)               ($      0.06)   ($      0.17)
                                    ============    ============

           See accompanying notes to Consolidated Financial Statements

                                      F-5
<PAGE>

                                CAMINOSOFT CORP.
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                                      Common Stock
                                             ----------------------------     Accumulated
                                                Shares          Amount          Deficit          Total
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
Balance, 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                       1,200,000

Common stock issued for equity line               340,136         187,075                         187,075

Warrant to purchase common stock issued in
  connection with financing                                       311,953                         311,953

Net 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                           2,000

Common stock issued for employee bonus             83,570          35,100                          35,100

  Net loss                                                                       (770,409)       (770,409)
                                             ------------    ------------    ------------    ------------

Balance, at September 30, 2005                 13,551,082    $ 17,687,461    ($19,825,390)   ($ 2,137,929)
                                             ============    ============    ============    ============
</TABLE>


           See accompanying notes to Consolidated Financial Statements

                                      F-6
<PAGE>

                                                  CAMINOSOFT CORP.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED
                                                                    SEPTEMBER 30,
                                                            --------------------------
                                                               2005            2004
                                                            -----------    -----------
<S>                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                  ($  770,409)   ($2,144,075)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Change in allowance for doubtful accounts                    --         14,313
        Depreciation and amortization                           137,160        127,956
        Common stock issued for services and bonus               37,100             --
        Amortization of debt discount                           214,717         84,736
    Changes in operating assets and liabilities:
        Accounts receivable                                    (829,498)        23,046
        Prepaid expense                                         (75,000)         6,000
        Deposits and other                                          360            150
        Accounts 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 ACTIVITIES
  Acquisition of fixed assets                                   (14,045)       (29,664)
                                                            -----------    -----------

Net cash used in investing activities                           (14,045)       (29,664)
                                                            -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings on notes payable                                 125,000        750,000
    Repayment on notes payable                                 (125,000)            --
    Proceeds from the issuance of common stock                       --      1,200,000
                                                            -----------    -----------

Net cash provided by financing activities                            --      1,950,000
                                                            -----------    -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                      (201,158)       (15,438)

CASH AND CASH EQUIVALENTS, beginning of year                    421,344        436,782
                                                            -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                      $   220,186    $   421,344
                                                            ===========    ===========

Supplemental non-cash financing and investing activities
    Cash paid for:
      Interest                                              $   161,510    $   115,644
                                                            ===========    ===========
      Income taxes                                          $         0    $         0
                                                            ===========    ===========
</TABLE>

           See accompanying notes to Consolidated Financial Statements



                                      F-7
<PAGE>

                                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
<PAGE>

                                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
<PAGE>

                                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
<PAGE>
                                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.



                                      F-11
<PAGE>

                                CAMINOSOFT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.

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           2004
                                               -----------    -----------

Net loss, as reported                          $  (770,409)   $(2,144,075)
Add: Stock-based employee compensation
included 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
<PAGE>

                                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
<PAGE>

                                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         2004
                                --------    --------
Furniture and fixtures          $ 13,084    $ 13,084
Test and training equipment       73,741      59,696
                                --------    --------
                                  86,825      72,780
Less accumulated depreciation    (50,678)    (31,730)
                                --------    --------

                                $ 36,147    $ 41,050
                                ========    ========



                                      F-14
<PAGE>

                                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         2004
                                ---------    ---------

Software                        $ 827,390    $ 827,390

Less 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
<PAGE>

                                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
<PAGE>

                                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                                        $  750,000
                  2007                                         1,750,000
                  ----                                        ----------
Total                                                         $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.

STOCK OPTIONS



                                      F-17
<PAGE>

                                CAMINOSOFT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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:

                                            Weighted
                                            Average
                              Number of     Exercise
                               Shares        Price
                             ----------    ----------
Options outstanding
     At September 30, 2003    2,773,000    $     1.69

Options granted               2,476,000          0.56
Options expired                (265,000)         2.92
                             ----------    ----------

Options outstanding
     At September 30, 2004    4,984,000    $     1.07
                             ----------    ----------

Options granted                      --            --
Options expired                (380,750)         1.10
                             ----------    ----------

Options outstanding
     At September 30, 2005    4,603,250    $     1.06
                             ==========    ==========

Options exercisable
     At September 30, 2005    3,359,500    $     1.23
                             ==========    ==========

Options 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                           Exercisable
              ---------------------                ---------------------
                          Weighted
                           Average
Exercise                    Life       Exercise                Exercise
 Price         Options    (Months)      Price      Options      Price
----------   ----------   ---------   ---------   ---------   ---------
$     0.41      538,000          51   $    0.41     464,500   $    0.41
      0.44      548,750          51        0.44     477,250        0.44
      0.52       85,000          51        0.52      85,000        0.52
      0.55      302,000          51        0.55     300,500        0.55
      0.56      147,000          51        0.56     147,000        0.56
      0.61      340,000          51        0.61     340,000        0.61
      0.63    1,400,000          51        0.63     350,000        0.63
      0.90       70,000          51        0.90      35,000        0.90
      0.95      310,000          51        0.95     307,750        0.95
      1.25       25,000          51        1.25      18,750        1.25
      1.30       15,000          51        1.30      11,250        1.30
      1.55      300,000          51        1.55     300,000        1.55
      3.38        2,000          51        3.38       2,000        3.38
      3.56       54,000          51        3.56      54,000        3.56
      3.87      316,500          51        3.87     316,500        3.87
      5.00      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
<PAGE>

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

                                            Weighted
                                            Average
                             Number of      Exercise
                              Shares         Price
                             ----------    ----------
Warrants outstanding
     At September 30, 2003      892,000    $     1.75

Warrants granted              4,658,337          0.81
Warrants expired               (245,000)         3.56
                             ----------    ----------

Warrants outstanding
     At September 30, 2004    5,305,337    $     0.84
                             ----------    ----------

Warrants exercisable
     At September 30, 2004    5,305,337    $     0.84
                             ----------    ----------

Warrants granted                     --            --
Warrants expired               (627,000)         1.09
                             ----------    ----------

Warrants outstanding
     At September 30, 2005    4,678,337    $     0.80
                             ==========    ==========

Warrants 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 Average
Exercise                           Life              Exercise
 Price            Warrants         (Months)          Price
--------          ---------        ---------         ---------
  0.51               20,000              51          $    0.51
  0.53            1,415,094              46               0.53
  0.74            1,621,623              39               0.74
  1.11            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
<PAGE>


                                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,                Amount
-------------------------               --------

         2006                             119,258
         2007                             122,835
         2008                              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
<PAGE>

                                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           2004
                                        -----------    -----------
Benefit of operating loss caryforward   $ 6,500,000    $ 6,241,558

Valuation 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     2004
                                    ----     ----
Federal 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
<PAGE>

                                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