8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 8-K

CURRENT REPORTPursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 10, 2006

SPESCOM SOFTWARE INC.

(Exact name of registrant as specified in its charter)

California	0-15935	95-3634089
(State or other jurisdiction	(Commission file number)	(I.R.S. Employer
of incorporation)		Identification Number)
10052 Mesa Ridge Court, Suite 100		92121
San Diego, California		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:       (858) 625-3000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

On March 10, 2006, Spescom Software Inc. (the “Company”) completed a private placement with M.A.G. Capital, LLC (“MAG”), Monarch Pointe Fund, Ltd. (“Monarch”) and Mercator Momentum Fund III, L.P. (“MMF”). Under the terms of the financing, the Company issued 2,450 shares of Series I Convertible Preferred Stock (“Series I Preferred Stock”) and warrants, expiring March 10, 2009, to purchase 925,926 shares of common stock at $0.27 per share. The Series I Preferred Stock is convertible into no fewer than 11,666,667 shares of common stock and into no more than 33,793,104 shares of common stock. The Company received aggregate consideration of $500,000 and 1,950 shares of the Company’s Series H Convertible Preferred Stock, which have been cancelled, for the Series I Preferred Stock and warrants issued in the private placement.

Under the terms of the Series I Preferred Stock, if the Company has not entered into a binding agreement to consummate a consolidation, merger, reclassification of the stock of the Company (subject to certain exceptions), or disposition of all or substantially all of the assets of the Company on or before April 30, 2006, the holders of Series I Preferred Stock may, by the vote not later than December 31, 2006 of at least two-thirds of the then-outstanding shares, elect to have all of the outstanding shares of Series I Preferred Stock redeemed by the Company. Upon such election, the Company would be obligated to redeem the Series I Preferred Stock at an amount equal to $1,000 per share plus all declared but unpaid dividends. In the event that the holders of Series I Preferred Stock exercise their redemption right but the Company does not have sufficient funds available to redeem the Series I Preferred Stock in accordance with applicable law, the holders of Series I Preferred Stock as a class will be entitled to elect the smallest number of directors of the Company constituting a majority of the authorized number of directors.

Prior to the consummation of the private placement discussed above, the Company had issued shares of its Series H Convertible Preferred Stock and its Series G Convertible Preferred Stock in private placements with MAG and Monarch in October 2005 and November 2004. As disclosed in the Company’s report on Form 8-K dated October 31, 2005, on October 25, 2005, the Company entered into a definitive agreement respecting a private placement with Monarch and MAG and, pursuant to that agreement, issued 1,950 shares of Series H Convertible Preferred Stock and warrants, expiring October 25, 2008, to purchase 925,926 shares of common stock at $0.27 per share. As disclosed in the Company’s report on Form 8-K dated November 12, 2004, the Company completed a private placement with Monarch and MAG (which at that time was named Mercator Advisory Group, LLC) on November 5, 2004, pursuant to which the Company issued 2,200 shares of Series G Convertible Preferred Stock and warrants, expiring November 5, 2007, to purchase 2,750,000 shares of common stock at $0.44 per share.

On March 16, 2006, the Company issued a press release regarding the equity financing transaction. The full text of the Company’s press release is attached hereto as Exhibit 99.1.

Item 3.02. Unregistered Sales of Equity Securities.

The private placement with Monarch, MMF and MAG was conducted without registration under the Securities Act of 1933, as amended, in reliance upon the exemptions provided by Securities Act Rules 505 and 506, and Section 4(2) of such Act. The Company believes that each of Monarch, MMF and MAG is an accredited investor, as defined in Securities Act Rule 501. See Item 1.01 above for further information regarding the terms of the private placement.

Each share of Series I Preferred Stock is convertible into a number of shares of common stock determined by dividing $1,000 by the conversion price per share in effect at the time of conversion. The conversion price per share is equal to 85% of the market price (the volume-weighted average price of the

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Company’s common stock during the 5 immediately preceding trading days, subject to adjustment), provided that in no event shall the conversion price exceed a ceiling price of $0.21 per share, or be less than a floor price of $0.0725 per share. The conversion price is subject to adjustment in the case of any stock split, combination, capital reorganization, reclassification, consolidation or merger, and certain dividends. Subject to certain exceptions, the conversion price is also subject to weighted average anti-dilution adjustment in the case of an issuance of shares of common stock or securities exercisable for or convertible into common stock, at a per share price, exercise price or conversion price less than the conversion price then in effect.

The warrants issued in the private placement are exercisable at $0.27 per share, and have a term of exercise beginning on March 10, 2006 and expiring March 10, 2009. The number of shares issuable upon exercise and the per share exercise price of the warrants are subject to adjustment in the case of any stock dividend, stock split, combination, capital reorganization, reclassification, consolidation or merger.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

On March 9, 2006, in connection with the transaction described in Items 1.01 and 3.02 above, the Company filed a Certificate of Determination of Series I Convertible Preferred Stock with the Secretary of State of the State of California, establishing the rights, preferences, privileges and restrictions of the Series I Preferred Stock.

The Certificate of Determination of Series I Convertible Preferred Stock in the form submitted for filing is attached hereto as Exhibit 3.1.

Item 9.01. Financial Statements and Exhibits.

(d)Exhibits

Exhibit	Description
3.1	Certificate of Determination of Series I Convertible Preferred Stock
10.1	Subscription Agreement
10.2	Registration Rights Agreement
10.3	Warrant to Purchase Common Stock – M.A.G. Capital, LLC
10.4	Warrant to Purchase Common Stock – Monarch Pointe Fund, Ltd.
10.5	Warrant to Purchase Common Stock – Mercator Momentum Fund III, L.P.
99.1	Press release issued by Spescom Software Inc. on March 14, 2006

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:March 16, 2006

SPESCOM SOFTWARE INC.
By:	/s/ John W. Low
	John W. Low
	Chief Financial Officer

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EX-3.1

Exhibit 3.1

CERTIFICATE OF DETERMINATION OF PREFERENCES AND RIGHTS OF

SERIES I CONVERTIBLE PREFERRED STOCK

OF

Spescom Software Inc.

a California corporation

The undersigned, Keith Stentiford and John Low certify that:

1.They are the duly acting President and Secretary, respectively, of Spescom Software Inc., a corporation organized and existing under the Corporations Code of the State of California (the “Corporation”).

2.Pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Section 401 of Title 1 of the Corporations Code of the State of California, said Board of Directors, pursuant to a unanimous written consent executed as of March 9, 2006, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series I Convertible Preferred Stock, which resolution is as follows:

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Articles of Incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

(a)Determination. The series of Preferred Stock is hereby designated Series I Convertible Preferred Stock (the “Series I Preferred Stock”). The par value of each share of Series I Preferred Stock shall be $0.01.

(b)Authorized Shares. The number of authorized shares constituting the Series I Preferred Stock shall be Two Thousand Four Hundred Fifty (2,450) shares of such series.

(c)Dividend.

(i)Commencing on the date of issuance of the Series I Preferred Stock and continuing until the date that a registration statement for the underlying shares of common stock of the Corporation into which the Series I Preferred Stock may be converted hereunder (the “Registration Statement”) is deemed effective by the Securities and Exchange Commission (the “SEC”) the Corporation shall pay on each outstanding share of Series I Preferred Stock out of funds legally available therefor a monthly dividend (the “Dividend”), at an annual rate equal to the product of multiplying (i) $1,000.00 per share (the “Series I Purchase Price”), by six and three-quarters percent (6.75%). The Dividend shall be payable monthly in arrears on the last day

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of each month based on the numbers of shares of Series I Preferred Stock outstanding as of the first (1^st) day of such month. The holder of the Series I Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

(ii)All dividends payable on the Series I Preferred Stock shall be paid in cash to the extent permitted by applicable California law, and otherwise shall be paid in shares of Common Stock. In the event that the Board determines that any dividend accrued hereunder shall be paid in shares of Common Stock, the total number of shares to be issued shall equal the nearest whole number of shares (rounded up) obtained by dividing the amount of the dividend to be paid by the Market Price (as hereinafter defined) as of the date on which such dividend is declared by the Board of Directors.

(d)Liquidation Preference.

(i)Preference upon Liquidation, Dissolution or Winding Up. In the event of any dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of each outstanding share of Series I Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to shareholders, an amount equal to the greater of (A) an amount equal to the Series I Purchase Price (as adjusted for any stock splits, stock dividends or recapitalizations of the Series I Preferred Stock) and any declared but unpaid dividends on such shares, and (B) the amount such holders would be entitled to receive had such holders converted such shares of Series I Preferred Stock into shares of Common Stock in accordance with paragraph (g) hereof immediately prior to such distribution (but disregarding for the purposes of the calculation of the number of shares of Common Stock into which such Series I Preferred Stock would be convertible the limitation set forth in paragraph (g)(i) hereof or any other limitation upon the number of shares of Common Stock which provides that a holder thereof may not beneficially own more than 9.99% of the Corporation’s then-outstanding Common Stock) before any payment shall be made to the holders of the Common Stock, or any other stock of the Corporation ranking junior to the Series I Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Corporation. The holders of the Series I Preferred Stock shall be entitled to share ratably, in accordance with the respective preferential amounts payable on such stock, in any distribution which is not sufficient to pay in full the aggregate of the amounts payable thereon. If, upon any liquidation, dissolution or winding up of the Corporation, the assets to be distributed to the holders of the Series I Preferred Stock shall be insufficient to permit payment to such shareholders of the full preferential amounts aforesaid, then all of the assets of the Corporation available for distribution to shareholders shall be distributed to the holders of Series I Preferred Stock. Each holder of the Series I Preferred Stock shall be entitled to receive that portion of the assets available for distribution as the number of outstanding shares of Series I Preferred Stock held by such holder bears to the total number of shares of Series I Preferred Stock. Such payment shall constitute payment in full to the holders of the Series I Preferred Stock upon the liquidation, dissolution or winding up of the Corporation. After such payment shall have been made in full, or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of the holders of Series I Preferred Stock, so as to be available for such payment, such holders of

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Series I Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Corporation.

(ii)Consolidation, Merger and Other Corporate Events. A consolidation or merger of the Corporation (except into or with a subsidiary corporation) or a sale, lease, mortgage, pledge, exchange, transfer or other disposition of all or substantially all of the assets of the Corporation or any reclassification of the stock of the Corporation (other than a change in par value or from no par to par, or from par to no par or as the result of an event described in subsection (iv), (v), (vi) or (vii)  of paragraph (g)), shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph (d), provided, however, in the case of a merger, if (a) the Corporation is the surviving entity, (b) the Corporation’s shareholders hold a majority of the shares of the surviving entity, and (c) the Corporation’s directors hold a majority of the seats on the board of directors of the surviving entity, then such merger shall not be regarded as a liquidation, dissolution or winding up within the meaning of this paragraph (d). In no event shall the issuance of new classes of stock, whether senior, junior or on a parity with the Series I Preferred Stock, or any stock splits, be deemed a “reclassification” under or otherwise limited by the terms hereof.

(iii)Distribution of Cash and Other Assets. In the event of a liquidation, dissolution or winding up of the Corporation resulting in the availability of assets other than cash for distribution to the holders of the Series I Preferred Stock, the holders of the Series I Preferred Stock shall be entitled to a distribution of cash and/or assets equal to the value of the liquidation preference stated in subsection (i) of this paragraph (d), which valuation shall be made solely by the Board of Directors, and provided that such Board of Directors was acting in good faith, shall be conclusive.

(iv)Distribution to Junior Security Holders. After the payment or distribution to the holders of the Series I Preferred Stock of the full preferential amounts aforesaid, the holders of Series I Preferred Stock shall have no further rights in respect of such Series I Stock which shall become null and void, and the holders of the Common Stock then outstanding, or any other stock of the Corporation ranking as to assets upon liquidation, dissolution or winding up of the Corporation junior to the Series I Preferred Stock, shall be entitled to receive ratably all of the remaining assets of the Corporation.

(v)Preference; Priority. References to a stock that is “senior” to, on a “parity” with or “junior” to other stock as to liquidation shall refer, respectively, to rights of priority of one series or class of stock over another in the distribution of assets on any liquidation, dissolution or winding up of the Corporation. The Series I Preferred Stock shall be senior to the Common Stock of the Corporation and senior to any subsequent series of Preferred Stock issued by the Corporation.

(e)Redemption Right.

(i)Subject to the provisions of the California General Corporation Law and to any other applicable restrictions on the right of a corporation to redeem its own shares, all of the outstanding shares of Series I Preferred Stock shall be redeemed by the Corporation upon the vote not later than December 31, 2006, of the holders of at least two thirds of the then-outstanding shares of Series I Preferred Stock, but only if such vote occurs after April 30, 2006

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and on or before December 31, 2006, and only if the Corporation has not entered into a binding agreement to consummate a consolidation, merger, or other corporate event as described in paragraph (d)(ii) above on or before April 30, 2006.  Such vote shall specify a redemption date that shall not be less than sixty (60) days after the vote and after written notice of that vote is provided to the Corporation.

(ii)Upon redemption, the Corporation shall pay for each share of Series I Preferred Stock redeemed an amount in cash equal to $1,000 per share, plus an amount equal to all dividends thereon declared but unpaid on the date fixed for redemption. The total amount payable per share is hereinafter referred to as the “redemption price” below.

(iii)At least ten (10) days’ previous notice by mail, postage prepaid, shall be given to the holders of record of the Series I Preferred Stock to be redeemed as of the date of mailing or as of a record date lawfully fixed. Such notice shall be addressed to each such shareholder at the address of that holder appearing on the books of the Corporation or given by that holder to the Corporation for the purpose of notice, or if no such address appears or is so given, at the place where the principal office of the Corporation is located. The notice shall state the date fixed for redemption, the redemption price, the then current conversion price and the date of termination of the right to convert and shall call upon that holder to surrender to the Corporation on the date fixed and at the place designated in the notice the holder’s certificate or certificates representing the shares to be redeemed if those shares are certificated. On or after the date fixed for redemption and stated in that notice, each holder of Series I Preferred Stock called for redemption shall, if those shares are certificated, surrender the certificate evidencing the shares to the Corporation at the place designated in the notice and shall thereupon be entitled to receive payment of the redemption price. If the notice of redemption shall have been duly given, and if on the date fixed for redemption funds necessary for the redemption shall be available to pay the redemption price, then, notwithstanding that the certificates evidencing any Series I Preferred Stock so called for redemption shall not have been surrendered, any dividends with respect to the shares so called for redemption shall cease to accrue after the date fixed for redemption and all rights with respect to the shares so called for redemption shall after that date cease and terminate, except only the right of the holders to receive the redemption price without interest upon surrender of their certificates, if those shares of Series I Preferred Stock are certificated.

(iv)If, on or prior to any date fixed for redemption of shares of Series I Preferred Stock, the Corporation deposits, with any bank or trust company in California, as a trust fund:

(A)a sum sufficient to redeem, on the date fixed for redemption, the shares called for redemption;

(B)in the case of the redemption of any uncertificated securities, an officer’s certificate (as defined below) setting forth the holders thereof, registered on the books of the Corporation and the number of shares held by each; and

(C)irrevocable instructions and authority to the bank or trust company to give the notice of redemption (or to complete the giving of notice if commenced) and to pay, on or after the date fixed for redemption or prior thereto, the

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redemption price of the shares to their respective holders upon the surrender of their share certificates, in the case of uncertificated securities,

then from and after the date of deposit (although prior to the date fixed for redemption), the shares so called shall be redeemed and dividends on those shares shall cease to accrue after the date fixed for redemption. “Officer’s certificate” as used in the preceding sentence means a certificate signed and verified by the Chairman of the Board or the President or any Vice President, and by the Secretary, the Chief Financial Officer, the Treasurer, or any assistant secretary or assistant treasurer of the Corporation. The deposit shall constitute full payment of the shares to their holders and from and after the date of the deposit the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders with respect to those shares and shall have no rights with respect to them except the right to receive from the bank or trust company payment of the redemption price of the shares without interest, upon the surrender of their certificates if the shares redeemed are certificated and without surrender if the shares redeemed are uncertificated and the right to convert those shares as provided herein at any time up to but not after the close of business on the fifth day prior to the date fixed for redemption of those shares. Any moneys so deposited on account for the redemption price of Series I Preferred Stock converted after the making of the deposit shall be repaid to the Corporation immediately upon the conversion of the Series I Preferred Stock. Any interest accrued on any funds so deposited shall be the property of, and paid to, the Corporation. If the holders of Series I Preferred Stock so called for redemption shall not, at the end of six years from the date fixed for redemption, have claimed any funds so deposited, the bank or trust company shall thereupon pay over to the Corporation the unclaimed funds, and the bank or trust company shall thereafter be relieved of all responsibility to those holders, and those holders shall look only to the Corporation, for payment of the redemption price.

(f)Voting Rights.

(i)Except as otherwise required by law, the holders of shares of Series I Preferred Stock shall not have the right to vote on matters that come before the shareholders. If, however, the holders have exercised their redemption right in accordance with paragraph (e) above, but the Corporation does not have sufficient funds available to redeem the Series I Preferred Stock in accordance with the California General Corporation Law, then the holders of Series I Preferred Stock as a class shall be entitled to elect the smallest number of directors constituting a majority of the authorized number of directors, and the holders of Common Stock as a class shall be entitled to elect the remaining members of the Board of Directors.

(ii)At any time after the voting power to elect a majority of the Board of Directors shall have become vested in the holders of the Series I Preferred Stock as provided in this paragraph (f), the Secretary of the Corporation may, and upon the request of the record holders of at least fifty percent (50%) of the shares of Series I Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of the Series I Preferred Stock and the holders of the Common Stock for the election of directors, to be held at the place and upon the notice provided in the Bylaws of the Corporation for the holding of annual meetings. If the requested meeting shall not be so called within sixty (60) days after personal service of the request, or within fifteen (15) days after the mailing of the same by registered mail within the United States of America, then a person designated by the record holders of at least fifty percent (50%) of the Series I Preferred Stock

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then outstanding may call such a special meeting at the place and upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation. At any meeting so called or at any annual meeting held while the holders of the Series I Preferred Stock have the voting power to elect a majority of the Board of Directors, the holders of a majority of the then outstanding Series I Preferred Stock, present in person or by proxy, shall be sufficient to constitute a quorum for the election of directors as herein provided. The terms of office of all persons who are directors of the Corporation at the time of the meeting shall terminate upon the election at the meeting by the holders of the Series I Preferred Stock of the number of directors they are entitled to elect, and the persons so elected as directors by the holders of the Series I Preferred Stock, together with the persons, if any, elected as directors by the holders of the Common Stock, shall constitute the duly elected directors of the Corporation. In the event the holders of the Common Stock fail to elect the number of directors which they are entitled to elect at the meeting, the resulting vacancies may be filled by the directors who are elected.

(iii)Whenever the voting rights of the holders of the Series I Preferred Stock shall cease as provided in this paragraph (f), the term of office of all persons who are at the time directors of the Corporation shall terminate upon the election of their successors by the holders of the Common Stock.

(g)Conversion Rights. The holders of Series I Preferred Stock will have the following conversion rights:

(i)Right to Convert. Subject to and in compliance with the provisions of this paragraph (g), any issued and outstanding shares of Series I Preferred Stock may, at the option of the holder, be converted at any time or from time to time into fully paid and non-assessable shares of Common Stock at the conversion rate in effect at the time of conversion, determined as provided herein; provided, that a holder of Series I Preferred Stock may at any given time convert only up to that number of shares of Series I Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the Corporation’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of such holder and all persons affiliated with such holder is not more than 9.99% of the Corporation’s Common Stock then outstanding.

(ii)Mechanics of Conversion. Before any holder of Series I Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the number of shares of Series I Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder of Series I Preferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series I Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(iii)Conversion Price. The number of shares into which one share of Series I Preferred Stock shall be convertible shall be determined by dividing the Series I Purchase Price

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by the then existing Conversion Price (as set forth below) (the “Conversion Ratio”). The “Conversion Price” per share for the Series I Preferred Stock shall be equal to eighty-five percent (85%) of the Market Price (as defined below and subject to adjustment as described below), rounded to the nearest ten-thousandth; provided, however, that subject to the provisions of the next sentence, in no event shall the Conversion Price exceed $0.21 per share (the “Ceiling Price”), or be less than $0.0725 per share (the “Floor Price”) on the date the holder of the shares to be converted submits the notice of conversion set forth in paragraph (g)(ii) above. The Floor Price and Ceiling Price shall be further adjusted upon the occurrence of any event in paragraph (g) (iv)-(vi).

The “Market Price” shall equal the volume weighted average price of the Corporation’s Common Stock during the 5 immediately preceding trading days (which may include trading days prior to the original issue date), provided, that such 5 trading day period shall be extended by the number of trading days during such period on which (i) trading in the Corporation’s Common Stock is suspended by, or not traded on, the OTC Bulletin Board or a subsequent market on which the common stock is then traded, or (ii) after the date of Registration Statement is declared effective by the SEC, the prospectus included in the Registration Statement may not be used by the holder for resale of underlying shares of common stock, is suspended by, or not traded on, the OTC Bulletin Board or a subsequent market on which the common stock is then listed, or (iii) after the date the Registration Statement is declared effective by the SEC, the prospectus included in the Registration Statement for the underlying shares may not be used by the holder for the resale of underlying shares of common stock (provided such inability to use the prospectus is not (a) caused by the holder (b) as a result of the Company’s filing of post-effective amendments to the Registration Statement or (c) the termination of the Company’s obligation to use reasonable efforts to maintain the effectiveness of the Registration Statement in accordance with the terms hereof).

For purposes of illustration only, using the Ceiling Price of $0.21 per share, if the Market Price is $0.30 at time of conversion, the Conversion Ratio will be $1,000.00/$0.21, allowing the 2,450 shares of Series I Preferred Stock to be converted into 11,666,667 shares of Common Stock.

If an Event of Default occurs, as defined in the Subscription Agreement for the Series I Preferred Stock, the Conversion Price shall be reduced to seventy-five percent (75%) of the Market Price, provided, however, that in no event shall the Conversion Price exceed the Ceiling Price, or be less than the Floor Price.

(iv)Adjustment for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time after the date shares of the Series I Preferred Stock are first issued (the “Original Issue Date”), effect a subdivision of the outstanding Common Stock, the Floor Price and Ceiling Price in effect immediately prior thereto shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Floor Price and Ceiling Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph (g)(iv) shall become effective at the close of business on the date the subdivision or combination becomes effective.

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(v)Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Issue Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Floor Price and Ceiling Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Floor Price and Ceiling Price then in effect by a fraction:

(A)the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(B)the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Floor Price and Ceiling Price shall be recomputed accordingly as of the close of business on such record date and thereafter, the Floor Price and Ceiling Price shall be adjusted pursuant to this paragraph (g)(v) as of the time of actual payment of such dividends or distributions.

(vi)Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series I Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series I Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this paragraph (g) with respect to the rights of the holders of the Series I Preferred Stock.

(vii)Adjustment for Reclassification Exchange or Substitution. If the Common Stock issuable upon the conversion of the Series I Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this paragraph (g)), then and in each such event the holder of each share of Series I Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series I Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

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(viii)Reorganization, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this paragraph (g)) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series I Preferred Stock shall thereafter be entitled to receive upon conversion of such Series I Preferred Stock, the number of shares of stock or other securities or property of the Corporation or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this paragraph (g) with respect to the rights of the holders of the Series I Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this paragraph (g) (including adjustment of the Floor Price and Ceiling Price then in effect and the number of shares purchasable upon conversion of the Series I Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

(ix)Sale of Common Stock or Securities Convertible Into Common Stock. In the event, after the date upon which the Series I Preferred Stock is first issued, the Corporation sells Common Stock or other securities convertible into or exercisable for Common Stock at a per share price, exercise price or conversion price lower than the Conversion Price then in effect (other than (1) shares issued in connection with an acquisition of the securities, assets or business of another company, joint ventures, licensing, leasing, commercial credit arrangements and strategic partnering arrangements, (2) stock options granted at a price not below fair market value on the grant date to employees, officers, directors and consultants, (3) shares of Common Stock issued upon conversion of the Series I Preferred Stock authorized herein, and (4) shares issued as a dividend or distribution on Series I Preferred or any event for which adjustment is made pursuant to sections g(iv), g(v), and g(vi) hereof), such securities to be defined as “Additional Shares of Common Stock”), then and in such event, the Conversion Price shall be reduced, concurrently with such issue, to a price determined by multiplying the Conversion Price that would otherwise be in effect in accordance with Section (g)(iii) hereof, by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; and provided further that for purposes of this subsection (iv), all shares of Common Stock issuable upon conversion of outstanding Series I Preferred Stock and outstanding evidences of indebtedness, shares (other than the Series I Preferred Stock and Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock or exercise of outstanding rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or any such securities convertible into or exchangeable for Common Stock, shall be deemed to be outstanding.

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(x)Certificate of Adjustment. In each case of an adjustment or readjustment of the Floor Price and Ceiling Price or the securities issuable upon conversion of the Series I Preferred Stock, the Corporation shall compute such adjustment or readjustment in accordance herewith and the Corporation’s Chief Financial Officer shall prepare and sign a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of the Series I Preferred Stock at the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.

(xi)Notices of Record Date. In the event of (A) any taking by the Corporation of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (B) any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation or any transfer of all or substantially all of the assets of the Corporation to any other corporation, entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series I Preferred Stock at least 10 days prior to the record date specified therein, a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (3) the time, if any is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares, of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

(xii)Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series I Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay the holder of the fractional share an amount of cash equal to the fraction times the fair value of one share of Common Stock.

(xiii)Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series I Preferred Stock, Thirty Three Million Seven Hundred Ninety Three Thousand One Hundred Four (33,793,104) shares of Common Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series I Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(xiv)Notices. Any notice required by the provisions of this paragraph (g) to be given to the holders of shares of Series I Preferred Stock shall be deemed given (A) if deposited in the United States mail, postage prepaid, or (B) if given by any other reliable or generally accepted means (including by facsimile or by a nationally recognized overnight courier service), in each case addressed to each holder of record at his address (or facsimile number) appearing on the books of the Corporation.

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(xv)Payment of Taxes. The Corporation will pay all transfer taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series I Preferred Stock.

(xvi)No Dilution or Impairment. The Corporation shall not amend its Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, without the approval of a majority of the then outstanding Series I Preferred Stock.

(h)No Re-issuance of Preferred Stock. Any shares of Series I Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series I Preferred Stock that the Corporation shall be authorized to issue. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any Certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

(i)Severability. If any right, preference or limitation of the Series I Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

3.The number of authorized shares of Preferred Stock of the Corporation is 1,000,000, and the number of shares of Series I Stock, none of which has been issued, is 2,450.

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Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed at San Diego, California, on this 9th day of March, 2006.

/s/ Keith Stentiford

Keith Stentiford, President

/s/ John W. Low

John W. Low, Secretary

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EX-10.1

Exhibit 10.1

Spescom Software Inc.
Shares of Series I Convertible Preferred Stock and Common Stock Warrants

SUBSCRIPTION AGREEMENT

March 10, 2006

M.A.G. Capital, LLC

Monarch Pointe Fund, Ltd.

Mercator Momentum Fund III, L.P.

555 South Flower Street, Suite 4200
Los Angeles, California 90071

Ladies and Gentlemen:

Spescom Software Inc., a California corporation (the “Company”), hereby confirms its agreement with Monarch Pointe Fund, Ltd. (“Monarch”), Mercator Momentum Fund III, L.P. (“MMF” and, together with Monarch, the “Purchasers”) and M.A.G. Capital, LLC (“MAG”), as set forth below.

1.The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell (a) to the Purchasers an aggregate of Two Thousand Four Hundred Fifty (2,450) shares of its Series I Convertible Preferred Stock (the “Series I Stock”), which shall be convertible into shares (the “Conversion Shares”) of the Company’s Common Stock (the “Common Stock”) in accordance with the formula set forth in the Certificate of Determination further described below and (b) to the Purchasers and MAG, warrants, substantially in the form attached hereto as Exhibit A (the “Warrants”), to acquire up to an aggregate of 925,926 shares of Common Stock (the “Warrant Shares”), in accordance with the terms and conditions set forth in Section 3 hereof. The rights, preferences and privileges of the Series I Stock are as set forth in the Certificate of Determination of Series I Preferred Stock, as amended, as filed with the Secretary of State of the State of California (the “Certificate of Determination”) in the form attached hereto as Exhibit B. The number of Conversion Shares and Warrant Shares that either of the Purchasers or MAG may acquire at any time is subject to limitation in the Certificate of Determination and in the Warrants, respectively, so that the aggregate number of shares of Common Stock of which such Purchaser or MAG and all persons affiliated with such Purchaser or MAG have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company’s then outstanding Common Stock.

The Series I Stock and the Warrants are sometimes herein collectively referred to as the “Securities.”  This Agreement, the Certificate of Determination, and the Registration Rights Agreement by and among the Company, the Purchasers and MAG, entered into concurrently herewith and attached hereto as Exhibit C, are sometimes herein collectively referred to as the “Transaction Documents.”

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The Securities will be offered and sold to the Purchasers and MAG without such offers and sales being registered under the Securities Act of 1933, as amended (together with the rules and regulations of the Securities and Exchange Commission (the “SEC”) promulgated thereunder, the “Securities Act”), in reliance on exemptions therefrom.

In connection with the sale of the Securities, the Company has made available (including electronically via the SEC’s EDGAR system) to the Purchasers and MAG its periodic and current reports, forms, schedules, proxy statements and other documents (including exhibits and all other information incorporated by reference) filed with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s Annual Report on Form 10-K for the year ended September 30, 2005, as amended, its Quarterly Report on Form 10-Q for the quarter ended December 31, 2005 and all subsequent reports, forms, schedules, statements, documents, filings and amendments filed by the Company with the SEC under the Exchange Act, are collectively referred to as the “Disclosure Documents.”  All references in this Agreement to financial statements and schedules and other information which is “contained,” “included” or “stated” in the Disclosure Documents (or other references of like import) shall be deemed to mean and include all such financial statements and schedules, documents, exhibits and other information which is incorporated by reference in the Disclosure Documents.

2.Representations and Warranties of the Company. Except as set forth on the Disclosure Schedule (the “Disclosure Schedule”) delivered by the Company to Purchasers and MAG on the Closing Date (as defined in Section 3 below), the Company represents and warrants to and agrees with Purchasers and MAG as follows:

(a)The Disclosure Documents as of their respective dates did not, and will not (after giving effect to any updated disclosures therein) as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Disclosure Documents and the documents incorporated or deemed to be incorporated by reference therein, at the time they were filed or hereafter are filed with the SEC, complied and will comply, at the time of filing, in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may be, as applicable.

(b)Schedule A attached hereto sets forth a complete list of the subsidiaries of the Company (the “Subsidiaries”). Each of the Company and its Subsidiaries has been duly incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or other), properties or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a “Material Adverse Effect”); as of the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in on Schedule B attached hereto (the “Company Capitalization”); except as set forth in the Disclosure Documents or on Schedule A, the Company does not have any subsidiaries or own

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directly or indirectly any of the capital stock or other equity or long-term debt securities of or have any equity interest in any other person; all of the outstanding shares of capital stock of the Company and the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights and are owned free and clear of all liens, encumbrances, equities, and restrictions on transferability (other than those imposed by the Securities Act and the state securities or “Blue Sky” laws) or voting; except as set forth in the Disclosure Documents, all of the outstanding shares of capital stock of the Subsidiaries are owned, directly or indirectly, by the Company; except as set forth in the Disclosure Documents, no options, warrants or other rights to purchase from the Company or any Subsidiary, agreements or other obligations of the Company or any Subsidiary to issue or other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any Subsidiary are outstanding; and except as set forth in the Disclosure Documents or on Schedule C, there is no agreement, understanding or arrangement among the Company or any Subsidiary and each of their respective stockholders or any other person relating to the ownership or disposition of any capital stock of the Company or any Subsidiary or the election of directors of the Company or any Subsidiary or the governance of the Company’s or any Subsidiary’s affairs, and, if any, such agreements, understandings and arrangements will not be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Transaction Documents.

(c)The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents. Each of the Transaction Documents has been duly and validly authorized by the Company and, when executed and delivered by the Company, will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally or (ii) general principles of equity and the discretion of the court before which any proceeding therefore may be brought (regardless of whether such enforcement is considered in a proceeding at law or in equity) (collectively, the “Enforceability Exceptions”).

(d)The Series I Stock and the Warrants have been duly authorized and, when issued upon payment thereof in accordance with this Agreement, will have been validly issued, fully paid and non-assessable. The Conversion Shares issuable have been duly authorized and validly reserved for issuance, and when issued upon conversion of the Series I Stock in accordance with the terms of the Certificate of Determination, will have been validly issued, fully paid and non-assessable. The Warrant Shares have been duly authorized and validly reserved for issuance, and when issued upon exercise of the Warrants in accordance with the terms thereof, will have been validly issued, fully paid and non-assessable. The Common Stock of the Company conforms to the description thereof contained in the Disclosure Documents. The stockholders of the Company have no preemptive or similar rights with respect to the Common Stock.

(e)No consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the performance of the Transaction Documents by the Company or for the consummation by the Company of any of the transactions contemplated thereby, or the application of the proceeds of

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the issuance of the Securities as described in this Agreement, except for such consents, approvals, authorizations, licenses, qualifications, exemptions or orders (i) as have been obtained on or prior to the Closing Date, (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required, or (iii) the failure to obtain which would not, individually or in the aggregate, have a Material Adverse Effect.

(f)Except as set forth on Schedule D, none of the Company or the Subsidiaries is (i) in material violation of its articles of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which breach or violation would, individually or in the aggregate, have a Material Adverse Effect, or (iii) except as described in the Disclosure Documents, in default (nor has any event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect.

(g)The execution, delivery and performance by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby and the fulfillment of the terms thereof will not (i) violate, conflict with or constitute or result in a breach of or a default under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (A) the terms or provisions of any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any of their respective properties or assets are subject, (B) the Certificate of Incorporation or bylaws of any of the Company or the Subsidiaries (or similar organizational document) or (C) any statute, judgment, decree, order, rule or regulation of any court or governmental agency or other body applicable to the Company or the Subsidiaries or any of their respective properties or assets or (ii) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect.

(h)The audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows and changes in shareholders’ equity of the entities, at the dates and for the periods to which they relate and have been prepared in all material respects in accordance with generally accepted accounting principles applied on a consistent basis; the interim un-audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations and cash flows of the entities, at the dates and for the periods to which they relate subject to year-end audit adjustments and have been prepared in all material respects in accordance with generally accepted accounting principles applied on a consistent basis with the audited consolidated financial statements included therein; the selected financial and statistical data included in the Disclosure Documents present fairly the information shown therein and have been prepared and compiled in all material respects on a basis consistent with the audited financial statements included therein, except as otherwise stated therein; and

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each of the auditors previously engaged by the Company or to be engaged in the future by the Company is an independent certified public accountant as required by the Securities Act for an offering registered thereunder.

(i)Except as described in the Disclosure Documents, there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation, governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which their respective properties or assets are subject, before or brought by any court, arbitrator or governmental agency or body, that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the application of the proceeds therefrom or the other transactions described in the Disclosure Documents.

(j)The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how that are necessary to conduct their businesses as described in the Disclosure Documents. None of the Company or the Subsidiaries has received any written notice of infringement of (or knows of any such infringement of) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would, individually or in the aggregate, have a Material Adverse Effect.

(k)Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Disclosure Documents (“Permits”), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect and none of the Company or the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Disclosure Documents and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect.

(l)Subsequent to December 31, 2005 and except as described in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005 or in the Company’s Annual Report on Form 10-K for the year ended September 30, 2005, as amended, (i) the Company and the Subsidiaries have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of capital stock by the Company), (iii) there has not been any material increase in the long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has not occurred any event or condition, individually or in the aggregate, that has a Material Adverse Effect, and (v) the Company and the Subsidiaries have not sustained any material loss or

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interference with respect to their respective businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding.

(m)There are no material legal or governmental proceedings nor are there any material contracts or other documents required by the Securities Act to be described in a prospectus that are not described in the Disclosure Documents. Except as described in the Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the contracts described in the Disclosure Documents, has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except for such defaults or breaches as would not, individually or in the aggregate, have a Material Adverse Effect.

(n)Each of the Company and the Subsidiaries has good and marketable title to all real property described in the Disclosure Documents as being owned by it and good and marketable title to the leasehold estate in the real property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Disclosure Documents or such as would not, individually or in the aggregate, have a Material Adverse Effect. All material leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or any such Subsidiary, are, to the knowledge of the Company, valid and enforceable against the other party or parties thereto and are in full force and effect, in each case subject to the Enforceability Exceptions.

(o)Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies which the Company or any Subsidiary is contesting in good faith and for which adequate reserves have been provided in accordance with generally accepted accounting principles, there is no tax deficiency that has been asserted against the Company or any Subsidiary that would, individually or in the aggregate, have a Material Adverse Effect.

(p)None of the Company or the Subsidiaries is, or immediately after the Closing Date will be, required to register as an “investment company” or a company “controlled by” an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “Investment Company Act”).

(q)Since January 2002 none of the Company or the Subsidiaries or, to the knowledge of any of such entities’ directors, officers, employees, agents or controlling persons, has taken, directly or indirectly, any action for the purpose of causing the stabilization or manipulation of the price of the Common Stock.

(r)None of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) directly, or through any agent, engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or engaged in any other conduct that would cause such offering to be constitute a

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public offering within the meaning of Section 4(2) of the Securities Act. Assuming the accuracy of the representations and warranties of the Purchasers in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Securities Act.

(s)There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the Subsidiaries which is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened.

(t)Each of the Company and the Subsidiaries carries general liability insurance coverage comparable to other companies of its size and similar business.

(u)Each of the Company and the Subsidiaries maintains internal accounting controls which provide reasonable assurance that (i) transactions are executed in accordance with management’s authorization, (ii) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, and (iii) access to its material assets is permitted only in accordance with management’s authorization and (iv) the values and amounts reported for its material assets are compared with its existing assets at reasonable intervals.

(v)The Company does not know of any claims for services, either in the nature of a finder’s fee or financial advisory fee, with respect to the offering of the Securities and the transactions contemplated by the Transaction Documents.

(w)The Common Stock is traded on the Over-the-Counter Bulletin Board (the “OTC BB”). Except as described in the Disclosure Documents, the Company currently is not in violation of, and the consummation of the transactions contemplated by the Transaction Documents will not violate, any rule of the National Association of Securities Dealers.

(x)The Company is eligible to use Form S-1 for the resale of the Conversion Shares by Purchasers or their transferees and the Warrant Shares by Purchasers, MAG or their transferees. The Company has no reason to believe that it is not capable of satisfying the registration or qualification requirements (or an exemption therefrom) necessary to permit the resale of the Conversion Shares and the Warrant Shares under the securities or “blue sky” laws of any jurisdiction within the United States.

(y)Set forth on Schedule E is the Company’s intended use of the proceeds from this transaction.

(z)Except as set forth on Schedule F, to the Company’s knowledge, none of the officers or directors of the Company (i) has been convicted of any crime (other than traffic violations or misdemeanors not involving fraud) or is currently under investigation or indictment for any such crime, (ii) has been found by a court or governmental agency to have violated any securities or commodities law or to have committed fraud or is currently a party to any legal proceeding in which either is alleged, (iii) has been the subject of a proceeding under the bankruptcy laws or any similar state laws, or (iv) has been an officer, director, general partner, or managing member of an entity which has been the subject of such a proceeding.

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3.Purchase, Sale, Exchange and Delivery of the Securities. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, (i) the Company agrees to issue and sell to Monarch, and Monarch agrees to purchase from the Company, a total of 2,320 shares of Series I Stock as follows: (A) 370 shares of Series I Stock at $1,000.00 per share as set forth below, and (B) 1,950 shares of Series I Stock in exchange for 1,950 shares of Series H Convertible Preferred Stock of the Company owned by Monarch, represented by stock certificates nos. H-01 and H-02; and (ii) the Company agrees to issue and sell to MMF, and MMF agrees to purchase from the Company, a total of 130 shares of Series I Stock at $1,000.00 per share as set forth below. In connection with the purchase and sale of Series I Stock, for no additional consideration, the Purchasers and MAG will receive Warrants to purchase an aggregate of 925,926 shares of Common Stock, as set forth below.

The closing of the transactions described herein (the “Closing”) shall take place at a time and on a date (the “Closing Date”) to be specified by the parties, which will be no later than 5:00 p.m. (Pacific time) on March 10, 2006. On the Closing Date, the Company shall deliver (i) a certificate in definitive form for 2,320 shares of Series I Stock issued to Monarch, (ii) a certificate in definitive form for 130 shares of Series I Stock issued to MMF, (iii) Warrants in the amounts of (A) 342,593 to Monarch, (B) 120,370 to MMF, and (C) 462,963 to MAG, and (iv) the Subscription Agreement, Certificate of Determination and Registration Rights Agreement, each duly executed on behalf of the Company. On the Closing Date, (i) Monarch shall deliver Three Hundred Seventy Thousand Dollars ($370,000) and MMF shall deliver One Hundred Thirty Thousand Dollars ($130,000)  (such two amounts together, the “Purchase Price”), in each case, by wire transfer of immediately available funds to an account as directed by the Company, and (ii) each of the Purchasers and MAG shall deliver the Subscription Agreement and Registration Rights Agreement, each duly executed on behalf of each such Purchaser and MAG. The Closing will occur when all documents and instruments necessary or appropriate to effect the transactions contemplated herein are exchanged by the parties and all actions taken at the Closing will be deemed to be taken simultaneously. Within five (5) business days following the Closing, Monarch shall deliver stock certificates nos. H-01 and H-02 in the aggregate amount of One Thousand Nine Hundred Fifty (1,950) shares of Series H Convertible Preferred Stock of the Company; provided, however, that notwithstanding the physical delivery of such stock certificates following the Closing, such stock certificates shall be deemed cancelled and the shares of Series H Convertible Preferred Stock represented thereby shall be deemed to no longer be outstanding as of the Closing.

4.Certain Covenants of the Company. The Company covenants and agrees with Purchasers as follows:

(a)None of the Company or any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any “security” (as defined in the Securities Act) which would be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities.

(b)The Company will not become, at any time prior to the expiration of three years after the Closing Date, an open-end investment company, unit investment trust,

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closed-end investment company or face-amount certificate company that is or is required to be registered under the Investment Company Act.

(c)None of the proceeds of the Series I Stock will be used to reduce or retire any insider note or convertible debt held by an officer or director of the Company.

(d)Subject to Section 10 of this Agreement, the Conversion Shares and the Warrant Shares will be eligible for trading on the OTC BB or such market on which the Company’s shares are subsequently listed or traded, immediately following the effectiveness of the Registration Statement.

(e)The Company will use reasonable efforts to do and perform all things required to be done and performed by it under this Agreement and the other Transaction Documents and to satisfy all conditions precedent on its part to the obligations of the Purchasers to purchase and accept delivery of the Securities.

5.Conditions of the Purchasers’ Obligations. The obligations of the Purchasers to consummate the Closing is subject to the following conditions unless waived in writing by the Purchasers:

(a)The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects (other than representations and warranties with a Material Adverse Effect qualifier, which shall be true and correct as written) on and as of the Closing Date; the Company shall have complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date.

(b)None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof; and there shall not have been any legal action, order, decree or other administrative proceeding instituted or, to the Company’s knowledge, threatened against the Company or against either Purchaser relating to the issuance of the Securities or either Purchaser’s activities in connection therewith or any other transactions contemplated by this Agreement, the other Transaction Documents or the Disclosure Documents.

(c)The Purchasers shall have received an opinion of Gibson, Dunn & Crutcher LLP with respect to the authorization of the Series I Stock, the Conversion Shares, the Warrants and the Warrant Shares and other customary matters in the form attached hereto as Exhibit D.

6.Representations and Warranties of the Purchasers.

(a)Each of the Purchasers and MAG represents and warrants to the Company that the Securities to be acquired by it hereunder (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise of the Series I Stock or the Warrants, respectively) are being acquired for their own account for investment and with no

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intention of distributing or reselling such Securities (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be) or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any State. Nothing in this Agreement, however, shall prejudice or otherwise limit the right of each Purchaser or MAG to sell or otherwise dispose of all or any part of such Conversion Shares or Warrant Shares under an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration. By executing this Agreement, each Purchaser and MAG further represents that such Purchaser or MAG, as the case may be, does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any person with respect to any of the Securities.

(b)Each of the Purchasers and MAG understands that the Securities (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be) have not been registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred except (a) pursuant to an exemption from registration under the Securities Act (and, if requested by the Company, based upon an opinion of counsel acceptable to the Company) or pursuant to an effective registration statement under the Securities Act and (b) in accordance with all applicable securities laws of the states of the United States and other jurisdictions.

Each of the Purchasers and MAG agrees to the imprinting, so long as appropriate, of the following legend on the Securities (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be):

The shares of stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or otherwise transferred (“transferred”) in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

The legend set forth above may be removed if and when the Conversion Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an effective registration statement under the Securities Act or in the opinion of counsel to the Company experienced in the area of United States Federal securities laws such legends are no longer required under applicable requirements of the Securities Act. The Series I Stock, the Warrants, the Conversion Shares and the Warrant Shares shall also bear any other legends required by applicable Federal or state securities laws, which legends may be removed when in the opinion of counsel to the Company experienced in the applicable securities laws, the same are no longer required under the applicable requirements of such securities laws. The Company agrees that it will provide either Purchaser or MAG, upon request, with a substitute certificate, not bearing such legend at such time as such legend is no longer applicable. Each of the Purchasers and MAG agrees that, in connection with any transfer of the Conversion Shares or the Warrant Shares by it pursuant to an effective registration statement under the Securities Act, such Purchaser or MAG, as the case

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may be, will comply with all prospectus delivery requirements of the Securities Act. The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of the Series I Stock, the Warrants, the Conversion Shares or the Warrant Shares.

(c)Each of the Purchasers and MAG represents and warrants to the Company that it is an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act and that neither such Purchaser nor MAG is an “underwriter” within the meaning of Section 2(11) of the Securities Act. Each of the Purchasers and MAG represents and warrants to the Company that neither such Purchaser nor MAG learned of the opportunity to acquire Securities or any other security issuable by the Company through any form of general advertising or public solicitation.

(d)Each of the Purchasers and MAG represents and warrants to the Company that it has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, having been represented by counsel, and has so evaluated the merits and risks of such investment and is able to bear the economic risk of such investment and, at the present time, is able to afford a complete loss of such investment.

(e)Each of the Purchasers and MAG represents and warrants to the Company that its overall commitment to investments which are not readily marketable is not disproportionate to its net worth, and its purchase of the Securities will not cause such overall commitment to become excessive.

(f)Each of the Purchasers and MAG recognizes that the purchase of the Securities involves a high degree of risk.

(g)Each of the Purchasers and MAG represents and warrants to the Company that all information it has provided to the Company including, but not limited to, its financial position and its knowledge of financial and business matters is true, correct and complete as of the date of execution of this Subscription Agreement. Each of the Purchasers and MAG undertakes to provide promptly to the Company written notice of any material changes in its financial position or otherwise, and such information shall be true, correct and complete as of the date given. Each of the Purchasers and MAG understands that the Company will rely to a material degree upon the representations contained therein.

(h)Each of the Purchasers and MAG represents and warrants to the Company that (i) the purchase of the Securities to be purchased by it has been duly and properly authorized and this Agreement has been duly executed and delivered by it or on its behalf and constitutes the valid and legally binding obligation of such Purchaser or MAG, enforceable against such Purchaser or MAG in accordance with its terms, subject to the Enforceability Exceptions, (ii) the purchase of the Securities to be purchased by it does not conflict with or violate its charter, by-laws or any law, regulation or court order applicable to it; and (iii) the purchase of the Securities to be purchased by it does not impose any penalty or other onerous condition on such Purchaser or MAG under or pursuant to any applicable law or governmental regulation.

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(i)Each of the Purchasers and MAG represents and warrants to the Company that neither it nor any of its directors, officers, employees, agents, partners, members, controlling persons or shareholders holding 5% or more of the Common Stock outstanding on the Closing Date, has taken or will take, directly or indirectly, any actions designed, or might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock.

(j)Each of the Purchasers and MAG acknowledges it or its representatives have reviewed and understand the Transaction Documents and Disclosure Documents and further acknowledges that it or its representatives have been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company’s financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Securities; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness of the information contained in the Disclosure Documents.

(k)Each of the Purchasers and MAG represents and warrants to the Company that it has based its investment decision solely upon the information contained in the Disclosure Documents and such other information as may have been provided to it or its representatives by the Company in response to their inquiries, and has not based its investment decision on any research or other report regarding the Company prepared by any third party (“Third Party Reports”). Each of the Purchasers and MAG understands and acknowledges that (i) the Company does not endorse any Third Party Reports and (ii) its actual results may differ materially from those projected in any Third Party Report.

(l)Each of the Purchasers and MAG represents and warrants to the Company that no oral or written representations have been made and no oral or written information has been furnished to them or their advisors in connection with this offering that were in any way inconsistent with the information set forth in the Disclosure Documents.

(m)Each of the Purchasers and MAG understands and acknowledges that (i) any forward-looking information included in the Disclosure Documents supplied to such Purchaser or MAG by the Company or its management is subject to risks and uncertainties, including those risks and uncertainties set forth in the Disclosure Documents; and (ii) the Company’s actual results may differ materially from those projected by the Company or its management in such forward-looking information.

(n)Each of the Purchasers and MAG understands and acknowledges that (i) the Securities are offered and sold without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and that the Company and its counsel will rely upon, the accuracy and truthfulness of the foregoing representations and each of the Purchasers and MAG hereby consents to such reliance.

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(o)Each of the Purchasers and MAG understands that no U.S. federal or state agency, or any agency or governmental or regulatory authority in any other country, including without limitation, the U.S. Securities and Exchange Commission, has passed upon the Securities or made any finding or determination as to the fairness of this investment.

(p)Each of the Purchasers and MAG represents and warrants to the Company that it is not a prohibited investor under the anti-money laundering or anti-terrorism laws of any jurisdiction, including without limitation, any country, territory, nation or national association.

(q)Each of the Purchasers and MAG understands that the Company and its assets may be subject to the laws and regulations of many jurisdictions, including but not limited to anti-terrorism laws and anti-money laundering laws. Neither MAG nor either Purchaser, nor any person or entity who controls MAG or either Purchaser, nor, to the best of MAG’s and the Purchasers’ knowledge, any person or entity who owns any direct equity interest in MAG or either Purchaser, is identified on the list of “Specially Designated Nationals and Blocked Persons” (“SDNs”) maintained by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), and neither MAG nor either Purchaser is owned or controlled by any SDN. Neither MAG nor either Purchaser is involved in business arrangements or otherwise engaged in transactions with or involving countries subject to economic or trade sanctions imposed by the United States Government, or with or involving SDNs in violation of the regulations maintained by the OFAC. Each of the Purchasers and MAG is in full compliance with the Bank Secrecy Act (31 U.S.C. § 5311 et. seq.) and 18 U.S.C. §§ 1956 and 1957 and the regulations under such statutes; and any other applicable anti-terrorist or anti-money laundering Laws and regulations.

(r)Each of the Purchasers and MAG represents and warrants to the Company that neither MAG nor either of the Purchasers, nor any of their affiliates has, directly or indirectly, offered to “short sell”, contracted to “short sell,” otherwise engaged in any “short selling” or encouraged others to “short sell” the securities of the Company, including, without limitation, shares of Common Stock that will be received as a result of the conversion of the Series I Stock or the exercise of the Warrants. For purposes of this Agreement, “short selling” shall include any short sale (whether or not against the box) and any similar hedging or derivative securities transaction.

7.Covenants of Purchasers.

(a)Not to Short Sell Stock. Each of the Purchasers and MAG, on behalf of itself, its affiliates, its successors and assigns and any other direct or indirect transferee holding any of the Warrants, the Series I Stock or the Registrable Securities, hereby covenants and agrees not to, directly or indirectly, offer to “short sell”, contract to “short sell” or otherwise “short sell” or encourage others to “short sell” the securities of the Company, including, without limitation, shares of Common Stock that will be received as a result of the conversion of the Series I Stock or the exercise of the Warrants.

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8.Termination.

(a)This Agreement may be terminated in the sole discretion of the Company by notice to Purchasers and MAG if at the Closing Date:

(i)the representations and warranties made by either Purchaser or MAG in Section 6 are not true and correct in all material respects; or

(ii)as to the Company, the sale of the Securities hereunder (i) is prohibited or enjoined by any applicable law or governmental regulation or (ii) subjects the Company to any penalty, or in its reasonable judgment, other onerous condition under or pursuant to any applicable law or government regulation that would materially reduce the benefits to the Company of the sale of the Securities to Purchasers, so long as such regulation, law or onerous condition was not in effect in such form at the date of this Agreement.

(b)This Agreement may be terminated by either Purchaser or by MAG by notice to the Company given in the event that the Company shall have failed, refused or been unable to satisfy all material conditions on its part to be performed or satisfied hereunder on or prior to the Closing Date, or if after the execution and delivery of this Agreement and immediately prior to the Closing Date, trading in securities of the Company on the OTC BB shall have been suspended.

(c)This Agreement may be terminated by mutual written consent of all parties.

9.Registration. The Company shall use commercially reasonable efforts to prepare and file with the SEC a registration statement (the “Registration Statement”), covering the resale of the maximum number of Conversion Shares issuable upon conversion of the Series I Stock then issued to Purchasers and the Warrant Shares issuable upon exercise of the Warrants (collectively, the “Registrable Securities”), within thirty (30) days following the Closing Date, as set forth in the Registration Rights Agreement.

10.Redemption. At any time after the Closing, the Company may, at its option, issue a redemption notice to the Purchasers and MAG (a “Redemption Notice”) providing that the Company (or its designee) will purchase all or a portion of the outstanding Series I Stock and Warrants (including any Common Stock issued upon the conversion of the Series I Stock or exercise of the Warrants). The Redemption Notice shall specify (a) the redemption date (the “Redemption Date”), which date shall be at least five (5) trading days after the date the Redemption Notice is received by Purchasers and MAG, and (b) the number of shares of Series I Stock and/or Warrants to be redeemed. The redemption price for the Series I Stock shall equal $1500 per share (or the equivalent value on an as-converted basis for each share of Common Stock). The redemption price per share for the Warrants shall equal 150% of the exercise price per share. Unless full payment is received by Purchasers and MAG within three (3) trading days after the Redemption Date, the Redemption Notice shall be void.

11.Event of Default. If an Event of Default (as defined below) occurs and remains uncured for a period of 15 days, the Purchasers and MAG shall have the right to exercise any or all of the rights given to the Purchasers and MAG relating to the Securities, as further described in the Certificate of Determination. In addition, the Conversion Price (as defined in the Certificate of Determination) shall be reduced from 85% of the Market Price (as defined in

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the Certificate of Determination) to 75% of the Market Price, subject to the Ceiling Price and Floor Price as those terms are defined in the Certificate of Determination.

Neither Purchaser need provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and either Purchaser may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by such Purchaser at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

An “Event of Default” shall include the commencement by the Company of a voluntary case or proceeding under the bankruptcy laws or the Company’s failure to: (i) discharge or stay a bankruptcy proceeding within 60 days of such action being taken against the Company, (ii) file the Registration Statement with the SEC within thirty (30) days following the Closing Date, (iii) maintain trading of the Company’s Common Stock on the OTC BB except for any periods when the stock is listed on the NASDAQ Small Stock Market, the NASDAQ National Stock Market, the AMEX or the NYSE; or (iv) deliver to either Purchaser, or such Purchaser’s broker, as directed, Common Stock that such Purchaser has converted within three (3) business days of such conversion.

12.Notices. All communications hereunder shall be in writing and shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or by facsimile and confirmed in writing (i) if to the Company, at the addresses set forth below, or (ii) if to a Purchaser or MAG, to the address set forth for such party on the signature page hereto.

If to the Company:
Spescom Software Inc.
10052 Mesa Ridge Court, Suite 100
San Diego, CA 92121
Telephone No.: (858) 625-3000 (ext. 6831)
Facsimile No.: (858) 625-3010
Attention:  John Low
with a copy to:
Gibson, Dunn & Crutcher LLP
1881 Page Mill Rd.
Palo Alto, CA 94304
Telephone No.: (650) 849-5383
Facsimile No.:   (650) 849-5083
Attention:	Russell C. Hansen

All such notices and communications shall be deemed to have been duly given:  (i) when delivered by hand, if personally delivered; (ii) five business days after being deposited in the mail, postage prepaid, if mailed certified mail, return receipt requested; (iii) one business

15

day after being timely delivered to a next-day air courier guaranteeing overnight delivery; (iv) the date of transmission if sent via facsimile to the facsimile number as set forth in this Section or the signature page hereof prior to 6:00 p.m. on a business day, or (v) the business day following the date of transmission if sent via facsimile at a facsimile number set forth in this Section or on the signature page hereof after 6:00 p.m. or on a date that is not a business day. Change of a party’s address or facsimile number may be designated hereunder by giving notice to all of the other parties hereto in accordance with this Section.

13.Survival Clause. The respective representations, warranties, agreements and covenants of the Company and each Purchaser and MAG set forth in this Agreement shall survive until the first anniversary of the Closing.

14.Fees and Expenses. Within three (3) days of Closing, the Company agrees to pay (i) Purchasers’ legal expenses incurred in connection with the preparation and negotiation of the Transaction Documents up to $15,000 and (ii) to MAG a due diligence fee in the amount of $10,000.

15.Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Warrants or the Certificate of Determination, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

16.Successors. This Agreement shall inure to the benefit of and be binding upon each Purchaser, MAG and the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person. Neither the Company nor either Purchaser may assign this Agreement or any rights or obligation hereunder without the prior written consent of the other party.

17.No Waiver; Modifications in Writing. No failure or delay on the part of the Company, MAG or either Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company, MAG or either Purchaser at law or in equity or otherwise. No waiver of or consent to any departure by the Company, MAG or either Purchaser from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Company and MAG, and each Purchaser. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company, MAG or either Purchaser from

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the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.

18.Entire Agreement. This Agreement, together with the Transaction Documents, constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter hereof and thereof.

19.Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby.

20.APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.

21.Counterparts. This Agreement may be executed in two or more counterparts and may be delivered by facsimile transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

22.If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this Agreement shall constitute a binding agreement among the Company, the Purchasers and MAG.

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Very truly yours,
Spescom Software Inc.
By:	/s/ Keith Stentiford
	Keith Stentiford
	Chief Executive Officer

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ACCEPTED AND AGREED:

Monarch Pointe Fund Ltd.		Mercator Momentum Fund III, L.P.
By:	M.A.G. CAPITAL, LLC	By:	M.A.G. CAPITAL, LLC
Its:	General Partner	Its:	General Partner
By:	/s/ Harry Aharonian	By:	/s/ Harry Aharonian
	Harry Aharonian		Harry Aharonian
	Portfolio Manager,		Portfolio Manager,
	Authorized Representative		Authorized Representative
M.A.G. Capital, LLC		Addresses for Notice to Purchasers and MAG:
		M.A.G., Capital, LLC
		555 South Flower Street, Suite 4200
By:	/s/ Harry Aharonian	Los Angeles, California 90071
	Harry Aharonian	Attention: David Firestone
	Portfolio Manager,	Facsimile: (213) 533-8285
	Authorized Representative
		with copy to:
		David C. Ulich, Esq.
		Sheppard, Mullin, Richter & Hampton LLP
		333 South Hope Street, 48th Floor
		Los Angeles, California 90071
		Facsimile: (213) 620-1398

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EX-10.2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

AGREEMENT dated as of March 10, 2006, between Monarch Pointe Fund, Ltd. (“Monarch”), Mercator Momentum Fund III, L.P. (“MMF”) and M.A.G. CAPITAL, LLC (“MAG”) (Monarch, MMF and MAG are referred to individually as a “Holder” and collectively as the “Holders”), and Spescom Software Inc., a California corporation (the “Company”).

WHEREAS, on October 25, 2005, (i) Monarch purchased, for aggregate consideration of $500,000 and 1,450 shares of the Company’s Series G Convertible Preferred Stock, which were transferred to the Company for cancellation, an aggregate of 1,950 shares of Series H Convertible Preferred Stock (the “Series H Stock”) from the Company, (ii) Monarch and MAG acquired warrants from the Company, pursuant to which they have the right to purchase in the aggregate up to 925,926 shares of Common Stock (the “Initial Closing Warrants”), and (iii) in connection with such purchase of Series H Convertible Preferred Stock and such acquisition of warrants, the Company, MAG and Monarch entered into that certain Registration Rights Agreement dated as of October 25, 2005 (the “Initial Closing Registration Rights Agreement”);

WHEREAS, on the date hereof, Monarch and MMF have purchased from the Company, for aggregate consideration of $500,000 and the Series H Stock, which has been transferred to the Company for cancellation, an aggregate of 2,450 shares of the Company’s Series I Convertible Preferred Stock (the “Series I Stock”), and have the right to cause such Series I Stock to be converted into shares of the Company’s common stock, no par value (“Common Stock”), pursuant to the conversion formula set forth in the Certificate of Determination of Series I Convertible Preferred Stock as filed with the Secretary of State of the State of California on March 9, 2006 (the “Certificate of Determination”);

WHEREAS, on the date hereof, the Holders have acquired warrants (such warrants, together with the Initial Closing Warrants, the “Warrants”) from the Company, pursuant to which the Holders have the right to purchase in the aggregate up to 925,926 shares of Common Stock; and

WHEREAS, the Company desires to grant to the Holders the registration rights set forth herein with respect to the shares of Common Stock issuable upon the conversion of the Series I Stock and the exercise of the Warrants.

NOW, THEREFORE, the parties hereto mutually agree as follows:

1.Registrable Securities. As used herein the terms “Registrable Security” means each of the shares of Common Stock issued (i) upon the conversion of the Series I Stock (the “Conversion Shares”) and (ii) upon exercise of the Warrants (the “Warrant Shares”), provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security as of the date of determination that (a) it has been effectively registered under the Securities Act of 1933, as amended (the “Securities Act”), and disposed of pursuant thereto, or (b) registration under the Securities Act is no longer required for the immediate public distribution of such security. The term “Registrable Securities” means any and/or all of the securities falling within the foregoing definition of a “Registrable Security.”  In the event of any

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merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of “Registrable Security” as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section 1.

2.Registration.

(a)The Company shall use its commercially reasonable efforts to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) no later than thirty (30) days after the date of this Agreement in order to register the resale of the Registrable Securities under the Securities Act. The Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective no later than (a) ninety (90) days after the filing date if such Registration Statement is not subject to SEC review, or (b) one hundred twenty (120) days after the filing date if such Registration Statement is subject to SEC review. Once effective, the Company shall use its commercially reasonable efforts to maintain the effectiveness of the Registration Statement until the earliest of the following dates (the “Expiration Date”) (i) the date that all of the Registrable Securities have been sold, or (ii) the date that the Company receives an opinion of counsel to the Company that all of the Registrable Securities may be freely traded without registration under the Securities Act, under Rule 144 promulgated under the Securities Act or otherwise.

(b)The Company will initially include in the Registration Statement as Registrable Securities (i) Thirty Three Million Seven Hundred Ninety Three Thousand One Hundred Four (33,793,104) shares of Common Stock issuable upon conversion of the Series I Stock and (ii) the maximum numbers of shares of Common Stock issuable upon exercise of the Warrants.

(c)If (i) the Company fails to file the Registration Statement with the SEC within thirty (30) daysafter the date of this Agreement, or (ii) the Registration Statement fails to become effective within the applicable time period set forth in Section 2(a) above of ninety (90) or one hundred twenty (120) days, as the case may be, the Company shall pay to Holders an amount equal to Five Hundred Dollars ($500) per day until the Registration Statement is declared effective; provided, however, that in no event shall the aggregate liability of the Company under this Section exceed Fifty Thousand Dollars ($50,000).

3.Covenants of the Company with Respect to Registration.

The Company covenants and agrees as follows:

(a)If any stop order shall be issued by the SEC in connection therewith, the Company shall use commercially reasonable efforts to obtain promptly the removal of such order. Following the effective date of the Registration Statement, the Company shall, upon the request of any Holder, forthwith supply such reasonable number of copies of the Registration Statement, preliminary prospectus and prospectus meeting the requirements of the Securities Act, and any other documents necessary or incidental to the public offering of the Registrable Securities, as shall be reasonably requested by the Holder to permit the Holder to make a public distribution of the Holder’s Registrable Securities. The obligations of the Company hereunder

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with respect to the Holder’s Registrable Securities are subject to the Holder’s furnishing to the Company such appropriate information concerning the Holder, the Holder’s Registrable Securities and the terms of the Holder’s offering of such Registrable Securities as the Company may reasonably request in writing.

(b)The Company shall pay all costs, fees and expenses in connection with the Registration Statement filed pursuant to Section 2 hereof including, without limitation, the Company’s legal and accounting fees, printing expenses, and blue sky fees and expenses; provided, however, that each Holder shall be solely responsible for the fees of any counsel retained by the Holder in connection with such registration and any transfer taxes or underwriting discounts, commissions or fees applicable to the Registrable Securities sold by the Holder pursuant thereto.

(c)The Company will take all actions which may be required to qualify or register the Registrable Securities included in the Registration Statement for the offer and sale under the securities or blue sky laws of such states as are reasonably requested by each Holder of such securities, provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction.

4.Additional Terms.

(a)The Company shall indemnify and hold harmless the Holders and each underwriter, within the meaning of the Securities Act, who may purchase from or sell for any Holder, any Registrable Securities, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any other registration statement filed by the Company under the Securities Act with respect to the registration of the Registrable Securities, any post-effective amendment to such registration statements, or any prospectus included therein or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission based upon information furnished or required to be furnished in writing to the Company by the Holders or underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any Holder or underwriter within the meaning of the Securities Act and each officer, director, employee and agent of each Holder and underwriter; provided, however, that the indemnification in this Section 4(a) with respect to any prospectus shall not inure to the benefit of any Holder or underwriter (or to the benefit of any person controlling any Holder or underwriter) on account of any such loss, claim, damage or liability arising from the sale of Registrable Securities by the Holder or underwriter, if a copy of a subsequent prospectus correcting the untrue statement or omission in such earlier prospectus was provided to such Holder or underwriter by the Company prior to the subject sale and the subsequent prospectus was not delivered or sent by the Holder or underwriter to the purchaser prior to such sale and provided further, that the Company shall not be obligated to so indemnify any Holder or any such underwriter or other person referred to above unless the Holder or underwriter or other person, as the case may be, shall at the same time indemnify the Company, its directors, each officer signing the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any and all

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losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any registration statement or any prospectus required to be filed or furnished by reason of this Agreement or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission based upon information furnished in writing to the Company by the Holder or underwriter expressly for use therein.

(b)The Holder shall indemnify and hold harmless the Company, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any registration statement or any prospectus required to be filed or furnished by reason of this Agreement or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any material untrue statement or material omission based upon information furnished in writing to the Company by the Holder expressly for use therein.

(c)If for any reason the indemnification provided for in the preceding section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations.

(d)Promptly after receipt by an indemnified party under this Section 4 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 4, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 4 only to the extent the indemnifying party is prejudiced as a result thereof.

(e)Neither the filing of a Registration Statement by the Company pursuant to this Agreement nor the making of any request for prospectuses by the Holder shall impose upon any Holder any obligation to sell the Holder’s Registrable Securities.

(f)Each Holder, upon receipt of notice from the Company that an event has occurred which requires a Post-Effective Amendment to the Registration Statement or a supplement to the prospectus included therein, shall promptly discontinue the sale of Registrable

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Securities until the Holder receives a copy of a supplemented or amended prospectus from the Company, which the Company shall provide as soon as practicable after such notice.

(g)If the Company fails to keep the Registration Statement referred to above continuously effective during the requisite period, then the Company shall, promptly upon the request of any Holder, use commercially reasonable efforts to update the Registration Statement or file a new registration statement covering the Registrable Securities remaining unsold, subject to the terms and provisions hereof, so that the registration of such unsold Registered Securities is maintained for a number of days beyond the Expiration Date equal to the number of days that the Holder is unable to sell pursuant to Section 4(f) above.

(h)Each Holder agrees to provide the Company with any information or undertakings reasonably requested by the Company in order for the Company to include any appropriate information concerning the Holder in the Registration Statement or in order to promote compliance by the Company or the Holder with the Securities Act.

(i)Each Holder, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder.

(j)Each Holder, on behalf of itself, its affiliates, its successors and assigns and any other direct or indirect transferee holding any of the Warrants, the Series I Stock or the Registrable Securities, hereby covenants and agrees not to, directly or indirectly, offer to “short sell”, contract to “short sell” or otherwise “short sell” or encourage others to “short sell” any securities of the Company, including, without limitation, shares of Common Stock that will be received as a result of the conversion of the Series I Stock or the exercise of the Warrants. For purposes of this Agreement, “short selling” shall include any sale, any trade in any option or other derivative security, any hedging transaction relating to the securities of the Company or any transaction intended to affect the price of the Company’s common stock.

(k)If requested in writing by the Company and the managing underwriter of an underwritten registered public offering by the Company of its Common Stock, the Holders shall agree not to sell or otherwise transfer or dispose of any Common Stock of the Company held by such Holders (other than those included in the registration statement) for a period not to exceed 90 days following the effective date of a registration statement of the Company filed under the Securities Act, provided that all officers and directors of the Company enter into similar agreements identical in terms to that of the Holders.

5.Termination of the Initial Closing Registration Rights Agreement. The Company, MAG, MMF and Monarch agree that the Initial Closing Registration Rights Agreement is hereby terminated and each of them waives any and all rights thereunder.

6.Governing Law. The Registrable Securities will be, if and when issued, delivered in California. This Agreement shall be deemed to have been made and delivered in the State of California and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal substantive laws of the State of California, without giving effect to the choice of law rules thereof.

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7.Amendment. This Agreement may only be amended by a written instrument executed by the Company and the Holders.

8.Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

9.Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

10.Notices. All communications hereunder shall be in writing and shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or by facsimile at the addresses set forth below.

If to the Holders,	M.A.G. Capital, LLC
	Monarch Pointe Fund, Ltd.
	Mercator Momentum Fund III, L.P.
	555 South Flower Street, Suite 4200
	Los Angeles, CA 90071
	Attention: David Firestone
With a copy to	Sheppard Mullin Richter & Hampton LLP
	333 South Hope Street
	48th Floor
	Los Angeles, CA 90071-1448
	Telephone No.: (213) 620-1780
	Facsimile No.:  (213) 620-1398
	Attention:       David C. Ulich
If to the Company,	Spescom Software Inc.
	10052 Mesa Ridge Court, Suite 100
	San Diego, CA 92121
	Telephone No.: (858) 625-3000 (ext. 6831)
	Facsimile No.: (858) 625-3010
	Attention: John Low
With a copy to	Gibson, Dunn & Crutcher LLP
	1881 Page Mill Rd.
	Palo Alto, CA 94304
	Telephone No.: (650) 849-5383
	Facsimile No.:  (650) 849-5083
	Attention:       Russell C. Hansen

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All such notices and communications shall be deemed to have been duly given:  (i) when delivered by hand, if personally delivered; (ii) five business days after being deposited in the mail, postage prepaid, if mailed certified mail, return receipt requested; (iii) one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; (iv) the date of transmission if sent via facsimile to the facsimile number as set forth in this Section or the signature page hereof prior to 4:00 p.m. on a business day, or (v) the business day following the date of transmission if sent via facsimile at a facsimile number set forth in this Section or on the signature page hereof after 4:00 p.m. or on a date that is not a business day. Change of a party’s address or facsimile number may be designated hereunder by giving notice to all of the other parties hereto in accordance with this Section.

11.Binding Effect; Benefits. Any Holder may assign its rights hereunder; provided, however, that the rights of a Holder hereunder may be transferred by such Holder or its transferee only to a person or entity who acquires Series I Preferred Stock or Warrants convertible into or exercisable for an aggregate of at least 200,000 shares of Common Stock. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. Nothing herein contained, express or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, legal representatives and successors, any rights or remedies under or by reason of this Agreement.

12.Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

13.Severability. Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

14.Jurisdiction. Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court. Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 10 shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of either party to serve process in any other manner permitted by law. Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

15.Attorneys’ Fees and Disbursements. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees and disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written.

SPESCOM SOFTWARE INC.
By:	/s/John W. Low
Name:  John W. Low
Its:		Chief Financial Officer
HOLDERS:
MONARCH POINTE FUND, LTD.
By: M.A.G. CAPITAL, LLC
Its:  General Partner
By:	/s/ Harry Aharonian
Name:  Harry Aharonian
Its:		Portfolio Manager,
		Authorized Representative
MERCATOR MOMENTUM FUND III, L.P.
By: M.A.G. CAPITAL, LLC
Its:  General Partner
By:	/s/ Harry Aharonian
Name:  Harry Aharonian
Its:		Portfolio Manager,
		Authorized Representative
M.A.G. CAPITAL, LLC
By:	/s/ Harry Aharonian
Name:  Harry Aharonian
Its:		Portfolio Manager,
		Authorized Representative

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EX-10.3

Exhibit 10.3

WARRANT TO PURCHASE COMMON STOCK

THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT TO PURCHASE COMMON STOCK

Number of Shares:	462,963 shares
Warrant Price:	$0.27 per share
Issuance Date:	March 10, 2006
Expiration Date:	March 10, 2009

THIS WARRANT CERTIFIES THAT for value received, M.A.G. Capital, LLC, or its registered assigns (hereinafter called the “Holder”) is entitled to purchase from Spescom Software Inc. (hereinafter called the “Company”), the above referenced number of fully paid and nonassessable shares (the “Shares”) of common stock (the “Common Stock”), of Company, at the Warrant Price per Share referenced above; the number of shares purchasable upon exercise of this Warrant referenced above being subject to adjustment from time to time as described herein. This Warrant is issued in connection with that certain Subscription Agreement dated as of March 10, 2006, by and between the Company, Holder, Monarch Pointe Fund, Ltd. and Mercator Momentum Fund III, L.P. (the “Subscription Agreement”). The exercise of this Warrant shall be subject to the provisions, limitations and restrictions contained herein.

1.Term and Exercise.

1.1Term. This Warrant is exercisable in whole or in part (but not as to any fractional share of Common Stock), at any time and from time to time after the date hereof prior to 6:00 p.m. on the Expiration Date set forth above.

1.2Warrant Price. The Warrant shall be exercisable at the Warrant Price described above.

1.3Maximum Number of Shares. The maximum number of Shares of Common Stock exercisable pursuant to this Warrant is 462,963 Shares. However, notwithstanding anything herein to the contrary, in no event shall the Holder be permitted to exercise this Warrant for a number of Shares greater than the number that would cause the aggregate beneficial ownership of the Company’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of (a) the Holder and its affiliates or (b) M.A.G. Capital, LLC, and its affiliates to equal 9.99% of the Company’s Common Stock then outstanding.

1.4Procedure for Exercise of Warrant. Holder may exercise this Warrant by delivering the following to the principal office of the Company in accordance with Section 5.1 hereof: (i) a duly executed Notice of Exercise in substantially the form attached as Schedule A, (ii) payment of the Warrant Price then in effect for each of the Shares being purchased, as designated in the Notice of Exercise, and (iii) this Warrant. Payment of the Warrant Price may be in cash, certified or official bank check payable to the order of the Company, or wire transfer of funds to the Company’s account (or any combination of any of the foregoing) in the amount of the Warrant Price for each share being purchased.

1.5Delivery of Certificate and New Warrant. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the Holder or such other name or names as may be designated by the Holder, together with any other securities or other property which the Holder is entitled to receive upon exercise of this Warrant, shall be delivered to the Holder hereof, at the Company’s expense, within a reasonable time, not exceeding fifteen (15) calendar days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of Shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was received by the Company, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is on a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such Shares at the close of business on the next succeeding date on which the stock transfer books are open.

1.6Restrictive Legend. Each certificate for Shares shall bear a restrictive legend in substantially the form as follows, together with any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such Shares may, at the time of such exercise, be listed:

The shares of stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or otherwise transferred (“transferred”) in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the opinion of counsel for the Holder thereof (which counsel shall be reasonably satisfactory to the Company), the securities represented thereby are not, at such time, required by law to bear such legend.

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1.7Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant. In the event of a fractional interest, the number of Shares to be issued shall be rounded down to the nearest whole Share.

2.Representations, Warranties and Covenants.

2.1Representations and Warranties.

(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has all necessary power and authority to perform its obligations under this Warrant;

(b)The execution, delivery and performance of this Warrant has been duly authorized by all necessary actions on the part of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and

(c)This Warrant does not violate and is not in conflict with any of the provisions of the Company’s Articles of Incorporation or Certificate of Determination, Bylaws and any resolutions of the Company’s Board of Directors or stockholders, or any agreement of the Company, and no event has occurred and no condition or circumstance exists that might (with or without notice or lapse of time) constitute or result directly or indirectly in such a violation or conflict.

2.2Issuance of Shares. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes which may be payable in respect of the issue of this Warrant or any Common Stock or certificates therefor issuable upon the exercise of this Warrant. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise in full of the rights represented by this Warrant. If at any time the number of authorized but unissued shares of Common Stock of the Company shall not be sufficient to effect the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, then the Company will take all such corporate action as may, in the opinion of counsel to the Company, be necessary or advisable to increase the number of its authorized shares of Common Stock as shall be sufficient to permit the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, including without limitation, using its best efforts to obtain any necessary stockholder approval of such increase. The Company further covenants and agrees that if any shares of capital stock to be reserved for the purpose of the issuance of shares upon the exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. If and so long as the Common Stock issuable upon the exercise of this Warrant is listed on any national securities exchange or the Nasdaq Stock Market, the Company will, if permitted by the rules of such exchange or market, list and keep listed on such exchange or market, upon official notice of issuance, all shares of such Common Stock issuable upon exercise of this Warrant.

3.Other Adjustments.

3.1Subdivision or Combination of Shares. In case the Company shall at any time subdivide its outstanding Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of Shares subject to this Warrant shall be proportionately increased, and conversely, in case the outstanding Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, and the number of Shares subject to this Warrant shall be proportionately decreased.

3.2Dividends in Common Stock, Other Stock or Property. If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor:

(a)Common Stock, Options or any shares or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution;

(b)any cash paid or payable otherwise than as a regular cash dividend; or

(c)Common Stock or additional shares or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above) and additional shares, other securities or property issued in connection with a Change (as defined below) (which shall be covered by the terms of Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.

3.3Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the share capital of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its shares and/or assets or other transaction (including, without limitation, a sale of substantially all of its assets followed by a liquidation) shall be effected in such a way that holders of Common Stock shall be entitled to receive shares, securities or other assets or property (a “Change”), then, as a condition of such Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares, securities or other assets or property as may be issued or payable with respect to or in exchange for the number of outstanding Common Stock which such Holder would have been entitled to receive had such Holder exercised this Warrant immediately prior to the consummation of such Change. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to give effect to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3.3 shall similarly apply to successive Changes.

4.Ownership and Transfer.

4.1Ownership of This Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided in this Section 4.

4.2Transfer and Replacement. Subject to the terms and conditions of this Warrant and compliance with all applicable securities laws, and upon prior written consent of the Company, which consent shall not be unreasonably withheld, this Warrant and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder hereof in person or by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but registered in

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the name of the transferee or transferees (and in the name of the Holder, if a partial transfer is effected) shall be made and delivered by the Company upon surrender of this Warrant duly endorsed, at the office of the Company in accordance with Section 6.1 hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction, and, in such case, of indemnity or security reasonably satisfactory to it, and upon surrender of this Warrant if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that if the Holder hereof is an instrumentality of a state or local government or an institutional holder or a nominee for such an instrumentality or institutional holder an irrevocable agreement of indemnity by such Holder shall be sufficient for all purposes of this Warrant, and no evidence of loss or theft or destruction shall be necessary. This Warrant shall be promptly cancelled by the Company upon the surrender hereof in connection with any transfer or replacement. Except as otherwise provided above, in the case of the loss, theft or destruction of a Warrant, the Company shall pay all expenses, taxes and other charges payable in connection with any transfer or replacement of this Warrant, other than income taxes and stock transfer taxes (if any) payable in connection with a transfer of this Warrant, which shall be payable by the Holder. Holder will not transfer this Warrant and the rights hereunder except in compliance with federal and state securities laws and except after providing evidence of such compliance reasonably satisfactory to the Company.

5.Compliance with Securities Laws. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant or acquired upon conversion thereof shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant or acquired upon conversion thereof will not be registered under the Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, previously granted to the registered Holder) and will be “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933 and that the exemption from registration under Rule 144 will not be available for at least one year from the date of exercise of this Warrant, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the form set forth in Section 1.6 above.

6.Miscellaneous Provisions.

6.1Notices. Any notice or other document required or permitted to be given or delivered to the Holder shall be delivered or forwarded to the Holder at c/o M.A.G. Capital, LLC, 555 South Flower Street, Suite 4200, Los Angeles, California 90071, Attention:  David F. Firestone (Facsimile No. 213/553-8285), or to such other address or number as shall have been furnished to the Company in writing by the Holder, with a copy to Sheppard Mullin Richter & Hampton LLP, 333 South Hope Street, 48^th Floor, Los Angeles, California 90071-1448 Attention David C. Ulich (Facsimile No. 213/620-1398). Any notice or other document required or permitted to be given or delivered to the Company shall be delivered or forwarded to the Company at 10052 Mesa Ridge Court, Suite 100, San Diego, California, 92121, Attention:  John Low (Facsimile No. 858/625-3010), with a copy to Gibson, Dunn & Crutcher LLP, 1881 Page Mill Rd., Palo Alto, California, 94304 Attention: Russell C. Hansen (Facsimile No. 650/849-5083), or to such other address or number as shall have been furnished to Holder in writing by the Company.

6.2All notices, requests and approvals required by this Warrant shall be in writing and shall be conclusively deemed to be given (i) when hand-delivered to the other party, (ii) when received if sent by facsimile at the address and number set forth above; provided that notices given by facsimile shall not be effective, unless either (a) a duplicate copy of such facsimile notice is promptly given by depositing the same in the mail, postage prepaid and addressed to the party as set forth below or (b) the receiving party delivers a written confirmation of receipt for such notice by any other method permitted under this paragraph; and further provided that any notice given by facsimile received after 5:00 p.m. (recipient’s time) or on a non-business day shall be deemed received on the next business day; (iii) five (5) business days after deposit in the United States mail, certified, return receipt requested, postage prepaid, and addressed to the party as set forth below; or (iv) the next business day after deposit with an international overnight delivery service, postage prepaid, addressed to the party as set forth below with next business day delivery guaranteed; provided that the sending party receives confirmation of delivery from the delivery service provider.

6.3No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle the Holder to any of the rights of a shareholder of the Company except upon exercise in accordance with the terms hereof. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Warrant Price hereunder or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

6.4Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements among California residents made and to be performed entirely within the State of California, without giving effect to the conflict of law principles thereof.

6.5Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets and/or securities. All of the obligations of the Company relating to the Shares issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder.

6.6Waiver, Amendments and Headings. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by both parties (either generally or in a particular instance and either retroactively or prospectively). The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof.

6.7Jurisdiction.Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court. Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 6.1 shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of a Holder to serve process in any other manner permitted by law. Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

6.8Attorneys’ Fees and Disbursements. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees and disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer this tenth day of March, 2006.

COMPANY:	SPESCOM SOFTWARE INC.
	By	/s/ John W. Low
	Print Name:			John W. Low
	Title:		Chief Financial Officer

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SCHEDULE A

FORM OF NOTICE OF EXERCISE

[To be signed only upon exercise of the Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THE WITHIN WARRANT

The undersigned hereby elects to purchase                shares of Common Stock (the “Shares”) of Spescom Software, Inc. under the Warrant to Purchase Common Stock dated March 10, 2006, which the undersigned is entitled to purchase pursuant to the terms of such Warrant.  The undersigned has delivered $                , the aggregate Warrant Price for            Shares purchased herewith, in full in cash or by certified or official bank check or wire transfer.

Please issue a certificate or certificates representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below and in the denominations as is set forth below:

[Type Name of Holder as it should appear on the stock certificate]

[Requested Denominations – if no denomination is specified, a single certificate will be issued]

The initial address of such Holder to be entered on the books of Company shall be:

The undersigned hereby represents and warrants that the undersigned is acquiring such shares for his own account for investment purposes only, and not for resale or with a view to distribution of such shares or any part thereof.

By:

Print Name:

Title:

Dated:

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FORM OF ASSIGNMENT

(ENTIRE)

[To be signed only upon transfer of entire Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED                                               hereby sells, assigns and transfers unto all rights of the undersigned under and pursuant to the within Warrant, and the undersigned does hereby irrevocably constitute and appoint Attorney to transfer the said Warrant on the books of                                , with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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FORM OF ASSIGNMENT
(PARTIAL)

[To be signed only upon partial transfer of Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED hereby sells, assigns and transfers unto (i) the rights of the undersigned to purchase shares of Common Stock under and pursuant to the within Warrant, and (ii) on a non-exclusive basis, all other rights of the undersigned under and pursuant to the within Warrant, it being understood that the undersigned shall retain, severally (and not jointly) with the transferee(s) named herein, all rights assigned on such non-exclusive basis. The undersigned does hereby irrevocably constitute and appoint Attorney to transfer the said Warrant on the books of Spescom Software, Inc.,  with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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EX-10.4

Exhibit 10.4

WARRANT TO PURCHASE COMMON STOCK

THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT TO PURCHASE COMMON STOCK

Number of Shares:	342,593 shares
Warrant Price:	$0.27 per share
Issuance Date:	March 10, 2006
Expiration Date:	March 10, 2009

THIS WARRANT CERTIFIES THAT for value received, Monarch Pointe Fund, Ltd., or its registered assigns (hereinafter called the “Holder”) is entitled to purchase from Spescom Software Inc. (hereinafter called the “Company”), the above referenced number of fully paid and nonassessable shares (the “Shares”) of common stock (the “Common Stock”), of Company, at the Warrant Price per Share referenced above; the number of shares purchasable upon exercise of this Warrant referenced above being subject to adjustment from time to time as described herein. This Warrant is issued in connection with that certain Subscription Agreement dated as of March 10, 2006, by and between the Company, M.A.G. Capital, LLC, Holder and Mercator Momentum Fund III, L.P. (the “Subscription Agreement”). The exercise of this Warrant shall be subject to the provisions, limitations and restrictions contained herein.

1.Term and Exercise.

1.1Term. This Warrant is exercisable in whole or in part (but not as to any fractional share of Common Stock), at any time and from time to time after the date hereof prior to 6:00 p.m. on the Expiration Date set forth above.

1.2Warrant Price. The Warrant shall be exercisable at the Warrant Price described above.

1.3Maximum Number of Shares. The maximum number of Shares of Common Stock exercisable pursuant to this Warrant is 342,593  Shares. However, notwithstanding anything herein to the contrary, in no event shall the Holder be permitted to exercise this Warrant for a number of Shares greater than the number that would cause the aggregate beneficial ownership of the Company’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of (a) the Holder and its affiliates or (b) M.A.G. Capital, LLC, and its affiliates to equal 9.99% of the Company’s Common Stock then outstanding.

1.4Procedure for Exercise of Warrant. Holder may exercise this Warrant by delivering the following to the principal office of the Company in accordance with Section 5.1 hereof: (i) a duly executed Notice of Exercise in substantially the form attached as Schedule A, (ii) payment of the Warrant Price then in effect for each of the Shares being purchased, as designated in the Notice of Exercise, and (iii) this Warrant. Payment of the Warrant Price may be in cash, certified or official bank check payable to the order of the Company, or wire transfer of funds to the Company’s account (or any combination of any of the foregoing) in the amount of the Warrant Price for each share being purchased.

1.5Delivery of Certificate and New Warrant. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the Holder or such other name or names as may be designated by the Holder, together with any other securities or other property which the Holder is entitled to receive upon exercise of this Warrant, shall be delivered to the Holder hereof, at the Company’s expense, within a reasonable time, not exceeding fifteen (15) calendar days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of Shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was received by the Company, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is on a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such Shares at the close of business on the next succeeding date on which the stock transfer books are open.

1.6Restrictive Legend. Each certificate for Shares shall bear a restrictive legend in substantially the form as follows, together with any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such Shares may, at the time of such exercise, be listed:

The shares of stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or otherwise transferred (“transferred”) in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the opinion of counsel for the Holder thereof (which counsel shall be reasonably satisfactory to the Company), the securities represented thereby are not, at such time, required by law to bear such legend.

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1.7Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant. In the event of a fractional interest, the number of Shares to be issued shall be rounded down to the nearest whole Share.

2.Representations, Warranties and Covenants.

2.1Representations and Warranties.

(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has all necessary power and authority to perform its obligations under this Warrant;

(b)The execution, delivery and performance of this Warrant has been duly authorized by all necessary actions on the part of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and

(c)This Warrant does not violate and is not in conflict with any of the provisions of the Company’s Articles of Incorporation or Certificate of Determination, Bylaws and any resolutions of the Company’s Board of Directors or stockholders, or any agreement of the Company, and no event has occurred and no condition or circumstance exists that might (with or without notice or lapse of time) constitute or result directly or indirectly in such a violation or conflict.

2.2Issuance of Shares. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes which may be payable in respect of the issue of this Warrant or any Common Stock or certificates therefor issuable upon the exercise of this Warrant. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise in full of the rights represented by this Warrant. If at any time the number of authorized but unissued shares of Common Stock of the Company shall not be sufficient to effect the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, then the Company will take all such corporate action as may, in the opinion of counsel to the Company, be necessary or advisable to increase the number of its authorized shares of Common Stock as shall be sufficient to permit the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, including without limitation, using its best efforts to obtain any necessary stockholder approval of such increase. The Company further covenants and agrees that if any shares of capital stock to be reserved for the purpose of the issuance of shares upon the exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. If and so long as the Common Stock issuable upon the exercise of this Warrant is listed on any national securities exchange or the Nasdaq Stock Market, the Company will, if permitted by the rules of such exchange or market, list and keep listed on such exchange or market, upon official notice of issuance, all shares of such Common Stock issuable upon exercise of this Warrant.

3.Other Adjustments.

3.1Subdivision or Combination of Shares. In case the Company shall at any time subdivide its outstanding Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of Shares subject to this Warrant shall be proportionately increased, and conversely, in case the outstanding Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, and the number of Shares subject to this Warrant shall be proportionately decreased.

3.2Dividends in Common Stock, Other Stock or Property. If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor:

(a)Common Stock, Options or any shares or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution;

(b)any cash paid or payable otherwise than as a regular cash dividend; or

(c)Common Stock or additional shares or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above) and additional shares, other securities or property issued in connection with a Change (as defined below) (which shall be covered by the terms of Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.

3.3Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the share capital of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its shares and/or assets or other transaction (including, without limitation, a sale of substantially all of its assets followed by a liquidation) shall be effected in such a way that holders of Common Stock shall be entitled to receive shares, securities or other assets or property (a “Change”), then, as a condition of such Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares, securities or other assets or property as may be issued or payable with respect to or in exchange for the number of outstanding Common Stock which such Holder would have been entitled to receive had such Holder exercised this Warrant immediately prior to the consummation of such Change. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to give effect to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3.3 shall similarly apply to successive Changes.

4.Ownership and Transfer.

4.1Ownership of This Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided in this Section 4.

4.2Transfer and Replacement. Subject to the terms and conditions of this Warrant and compliance with all applicable securities laws, and upon prior written consent of the Company, which consent shall not be unreasonably withheld, this Warrant and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder hereof in person or by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but registered in

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the name of the transferee or transferees (and in the name of the Holder, if a partial transfer is effected) shall be made and delivered by the Company upon surrender of this Warrant duly endorsed, at the office of the Company in accordance with Section 6.1 hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction, and, in such case, of indemnity or security reasonably satisfactory to it, and upon surrender of this Warrant if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that if the Holder hereof is an instrumentality of a state or local government or an institutional holder or a nominee for such an instrumentality or institutional holder an irrevocable agreement of indemnity by such Holder shall be sufficient for all purposes of this Warrant, and no evidence of loss or theft or destruction shall be necessary. This Warrant shall be promptly cancelled by the Company upon the surrender hereof in connection with any transfer or replacement. Except as otherwise provided above, in the case of the loss, theft or destruction of a Warrant, the Company shall pay all expenses, taxes and other charges payable in connection with any transfer or replacement of this Warrant, other than income taxes and stock transfer taxes (if any) payable in connection with a transfer of this Warrant, which shall be payable by the Holder. Holder will not transfer this Warrant and the rights hereunder except in compliance with federal and state securities laws and except after providing evidence of such compliance reasonably satisfactory to the Company.

5.Compliance with Securities Laws. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant or acquired upon conversion thereof shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant or acquired upon conversion thereof will not be registered under the Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, previously granted to the registered Holder) and will be “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933 and that the exemption from registration under Rule 144 will not be available for at least one year from the date of exercise of this Warrant, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the form set forth in Section 1.6 above.

6.Miscellaneous Provisions.

6.1Notices. Any notice or other document required or permitted to be given or delivered to the Holder shall be delivered or forwarded to the Holder at c/o M.A.G. Capital, LLC, 555 South Flower Street, Suite 4200, Los Angeles, California 90071, Attention:  David F. Firestone (Facsimile No. 213/553-8285), or to such other address or number as shall have been furnished to the Company in writing by the Holder, with a copy to Sheppard Mullin Richter & Hampton LLP, 333 South Hope Street, 48^th Floor, Los Angeles, California 90071-1448 Attention David C. Ulich (Facsimile No. 213/620-1398). Any notice or other document required or permitted to be given or delivered to the Company shall be delivered or forwarded to the Company at 10052 Mesa Ridge Court, Suite 100, San Diego, California, 92121, Attention:  John Low (Facsimile No. 858/625-3010), with a copy to Gibson, Dunn & Crutcher LLP, 1881 Page Mill Rd., Palo Alto, California, 94304 Attention: Russell C. Hansen (Facsimile No. 650/849-5083), or to such other address or number as shall have been furnished to Holder in writing by the Company.

6.2All notices, requests and approvals required by this Warrant shall be in writing and shall be conclusively deemed to be given (i) when hand-delivered to the other party, (ii) when received if sent by facsimile at the address and number set forth above; provided that notices given by facsimile shall not be effective, unless either (a) a duplicate copy of such facsimile notice is promptly given by depositing the same in the mail, postage prepaid and addressed to the party as set forth below or (b) the receiving party delivers a written confirmation of receipt for such notice by any other method permitted under this paragraph; and further provided that any notice given by facsimile received after 5:00 p.m. (recipient’s time) or on a non-business day shall be deemed received on the next business day; (iii) five (5) business days after deposit in the United States mail, certified, return receipt requested, postage prepaid, and addressed to the party as set forth below; or (iv) the next business day after deposit with an international overnight delivery service, postage prepaid, addressed to the party as set forth below with next business day delivery guaranteed; provided that the sending party receives confirmation of delivery from the delivery service provider.

6.3No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle the Holder to any of the rights of a shareholder of the Company except upon exercise in accordance with the terms hereof. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Warrant Price hereunder or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

6.4Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements among California residents made and to be performed entirely within the State of California, without giving effect to the conflict of law principles thereof.

6.5Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets and/or securities. All of the obligations of the Company relating to the Shares issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder.

6.6Waiver, Amendments and Headings. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by both parties (either generally or in a particular instance and either retroactively or prospectively). The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof.

6.7Jurisdiction.Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court. Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 6.1 shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of a Holder to serve process in any other manner permitted by law. Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

6.8Attorneys’ Fees and Disbursements. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees and disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer this tenth day of March, 2006.

COMPANY:	SPESCOM SOFTWARE INC.
	By	/s/ John W. Low
	Print Name:			John W. Low
	Title:		Chief Financial Officer

4

SCHEDULE A

FORM OF NOTICE OF EXERCISE

[To be signed only upon exercise of the Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THE WITHIN WARRANT

The undersigned hereby elects to purchase                 shares of Common Stock (the “Shares”) of Spescom Software, Inc. under the Warrant to Purchase Common Stock dated March 10, 2006, which the undersigned is entitled to purchase pursuant to the terms of such Warrant. The undersigned has delivered $               , the aggregate Warrant Price for                 Shares purchased herewith, in full in cash or by certified or official bank check or wire transfer.

Please issue a certificate or certificates representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below and in the denominations as is set forth below:

[Type Name of Holder as it should appear on the stock certificate]

[Requested Denominations – if no denomination is specified, a single certificate will be issued]

The initial address of such Holder to be entered on the books of Company shall be:

The undersigned hereby represents and warrants that the undersigned is acquiring such shares for his own account for investment purposes only, and not for resale or with a view to distribution of such shares or any part thereof.

By:

Print Name:

Title:

Dated:

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FORM OF ASSIGNMENT

(ENTIRE)

[To be signed only upon transfer of entire Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED                                         hereby sells, assigns and transfers unto                                         all rights of the undersigned under and pursuant to the within Warrant, and the undersigned does hereby irrevocably constitute and appoint                                         Attorney to transfer the said Warrant on the books of                                        , with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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FORM OF ASSIGNMENT
(PARTIAL)

[To be signed only upon partial transfer of Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED                                     hereby sells, assigns and transfers unto                                     (i) the rights of the undersigned to purchase                             shares of Common Stock under and pursuant to the within Warrant, and (ii) on a non-exclusive basis, all other rights of the undersigned under and pursuant to the within Warrant, it being understood that the undersigned shall retain, severally (and not jointly) with the transferee(s) named herein, all rights assigned on such non-exclusive basis. The undersigned does hereby irrevocably constitute and appoint                                     Attorney to transfer the said Warrant on the books of Spescom Software, Inc.,  with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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EX-10.5

Exhibit 10.5

WARRANT TO PURCHASE COMMON STOCK

THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT TO PURCHASE COMMON STOCK

Number of Shares:	120,370 shares
Warrant Price:	$0.27 per share
Issuance Date:	March 10, 2006
Expiration Date:	March 10, 2009

THIS WARRANT CERTIFIES THAT for value received, Mercator Momentum Fund III, L.P., or its registered assigns (hereinafter called the “Holder”) is entitled to purchase from Spescom Software Inc. (hereinafter called the “Company”), the above referenced number of fully paid and nonassessable shares (the “Shares”) of common stock (the “Common Stock”), of Company, at the Warrant Price per Share referenced above; the number of shares purchasable upon exercise of this Warrant referenced above being subject to adjustment from time to time as described herein. This Warrant is issued in connection with that certain Subscription Agreement dated as of March 10, 2006, by and between the Company, M.A.G. Capital, LLC, Monarch Pointe Fund, Ltd. and Holder (the “Subscription Agreement”). The exercise of this Warrant shall be subject to the provisions, limitations and restrictions contained herein.

1.Term and Exercise.

1.1Term. This Warrant is exercisable in whole or in part (but not as to any fractional share of Common Stock), at any time and from time to time after the date hereof prior to 6:00 p.m. on the Expiration Date set forth above.

1.2Warrant Price. The Warrant shall be exercisable at the Warrant Price described above.

1.3Maximum Number of Shares. The maximum number of Shares of Common Stock exercisable pursuant to this Warrant is 120,370  Shares. However, notwithstanding anything herein to the contrary, in no event shall the Holder be permitted to exercise this Warrant for a number of Shares greater than the number that would cause the aggregate beneficial ownership of the Company’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of (a) the Holder and its affiliates or (b) M.A.G. Capital, LLC, and its affiliates to equal 9.99% of the Company’s Common Stock then outstanding.

1.4Procedure for Exercise of Warrant. Holder may exercise this Warrant by delivering the following to the principal office of the Company in accordance with Section 5.1 hereof: (i) a duly executed Notice of Exercise in substantially the form attached as Schedule A, (ii) payment of the Warrant Price then in effect for each of the Shares being purchased, as designated in the Notice of Exercise, and (iii) this Warrant. Payment of the Warrant Price may be in cash, certified or official bank check payable to the order of the Company, or wire transfer of funds to the Company’s account (or any combination of any of the foregoing) in the amount of the Warrant Price for each share being purchased.

1.5Delivery of Certificate and New Warrant. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the Holder or such other name or names as may be designated by the Holder, together with any other securities or other property which the Holder is entitled to receive upon exercise of this Warrant, shall be delivered to the Holder hereof, at the Company’s expense, within a reasonable time, not exceeding fifteen (15) calendar days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of Shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was received by the Company, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is on a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such Shares at the close of business on the next succeeding date on which the stock transfer books are open.

1.6Restrictive Legend. Each certificate for Shares shall bear a restrictive legend in substantially the form as follows, together with any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such Shares may, at the time of such exercise, be listed:

The shares of stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or otherwise transferred (“transferred”) in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the opinion of counsel for the Holder thereof (which counsel shall be reasonably satisfactory to the Company), the securities represented thereby are not, at such time, required by law to bear such legend.

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1.7Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant. In the event of a fractional interest, the number of Shares to be issued shall be rounded down to the nearest whole Share.

2.Representations, Warranties and Covenants.

2.1Representations and Warranties.

(a)The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has all necessary power and authority to perform its obligations under this Warrant;

(b)The execution, delivery and performance of this Warrant has been duly authorized by all necessary actions on the part of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and

(c)This Warrant does not violate and is not in conflict with any of the provisions of the Company’s Articles of Incorporation or Certificate of Determination, Bylaws and any resolutions of the Company’s Board of Directors or stockholders, or any agreement of the Company, and no event has occurred and no condition or circumstance exists that might (with or without notice or lapse of time) constitute or result directly or indirectly in such a violation or conflict.

2.2Issuance of Shares. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that it will pay when due and payable any and all federal and state taxes which may be payable in respect of the issue of this Warrant or any Common Stock or certificates therefor issuable upon the exercise of this Warrant. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise in full of the rights represented by this Warrant. If at any time the number of authorized but unissued shares of Common Stock of the Company shall not be sufficient to effect the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, then the Company will take all such corporate action as may, in the opinion of counsel to the Company, be necessary or advisable to increase the number of its authorized shares of Common Stock as shall be sufficient to permit the exercise of the Warrant in full, subject to the limitations set forth in Section 1.3 hereto, including without limitation, using its best efforts to obtain any necessary stockholder approval of such increase. The Company further covenants and agrees that if any shares of capital stock to be reserved for the purpose of the issuance of shares upon the exercise of this Warrant require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. If and so long as the Common Stock issuable upon the exercise of this Warrant is listed on any national securities exchange or the Nasdaq Stock Market, the Company will, if permitted by the rules of such exchange or market, list and keep listed on such exchange or market, upon official notice of issuance, all shares of such Common Stock issuable upon exercise of this Warrant.

3.Other Adjustments.

3.1Subdivision or Combination of Shares. In case the Company shall at any time subdivide its outstanding Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of Shares subject to this Warrant shall be proportionately increased, and conversely, in case the outstanding Common Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, and the number of Shares subject to this Warrant shall be proportionately decreased.

3.2Dividends in Common Stock, Other Stock or Property. If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor:

(a)Common Stock, Options or any shares or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution;

(b)any cash paid or payable otherwise than as a regular cash dividend; or

(c)Common Stock or additional shares or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above) and additional shares, other securities or property issued in connection with a Change (as defined below) (which shall be covered by the terms of Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.

3.3Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the share capital of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its shares and/or assets or other transaction (including, without limitation, a sale of substantially all of its assets followed by a liquidation) shall be effected in such a way that holders of Common Stock shall be entitled to receive shares, securities or other assets or property (a “Change”), then, as a condition of such Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares, securities or other assets or property as may be issued or payable with respect to or in exchange for the number of outstanding Common Stock which such Holder would have been entitled to receive had such Holder exercised this Warrant immediately prior to the consummation of such Change. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to give effect to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3.3 shall similarly apply to successive Changes.

4.Ownership and Transfer.

4.1Ownership of This Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided in this Section 4.

4.2Transfer and Replacement. Subject to the terms and conditions of this Warrant and compliance with all applicable securities laws, and upon prior written consent of the Company, which consent shall not be unreasonably withheld, this Warrant and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder hereof in person or by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as this Warrant but registered in

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the name of the transferee or transferees (and in the name of the Holder, if a partial transfer is effected) shall be made and delivered by the Company upon surrender of this Warrant duly endorsed, at the office of the Company in accordance with Section 6.1 hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction, and, in such case, of indemnity or security reasonably satisfactory to it, and upon surrender of this Warrant if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided that if the Holder hereof is an instrumentality of a state or local government or an institutional holder or a nominee for such an instrumentality or institutional holder an irrevocable agreement of indemnity by such Holder shall be sufficient for all purposes of this Warrant, and no evidence of loss or theft or destruction shall be necessary. This Warrant shall be promptly cancelled by the Company upon the surrender hereof in connection with any transfer or replacement. Except as otherwise provided above, in the case of the loss, theft or destruction of a Warrant, the Company shall pay all expenses, taxes and other charges payable in connection with any transfer or replacement of this Warrant, other than income taxes and stock transfer taxes (if any) payable in connection with a transfer of this Warrant, which shall be payable by the Holder. Holder will not transfer this Warrant and the rights hereunder except in compliance with federal and state securities laws and except after providing evidence of such compliance reasonably satisfactory to the Company.

5.Compliance with Securities Laws. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant or acquired upon conversion thereof shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant or acquired upon conversion thereof will not be registered under the Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, previously granted to the registered Holder) and will be “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933 and that the exemption from registration under Rule 144 will not be available for at least one year from the date of exercise of this Warrant, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the form set forth in Section 1.6 above.

6.Miscellaneous Provisions.

6.1Notices. Any notice or other document required or permitted to be given or delivered to the Holder shall be delivered or forwarded to the Holder at c/o M.A.G. Capital, LLC, 555 South Flower Street, Suite 4200, Los Angeles, California 90071, Attention:  David F. Firestone (Facsimile No. 213/553-8285), or to such other address or number as shall have been furnished to the Company in writing by the Holder, with a copy to Sheppard Mullin Richter & Hampton LLP, 333 South Hope Street, 48^th Floor, Los Angeles, California 90071-1448 Attention David C. Ulich (Facsimile No. 213/620-1398). Any notice or other document required or permitted to be given or delivered to the Company shall be delivered or forwarded to the Company at 10052 Mesa Ridge Court, Suite 100, San Diego, California, 92121, Attention:  John Low (Facsimile No. 858/625-3010), with a copy to Gibson, Dunn & Crutcher LLP, 1881 Page Mill Rd., Palo Alto, California, 94304 Attention: Russell C. Hansen (Facsimile No. 650/849-5083), or to such other address or number as shall have been furnished to Holder in writing by the Company.

6.2All notices, requests and approvals required by this Warrant shall be in writing and shall be conclusively deemed to be given (i) when hand-delivered to the other party, (ii) when received if sent by facsimile at the address and number set forth above; provided that notices given by facsimile shall not be effective, unless either (a) a duplicate copy of such facsimile notice is promptly given by depositing the same in the mail, postage prepaid and addressed to the party as set forth below or (b) the receiving party delivers a written confirmation of receipt for such notice by any other method permitted under this paragraph; and further provided that any notice given by facsimile received after 5:00 p.m. (recipient’s time) or on a non-business day shall be deemed received on the next business day; (iii) five (5) business days after deposit in the United States mail, certified, return receipt requested, postage prepaid, and addressed to the party as set forth below; or (iv) the next business day after deposit with an international overnight delivery service, postage prepaid, addressed to the party as set forth below with next business day delivery guaranteed; provided that the sending party receives confirmation of delivery from the delivery service provider.

6.3No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle the Holder to any of the rights of a shareholder of the Company except upon exercise in accordance with the terms hereof. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Warrant Price hereunder or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

6.4Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements among California residents made and to be performed entirely within the State of California, without giving effect to the conflict of law principles thereof.

6.5Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets and/or securities. All of the obligations of the Company relating to the Shares issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder.

6.6Waiver, Amendments and Headings. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by both parties (either generally or in a particular instance and either retroactively or prospectively). The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof.

6.7Jurisdiction.Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court. Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 6.1 shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of a Holder to serve process in any other manner permitted by law. Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

6.8Attorneys’ Fees and Disbursements. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees and disbursements in addition to any other relief to which the prevailing party or parties may be entitled.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer this tenth day of March, 2006.

COMPANY:	SPESCOM SOFTWARE INC.
	By	/s/ John W. Low
	Print Name:			John W. Low
	Title:		Chief Financial Officer

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SCHEDULE A

FORM OF NOTICE OF EXERCISE

[To be signed only upon exercise of the Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER

TO EXERCISE THE WITHIN WARRANT

The undersigned hereby elects to purchase            shares of Common Stock (the “Shares”) of Spescom Software, Inc. under the Warrant to Purchase Common Stock dated March 10, 2006, which the undersigned is entitled to purchase pursuant to the terms of such Warrant. The undersigned has delivered $          , the aggregate Warrant Price for           Shares purchased herewith, in full in cash or by certified or official bank check or wire transfer.

Please issue a certificate or certificates representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below and in the denominations as is set forth below:

[Type Name of Holder as it should appear on the stock certificate]

[Requested Denominations – if no denomination is specified, a single certificate will be issued]

The initial address of such Holder to be entered on the books of Company shall be:

The undersigned hereby represents and warrants that the undersigned is acquiring such shares for his own account for investment purposes only, and not for resale or with a view to distribution of such shares or any part thereof.

By:

Print Name:

Title:

Dated:

1

FORM OF ASSIGNMENT

(ENTIRE)

[To be signed only upon transfer of entire Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED                                        hereby sells, assigns and transfers unto                                        all rights of the undersigned under and pursuant to the within Warrant, and the undersigned does hereby irrevocably constitute and appoint                                        Attorney to transfer the said Warrant on the books of                                       , with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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FORM OF ASSIGNMENT
(PARTIAL)

[To be signed only upon partial transfer of Warrant]

TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT

FOR VALUE RECEIVED                                          hereby sells, assigns and transfers unto                                          (i) the rights of the undersigned to purchase                               shares of Common Stock under and pursuant to the within Warrant, and (ii) on a non-exclusive basis, all other rights of the undersigned under and pursuant to the within Warrant, it being understood that the undersigned shall retain, severally (and not jointly) with the transferee(s) named herein, all rights assigned on such non-exclusive basis. The undersigned does hereby irrevocably constitute and appoint                                          Attorney to transfer the said Warrant on the books of Spescom Software, Inc.,  with full power of substitution.

[Type Name of Holder]

By:

Title:

Dated:

NOTICE

The signature to the foregoing Assignment must correspond exactly to the name as written upon the face of the within Warrant, without alteration or enlargement or any change whatsoever.

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EX-99.1

Exhibit 99.1

SPESCOM SOFTWARE COMPLETES $500,000 PRIVATE PLACEMENT

SAN DIEGO, CA, March 16, 2006 — Spescom Software Inc. (OTCBB: SPCO), a leading developer of enterprise content and configuration management solutions, announced today that it has raised $500,000 in new financing through a private placement completed on March 10, 2006 with M.A.G. Capital, LLC, Monarch Pointe Fund, Ltd. and Mercator Momentum Fund III, L.P. The announcement was made by Spescom Chief Executive Officer Keith Stentiford.

Under the terms of the financing, the Company issued 2,450 shares of Series I Convertible Preferred Stock and warrants, expiring March 10, 2009, to purchase 925,926 shares of common stock at $0.27 per share. The number of shares of the Company’s common stock into which the shares of the Series I Convertible Preferred Stock may be converted varies based on a volume-weighted measure of the market price of the common stock. The range is from 11,666,667 common shares, if the market price measure were to be at least $0.25 at the time of all conversions, up to 33,793,104 common shares, if the market price measure were to be no greater than $0.08 at the time of all conversions.

The Company received aggregate consideration of $500,000 and 1,950 shares of the Company’s Series H Convertible Preferred Stock, which have been cancelled, for the Series I Convertible Preferred Stock and warrants issued in the financing.

Additionally, under the terms of the Series I Convertible Preferred Stock, if the Company has not entered into a binding agreement to consummate a consolidation, merger, or other corporate transaction meeting certain requirements on or before April 30, 2006, the holders of Series I Convertible Preferred Stock may, by a two-thirds vote not later than December 31, 2006, elect to have all of the outstanding Series I Convertible Preferred Stock redeemed by the Company. If such election is made and the Company does not have sufficient funds to carry out the redemption, the holders of Series I Convertible Preferred Stock as a class will be entitled to elect a majority of the authorized directors of the Company.

About Spescom Software Inc.

Spescom Software is a developer and marketer of leading-edge information management software solutions for the energy, nuclear, oil & gas and other sectors that provide the unique ability to manage disparate types of content and other data on a single platform. The Company’s open-standards-based eB platform provides extensive enterprise content management (ECM) functionality, together with best-of-breed configuration management capabilities. Key customers include Solvay Chemicals, Teppco, Constellation Energy, Continental Express, AmerenUE, Cities of Las Vegas and Dayton, Lloyds Register,

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Entergy, Northeast Utilities, Network Rail, and many others. The Company is headquartered in San Diego, California, with an international sales and support center in London, UK. www.spescomsoftware.com

Cautionary Language

Except for historical information contained herein, the matters set forth in this release include forward-looking statements that are dependent on certain risks and uncertainties, including such factors, among others, as market acceptance, market demand, pricing, changing regulatory environment, the effect of the company’s accounting policies, potential seasonality and other risk factors detailed in the company’s SEC filings.

Company Contacts:

Keith Stentiford, CEO

John Low, CFO

Spescom Software Inc.

(858) 625-3000

Ron Both/Geoffrey Plank

Liolios Group, Inc.

(949)574-3860

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