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================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________   TO ______________

COMMISSION FILE NUMBER:  000-51443

                                 --------------

                        RAPTOR NETWORKS TECHNOLOGY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              COLORADO                                       84-1573852
  (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)


               1508 S. GRAND AVENUE, SANTA ANA, CA     92705-4411
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)  (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE   (714) 380-6659

                                 --------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (TITLE OF CLASS)

                                 --------------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.                       Yes  [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.               Yes [ ] No [X]

NOTE - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.




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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, indefinitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendment to this Form 10-K.                                [X]

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

         Large accelerated filer [ ]               Accelerated filer [ ]

         Non-accelerated filer [ ]                 Smaller reporting company [X]
        (Do not check if a smaller
           reporting company)

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).                                Yes [ ] No [X]

         The aggregate market value of the voting and non-voting stock held by
non-affiliates computed by reference to the price at which the common equity was
sold as of the last business day of the Company's second quarter of 2008 (June
30, 2008) of $0.70 per share was $45,612,921. For the purpose of this
calculation, shares owned by officers, directors and 10% stockholders known to
the registrant have been deemed to be owned by affiliates. This determination of
affiliate status is not a determination for other purposes. As per March 24,
2009 the aggregate market value defined as before in this paragraph was
$8,480,797.


              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.                                        Yes  [ ]    No  [ ]


                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares outstanding of each registrant's classes
of common stock, as of the latest practicable date: 74,073,311 shares of common
stock $0.01 par value as of March 24, 2009.




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<TABLE>
<S>     <C>

                                                TABLE OF CONTENTS

                                                                                                                     PAGE
                                                                                                                     ----
                                                     PART I

Item 1.       Business.................................................................................................2
Item 2.       Properties..............................................................................................17
Item 3.       Legal Proceedings.......................................................................................17
Item 4.       Submission of Matters to a Vote of Security Holders.....................................................17

                                                     PART II

Item 5.       Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of
              Equity Securities.......................................................................................18
Item 6.       Selected Financial Data.................................................................................19
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations...................19
Item 8.       Financial Statements....................................................................................30
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................30
Item 9A(T).   Controls and Procedures.................................................................................30
Item 9B.      Other Information.......................................................................................31

                                                    PART III

Item 10.      Directors and Executive Officers of the Registrant......................................................32
Item 11.      Executive Compensation..................................................................................34
Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........39
Item 13.      Certain Relationships and Related Transactions..........................................................41
Item 14.      Principal Accountant Fees and Services..................................................................41

                                                     PART IV

Item 15.      Exhibits................................................................................................42
Signatures............................................................................................................45
Index to Financial Statements........................................................................................F-1
Index to Exhibits
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                                       i



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                                     PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.

           When used in this report on Form 10-K (this "Report"), the words
"plan," "estimate," "expect," "believe," "should," "would," "could,"
"anticipate," "may," "forecast," "project," "pro forma," "goal," "continues,"
"intend," "seek" and other expressions that convey uncertainty of future events
or outcomes are intended to identify "forward-looking statements." We caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date of this Report. While forward-looking statements
represent our management's best judgment as to what may occur in the future,
they are subject to risks, uncertainties and important factors beyond our
control that could cause actual results and events to differ materially from
historical results of operations and events as well as those presently
anticipated or projected. These factors include, but are not limited to, adverse
economic conditions, entry of new and stronger competitors, capital
availability, unexpected costs, and failure to establish relationships with and
capitalize upon access to new customers. We disclaim any obligations
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.


                                      -1-



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ITEM 1.    BUSINESS

OVERVIEW

         We were organized under the laws of the State of Colorado on January
22, 2001 under the name Pacific InterMedia, Inc. We originally were engaged in
the business of offering EDGAR filing services to companies outsourcing the
formatting and electronic filing of registration statements, periodic reports
and other forms with the U. S. Securities and Exchange Commission ("SEC" or
"Commission"), but generated minimal revenues from these operations. On October
17, 2003, we completed a business combination transaction with Raptor Networks
Technology, Inc., a California corporation ("Raptor"), whereby we acquired all
of the issued and outstanding capital stock of Raptor in a cashless common stock
share-for-share exchange in which Raptor became our wholly-owned subsidiary.

         Upon the completion of this acquisition transaction, we changed our
name to Raptor Networks Technology, Inc., terminated our EDGAR filing services
operations and, by and through our subsidiary Raptor, became engaged in the data
network switching industry. Since that time, our focus has been to design,
produce and sell standards-based, proprietary high-speed network switching
technologies. Our "distributed network switching technology" allows users to
upgrade their traditional networks with our switches to allow for more efficient
management of high-bandwidth applications. The implementation of our products in
a user's network provides increased speed and greater capacity and, we believe,
a cost-effective alternative to existing switching and routing technologies.

         We have designed a family of modular network switch products branded
the "Ether-Raptor" line, which consist of core and edge switch products that
operate together in a unique and highly efficient manner. In a sharp departure
from traditional, centralized chassis-based switch architectures that were
originally designed to handle latency (a time delay in the transfer of data)
insensitive traffic such as email and block data transfers, we have developed
the ability to "bind" physically separated network switches into a common
"virtual chassis," creating the ability for a single network switch to exist in
multiple locations at distances spanning over 1,000 kilometers and to transport
data over that network at very high speeds. This functionality is essential to
new high-bandwidth applications such as Voice over Internet Protocol ("VoIP"),
streaming video, Internet Protocol Television ("IPTV") and high speed digital
access, none of which existed when traditional chassis-based network switch
designs were created. We believe that our Ether-Raptor architecture and
associated products may redefine the manner in which data distribution occurs
for service providers offering VOIP, streaming video, IPTV and other
high-bandwidth applications. Due to the full, open-standards compatibility of
our Ether-Raptor product line, our network switches have nearly universal
applicability on legacy as well as newly installed Ethernet networks where
speed, high bandwidth, redundancy and high reliability are essential.

         We believe the unique features of our products can best be summarized
as follows:

    o    we were first to market with "distributed common core fabric," a
         network switch technology that eliminates dependency on complex and
         costly chassis products;

    o    our simplified architectures improve redundancy and resiliency;

    o    the reduced complexity, tighter hardware integration and common
         components (including common software components) of our products
         provides users the opportunity for economies of scale and reduced
         costs;

    o    the open standards of our products provide for compatibility with
         legacy products;

    o    our products' low transport latency can support emerging converged
         video, voice and data applications without sacrificing
         Quality-of-Service; and

    o    the Layer 2-7 Classification of our products provides full feature sets
         across a user's network.

         We remain an early stage technology company and, commencing with our
inception, have operated, and are now operating, at a significant loss. We
currently have no commitments for any additional financing and there can be no
assurance that we will be able to obtain requisite financing on acceptable
terms, if at all. Because we experienced a significant decrease in revenue in
2008 as compared to 2007, structural changes to our business model that have


                                      -2-



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been previously disclosed in our public filings became necessary to continue our
operations. The principal operating model of the Company was shifted from
product development to licensing, enabling a reduction in headcount, footprint
and infrastructure to reduce costs. While we shifted principally to licensing,
we continue to pursue product and service revenue at a much diminished rate.
There can be no assurance that this shift in business model will be successful,
if at all, and should we be unable to do so, our investors could lose their
entire investment in us.

         Our principal headquarters are located at 1508 S. Grand Ave., Santa
Ana, California 92705 and our phone number is 714-380-6659. Our Internet address
is www.raptor-networks.com. Our Code of Ethics, Audit Committee Charter,
Nominating and Governance Committee Charter and Compensation Committee Charter
may be found on our website at the Internet address set forth above. Our filings
with the SEC may be read and copied at the SEC's Public Reference Room at 100 F
Street N.E., Washington, D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers, such as us, that file
electronically with the SEC. The SEC's web site address is www.sec.gov.

INDUSTRY BACKGROUND

         Distributed computing and accelerating use of the Internet for
information access as well as communication have driven an exponential expansion
in the use of internetworking for more than thirty years. Most of today's
networks were engineered based upon standards and technology optimized for
handling a single data type - character data, which was previously the prevalent
form of data. However, today's sophisticated applications often require multiple
data types with speed and bandwidth requirements so high that prevailing network
technology is simply not up to the task. Often times the system upgrades
required to support these new applications is not cost justifiable, thereby
slowing the rate of adoption and utilization of advanced network applications.

         New applications such as video on demand, remote synchronous data
storage mirroring, global server clustering, business continuity, disaster
recovery and distance collaboration are just a few of the high-bandwidth network
applications that can have great value to an enterprise embracing them. However,
the cost to replace or upgrade existing networks with the requisite efficient,
high-bandwidth infrastructure to support these new applications is, in many
cases, financially prohibitive. For example, a typical chassis-based upgrade,
the type of which is offered by some of our competitors, involves replacing the
power supplies, management units, backplane, fan trays and interconnect blades
in the unit being upgraded. It is not unusual for the upgrade to cost as much or
more than the original machine.

OUR STRATEGY

         Our answer to the cost barrier of the adoption of high-bandwidth (full
10 Gigabit) networking is the introduction of next-generation networking
products that are fundamentally less complex, more architecturally flexible,
compatible with legacy products, and faster than traditional chassis-based
alternatives. We believe that being in a position to offer customers a low
cost-of-entry network alternative will ultimately allow us to achieve success in
the network switch market.

         The core philosophy underlying our technological approach is to strive
to do at Layer 2 (the Data Link Layer) in hardware what traditional network
switch architectures require Layer 3 protocols (the Network Layer) in software
to achieve. Our "distributed switch fabric" approach provides a means to achieve
seamless and coherent peer-to-peer communication between physically separated
switches at Layer 2. The result is, effectively, a single network switch
consisting of a cluster of standalone, high-performance blades physically
separated from one another by currently up to 120 kilometers per hop (in line
with what optics technology allows; distance can be increased using lighted
fiber). This flexibility permits the use of unique network topologies that allow
for highly-robust, super-redundant networks to be designed and implemented that
provide data transport at wire-speed (the maximum speed at which the equipment
is built to operate) with the versatility to run the new latency-sensitive data
applications (such as VoIP or streaming video) at a cost-effective price without
sacrificing quality.

         The ultimate goal in networking is to maximize effective transport
bandwidth without sacrificing quality. In our architecture, Quality-of-Service
is maintained by providing for intelligent management of the different data
types traveling from the same source to the same destination. Latency variations
caused by heavy traffic can be devastating to certain data types and
applications. In traditional centralized architectures, latency problems are
resolved with the costly deployment of dedicated parallel networks, increasing
system complexity and hampering system scalability. Our technology optimizes the
handling of all data packets on a single, common network by monitoring and
differentiating between data types and adjusting transport parameters
accordingly, thus assuring low latency on common transport paths.

                                      -3-



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         Our proprietary Raptor Adaptive Switch Technology ("RAST") provides an
innovative new way to connect local and wide area networks, allowing users new
options in the way they design their distribution networks. Simply stated, RAST
allows discrete network elements, separated in distance by more than 1,000
kilometers, to "bind" into a common "virtual switch," providing for ultra-fast
Layer 2 transport across those distances. Compatible with existing open
standards legacy products, RAST allows customers to add significant capability
to converge voice, video and all data types on to their existing network without
the need for expensive, end-to-end upgrades. RAST also allows highly resilient
networks to be created at lower costs, both in terms of initial capital
expenditure and ongoing operating costs, than traditional legacy chassis-based
systems. Because RAST allows virtually any network size and topology to be
engineered from our common "building block" switches, the cost of adoption, as
well as the cost of support, is minimized.

         One of the most difficult data types for networks to handle is VoIP. By
optimizing the handling of all data packet types on a given network, treating
them as though they were all video data, our architecture enables the
construction of true wire-speed networks and achieves multiple objectives for
the user community. First, it allows for voice, video, storage and other
sophisticated applications that can improve operations and establish new revenue
streams. Second, it augments, rather than replaces, the existing internetworking
infrastructure already in place, leveraging the user's existing capital
investment and minimizing the incremental capital outlay required to support
these new applications.

         We have filed patents with respect to a range of "distributed fabric"
technologies and architectures, including the application of these architectures
to network transport, security, resiliency, encryption and satellite
communications. We believe the combination of these pending patents gives us a
strong competitive advantage because of the added level of functionality these
technologies provide our products.

OUR PRODUCTS

         Our flagship product is a core switch, the Ether-Raptor-1010
("ER-1010"), which is a combination 10Gb/GbE switch. In line with what we
believe to be current market requirements, we cancelled the introduction of
another core switch, the Ether-Raptor-1808. We started development of an
advanced version of the ER-1010, the ER-1010E and this product became available
for shipment in late March 2008. We also offer a pure edge switch, the
Ovi-Raptor-1048 ("OR-1048") and three types of NIC cards. All our switches are
based upon a common family of merchant silicon and embedded software.

         ER-1010/ER-1010E
         ----------------

         Our ER-1010 1Gb/GbE and 10Gb/GbE network switch significantly reduces
the cost of adoption of ten gigabit networking by allowing for the construction
of an entire network from a series of our common, high performance "building
blocks." The ER-1010 consists of 24 ports of 1Gb/GbE and six ports of 10Gb/GbE.
The ER-1010 is built in a 1U high, self-powered, self-managed enclosure. Unlike
the large and complex chassis-based switches from which they evolved, our
network switches are physically placed near the devices or clients they serve.
When these switches are then subsequently connected together, either over copper
or fiber links, they collectively "bind" into a single "virtual" network switch.
This patent-pending "distributed virtual switch" architecture, filed under
Raptor Networks Technology, Inc.'s name, scales linearly, reduces inter-network
disconnects and moves data at very high speeds.
 Because the topology consists of a collection of self-managed, interconnected
building blocks of identical composition, the architecture of the ER-1010
improves redundancy, keeps latency very low across broad distances, allows for
simpler management, and is priced lower than chassis-based alternatives.

         The ER-1010E enhances the ER-1010 performance substantially. The CPU
speed which was 300 Mhz in the ER-1010 is now 1Gh in the ER-1010E, resulting in
lower latency and higher performance, including stacking capabilities. In
addition, memory has been increased by 400% and functionality of the system's
user interface has been substantially improved. We also offer an ER-1010E
version with dual redundant power supply capabilities.

         OR-1048
         -------

         The OR-1048 is a 48-port 1GbE edge switch with the option for two 10GbE
uplinks and four optional 1GbE fiber ports. The OR-1048's standard features
include comprehensive management functions and Web management.

                                      -4-



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         Network Interface Cards (NICs)
         ------------------------------

         Raptor provides three types of NIC cards providing users with 2, 4, or
6 1Gigabit Ethernet ports for hooking up personal computers and servers to the
network through Ethernet switches.

RESEARCH AND DEVELOPMENT

         We spent $983,546 and $1,356,326 in 2008 and 2007, respectively, on
research and development.

         We commenced our transition into the data network switching industry in
October 2003. From October 2003 until early 2005, we worked to develop our first
flagship product, the ER-1010. By the end of the third quarter of 2004, our
design team had finalized the design work on a fiber based RAST card. This card
enables all our network switching systems employed in a network connected
through fiber to work as one "virtual chassis" system, even if such systems are
located up to 120 kilometers apart. In September and October 2004, we developed
a 10-Giga-fiber card, which enables our systems to communicate with other brands
of network switches.

         During 2005, our research and development resources were mainly focused
on adding features to the ER-1010, such as Data Management Software (software
enabling analysis of data flows handled by the ER-1010) and other enriching
functions. Throughout 2005, substantial testing of the ER-1010 was carried out
internally for the purpose of ensuring that product features worked as expected
and extensive external testing was conducted to validate the quality of our
products. In the fourth quarter of 2005, certain parts of the ER-1010 were
upgraded, including the replacement of certain cables to reduce manufacturing
costs, and an upgrade to a more powerful processor. We also made significant
progress in 2005 debugging software included in the ER-1010, resulting in
substantial improvement of the ER-1010's performance in terms of reduced
failover time, increased stacking possibilities, and smooth running of jumbo
frames.

         During 2006, our research and development team completed various
enhancements to the ER-1010, resulting in an improvement of the control plane
and increasing memory and processing power. We also began work on upgrading the
existing ER-1010 to a more powerful product. During the second half of 2006, we
continued testing various applications that may better position our products for
various markets. We also began testing our products with a government approved
test organization.

         In 2007, we successfully finished testing of our product with a U.S.
Federal government-approved test organization. The research and development team
spent considerable time on developing the ER-1010E, an enhanced version of the
ER-1010 as described above under the caption "Our Products." In addition, we
developed a redundant power supply version of the ER-1010E and designed various
new boards, which improved the stability of the ER-1010 and ER-1010E and
suitability of our core system for the data storage market. Our software
development group upgraded our software to include additional protocols
addressing customer-reported issues.

         In the first half of 2008, we finished the development of the ER-1010E,
including the redundant power supply version, which we made available for
shipment in late March 2008. During the remainder of 2008 we started the
hardware design of an" IPv6" compatible unit. "IPv6" is a feature that
facilitates an increase of the number of users on the internet and is a key
requirement for obtaining government business. In addition we are considering
developing various security related enhancements.

         None of our research and development to date has been customer
specific. Therefore, we have not billed any of our customers for non-recurring
engineering or other research and development expenses. In the future, we expect
that there may be periodic opportunities to engage in customer specific projects
for which we can bill a portion of our research and development expenses to such
customers.

                                      -5-



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SALES AND MARKETING

         We market and sell our products to customers through a combination of
direct sales to end users and sales through resellers. Our sales offices are
located at our principal headquarters in Santa Ana, California and we have sales
employees in California, North Carolina and Florida. In addition, we have
finder's fee and consulting agreements in place with a number of independent
third parties to facilitate the sale of our products on a global basis.

COMPETITION

         We believe the key competitive factors in today's network switching
market are, in order of priority: price, speed, capacity, brand recognition and
interoperability (compatibility with legacy products). We intend to become
competitive by offering products that offer architectural performance,
resiliency and power efficiency advantages at a price that cannot be matched by
today's centrally-architected legacy networks alternatives. We seek to gain and
expand a market presence through aggressive marketing and sales efforts.
However, our market continues to evolve and we may not be able to compete
successfully against current and future competitors.

         We operate in a competitive industry with many established and
well-recognized competitors. In particular, Cisco Systems maintains a dominant
position in our industry and several of its products compete directly with our
products. We also compete with, among others, Extreme Networks, Nortel Networks,
Enterasys Networks, 3Com, Huawei Technologies, Force 10 Networks, Juniper
Networks and Alcatel. Most of our competitors (including all of the competitors
referenced above) have substantially greater market leverage, distribution
networks, and vendor relationships, longer operating histories and industry
experience, greater financial, technical, sales, marketing and other resources,
more name recognition and larger installed customer bases than we do and can be
expected to react strongly to our marketing efforts.

         In addition, many competitors exist who, because of their substantial
resources, distribution relationships and customer base, could temporarily drop
prices to stave off a potential successful market launch by us. Other
competitive responses might include, without limitation, intense and aggressive
price competition and offers of employment to our key marketing or management
personnel. There can be no assurance that we will be successful in the face of
increasing competition from existing or new competitors, or that competition
will not have a material adverse effect on our business, financial condition and
results of operations.

         Competitive pressures and other factors, such as new product or
technology introductions by us or our competitors, may result in price or market
share erosion that could have a material adverse effect on our business, results
of operations and financial condition. In addition, there can be no assurance
that our products and services will achieve broad market acceptance or will
successfully compete with other products targeting the same customers.

MANUFACTURING AND SUPPLIERS

         Our success will depend on partnerships in both technology and related
support. Our primary technology provider is Broadcom Corporation. Broadcom's 10
Gigabit Ethernet, Gigabit Ethernet and fast Ethernet transceivers provide the
Ethernet and 10 Gigabit switching fabric in our distributed architecture.
Another major supplier is TTM Corporation, which supplies PCB fabrication and
PCB design and analyses support. Our operating system is based on WindRiver's
VxWorks, which is widely used throughout the information technology industry.

         All of our manufacturing activities have been outsourced to Express
Manufacturing Inc. ("EMI"), a subcontractor located in the same vicinity as our
principal headquarters. EMI's manufacturing activities for us consist of printed
circuit board assembly and, final assembly of our products. All of our inventory
is stored at our principal headquarters and we supply it to EMI as needed to
meet our orders. We currently conduct final systems testing at our principal
headquarters.

         We utilize high quality providers of merchant silicon, embedded
software, production circuit boards and loss-free interconnects to craft our
switch products. No extraordinary investments in custom ASICs, software or
infrastructure was required to engineer our family of products. In furtherance
of our dedication to cost consciousness, in August 2004 we relocated our
operations to a Federal Empowerment Zone and local enterprise zone, directly
between EMI, our contract manufacturer, and Broadcom, our merchant silicon
provider, in order to minimize facility costs and speed the design-to-production
transition of new silicon switching innovations. In October of 2008, we moved
once again, remaining within the Federal Empowerment Zone, but reducing the
Company's footprint and lease rate to further cut expenses.

                                      -6-



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EMPLOYEES

         As of March 24, 2009 we had 8 full-time employees. None of our
employees are a party to any collective bargaining agreements with us. We
consider our relations with our employees to be good.

PATENTS, TRADEMARKS, AND LICENSING AGREEMENTS

         We have nine U.S. patent applications pending, one allowed, two foreign
applications pending, and ten additional U.S. provisional applications pending
with broad claim sets covering numerous aspects of our Ethernet Distributed
Switch Fabrics. Due to delays at the patent office, the latest three
applications were filed using the new accelerated examination procedure. The
foreign applications pending are in Europe ("EPO") and Japan.

         While we see no evidence that the technology encompassed in the
Ethernet Distributed Switch Fabrics patent applications is neither infringed
upon by any third party, nor infringes on any prior art of any third party, we
are unable to assess the validity, scope, or defensibility of our patent
applications, and any challenge to or claim of infringement relating to one or
more of the patent applications could materially and adversely affect our
business and results of operations.

         We have not entered into any licensing or franchising agreements for
revenue generating purposes.

ORGANIZATION

         We were organized under the laws of the State of Colorado on January
22, 2001 under the name Pacific InterMedia, Inc. We originally were engaged in
the business of offering EDGAR filing services to companies outsourcing the
formatting and electronic filing of registration statements, periodic reports
and other forms with the SEC, but generated minimal revenues from these
operations. On October 17, 2003, we completed a business combination transaction
with Raptor Networks Technology, Inc., a California corporation ("Raptor"),
whereby we acquired all of the issued and outstanding capital stock of Raptor in
a cashless common stock share-for-share exchange in which Raptor became our
wholly-owned subsidiary (the "Raptor Acquisition").

         The Raptor Acquisition was structured as a share-for-share exchange
whereby we issued to Raptor's shareholders, on a one-for-one basis, an aggregate
of 19,161,256 shares of our authorized but previously unissued common stock in
exchange for the 19,161,256 shares of Raptor common stock collectively held by
them.

         As of the date of the Raptor Acquisition, both we and Raptor were
start-up, development stage companies and had each realized negligible revenues.
We are unable to locate any documentation or other information regarding how the
value of our common stock or Raptor's common stock was calculated in determining
that the stock be exchanged on a one-for-one basis in the Raptor Acquisition. In
addition, there was no public market for either our or Raptor's stock at the
time of the Raptor Acquisition on which to base such an evaluation. We have no
reason to believe the Raptor Acquisition was not an arms-length transaction or
that the terms of the Raptor Acquisition were not reasonable at the time the
transactions were entered into. However, we can provide no assurance that our
common stock or Raptor's common stock was not over-valued or under-valued in the
Raptor Acquisition.

         Upon the completion of the Raptor Acquisition, we changed our name to
Raptor Networks Technology, Inc., terminated our EDGAR filing services
operations and, by and through our subsidiary Raptor, became engaged in the data
network switching industry. The Raptor Acquisition has been treated as a reverse
merger, with Raptor being considered the acquiring entity for accounting
purposes.

                                1A. RISK FACTORS

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS HAVE ISSUED A REPORT
QUESTIONING OUR ABILITY TO CONTINUE AS A GOING CONCERN. THIS REPORT MAY IMPAIR
OUR ABILITY TO RAISE ADDITIONAL FINANCING AND ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK. IN AN ATTEMPT TO ADDRESS THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN, THE COMPANY CHANGED ITS PRINCIPAL OPERATING MODEL FROM PRODUCT
DEVELOPMENT TO LICENSING. THERE CAN BE NO ASSURANCE THAT THIS SHIFT IN BUSINESS
MODEL WILL BE SUCCESSFUL.

                                      -7-



<page>

         Our independent registered public accounting firms have qualified their
opinions with respect to our financial statements to include an explanatory
paragraph related to our ability to continue as a going concern in their report
for each of our fiscal years ended December 31, 2003 through December 31, 2008.
Reports of registered public accounting firms questioning a company's ability to
continue as a going concern generally are viewed very unfavorably by analysts
and investors. There are a number of risks and challenges associated with such a
qualified report including, but not limited to, a significant impediment to our
ability to raise additional capital or seek financing from entities that will
not conduct such transactions in the face of such increased level of risk of
insolvency and loss, increased difficulty in attracting talent, and the
diversion of the attention of our executive officers and other key employees to
raising capital or financing rather than devoting time to the day-to-day
operations of our business. We urge potential investors to review the report of
our independent registered public accounting firm and our consolidated financial
statements and related notes beginning on page F-1 of this Report and to seek
independent advice concerning the substantial risks related thereto before
making a decision to invest in us. Our consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
financial statements and financial information included in this filing do not
reflect any adjustments that might be necessary if we are unable to continue as
a going concern. We currently have no commitment for any additional financing
and there can be no assurance that we will be able to obtain requisite financing
on acceptable terms, if at all. Because revenues decreased in 2008 structural
changes to our business model that have been under consideration (and previously
disclosed in our public filings) became necessary to continue operations. The
principal operating model of the Company was shifted from product development to
licensing enabling a reduction in headcount, footprint and infrastructure to
reduce costs. There can be no assurance that this shift in business model will
be successful, if at all. Should the licensing model prove to be unsuccessful,
our investors could lose their entire investment in us. On October 2, 2008, the
Company returned the keys of its previous operating facility to the landlord and
formally rendered possession of the facility to the landlord to allow the
landlord to actively market the vacated space. The Company paid the rent for
September 2008 but made no further rental payments upon vacating the facility.
The remaining lease term runs through July 2009. The Company charged $241,261,
the remaining liability on the lease, to other expense for the year ended
December 31, 2008. There can be no assurance that the landlord will not take
legal action against us for breach of this lease as we have not reached any
settlement agreement. If the landlord takes legal action against us, a negative
outcome could have a material adverse effect on our business and financial
condition.

         Our substantial accumulated deficit, limited working capital and
expectation of future losses may require that we obtain additional financing to
continue operations, which we may not be able to secure on acceptable terms, if
at all.

         We are an early stage company and have had no significant revenues from
operations to date. As of December 31, 2008, we had an accumulated deficit of
$71,228,180. We have operated at a loss since our inception and expect to
continue to experience losses from our operations for the foreseeable future.
Our net losses for fiscal 2008 and 2007 were $1,029,859 and $9,509,247
respectively. We will be required to conduct product feature enhancement and
testing activities which, together with expenses to be incurred for the
establishment of a sustainable marketing and sales presence and other general
and administrative expenses, are expected to result in operating losses through
the foreseeable future. Accordingly, there is a risk that we will not achieve
profitable operations in the near future, if at all.

         Our management has attempted in the past to address these conditions by
obtaining additional debt and equity financing to fund our continuing
operations. In April 2008, we raised gross proceeds of $3,125,000 and in July
2008 we raised an additional $1,250,000 as we continue to pursue sources of
revenue. In addition, in August and September 2008 we executed a 70% reduction
in full-time equivalent headcount to further reduce expense levels. If we become
unable to finance our operations, investors in our common stock or other
securities could loose their entire investments.

WE HAVE NO PROFITABLE OPERATING HISTORY AND MAY NEVER ACHIEVE PROFITABILITY.

         We are an early stage company and have a limited history of operations
and have not generated meaningful revenues from operations since our inception.
We are faced with all of the risks associated with a company in the early stages
of development. Our business is subject to numerous risks associated with a
relatively new, low-capitalized company engaged in the network switch industry.
Such risks include, but are not limited to, competition from well-established
and well-capitalized companies, technological obsolescence and unanticipated
difficulties regarding the development and marketing of our products. There can
be no assurance that we will ever generate significant commercial sales or
achieve profitability. Should this be the case, investors in our common stock or
other securities could lose their entire investment.

                                      -8-



<page>

WE DO NOT PRESENTLY HAVE A TRADITIONAL CREDIT FACILITY WITH A FINANCIAL
INSTITUTION. THIS ABSENCE MAY ADVERSELY IMPACT OUR OPERATIONS.

         We do not presently have a traditional credit facility with a financial
institution. The absence of a traditional credit facility could adversely impact
our operations. If adequate funds are not otherwise available, we may be
required to delay, scale back or eliminate portions of our operations and
product development efforts. In addition, the terms of our senior convertible
note financings subject us to certain covenants that prohibit us from borrowing
additional funds unless certain conditions are satisfied, including, but not
limited to, the closing price of our common stock being greater than $1.00 per
share for 40 consecutive trading days or the aggregate dollar trading volume of
our common stock being greater than $200,000 per day for 40 consecutive trading
days. Further the terms of our July 2007, April 2008 and July 2008 senior
secured convertible note financings provide that while the notes are
outstanding, we will not conduct any other securities offerings or be party to
any solicitations, negotiations or discussions regarding any other security
offerings, except for offerings solely to one or more of the investors.

OUR LEVEL OF INDEBTEDNESS REDUCES OUR FINANCIAL AND OPERATIONAL FLEXIBILITY, AND
OUR LEVEL OF INDEBTEDNESS MAY INCREASE.

         As of March 24, 2009, the principal amount of our total indebtedness
was $12,592,856. Our level of indebtedness affects our operations in several
ways, including the following:

    o    A significant portion of our cash flow may be required to service our
         indebtedness;
    o    A high level of debt increases our vulnerability to general adverse
         economic and industry conditions;
    o    The covenants contained in the agreements governing our outstanding
         indebtedness significantly limit our ability to borrow additional
         funds, dispose of assets, pay dividends, sell common stock and make
         certain investments;
    o    Our debt covenants may also affect our flexibility in planning for, and
         reacting to, changes in the economy or in our industry;
    o    A high level of debt may impair our ability to obtain additional
         financing in the future for working capital, capital expenditures,
         acquisitions or general corporate purposes; and
    o    A default under our debt covenants could result in required principal
         payments that we may not be able to meet, resulting in higher penalty
         interest rates and/or debt maturity acceleration.

         We may incur additional debt, including significant secured
indebtedness, in order to fund our continuing operations or to develop and/or
improve our products. A higher level of indebtedness increases the risk that we
may default on our debt obligations. Our ability to meet our debt obligations
and to reduce our level of indebtedness depends on our future performance.
General and industry specific economic, financial and business conditions and
other factors affect our operations and our future performance. Many of these
factors are beyond our control. We may not be able to generate sufficient cash
flow to fulfill our interest or principal payment obligations on our debt and
future working capital, borrowings or equity financing may not be available to
pay or refinance such debt. In this respect we also refer to our disclosures
included in the "Subsequent Events" section to the Notes to our Consolidated
Financial Statements hereafter.

IF WE DEFAULT ON OUR SENIOR SECURED CONVERTIBLE NOTES, WE COULD LOSE ALL OF OUR
ASSETS.

         Pursuant to the July 2007, March 2008 and July 2008 senior secured
convertible note financings, we granted the investors a security interest in all
of our assets. If we default on our obligations relating to those notes, the
investors could foreclose on all of our assets, both tangible and intangible,
leaving us with no assets.

THERE IS A RISK THAT THERE MAY BE PROCEDURAL ISSUES RELATED TO OUR ACQUISITION
OF RAPTOR NETWORKS TECHNOLOGY, INC., A CALIFORNIA CORPORATION, WHICH COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

                                      -9-



<page>

         We were organized under the laws of the State of Colorado on January
22, 2001 under the name Pacific InterMedia, Inc. On October 17, 2003, we
completed a transaction with Raptor Networks Technology, Inc., a California
corporation ("Raptor"), whereby we acquired all of the issued and outstanding
capital stock of Raptor in a cashless common stock share-for-share exchange in
which Raptor became our wholly-owned subsidiary. With the completion of the
acquisition transaction we changed our name to Raptor Networks Technology, Inc.,
terminated our previous operations (consisting of the "EDGARization" of SEC
securities filings) and, by and through our subsidiary Raptor, became engaged in
the data network switching industry. After the transaction, our Board of
Directors engaged new management to, among other things, review our operating
and legal status.

         As a result of management's review of our historical corporate records,
it appears that certain material documents and approvals regarding the
transaction were not properly retained. Furthermore, it appears that, from a
review of the records available to us, certain procedural irregularities may
exist regarding the structure and approval of the acquisition transaction under
applicable law. After a review of available documents and records relating to
the acquisition transaction, Colorado counsel engaged by us has determined that
the shares issued in the transaction were lawfully issued. However, there is a
risk, given the lack of complete records regarding the transaction, that the
acquisition was not properly structured or approved. The inability to resolve
such deficiencies, should such deficiencies exist, could have a material adverse
effect on our business, financial condition and results of operations.
Furthermore, there is a risk that we may be subject to currently unknown
liabilities resulting from our operations, or the operations of Raptor, prior to
the acquisition transaction. Should a claimed liability arise, we could expend
significant time and resources defending or satisfying such claim, including,
without limitation, the amount of any judgment or settlement required to satisfy
any such claim and the payment of attorneys' fees and other costs incurred in
defending any such claim.

EVALUATION OF INTERNAL CONTROL AND REMEDIATION OF POTENTIAL PROBLEMS MAY BE
COSTLY AND TIME CONSUMING AND COULD EXPOSE WEAKNESSES IN FINANCIAL REPORTING.

         Our independent registered public accounting firm will be required to
confirm in writing whether management's assessment of the effectiveness of the
internal control over financial reporting is fairly stated in all material
respects, and separately report on whether they believe management maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2009.

         This process may be expensive and time consuming, and may require
significant attention of management. Management can give no assurance that
material weaknesses in internal controls will not be discovered. If a material
weakness is discovered, corrective action may be time consuming, costly and
further divert the attention of management. The disclosure of a material
weakness, even if quickly remedied, could reduce the market's confidence in our
financial statements and harm our stock price, especially if a restatement of
financial statements for past periods is required.

OUR INABILITY TO SUCCESSFULLY ACHIEVE SUSTAINABLE MARKET PENETRATION COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION.

         No assurance can be given that we will be able to successfully achieve
sustainable market penetration with any of our products. Our success in
marketing our products will be substantially dependent on educating our targeted
markets as to the unique topologies, as well as what we believe are the
performance and cost benefits, of our distributed Ethernet switch architecture.
There can be no assurance that our efforts or the efforts of others will be
successful in fostering acceptance of our technology among the targeted markets.

MANY COMPANIES WITH GREATER RESOURCES AND OPERATING EXPERIENCE OFFER TECHNOLOGY
SIMILAR TO OUR PRODUCTS. THESE COMPANIES COULD SUCCESSFULLY COMPETE WITH US AND
NEGATIVELY AFFECT OUR OPPORTUNITY TO ACHIEVE PROFITABILITY.

         We operate in a competitive industry with many established and
well-recognized competitors. In particular, Cisco Systems maintains a dominant
position in our industry and several of its products compete directly with our
products. We also compete with Extreme Networks, Juniper Networks, F5 Networks,
Nortel Networks, Enterasys Networks, 3Com, Huawei Technologies, Force 10
Networks and Actel, among others. Most of our competitors (including all of the
competitors referenced above) have substantially greater market leverage,
distribution networks, and vendor relationships, longer operating histories and
industry experience, greater financial, technical, sales, marketing and other
resources, more name recognition and larger installed customer bases than we do
and can be expected to react strongly to our marketing efforts. In addition,
many competitors exist who, because of their substantial resources, distribution
relationships and customer base could temporarily drop prices to stave off a
potential successful market launch by our Company. Other competitive responses
might include, without limitation, intense and aggressive price competition and
offers of employment to our key marketing or management personnel. There can be
no assurance that we will be successful in the face of increasing competition
from existing or new competitors, or that competition will not have a material
adverse effect on our business, financial condition and results of operations.

                                      -10-



<page>

OUR MARKETING EFFORTS HAVE YIELDED NEGLIGIBLE REVENUES AND THERE CAN BE NO
ASSURANCE THAT OUR FUTURE MARKETING EFFORTS WILL LEAD TO SALES OF OUR PRODUCTS.

         Our marketing efforts have yielded negligible revenues and we believe
we will have to significantly expand our sales and marketing capabilities in
order to establish sufficient awareness to launch broader sales of our products
and support services. There can be no assurance that we will be able to expand
our sales and marketing efforts to the extent we believe necessary or that any
such efforts, if undertaken, will be successful in achieving substantial sales
of our products or support services.

THE INDUSTRY OF NETWORK SWITCH PRODUCTS IS SUBJECT TO RAPID TECHNOLOGICAL
CHANGE. OUR PRODUCTS COULD BECOME OBSOLETE AT ANY TIME AND OUR LIMITED CAPITAL
PROHIBITS US FROM DEVOTING A SIGNIFICANT AMOUNT OF RESOURCES TO RESEARCH AND
DEVELOPMENT.

         Evolving technology, updated industry standards, and frequent new
product and service introductions characterize the network switching market. Our
current products could become obsolete at any time. Competitors could develop
products similar to or better than ours, finish development before us, or market
their products more successfully than ours, any of which could hinder our
potential success. In order to be competitive, we must continue to develop and
bring to market new products that offer substantially greater performance and
support a greater number of users, all at lower price points than our
competitors. Our future success depends in significant part on our ability to
evolve the performance and software of our existing products and develop and
introduce new products and technologies in response to the evolving demands of
the market and competitive product offerings. However, unless we are able to
raise additional capital or significantly increase revenues, we will not be able
to devote a significant amount of resources to research and development, which
could increase the likelihood that our current products become obsolete and
prevent us from developing new products to keep up with the industry's rapid
technological advancements.

BECAUSE WE BELIEVE THAT PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
MISAPPROPRIATION OF THOSE RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS
RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION.

         Our success is dependent on our ability to protect our proprietary
technology. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology. Monitoring unauthorized use of our technology is difficult, and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the U.S. We currently have patent-pending
protection for our proprietary technology and plan to rely on non-disclosure
agreements to further protect this technology. There can be no assurance that
these patents will be granted or that nondisclosure agreements will provide us
meaningful protection.

         In addition, the network industry is subject to frequent claims and
related litigation regarding patent and other intellectual property rights. In
particular, some companies in the network industry claim extensive patent
portfolios. As a result of the existence of a large number of existing patents
and the rate of issuance of new patents in the network industry, it is extremely
difficult to determine in advance whether a product or any of its components may
infringe upon the intellectual property rights claimed by others. Third parties
may in the future assert patent, copyright, trademark and other intellectual
property rights claims against us with respect to existing or future products or
technology. Regardless of the merits of our position, we may incur substantial
legal fees and related costs defending against third party claims, in addition
to monetary damages that may be assessed against us. If there is a successful
claim of infringement and we fail or are unable to develop non-infringing
technology or license the infringed or similar technology on a timely basis, our
business and results of operations may be seriously harmed.

WE RELY HEAVILY ON OUR MANAGEMENT AND OTHER KEY PERSONNEL, AND THE LOSS OF THEIR
SERVICES (OR OUR INABILITY TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED EMPLOYEES)
COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

         Our future success depends to a significant degree on the continued
service of our key personnel and on our ability to attract, motivate and retain
highly qualified employees. In particular, we are dependent upon the services of
our senior management, including, without limitation: Chief Executive Officer
and President, Thomas M. Wittenschlaeger and Chief Financial Officer and
Secretary, Bob van Leyen. The loss of the services of our senior management or
other key employees would have a material adverse effect on our business,
financial condition and results of operations.

                                      -11-



<page>

         In addition, there are a number of other key management, sales and
support positions (including many for which individuals have not yet been hired)
the loss of which (or the inability to recruit and retain) would have a material
adverse effect on our business. If we experience the growth we hope to achieve,
our ability to operate successfully during periods of growth (if any) will
depend on our ability to attract and retain managers and develop adequate
systems and procedures to manage such growth. There can be no assurance that we
will be able to attract and retain additional key management personnel with the
skills and expertise necessary to manage our business should any such period of
growth occur.

OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO OBTAIN COMPONENTS, SOFTWARE AND
SERVICES FROM OUTSIDE SUPPLIERS AND VENDORS.

         Our products are architected and manufactured through the use of
third-party electronic components, device level software and services. We are
highly dependent on the services and products of these other companies. A
discontinuance, disruption or other similar occurrence to the components,
software or services supplied by our vendors and suppliers could materially
diminish our ability to operate efficiently.

         We acquire components through purchase orders and have no long-term
commitments regarding supply or pricing from these suppliers. We depend on
anticipated product orders to determine our material requirements. If orders for
our products do not match forecasts, or if we do not manage inventory
effectively, we may have either excess or insufficient inventory of materials
and components, which could negatively affect our operating results and
financial condition.

OUR RELIANCE ON THIRD-PARTY MANUFACTURING VENDORS TO MANUFACTURE OUR PRODUCTS
MAY CAUSE A DELAY IN OUR ABILITY TO FILL ORDERS.

         We subcontract a significant amount of our manufacturing to Express
Manufacturing, Inc. and may, in the future, subcontract with other third-party
manufacturers. In addition, some Company-branded products are manufactured by
third party original equipment manufacturers ("OEMs"). We may experience delays
in product manufacturing and shipments from our manufacturers, which in turn
could delay product shipments to our customers. In addition, we may experience
problems such as inferior manufacturing quality or failure to manufacture
products according to specifications, any of which could have a material adverse
effect on our business and operating results. In the event we introduce new
products or product enhancements, we may be required to rapidly achieve volume
production by coordinating our efforts with suppliers and manufacturers. The
inability of our manufacturers or OEMs to provide us with adequate supplies of
high-quality products, the loss of any of our third-party manufacturers, or the
inability to obtain components and raw materials could cause a delay in our
ability to fulfill orders.

THE AVERAGE SELLING PRICES OF OUR PRODUCTS, AND OUR GROSS MARGINS RESULTING FROM
THE SALE OF SUCH PRODUCTS, MAY DECLINE AS A RESULT OF COMPETITIVE PRESSURES,
INDUSTRY TRENDS AND OTHER FACTORS.

         The network industry has experienced an erosion of the average product
selling prices due to a number of factors, particularly competitive and
macroeconomic pressures and rapid technological advancements. Our competitors
have and will likely continue to lower sales prices from time to time in order
to gain market share or create more demand. We may have to reduce the sales
prices of our products in response to such intense pricing competition, which
could cause our gross margins to decline and may adversely affect our business,
operating results or financial condition. Our gross margins could also be
adversely affected if we are unable to reduce manufacturing costs and
effectively manage our inventory levels or by fluctuations in manufacturing
volumes, component costs, the mix of products sold and the mix of distribution
channels through which our products are sold.

IF OUR PRODUCTS CONTAIN SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR SUDDEN AND
SIGNIFICANT EXPENSES AND LOST SALES AND BE SUBJECT TO PRODUCT LIABILITY CLAIMS.

         Our products are complex and may contain undetected defects or errors,
particularly when first introduced or as new enhancements and versions are
released. Despite our testing procedures, these defects and errors may be
discovered after they have been shipped to customers. Any defects or errors in
our products or failures of our customers' networks, regardless of whether the
failure is caused by our products, could result in:

                                      -12-



<page>

         o    negative customer reactions;
         o    product liability claims;
         o    negative publicity regarding us and our products;
         o    delays in or loss of market acceptance of our products;
         o    product returns; and
         o    unexpected expenses to remedy defects or errors.

OUR SUCCESS IS SUBSTANTIALLY DEPENDENT ON GENERAL ECONOMIC CONDITIONS AND
BUSINESS TRENDS, PARTICULARLY IN THE INFORMATION TECHNOLOGY INDUSTRY, A DOWNTURN
OF WHICH COULD ADVERSELY AFFECT OUR OPERATIONS.

         The success of our operations depends to a significant extent upon a
number of factors relating to business spending. These factors include economic
conditions such as employment rates and labor supply, general business
conditions, cost of goods and materials, inflation, interest rates and taxation.
Our business is affected by the general condition and economic stability of our
customers as well as our vendors, suppliers and partners and their continued
willingness to work with us in the future. Our business is particularly
sensitive to information technology ("IT") spending patterns and preferences.
There can be no assurance that IT spending will not be adversely affected by
general business trends and economic conditions, thereby impacting our growth,
net sales and profitability.

OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD IMPAIR OUR SUCCESS.

         In order for us to expand successfully, management will be required to
anticipate the changing demands of a growth in operations, should such growth
occur, and to adapt systems and procedures accordingly. There can be no
assurance that we will anticipate all of the changing demands that a potential
expansion in operations might impose. If we were to experience growth, we might
be required to hire and train a large number of sales and support personnel, and
there can be no assurance that the training and supervision of a large number of
new employees would not adversely affect the high standards that we seek to
maintain. Our future will depend, in part, on our ability to integrate new
individuals and capabilities into our operations, should such operations expand
in the future, and there can be no assurance that we will be able to achieve
such integration. We will also need to continually evaluate the adequacy of our
management information systems, including our web site. Failure to upgrade our
information systems or unexpected difficulties encountered with these systems
during an expansion in our operations (should such an expansion occur) could
adversely affect our business, financial condition and results of operations.

CHANGES IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES COULD HAVE AN ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL CONDITION, CASH FLOWS, REVENUE AND RESULTS OF
OPERATIONS.

         We are subject to changes in and interpretations of financial
accounting matters that govern the measurement of our performance. Based on our
reading and interpretations of relevant guidance, principles or concepts issued
by, among other authorities, the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board and the United States
Securities and Exchange Commission, our management believes that our current
contract terms and business arrangements have been properly reported. However,
there continue to be issued interpretations and guidance for applying the
relevant standards to a wide range of contract terms and business arrangements
that are prevalent in the industries in which we operate. Future interpretations
or changes by the regulators of existing accounting standards or changes in our
business practices could result in future changes in our revenue recognition
and/or other accounting policies and practices that could have a material
adverse effect on our business, financial condition, cash flows, revenue and
results of operations.

OUR COMMON STOCK PRICE HAS BEEN VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL
LOSSES FOR INVESTORS PURCHASING SHARES OF OUR COMMON STOCK.

         The market prices of securities of technology-based companies (such as
us) currently are highly volatile. The market price of our common stock has
fluctuated significantly in the past. During 2008, the high and low closing sale
prices of a share of our common stock were $0.95and $0.12, respectively. On
March 24, 2009, the last reported sale price of a share of our common stock was
$0.115. The market price of our common stock may continue to fluctuate in
response to the following factors, in addition to others, many of which are
beyond our control:

                                      -13-



<page>

         o    conversion of our convertible notes and exercise of our warrants
              and the sale of their underlying common stock;
         o    changes in market valuations of similar companies and stock market
              price and volume fluctuations generally;
         o    economic conditions specific to the network switching or related
              information technology industries;
         o    announcements by us or our competitors of new or enhanced
              products, technologies or services or significant contracts,
              acquisitions, strategic relationships, joint ventures or capital
              commitments;
         o    delays in our introduction of new products or technological
              innovations or problems in the functioning of our current or new
              products or innovations;
         o    third parties' infringement of our intellectual property rights;
         o    changes in our pricing policies or the pricing policies of our
              competitors;
         o    regulatory developments;
         o    fluctuations in our quarterly or annual operating results;
         o    additions or departures of key personnel; and
         o    future sales of our common stock or other securities.

         The price at which you purchase shares of common stock may not be
indicative of the price of our stock that will prevail in the trading market.
You may be unable to sell your shares of common stock at or above your purchase
price, which may result in substantial losses to you. Moreover, in the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may in
the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert our management's attention and resources.

SHARES OF OUR COMMON STOCK ELIGIBLE, OR TO BECOME ELIGIBLE, FOR PUBLIC SALE
COULD ADVERSELY AFFECT OUR STOCK PRICE AND MAKE IT DIFFICULT FOR US TO RAISE
ADDITIONAL CAPITAL THROUGH SALES OF EQUITY SECURITIES.

         We cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of common stock for sale will
have on the market price prevailing from time to time. As of March 24, 2009, we
had outstanding 74,073,311 shares of common stock, of which approximately
15,768,508 shares were restricted under the Securities Act of 1933, as amended
(the "Securities Act"). As of March 24, 2009, we also had outstanding options,
warrants, and convertible promissory notes that were exercisable for or
convertible into approximately 105,425,343 shares of common stock. Sales of
shares of our common stock in the public market, or the perception that sales
could occur, could adversely affect the market price of our common stock. Any
adverse effect on the market price of our common stock could make it difficult
for us to raise additional capital through sales of equity securities at a time
and at a price that we deem appropriate.

THE CONVERSION OF CONVERTIBLE SECURITIES AND THE EXERCISE OF OUTSTANDING OPTIONS
AND WARRANTS TO PURCHASE OUR COMMON STOCK COULD SUBSTANTIALLY DILUTE YOUR
INVESTMENT, IMPEDE OUR ABILITY TO OBTAIN ADDITIONAL FINANCING, AND CAUSE US TO
INCUR ADDITIONAL EXPENSES.

         Under the terms of existing notes convertible into our common stock,
warrants to purchase our common stock, non compensatory options to acquire our
common stock, and other outstanding options to acquire our common stock issued
to employees and others, the holders thereof are given an opportunity to profit
from a rise in the market price of our common stock that, upon the exercise of
such warrants and/or options or conversion of such notes, could result in
dilution in the interests of our other shareholders. The terms on which we may
obtain additional financing may be adversely affected by the existence and
potentially dilutive impact of such convertible notes, options and warrants. In
addition, holders of certain convertible notes, options and warrants have
registration rights with respect to the common stock underlying such convertible
notes, options and warrants, the registration of which will cause us to incur a
substantial expense.

THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD DECLINE IF OUR SENIOR
CONVERTIBLE NOTES AND WARRANTS ARE CONVERTED AT A REDUCED PRICE DUE TO OUR
ISSUANCE OF LOWER-PRICED SHARES OR MARKET DECLINES WHICH TRIGGER RIGHTS OF THE
HOLDERS OF OUR CONVERTIBLE NOTES AND WARRANTS TO RECEIVE ADDITIONAL SHARES OF
OUR STOCK.

                                      -14-



<page>

         As part of our 2006, 2007 and 2008 senior convertible note financings,
we issued a significant additional amount of convertible notes and warrants, the
exercise or conversion of which could have a substantial negative impact on the
price of our common stock and could result in a dramatic decrease in the value
of your investment. The initial conversion price of our senior convertible notes
is subject to market-price protection that will cause the conversion price of
our senior convertible notes to be reduced in the event of a downward
fluctuation in the market price of our common stock. In addition, the initial
conversion price of our senior convertible notes and the initial exercise price
of a majority of our warrants will be subject to downward anti-dilution
adjustments in most cases, from time to time, where we issue securities at a
purchase, exercise or conversion price that is less than the then-applicable
conversion price of our senior convertible notes or exercise price of our
warrants. Consequently, the voting power and value of your investment in each
such event would decline if our senior convertible notes or warrants are
converted or exercised for shares of our common stock at the new lower price as
a result of such declining market-price or sales of our securities are made
below the conversion price of the notes and/or the exercise price of the
warrants.

         The market-price protection feature of our senior convertible notes
could also allow those notes to become convertible into a greatly increased
number of additional shares of our common stock, particularly if a holder of our
senior convertible notes sequentially converts portions of the note into shares
of our common stock at alternate conversion prices and resells those shares into
the market. If a holder of our senior convertible notes sequentially converts
portions of the notes into shares of our common stock at alternate conversion
prices and resells those shares into the market, then the market price of our
common stock could decline due to the additional shares available in the market,
particularly in light of the relatively thin trading volume of our common stock.
Consequently, if a holder of our senior convertible notes repeatedly converts
portions of the notes at alternate conversion prices and then resells those
underlying shares into the market, a continuous downward spiral of the market
price of our common stock could occur that would benefit a holder of our senior
convertible notes at the expense of other existing or potential holders of our
common stock, potentially creating a divergence of interests between a holder of
our senior convertible notes and investors who purchase the shares of common
stock resold by a holder of the notes following conversion of the notes.

THE MARKET PRICE OF OUR COMMON STOCK AND THE VALUE OF YOUR INVESTMENT COULD
SUBSTANTIALLY DECLINE IF OUR CONVERTIBLE NOTES, WARRANTS OR OPTIONS ARE
CONVERTED INTO SHARES OF OUR COMMON STOCK AND RESOLD INTO THE MARKET, OR IF A
PERCEPTION EXISTS THAT A SUBSTANTIAL NUMBER OF SHARES WILL BE ISSUED UPON
CONVERSION OR EXERCISE OF OUR CONVERTIBLE NOTES, WARRANTS OR OPTIONS AND THEN
RESOLD INTO THE MARKET.

         If the conversion prices at which the balances of our convertible
notes, warrants and options are converted are lower than the price at which you
made your investment, immediate dilution of the value of your investment will
occur. In addition, sales of a substantial number of shares of common stock
issued upon conversion of our convertible notes, warrants and options, or even
the perception that such sales could occur, could adversely affect the market
price of our common stock, which would mean that certain convertible notes and
warrants would be convertible into an increased number of shares of our common
stock in cases where, as described elsewhere in these risk factors, the
conversion price is based upon a discount from the market price of our common
stock. You could, therefore, experience a substantial decline in the value of
your investment as a result of both the actual and potential conversion of our
outstanding convertible notes, warrants or options.

THE ISSUANCE OF SHARES UPON THE CONVERSION OF CONVERTIBLE NOTES AND THE EXERCISE
OF OUTSTANDING OPTIONS AND WARRANTS COULD RESULT IN A CHANGE OF CONTROL OF OUR
COMPANY.

         As of December 31, 2008, we had outstanding options, warrants, and
convertible promissory notes that were exercisable for or convertible into
approximately 107,984,564 shares of common stock. In addition, as discussed
elsewhere in these Risk Factors, the number of shares exercisable under
outstanding warrants and convertible under outstanding notes may be subject to
increase in the event of our future issuance of securities or a downward
fluctuation in the market price of our common stock. A change of control of our
Company could occur if a significant number of shares are issued to the holders
of our outstanding warrants or convertible notes. If a change of control occurs,
then the stockholders who historically have controlled our Company would no
longer have the ability to exert significant control over matters that could
include the election of our directors, changes in the size and composition of
our Board of Directors, and mergers and other business combinations involving
our Company. Instead, one or more other stockholders could gain the ability to
exert this type of control and may also, through control of our Board of
Directors and voting power, be able to control certain decisions, including
decisions regarding the qualification and appointment of officers, dividend
policy, access to capital (including borrowing from third-party lenders and the
issuance of additional equity securities), and the acquisition or disposition of
our assets.

                                      -15-



<page>

IF WE ARE UNSUCCESSFUL IN MAINTAINING COMPLIANCE WITH OR MODIFYING OUR
REGISTRATION OBLIGATIONS WITH REGARD TO OUR SENIOR CONVERTIBLE NOTES AND RELATED
WARRANTS, WE MAY INCUR SUBSTANTIAL MONETARY PENALTIES.

         The agreements we entered into in connection with our 2006, 2007 and
2008 senior convertible note financings require us to, among other things,
register for resale the shares of common stock issued or issuable under our
senior convertible notes and the warrants issued by us in connection with those
notes, and maintain the effectiveness of the registration for an extended period
of time. We will be required to file a number of registration statements to
ensure that all shares to be issued in connection with the 2006, 2007 and 2008
senior convertible note financings will be registered. If we are unable to have
any one of these registration statements declared effective by the SEC, or
maintain effectiveness of the required registration statements, or to modify our
registration obligations, then we may be required to pay liquidated damages in
an amount up to approximately $300,000 on the date of such failure and on every
30th day thereafter until such failure is cured. The total liquidated damages
payable by us for our failure to meet these filing and effectiveness
requirements are capped at $2,084,989. The payment of liquidated damages would
adversely affect our business, operating results, financial condition, and
ability to service our other indebtedness by adversely affecting our cash flows.
In addition, failure to meet our registration requirements for certain required
periods will result in an event of default under the senior convertible notes.
Among other things, upon an event of default the convertible note holders are
entitled to demand that we immediately pay the entire principal balance of the
notes in full, plus a significant cash redemption penalty beyond the full
payment of such principal. If one or more of the note holders exercised their
redemption rights upon an event of default, it would have a significant negative
impact on our financial condition and would likely render us insolvent. In
addition, upon an event of default of our 2007 senior secured convertible notes,
the holders are entitled to foreclose on all of our assets. If our assets were
to be foreclosed upon, we would not be able to operate.

THE VOTING POWER OF YOUR INVESTMENT AND OUR EARNINGS PER SHARE WOULD BE
SUBSTANTIALLY DILUTED IF ALL OR A SIGNIFICANT PORTION OF OUR CONVERTIBLE NOTES,
WARRANTS OR OPTIONS WERE CONVERTED INTO SHARES OF OUR COMMON STOCK.

         If the aggregate number of shares of common stock underlying our
convertible notes, warrants or options had been issued and outstanding as of
this date, substantial dilution of the voting power of your investment and of
our earnings per share would occur.

BECAUSE WE ARE SUBJECT TO "PENNY STOCK" RULES, THE LEVEL OF TRADING ACTIVITY IN
OUR COMMON STOCK MAY BE REDUCED.

         Our stock is listed on the Over-the-Counter ("OTC") Bulletin Board and
constitutes "Penny Stock." Broker-dealer practices in connection with
transactions in Penny Stocks are regulated by rules adopted by the SEC. Penny
Stocks are generally equity securities with a price per share of less than $5.00
(other than securities registered on certain national exchanges or quoted on the
NASDAQ system). The Penny Stock rules require a broker-dealer, prior to a
transaction in Penny Stocks not exempt from the rules, to deliver a standardized
risk disclosure document that provides information about Penny Stocks and the
nature and level of risks in the Penny Stock Market. The broker-dealer must also
provide the customer with current bid and offer quotations for the Penny Stock,
the compensation of the broker-dealer and the salesperson in the transaction,
and monthly accounting statements showing the market value of each Penny Stock
held in the customer's account. In addition, the broker-dealer must make a
special written determination that the Penny Stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These requirements may have the effect of reducing the level of trading activity
in a Penny Stock, such as our common stock, and investors in our common stock
may find it difficult to sell their shares.

BECAUSE OUR COMMON STOCK IS NOT LISTED ON A NATIONAL SECURITIES EXCHANGE, YOU
MAY FIND IT DIFFICULT TO DISPOSE OF OR OBTAIN QUOTATIONS FOR OUR COMMON STOCK.

         Our common stock trades under the symbol "RPTN" on the OTC Bulletin
Board. Because our stock trades on the OTC Bulletin Board rather than on a
national securities exchange, you may find it difficult to either dispose of, or
to obtain quotations as to the price of, our common stock.

                                      -16-



<page>

ITEM 2.    PROPERTIES

         In October 2008 we relocated to a smaller facility in the Federal
Empowerment Zone of Santa Ana, California, which reduced our overhead expenses
and created a more appropriate facility for our activities. The address of our
leased facilities is 1508 S. Grand Ave. Santa Ana, California 92705. This
facility, consisting of 2,400 square feet, includes our executive offices and
research and development laboratory.

         We believe that the monthly rental rates are comparable to rents
charged for comparable properties in the market area. We require full compliance
by the lessor with applicable state and EPA environmental standards at our
facility. We believe that the current facilities are adequate for our expected
needs through at least the end of 2009.

         On October 2, 2008, the Company returned the keys of its previous
operating facility to the landlord and formally rendered possession of the
facility to the landlord to allow the landlord to actively market the vacated
space. The Company paid the rent for September 2008 but made no further rental
payments upon vacating the facility. The remaining lease term runs through July
2009. The Company charged $241,261, the remaining liability on the lease, to
other expense for the year ended December 31, 2008. There can be no assurance
that the landlord will not take legal action against us for breach of this lease
as we have not reached any settlement agreement. If the landlord takes legal
action against us, a negative outcome could have a material adverse effect on
our business and financial condition.

ITEM 3.    LEGAL PROCEEDINGS

         From time to time, we may be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination or
breach of contract actions incidental to the operation of our business. However,
we are not currently involved in any litigation which we believe could have a
materially adverse effect on our financial condition or results of operations.

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

         No matters were submitted to a vote of our shareholders during the
fourth quarter ended December 31, 2008.


                                      -17-



<page>

                                     PART II

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

         Our $0.001 par value common stock trades under the symbol "RPTN" on the
OTC Bulletin Board. The following table sets forth, for the quarters indicated,
the high and low bid information for our common stock as reported by Pink
Sheets, LLC, a research service that compiles quote information reported on the
National Association of Securities Dealers composite feed or other qualified
inter-dealer quotation medium. The quotations reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not necessarily
represent actual transactions.

                                                              Fiscal 2008
                                                         ---------------------
                  Fiscal Quarter Ended:                     High         Low
                                                         --------     --------
                       December 31                       $   0.68     $   0.18
                       September 30                      $   0.32     $   0.12
                       June 30                           $   0.90     $   0.64
                       March 31                          $   0.95     $   0.68

                                                              Fiscal 2007
                                                         ---------------------
                  Fiscal Quarter Ended:                     High         Low
                                                         --------     --------
                       December 31                       $   1.09     $   0.60
                       September 30                      $   1.41     $   0.84
                       June 30                           $   2.22     $   1.19
                       March 31                          $   1.67     $   0.71

         On March 24, 2009 the high and low sale prices for a share of our
common stock as reported by Pink Sheets, LLC, were $0.13 and $0.11,
respectively.

HOLDERS

         On March 24, 2009, we had 74,073,311 shares of our common stock
outstanding held by approximately 962 record shareholders. This number of
shareholders does not include beneficial owners, including holders whose shares
are held in nominee or "street" name.

DIVIDENDS

         We have never paid a cash dividend with respect to our common stock,
and do not expect to be able to pay cash dividends in the foreseeable future as
the terms of our senior convertible notes prohibit us from paying cash dividends
for the term of the loan arrangement

RECENT SALES OF UNREGISTERED SECURITIES

         We engaged in several private placement offerings of our securities
during the fiscal year ended December 31, 2008. All such sales previously have
been reported on our Quarterly Reports on Form 10-Q or on Current Reports on
Form 8-K and were made in reliance upon the exemption from registration
available under Section 4(2) of the Securities Act, among others, as
transactions not involving a public offering. This exemption was claimed on the
basis that these transactions did not involve any public offering and the
purchasers in each offering were accredited or sophisticated and had sufficient
access to the kind of information registration would provide. In each case,
appropriate investment representations were obtained and certificates
representing the securities were issued with restrictive legends.

                                      -18-



<page>

ITEM 6.    SELECTED FINANCIAL DATA

         See selected financial data under Item 7 hereafter.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

         The following discussion and analysis provides information that our
management believes is relevant to an assessment and understanding of our
results of operations and financial condition for the fiscal years ended
December 31, 2008 and 2007. This discussion should be read in conjunction with
our consolidated financial statements and related notes thereto beginning on
page F-1 of this Report. This Report contains trend analysis and other
forward-looking statements that involve risks and uncertainties, such as
statements concerning future operating results; developments in markets and
strategic focus; and future economic, business and regulatory conditions. Such
forward-looking statements are generally accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate,"
"may," "forecast," "project," "pro forma," "goal," "continues," "intend," "seek"
and other words that convey uncertainty of future events or outcomes. The
cautionary statements included in the "Risk Factors" section under Item 1 above
or elsewhere in this Report should be read as being applicable to all
forward-looking statements wherever they may appear. Our actual future results
could differ materially from those discussed herein. We disclaim any obligations
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

         Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The preparation of our financial statements requires our management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures. We base our estimates
on historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The significant accounting
policies that are believed to be the most critical to aid in fully understanding
and evaluating the reported financial results include the valuation of
inventories, derivative financial instruments, and stock-based compensation and
the recoverability of deferred income tax assets.

Inventory Valuation
-------------------

              We determine our inventory value at the lower of average cost or
market. When required, a provision is made to reduce excess and obsolete
inventories to estimated net realizable value. Our provision for excess and
obsolete inventories decreased from $204,758 at December 31, 2007 to $141,530 at
December 31, 2008 due to $143,307 of previously provided for obsolete
inventories being scrapped and charged against the provision during the second
quarter of 2008 and an additional reserve of $79,819 related to the introduction
in 2008 of the ER-1010E, which rendered certain parts in inventory obsolete.

Valuation of Derivative Financial Instruments
---------------------------------------------

         Our senior convertible notes are classified as non-conventional
convertible debt. In the case of non-conventional convertible debt, we bifurcate
our embedded derivative instruments and record them under the provisions of FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, and Emerging Issues Task Force ("EITF") Issue No. 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." These embedded instruments related to the debentures
include the conversion features, liquidated damages related to registration
rights and default provisions. The accounting treatment of derivative financial
instruments requires that we record the derivatives and related warrants at
their fair value as of the inception date of the agreement and at fair value as
of each subsequent balance sheet date. Any change in fair value will be recorded
as non-operating, non-cash income or expense at each reporting date. If the fair
value of the derivatives is higher at the subsequent balance sheet date, we will
record a non-operating, non-cash charge. If the fair value of the derivative is
lower at the subsequent balance sheet date, we will record non-operating,
non-cash income.

                                      -19-



<page>

         To determine the fair value of the derivative instruments, we make
certain assumptions regarding the expected term of exercise. Because the
expected term of the warrants impacts the volatility and risk-free interest
rates used in the Black-Scholes calculations, these must be selected for the
same time period as the expected term of the warrants.

Accounting Treatment for Derivatives
------------------------------------

EMBEDDED CONVERSION FEATURE
---------------------------

         Paragraph 12 of SFAS 133 indicates that a conversion features should be
considered to be a derivative if the following criteria are met:

    o    The economic characteristics and risks differ between the host and
         embedded conversion feature. This condition, relative to our senior
         convertible notes, is met because the embedded conversion feature
         valuation depends on factors such as volatility, stock price and
         expected life whereas the valuation of the host is not impacted by
         these factors. FAS 133, paragraph 61 (k) further confirms the above
         position as this paragraph states that "the changes in fair value of an
         equity interest and the interest rates on a debt instrument are not
         clearly and closely related. Thus, for a debt security that is
         convertible into a specified number of shares of the debtor's common
         stock or another entity's common stock, the embedded derivative (that
         is, the conversion option) must be separated from the debt host
         contract and accounted for as a derivative instrument provided that the
         conversion option would, as a freestanding instrument, be a derivative
         instrument subject to the requirements of this Statement."
    o    The contract that includes the host and the conversion feature is not
         re-measured at fair value. This condition is met because the contracts
         (our senior convertible notes) are not re-measured.
    o    A separate instrument with the same terms as the embedded conversion
         feature would be derivative as per paragraphs 6 of FAS 133. Our review
         of paragraph 6 revealed that the embedded conversion feature without a
         host would be considered a derivative because the embedded conversion
         feature (1) has underlying and notional amounts (2) requires no initial
         net investments and (3) permits net settlement.

         Based on the above considerations, it is implied that the embedded
conversion features related to our senior convertible notes are derivatives that
must be bifurcated from the host instrument and accounted for as a derivative at
fair value with changes in fair value recorded in earnings. However, before
reaching a final conclusion on whether we are dealing with embedded conversion
features that need to be considered a derivative, we need to review paragraph
11(a) of SFAS 133. Paragraph 11(a) states that "contracts issued or held are
both (1) indexed to its own stock and (2) classified in stockholders equity
shall not be considered derivative instruments." Our contracts are indexed to
our own stock; however, to determine the correct classification of the embedded
conversion feature with respect to possible stockholders equity classification,
we reviewed the guidelines provided in EITF 00-19.

         Specifically, EITF 00-19, paragraph 4 and EITF 05-2 indicate that an
embedded conversion feature is conventional if the holder is entitled to convert
their position into a fixed number of shares. The embedded conversion features
of our senior convertible note financings and subject of this review entitles
the holder, under certain circumstances beyond the control of the Company, to
convert their position into a variable number of shares. This implies that the
embedded conversion features under discussion do not qualify as conventional
convertible instruments. Because the embedded conversion features do not qualify
as conventional convertible instruments, we then had to analyze paragraphs 12-32
of EITF 00-19 to determine whether the embedded conversion feature should be
accounted for as a equity or as a liability.

         Paragraph 19 of EITF 00-19 stipulates that in order to qualify for
equity treatment, the Company must have sufficient authorized and unissued
shares available to settle the contract after considering all other commitments
that may require the issuance of stock during the maximum period the derivative
contract could remain outstanding. The total number of shares that the Company
could need to settle the current contract could exceed the level of authorized
shares available for issuance and this would result in a situation where the
Company does not control settlement of shares. Consequently, the embedded
conversion feature is classified as a liability under EITF 00-19 and therefore
does not qualify for paragraph 11 scope exception in SFAS 133. As a result the
embedded conversion features will be accounted for as derivatives at fair value,
with changes in fair value recorded in earnings. Based on before mentioned
criteria, we classified the conversion features as liabilities on our balance
sheets measured at fair value using the Black-Scholes option pricing model.

                                      -20-



<page>

         The fair value of the conversion features and warrants in excess of the
face value of the debt host instrument is expensed at the time of closing the
financing. These transactions are analogous to paragraph 6 of EITF 98-5, which
states, "... IN CERTAIN CIRCUMSTANCES, THE INTRINSIC VALUE OF THE BENEFICIAL
CONVERSION FEATURE MAY BE GREATER THAN THE PROCEEDS ALLOCATED TO THE CONVERTIBLE
INSTRUMENT. IN THOSE SITUATIONS, THE TASK FORCE REACHED A CONSENSUS THAT THE
AMOUNT OF THE DISCOUNT ASSIGNED TO THE BENEFICIAL CONVERSION FEATURE IS LIMITED
TO THE AMOUNT OF THE PROCEEDS ALLOCATED TO THE CONVERTIBLE INSTRUMENT." The
discount amount up to the face value of the debt host instrument is amortized as
additional interest expense over the life of the notes.

SELECTED FINANCIAL DATA

         The following table sets forth selected financial data regarding our
financial position and operating results. This data should be read in
conjunction with our consolidated financial statements and related notes thereto
beginning on page F-1 of this Report.

                                      -21-



<page>

<TABLE>
<S> <C>
                               RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008,
                                         COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2007

                                                              December 31,    December 31,
                                                                  2008            2007         Change ($)     Change (%)
                                                              ------------    ------------    ------------    ----------

         REVENUE, NET                                         $    710,330    $  1,035,108    $    324,778         31.38%
         COST OF SALES                                             344,952         385,111          40,159         10.43%
                                                              ------------    ------------    ------------    ----------
         GROSS PROFIT                                              365,378         649,997         284,619         43.79%
                                                              ------------    ------------    ------------    ----------
         OPERATING EXPENSES
            Salary expense and salary related costs              1,807,752       2,596,537         788,785         30.38%
            Marketing expense                                       73,121          97,237          24,116         24.80%
            Research and development                               983,546       1,356,326         372,780         27.48%
            Selling, general and administrative                  2,300,546       2,998,641         698,095         23.28%
                                                              ------------    ------------    ------------    ----------
             Total operating expenses                            5,164,965       7,048,741       1,883,776         26.72%
                                                              ------------    ------------    ------------    ----------
         Loss from operations                                   (4,799,587)     (6,398,744)     (1,599,157)        24.99%
                                                              ------------    ------------    ------------    ----------
         OTHER INCOME (EXPENSE)
            Interest income                                         11,175          23,298          12,123         52.03%
            Change in fair value of warrants and conversion
                 option liabilities                             21,622,243      18,956,186      (2,666,057)       -14.06%
            Senior convertible note restructuring charges               --      (2,089,284)     (2,089,284)       100.00%
            Gain (loss) on extinguishment of debt               (5,182,474)     11,571,860      16,754,334        144.79%
            Cost of financing senior convertible notes          (4,973,096)    (24,557,055)    (19,583,959)        79.75%
            Amortization of discount on convertible debt        (6,127,968)     (6,073,669)         54,299         -0.89%
            Interest expense                                    (1,273,790)       (941,839)        331,951        -35.24%
            Loss on disposal of property and equipment            (306,362)             --         306,362          0.00%
                                                              ------------    ------------    ------------    ----------
         Total other income (expense)                            3,769,728      (3,110,503)     (6,880,231)       221.19%
                                                              ------------    ------------    ------------    ----------
         Loss before income taxes                               (1,029,859)     (9,509,247)     (8,479,388)        89.17%
                                                              ------------    ------------    ------------    ----------
         Income tax benefit                                             --              --              --          0.00%
                                                              ------------    ------------    ------------    ----------
         NET INCOME (LOSS)                                    $ (1,029,859)   $ (9,509,247)     (8,479,388)        89.17%
                                                              ============    ============    ============    ==========
</TABLE>


NET REVENUES

         The decrease in revenues in 2008 was mainly caused by following
factors:

    o    Because of the slow ramp up in sales during the first 7 months of 2008,
         in September 2008 we shifted our business model from primarily product
         sales to licensing enabling substantial headcount and expense cuts. In
         line with that announcement in Q3, we reduced the sales force from 5 to
         2 persons and terminated all business development resources (outside
         consultants) we had been utilizing in 2007 and the first half of 2008.
         In the short term, this change in the business model resulted in a
         substantial further decrease of product sales (only $8k of product
         sales in Q4) offset somewhat by service revenues billed to the
         government as a result of our efforts in that space for the last 2
         years.

                                      -22-



<page>

    o    The downturn of the economy in the second half of 2008 impacted revenue
         levels negatively.

    o    The Company continued focusing on larger deals in market segments such
         as government and cable where selling cycles are much longer.

         Our main source of revenues in fourth quarter of 2008 consisted of
service revenues of approximately $137,000 charged to the U.S government. Our
product revenues consisted of sales of 11 OR-1048 edge switch units and 11 ER-
1010 core switch units in all of 2008, compared to the sale of 25 OR-1048 edge
switch units and 38 ER-1010 core switch units in 2007.

GROSS PROFIT

         Our gross profit percentage decreased to 51% in 2008 from 63% in 2007.
The decrease in the gross profit percentage resulted primarily from a charge of
$79,819 for inventory parts that became obsolete after the introduction of the
ER-1010E in March of 2008. Additionally, the Company charged an additional
$17,732 of license fee amortization to cost of sales in 2008 because of a
decrease in estimate of the total of units expected to be sold over the
products' lives.

OPERATING EXPENSES

         The decrease in operating expenses in 2008 resulted primarily because
the Company changed from a product development to a licensing model in September
2008, enabling a reduction in headcount, footprint and infrastructure to reduce
costs. This change of model resulted in substantial decreases of salary
expenses, professional fees and G&A, as further explained below.

SALARY EXPENSE

         Total salary expenses (excluding R&D related salaries which are
captured under "research and development costs") decreased in 2008 primarily due
to the reduction in headcount of 11 persons which took place during 2008 as
compared to 2007. Additionally, personnel who remained with the Company agreed
to certain pay cuts. The decrease in salary expense related to the above
amounted to $689,398, including accrued vacation costs. Health insurance
premiums and payroll taxes decreased by $51,956 due to our headcount decrease.
Finally, $33,028 was charged to cost of sales in 2008 in connection with
consulting services provided to the government in 2008. In 2007, we did not
provide consulting services to the government.

MARKETING EXPENSES

         Marketing expenses decreased in 2008 due to decreased spending on
marketing materials and reduction of the number of exhibitions attended in 2008
compared to 2007.

RESEARCH AND DEVELOPMENT ("R&D")

         The decrease in R&D was mainly due to the reduction in engineering
headcount of 7 persons in August and September 2008, resulting in a decrease of
salary expenses of approximately $120,000, reduced equipment rental and reduced
licensing expenses of approximately $147,000 for software design tools and
decreased part consumption of approximately $44,000 due to decreased
prototyping.



                                      -23-



<page>

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A")

         The decrease in SG&A expenses in 2008 resulted from the following: a
decrease in finder's fees of $118,500 due to a decrease of financings for which
we had to pay finder's fees in 2008 compared to 2007; employee recruitment
decreased by $32,642 due to reduced level of recruitment; investor relations
expenses decreased by $235,593 as we terminated all investor relations support
during 2008 (this reduction includes warrant related expenses; these warrants
were issued to an IR firm in 2007, we did not occur this type of expense in
2008); a decrease of $149,874 in connection with the termination of all
international business development resources in July 2008; a decrease of $46,377
of legal fees due to lower legal costs for financings (because of reuse in 2008
of 2007 agreement formats); reduced travel expenses of $92,374 due to reduced
headcount and a decrease of depreciation expense by $122,573 due to a
substantial amount of furniture being sold in September 2008 because of reduced
headcount. These decreases were partially offset by an increase of $85,975 of
consulting fees for domestic business development resources in early and
mid-2008 (replacement of leaving employees by outside resources); an increase of
$34,726 for accounting support (mainly SOX support) and an increase of inventory
variances by $72,257 in connection with inventory write offs.

OTHER INCOME (EXPENSE)

         The variance in other income (expense) resulted primarily from senior
convertible note financings of $4,375,000 in 2008 as compared to total
financings of $7,304,909 in 2007 and the continued decrease of our stock price.
Additionally, modifications to the terms of our senior convertible notes
resulted in gains in 2008 as compared to losses in 2007. Additional detail
regarding other income/expense follows:

    o    Due to a higher principal balance on the senior convertible notes in
         2008 and a much larger decline in our stock price in 2008 over 2007, we
         experienced a larger decrease in the fair value of our conversion
         option and warrant liabilities in 2008 over 2007. The fair value of the
         conversion feature and warrants is dependent on several factors,
         including our stock price and the expected term of the conversion
         feature and options. The fair value of the conversion feature moves in
         the same direction as the stock price and the expected term. Our stock
         price decreased from $0.86 at January 3, 2007 to $0.67 at December 31,
         2007 and to $0.14 at December 31, 2008. Additionally, the expected
         terms also decreased due to the passage of time.

    o    During the year ended December 31, 2008, we modified our July 2007
         financing to reduce both the conversion price on the notes and the
         exercise price of the warrants from $1.21 to $0.50 and we amended the
         Series Q warrants to reduce the exercise price from $1.00 to $0.50. The
         decrease in the exercise prices, along with the write-off of the
         carrying value of debt issuance costs of $53,905 resulted in a loss on
         extinguishment of debt of $5,182,474 for the year ended December 31,
         2008. In the first quarter of 2007, we restructured our July 2006
         financing increasing the number of warrants issued and reducing the
         warrant exercise price from $0.52 to $0.44. As a result, we recorded a
         gain of $11,571,860 in connection with an extinguishment of debt and
         recorded restructuring charges for a total amount of $2,089,284.

                                      -24-



<page>

    o    During 2008, we entered into two financing transactions for an
         aggregate purchase price of $4,375,000 as compared to $3,500,000 in
         2007. Additionally, we recognized $1,146,033 related to the contingency
         option of the Series M warrants in 2008. In 2007, we also amended our
         2006 financing to increase the principal balance by $3,804,909, of
         which $1,600,000 was received in cash. The decrease in expense
         recognized in 2008 was caused primarily by a decrease in the stock
         price in 2008 as compared to 2007.

    o    The increase in amortization of discount on convertible debt resulted
         from the notes we entered into in 2006 being completely amortized,
         offset by an increase in amortization on the notes we entered into in
         2007 and 2008 and an increase in the debt discount after accounting for
         the modifications of the 2007 and April 2008 financings.

    o    The increase in interest expense is primarily attributable to a higher
         outstanding principal balance and higher interest rates in 2008 as a
         result of the financings entered into in July 2007, April 2008 and July
         2008.

    o    Loss on the disposal of property and equipment in 2008 is attributable
         to rendering possession of our prior operating facility to the landlord
         in October 2008. We accrued $241,261 related to the future rentals due
         under the lease through the remaining contractual term Additionally,
         after reducing headcount and relocation to a much smaller facility, we
         faced substantial space constraints. We sold certain property and
         equipment for cash proceeds of $2,750 and wrote off the remaining
         tenant improvements at the old facility, resulting in a loss of
         $65,101. There were no such transactions in 2007.

LIQUIDITY AND CAPITAL RESOURCES

         Our independent registered public accounting firm has qualified their
opinion with respect to our consolidated financial statements to include an
explanatory paragraph related to our ability to continue as a going concern in
their reports for each of our fiscal years ended December 31, 2008 and 2007.
Reports of independent registered public accounting firms questioning a
company's ability to continue as a going concern generally are viewed very
unfavorably by analysts and investors. There are a number of risks and
challenges associated with such a qualified report including, but not limited
to, a significant impediment to our ability to raise additional capital or seek
financing from entities that will not conduct such transactions in the face of
such increased level of risk of insolvency and loss, increased difficulty in
attracting talent and the diversion of the attention of executive officers and
other key employees to raising capital or financing rather than devoting time to
the day-to-day operations of our business. We urge potential investors to review
the report of our independent registered public accounting firm and our
consolidated financial statements and related notes beginning on page F-1 of
this Report, the cautionary statements included in the "Risk Factors" section
under Item 1 of this Report and to seek independent advice concerning the
substantial risks related thereto before making a decision to invest in us, or
to maintain an investment in us.

                                      -25-



<page>

         For the years ended December 31, 2008 and 2007, we incurred net losses
of $1,029,859 and $9,509,247, respectively. Since our inception, including the
year ended December 31, 2008 we have realized negligible revenues and have
financed our operations almost exclusively from cash on hand raised through the
sale of our securities and borrowings. As of December 31, 2008, we had a deficit
in working capital of $ 11,115,786, of which $3,405,226 relates to the fair
value of derivative financial instruments.

         As announced in previous filings, because Raptor's sales efforts had
not produced revenues to date sufficient to support its operating strategy and
the Company did not believe it advisable to seek additional outside financing in
support of that model, the Company shifted its primary operating model to
licensing and technology transfer in order to reduce expenses and conserve cash.

         The conversion to a licensing model as a primary but not exclusive
business focus enabled a reduction in costs of operations including headcount
reductions, salary reductions, benefit plan reductions and a facilities move
aimed at reducing both footprint as well as per square foot cost. The Company
plans to attempt to address its working capital deficiency by increasing its
sales, maintaining strict expense controls and seeking strategic alliances,
including a merger or other corporate finance transaction with a better
capitalized entity. While the Company will continue to rigorously pursue new
product opportunities, there can be no assurance that our new model will
generate sufficient revenues to support even our reduced SG&A expense. In the
event that we are unable to generate sufficient revenue, Raptor may be forced to
sell its assets, cease its operations or file a bankruptcy petition under the US
Bankruptcy Code.

July 2006 Senior Convertible Note Financing
-------------------------------------------

         On July 30, 2006, we entered into a Securities Purchase Agreement with
three institutional accredited investors in connection with a private placement
transaction providing for, among other things, our issuance of senior
convertible notes in the aggregate principal amount of $5 million, Series L
Warrants to purchase up to an aggregate of 17,065,623 shares of our common stock
and Series M Warrants to purchase up to an aggregate of 7,395,103 shares of our
common stock. We received aggregate gross proceeds of $5 million from the
investors for our issuance of these notes and warrants.

         We subsequently entered into Amendment and Exchange Agreements, dated
January 18, 2007 and amended and restated on January 22, 2007, with the
investors from the July 30, 2006 private placement providing for certain
amendments to the senior convertible notes, Series L Warrants, Series M Warrants
and registration rights agreement. These amendments include, but are not limited
to, an increase in the principal amount of the notes from an aggregate of $5
million to an aggregate of approximately $7.2 million, an increase in the
aggregate number of shares of common stock issuable upon exercise of the Series
L Warrants by 5,688,540 (from an aggregate of 17,065,623 shares to an aggregate
of 22,754,163 shares), and a reduction in the exercise price of the Series L
Warrants and the Series M Warrants from $0.5054 per share to $0.43948 per share.
We did not receive any additional cash consideration for these amendments. The
amendments provided for by the Amendment and Exchange Agreements were reflected
by our issuance of amended and restated notes, our issuance of Series L-1
Warrants and Series M-1 Warrants that replaced the Series L and Series M
Warrants and our entry into an amended and restated registration rights
agreement with the investors.

         In addition, the Amendment and Exchange Agreements provided for an
additional private placement transaction with one of the investors, which
resulted in our issuance of an additional senior convertible note in the
principal amount of $1.6 million, Series L-2 Warrants to purchase an aggregate
of 7,281,332 shares of our common stock and Series M-2 Warrants to purchase an
aggregate of 2,366,433 shares of our common stock. We received aggregate gross
proceeds of $1.6 million from the investor for our issuance of these additional
note and warrants.

July 2007 Senior Secured Convertible Note Financing
---------------------------------------------------

         On July 31, 2007, we entered into a securities purchase agreement with
three investors for total gross proceeds of $3.5 million, which agreement
provides for the issuance on August 1, 2007 of Senior Secured Convertible Notes
in the aggregate principal amount of $3.5 million ("Secured Notes"), Series N
Warrants, Series O Warrants and Series P Warrants in a private placement
transaction. The agreement also requires us to enter into a security agreement
granting the investors a first priority perfected security interest in all of
our assets and requires our subsidiary to guaranty our obligations under the
Secured Notes. The Secured Notes and accompanying warrants are or may become
convertible into or exercisable for the following number of shares of our common
stock:

                                      -26-



<page>

                              Notes                                    2,909,636
                              N Warrants                               2,909,636
                              O Warrants                               1,891,263
                              P Warrants                               1,246,987
                                                                       ---------
                              Total                                    8,957,522
                                                                       =========

         In addition, we previously entered into private placement transactions
with these same investors in July 2006 and January 2007 as described under the
caption "July 2006 Senior Convertible Note Financing" above.

         The Secured Notes carry an interest rate of 9.25% per annum, which rate
may be increased to 15% upon the occurrence of an event of default, and mature
on August 1, 2010. This date may be extended, at the option of the investors, by
up to two years. Interest is payable quarterly, starting October 1, 2007. The
Secured Notes are immediately convertible at a conversion price of initially
$1.2029 per share (subsequently changed to $0.50 per share). The entire
outstanding principal balance and any outstanding fees or interest shall be due
and payable in full on the maturity date. Under certain conditions, we may
require investors to convert up to either 50% or 100% of the outstanding
balances of the Secured Notes at any time shares of our common stock are trading
at or above $1.80435 or $2.105075, respectively.

         The N Warrants carry an initial strike price of $1.2029 for each share
(subsequently changed to $0.50 per share) and are immediately exercisable. The N
warrants expire on the earlier of August 1, 2016 or seven years after the date
all of the shares issuable upon conversion of the Secured Notes have been
included on an effective registration statement.
         The O Warrants also carry an initial strike price of $1.2029 for each
share (subsequently changed to $0.50 per share). The O Warrants will only become
exercisable by an investor if we conduct mandatory conversions, and then only to
the extent of 65% of the number of shares issued to such investor upon each
mandatory conversion. The O Warrants expire on the earlier of August 1, 2016 or
seven years after the date all of the shares issuable upon conversion of the
Secured Notes have been included on an effective registration statement.

         The P Warrants carry an initial strike price of $1.2029 for each share
(subsequently changed to $0.50 per share) and are immediately exercisable. The P
Warrants expire on the earlier of the maturity date of the Secured Notes of
August 1, 2010, which date may be extended by up to two years at the option of
the investors, and the date we have satisfied our payment obligations under the
warrant holder's Secured Note.

        In the event of a default or upon the occurrence of certain fundamental
transactions as defined in the Secured Notes, the investors will have the right
to require us to redeem the Secured Notes at a premium. In addition, at any time
on or after August 1, 2010, the investors may accelerate the partial payment of
the Secured Notes by requiring that we convert at the lower of the then
conversion price or a 7.5% or 10.0% discount to the recent volume weighted
average price of our common stock, or at our option, redeem in cash, up to an
amount equal to 20% of the aggregate dollar trading volume of our common stock
over the prior 20-trading day period.

         The conversion price of the Secured Notes and the exercise price of the
N Warrants, O Warrants and P Warrants are subject to customary anti-dilution
provisions for stock splits and the like, and are also subject to full-ratchet
anti-dilution protection such that if we issue or are deemed to have issued
certain securities at a price lower than the then applicable conversion or
exercise price, then the conversion or exercise price will immediately be
reduced to such lower price.

         The Secured Notes and the N Warrants, O Warrants and P Warrants contain
certain limitations on conversion or exercise, including that a holder of those
securities cannot convert or exercise those securities to the extent that upon
such conversion or exercise, that holder, together with the holder's affiliates,
would own in excess of 4.99% of our outstanding shares of common stock (subject
to an increase or decrease, upon at least 61-days' notice, by the investor to
us, of up to 9.99%).

         We have agreed to register the shares of common stock underlying the
Secured Notes, N Warrants, O Warrants and P Warrants. If we fail to meet the
filing or effectiveness requirements, subject to certain grace periods, we may
be required to pay liquidated damages of $70,000 on the date of such failure and
on every 30th day thereafter until such failure is cured. The total liquidated
damages payable by us for failure to meet the filing and effectiveness
requirements are capped at $437,500.

                                      -27-



<page>

April 2008 Senior Secured Convertible Note Financing
----------------------------------------------------

         On April 1, 2008, pursuant to the terms of a securities purchase
agreement with our investors involved in the July 2006, January 2007, and July
2007 financings, we issued senior secured convertible notes with an aggregate
principal amount of $3,125,000 ("Secured Notes"), Series Q warrants and
3,125,000 shares of the Company's common stock in a private placement
transaction for total gross proceeds of $3.125 million. The agreement also
requires the Company to enter into a security agreement granting the investors a
first priority perfected security interest in all of the Company's assets,
requires the Company to pledge the stock of the Company's subsidiary, and
requires the Company's subsidiary to guaranty the Company's obligations under
the Secured Notes. The Secured Notes and accompanying warrants are or may become
convertible into or exercisable for the following number of shares of the
Company's common stock:

                Notes                                                  3,125,000
                Series Q warrants                                      6,250,000
                                                                       ---------

                  Total                                                9,375,000
                                                                       =========

         The Secured Notes carry an interest rate of 10.00% per annum, which
rate may be increased to 15% upon the occurrence of an event of default, and
mature on March 31, 2010. This date may be extended, at the option of the
investors, by up to two years. Interest on the Secured Notes in the amount of
$625,000, representing two years of interest, was prepaid to the investors at
the closing. The Secured Notes are immediately convertible at a conversion price
of $1.00 per share. The entire outstanding principal balance and any outstanding
fees or interest (if any) shall be due and payable in full on the maturity date.
The Q Warrants carry a strike price of $1.00 for each share and are immediately
exercisable. The Q warrants expire on March 31, 2017.

         In the event of a default or upon the occurrence of certain fundamental
transactions as defined in the Secured Notes, the investors will have the right
to require the Company to redeem the Secured Notes at a premium. In addition, at
any time on or after September 30 2008, the investors may accelerate the partial
payment of the Secured Notes by requiring that the Company convert at the lower
of the then conversion price or 15.0% discount to the recent volume weighted
average price of the Company's common stock, or at the option of the Company,
redeem in cash, up to an amount equal to 100% of the aggregate dollar trading
volume of the Company's common stock over the prior 20-trading day period.

         The conversion price of the Secured Notes and the exercise price of the
Q Warrants are subject to customary anti-dilution provisions for stock splits
and the like, and are also subject to full-ratchet anti-dilution protection such
that if the Company issues or is deemed to have issued certain securities at a
price lower than the then applicable conversion or exercise price, then the
conversion or exercise price will immediately be reduced to such lower price.

         The anti-dilution provisions in this financing will impact the strike
price of the notes and warrants (N, O and P Warrants) of the July 2007 Senior
Secured Convertible Note Financing which will result in the need for issuing an
additional number of note shares of 4,090,364 and N, O and P Warrant shares of
8,502,114. The strike price for these note and warrant shares will be $0.50
compared to the $1.2029 strike price applicable for the July 2007 financing.

         The Secured Notes and the Q Warrants contain certain limitations on
conversion or exercise, including that a holders of those securities cannot
convert or exercise those securities to the extent that upon such conversion or
exercise, that holder, together with the holder's affiliates, would own in
excess of 4.99% of the Company's outstanding shares of common stock (subject to
an increase or decrease, upon at least 61-days' notice, by the investor to the
Company, of up to 9.99%).

         The Company has agreed to register the shares of common stock
underlying the Secured Notes, Q Warrants, and common stock issued. If the
Company fails to meet the filing or effectiveness requirements, subject to
certain grace periods, the Company may be required to pay liquidated damages of
$62,500 on the date of such failure, and on every 30th day thereafter until such
failure is cured. The total liquidated damages payable by the Company for
failure to meet the filing and effectiveness requirements are capped at
$390,625.

                                      -28-



<page>

July 2008 Senior Secured Convertible Note Financing
---------------------------------------------------

         On July 28, 2008, pursuant to the terms of a securities purchase
agreement with our investors involved in the July 2006, January 2007, July 2007
and April 2008 financings, for total gross proceeds of $1.25 million we issued
senior secured convertible notes in the aggregate principal amount of $1.25
million, Series R warrants to purchase up to an aggregate of 2,500,000 shares of
the Company's common stock and 1,250,000 shares of the Company's common stock in
a private placement transaction. In addition, in exchange for the issuance of
replacement warrants (the "Replacement Warrants") and amending certain terms and
conditions of the Company's Series Q Warrants (the "Amended and Restated Q
Warrants"), the investors agreed to cause the investors to exercise the
Company's Series Q Warrants under certain circumstances. The agreement also
requires the Company to enter into a security agreement granting the investors a
first priority perfected security interest in all of the Company's assets,
requires the Company to pledge the stock of the Company's subsidiary, and
requires the Company's subsidiary to guaranty the Company's obligations under
the Secured Notes. The Secured Notes and accompanying warrants are or may become
convertible into or exercisable for the following number of shares of the
Company's common stock:

                Notes                                             1,250,000
                Series R warrants                                 2,500,000
                Replacement warrants                              6,250,000
                                                                 ----------

                  Total                                          10,000,000
                                                                 ==========

         The notes bear interest at the rate of 10.00% per annum, which rate may
be increased to 15% upon the occurrence of an event of default, and mature on
July 28, 2010. This date may be extended, at the option of the investors, by up
to two years. Interest on the notes of $250,000, representing two years of
interest, was prepaid to the investors at the closing. The notes are immediately
convertible at a conversion price of $1.00 per share. The entire outstanding
principal balance and any outstanding fees or interest (if any) shall be due and
payable in full on the maturity date.

         In the event of a default or upon the occurrence of certain fundamental
transactions as defined in the notes, the investors will have the right to
require the Company to redeem the notes at a premium. In addition, at any time
on or after January 28, 2009, the investors may accelerate the partial payment
of the Secured Notes by requiring that the Company convert at the lower of the
then conversion price or 15.0% discount to the recent volume weighted average
price of the Company's common stock, or at the option of the Company, redeem in
cash, up to an amount equal to 100% of the aggregate dollar trading volume of
the Company's common stock over the prior 20-trading day period.

         The conversion price of the notes and the exercise price of the
warrants are subject to customary anti-dilution provisions for stock splits and
the like, and are also subject to full-ratchet anti-dilution protection such
that if the Company issues or is deemed to have issued certain securities at a
price lower than the then applicable conversion or exercise price, then the
conversion or exercise price will immediately be reduced to such lower price.

         The notes and the warrants contain certain limitations on conversion or
exercise, including that a holders of those securities cannot convert or
exercise those securities to the extent that upon such conversion or exercise,
that holder, together with the holder's affiliates, would own in excess of 4.99%
of the Company's outstanding shares of common stock (subject to an increase or
decrease, upon at least 61-days' notice, by the investor to the Company, of up
to 9.99%).on Stock on the date an Investor delivers its redemption notice for
such event of default, multiplied by (b) 200% of the number of shares into which
the Notes (including all principal, interest and late fees) may be converted.

         The notes prohibit the Company from entering into certain transactions
involving a change of control, unless the successor entity is a public company
and it assumes in writing all of the obligations of the Company under the notes
and the other transaction documents. In the event of such a transaction, the
investors have the right to force redemption of the notes, at the greater of (i)
200% of the sum of the principal and interest and late fees, and (ii) the
product of (x) 200% of the sum of the amount of principal, interest and late
fees to be redeemed and (y) the quotient determined by dividing (A) the
aggregate cash consideration and the aggregate cash value of any non-cash
consideration per share of common stock paid to the holders of common stock upon
consummation of such transaction (B) the conversion price.

         The holders of the notes are entitled to receive any dividends paid or
distributions made to the holders of the Company's common stock on an "as if
converted" basis.

                                      -29-



<page>

         The Series R Warrants provide for the purchase of up to 2,500,000
shares of the Company's common stock. The Series R Warrants are immediately
exercisable, have an initial exercise price of $0.50 per share, and expire on
July 28, 2015.

         The Amended and Restated Q Warrants amend the following terms and
conditions of the Company's Series Q Warrants, which were issued to the
investors on March 31, 2008, such that the warrants have an initial exercise
price equal to the lower of (i) $0.50 and (ii) 75% of number equal to the lesser
of (w) the 15-day weighted average price of the Company's common stock, (x) the
lowest 30-day weighted average price of the Company's common stock, (y) the
weighted average price of the Company's common stock during the first three (3)
consecutive day period thirty days prior to the date of exercise, and (z) the
weighted average price of the Company's common stock during the last three (3)
consecutive day period thirty days prior to the date of exercise.

         At any time after the registration statement filed covering the Amended
and Restated Q Warrants is declared effective by the Commission, the Company may
elect, no more than once during any 30 day period, to require the investors to
exercise the Amended and Restated Q Warrants, provided that the number of shares
of the Company's common stock into which such warrants are forced to be
exercised do not exceed 15% of the 20-day trading volume in number of shares of
the Company's common stock

         The Replacement Warrants provide for the purchase of up to 6,250,000
shares of the Company's common stock, upon the satisfaction of certain
conditions with respect to the Amended and Restated Q Warrants. The Replacement
Warrants become exercisable, on a one-for-one basis, for every Amended and
Restated Q Warrant that the investors exercise. The Replacement Warrants expire
on July 28, 2015, and have an exercise price equal to the lower of

i) $0.50 and

ii) 75% of number equal to the lesser of (w) the 15-day weighted average price
    of the Company's common stock, (x) the lowest 30-day weighted average price
    of the Company's common stock, (y) the weighted average price of the
    Company's common stock during the first 3 consecutive day period 30 days
    prior to the date of exercise, and (z) the weighted average price of the
    Company's common stock during the last 3 consecutive day period 30 days
    prior to the date of exercise.

         Similar to the notes, the warrants require payments to be made by the
Company for failure to deliver the shares of common stock issuable upon
exercise.

         The foregoing raises during fiscal years ended December 31, 2006, 2007
and 2008 have enabled us to support our continuing operations.


ITEM 8.    FINANCIAL STATEMENTS

         The financial statements and corresponding notes to the financial
statements called for by this item appear under the caption "Index to Financial
Statements" beginning on Page F-1 of this Report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

         There have been no events required to be reported by this Item 8.

ITEM 9A(T) CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of December 31, 2008, that the design and operation
of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective
to ensure that information required to be disclosed by us in the reports filed

                                      -30-



<page>

or submitted by us under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms,
including to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding whether or not disclosure is required.

         MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Our management is responsible for establishing and maintaining adequate
"internal control over financial reporting" (as defined in Rule 13a-15(f) under
the Exchange Act). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework set forth in INTERNAL CONTROL --
INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31, 2008.

         Our internal control over financial reporting is supported by written
policies and procedures, that:

         (1)      pertain to the maintenance of records that, in reasonable
                  detail, accurately and fairly reflect the transactions and
                  dispositions of our assets;

         (2)      provide reasonable assurance that transactions are recorded as
                  necessary to permit preparation of financial statements in
                  accordance with generally accepted accounting principles, and
                  that receipts and expenditures of our company are being made
                  only in accordance with authorizations of our management and
                  directors; and

         (3)      provide reasonable assurance regarding prevention or timely
                  detection of unauthorized acquisition, use or disposition of
                  our assets that could have a material effect on the financial
                  statements.

         Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

         This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this annual report.

         CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         During the quarter ended December 31, 2008, there were no changes in
our internal controls over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

ITEM 9B.   OTHER INFORMATION

         None.


                                      -31-



<page>

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

         Set forth below is certain information with respect to our directors
and executive officers.

NAME                         AGE    POSITION WITH COMPANY
----                         ---    ---------------------
Thomas M. Wittenschlaeger     51    Chief Executive Officer, President, Director
                                    and Chairman of the Board
Bob van Leyen                 65    Chief Financial Officer and Secretary
Ken Bramlett                  49    Director (1) (2) (4)
Larry L. Enterline            56    Director (1) (3)

------------------

(1) Member of the Audit, Nominating and Governance, and Compensation Committees.
(2) Chairperson of the Nominating and Governance Committee.
(3) Chairperson of the Audit Committee.
(4) Chairperson of the Compensation Committee.

         THOMAS M. WITTENSCHLAEGER, (age 51), is our Chief Executive Officer,
President, a director and Chairman of the Board. Mr. Wittenschlaeger has
accumulated more than twenty-four years of experience in the high technology
products and services area, much of it in general management with leadership
positions in operating units ranging in size from $3 million to $500 million in
annual revenues. From 2002 to 2004, he was Senior Vice President of Corporate
Development and Chief Technical Officer at Venturi Partners, Inc., a leading
provider of information technology and professional staffing services
nationwide. From 2000 to 2002, he was Senior Vice President and General Manager
of ViaSat Satellite Networks, the commercial arm of ViaSat, Inc. He is a 1979
graduate of the U.S. Naval Academy in Annapolis, Maryland with a B.S. in
electrical engineering and post-graduate work in nuclear engineering. He is also
a graduate of the UCLA Executive Program in Business and co-founder of UCLA's
Executive Program in Marketing. Mr. Wittenschlaeger has recently authored and is
pending on 12 Raptor patents related to distributed core transport architectures
and processing. Mr. Wittenschlaeger serves on the board of directors of
Lantronix, Inc. as Chairman of the Nominating and Governance Committee. Mr.
Wittenschlaeger has been our Chairman of the Board, President and Chief
Executive Officer since March 15, 2004.

         LARRY L. ENTERLINE, (age 56), is one of our directors and Chairperson
of the Audit Committee. In February 2006, Mr. Enterline was reappointed as the
Chief Executive Officer of COMSYS IT Partners, Inc., a leading provider of
information technology services, having previously served from December 2000 to
September 2004 as the Chief Executive Officer of Venturi Partners, Inc. (the
predecessor to COMSYS IT Partners prior to the September 2004 merger between
Venturi Partners and COMSYS Holding, Inc.). Mr. Enterline has also served as a
director of COMSYS IT Partners since the 2004 merger, previously having served
as a director of Venturi Partners from December 2000 to March 2003 and as
chairman of the board of Venturi Partners from April 2003 until the date of the
merger. From 1989 to November 2000, Mr. Enterline served in various management
roles with Scientific Atlanta, Inc., a leading national global manufacturer and
supplier of cable network products, the last of which was Corporate Senior Vice
President for Worldwide Sales and Service. He also held management positions in
the marketing, sales, engineering and products areas with Bailey Controls
Company and Reliance Electric Company from 1974 to 1989. Mr. Enterline is also a
member of the board of directors of Concurrent Computer Corp. Mr. Enterline has
been one of our directors since October 18, 2004.

         KEN BRAMLETT, (age 49), is one of our directors and Chairperson of the
Nominating and Governance Committee and the Compensation Committee. Mr. Bramlett
has served as Senior Vice President and General Counsel of COMSYS IT Partners,
Inc., since January 2006. Prior to that he served as a partner with the
Charlotte, North Carolina law firm of Kennedy Covington Lobdell & Hickman,
L.L.P. from March 2005 to December 2005. Mr. Bramlett is also a director of
World Acceptance Corporation, where he has served on the board of directors
since 1994. From 1996 to 2004, Mr. Bramlett served as Senior Vice President and
General Counsel of Venturi Partners, Inc., a leading national provider of
information technology and professional staffing services and from 1990 to 1996
as a partner with the law firm of Robinson, Bradshaw and Hinson, P.A. Mr.
Bramlett has been one of our directors since December 2, 2004.

                                      -32-



<page>

         BOB VAN LEYEN, (age 65), is our Chief Financial Officer and Secretary.
Mr. van Leyen has more than twenty-five years of experience working in the
high-tech industry, holding various executive positions in finance, operations
and general management. From 2002 to 2003, Mr. van Leyen served as a partner
with Tatum CFO, L.L.C. where he provided financial and operational support to
start-up companies in the high-tech industry. From 1999 to 2001, he was a
divisional Chief Financial Officer at Wyle Electronics. During his twenty-four
years of employment, Mr. van Leyen has managed extensive financial operations
organizations in Europe, Asia, and the United States, providing financial
support to operations. Mr. van Leyen attended the Dutch Institute of Chartered
Auditors and holds a Dutch degree equivalent to a U.S. Bachelor's degree in
Business Administration. Mr. van Leyen has served as our Chief Financial Officer
and Secretary since September 29, 2003.

TERM OF OFFICE AND FAMILY RELATIONSHIPS

         All directors hold office until the next annual meeting of shareholders
or until their respective successors are elected or until their earlier death,
resignation or removal. Executive officers are appointed by and serve at the
discretion of our Board of Directors. There are no family relationships among
our executive officers and directors.

BOARD COMMITTEES

         Our Board of Directors currently has an Audit Committee, a Nominating
and Governance Committee and a Compensation Committee. Our Board of Directors
has determined that Larry L. Enterline and Ken Bramlett are each "independent"
as defined in NASD Marketplace Rule 4200(a)(15) and that Messrs. Enterline and
Bramlett meet the applicable NASD listing standards for designation as an "Audit
Committee Financial Expert."

         AUDIT COMMITTEE

         The Audit Committee consists of two Board members, Larry L. Enterline,
and Ken Bramlett. Mr. Enterline is the chairperson of the Audit Committee. The
duties of the Audit Committee include meeting with our independent registered
public accounting firm to review the scope of the annual audit and to review our
quarterly and annual financial statements before the statements are released to
our shareholders. The Audit Committee also evaluates the independent registered
public accounting firm's performance and has sole authority to appoint or
replace the independent registered public accounting firm (subject, if
applicable, to shareholder ratification) and to determine whether the
independent registered public accounting firm should be retained for the ensuing
fiscal year. In addition, the Audit Committee reviews our internal accounting
and financial controls and reporting systems practices. A copy of the Audit
Committee's current charter may be found at our website at
www.raptor-networks.com.

         NOMINATING AND GOVERNANCE COMMITTEE

         The Nominating and Governance Committee consists of two Board members,
Larry L. Enterline and Ken Bramlett. Mr. Bramlett is the chairperson of the
Nominating and Governance Committee. The Nominating and Governance Committee
identifies and reviews the qualifications of candidate nominees to the Board of
Directors. The Nominating and Governance Committee utilizes a variety of methods
for identifying and evaluating nominees for director, including candidates that
may be referred by stockholders. Stockholders that desire to recommend
candidates for the board for evaluation may do so by contacting our Secretary in
writing, including the candidate's name and qualifications and a statement from
the candidate that he or she consents to being named in our proxy statement and
will serve as a director if elected. Candidates may also come to the attention
of the Nominating and Governance Committee through current board members,
professional search firms and other persons. A copy of the Nominating and
Governance Committee's current charter may be found at our website at
www.raptor-networks.com.

         COMPENSATION COMMITTEE

                                      -33-



<page>

         The Compensation Committee consists of two Board members, Larry L.
Enterline and Ken Bramlett. Mr. Bramlett is the chairperson of the Compensation
Committee. The Compensation Committee is responsible for advising the Board of
Directors regarding our responsibilities relating to compensation of our
executive officers and Board members. The Compensation Committee is also
responsible for evaluating and recommending to the Board of Directors our
executive compensation plans, policies and programs. A copy of the Compensation
Committee's current charter may be found at our website at
www.raptor-networks.com.

CODE OF ETHICS

         Our board of directors has adopted a Code of Business Conduct and
Ethics that applies to all of our directors, officers and employees and an
additional Code of Ethics that applies to our Chief Executive Officer and our
senior financial officers.

         We intend to satisfy the disclosure requirement under Item 5.05 of Form
8-K relating to amendments to or waivers from provisions of these codes that
relate to one or more of the items set forth in Item 406(b) of Regulation S-B by
describing on our Internet website, located at www.raptor-networks.com, within
four business days following the date of a waiver or a substantive amendment,
the date of the waiver or amendment, the nature of the amendment or waiver, and
the name of the person to whom the waiver was granted.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our executive officers and directors, and persons who
beneficially own more than 10% of our common stock, to file initial reports of
ownership and reports of changes in ownership with the SEC. These officers,
directors and shareholders are required by SEC regulations to furnish us with
copies of all such reports that they file.

         Based solely upon a review of copies of these reports furnished to us
during 2008 and thereafter, or written representations received by us from
reporting persons that no other reports were required, we believe that all
Section 16(a) filing requirements applicable to our reporting persons during
2008 were complied with.

ITEM 11.   EXECUTIVE COMPENSATION AND RELATED INFORMATION

COMPENSATION OF EXECUTIVE OFFICERS

         The following section contains information about the compensation paid
to our executive officers and directors during the years ended December 31, 2007
and 2008.

SUMMARY COMPENSATION TABLE

         The following table provides information concerning the compensation
for the years ended December 31, 2007 and 2008 for our principal executive
officer and our principal financial officer, who were the only persons that
served as executive officers during 2008 (collectively, the "named executive
officers").

<TABLE>
<S>     <C>
                                           SUMMARY COMPENSATION TABLE

                                                                             NON-EQUITY   NONQUALIFIED
                                                                              INCENTIVE     DEFERRED
                                                          STOCK     OPTION      PLAN      COMPENSATION   ALL OTHER
         NAME AND                   SALARY      BONUS     AWARDS    AWARDS  COMPENSATION    EARNINGS    COMPENSATION    TOTAL
    PRINCIPAL POSITION      YEAR      ($)        ($)        ($)     ($)(1)       ($)          ($)           ($)          ($)
--------------------------  ----   ----------  ---------  ------   -------  ------------  ------------  ------------   -------
Thomas M. Wittenschlaeger,  2007   180,000(2)  10,000(3)    --     162,269       --            --         33,437(4)    385,706
Chief Executive Officer     2008   185,333(2)      --               15,939       --            --         42,798(5)    244,070
and President

Bob van Leyen,              2007   150,000(6)  10,000(3)    --       8,403       --            --         22,608(7)    191,011
Chief Financial Officer     2008   153,000(6)      --       --      12,397       --            --         19,183(8)    184,580
</TABLE>

--------------------------

                                      -34-



<page>

    (1)  This column represents the dollar amount recognized for financial
         statement reporting purposes with respect to the fiscal year specified
         in the table for the fair value of stock options granted to each of our
         named executive officers calculated in accordance with SFAS 123R.
         Pursuant to SEC rules, the amounts shown exclude the impact of
         estimated forfeitures related to service-based vesting conditions. For
         additional information on the valuation assumptions with respect to
         these option grants, refer to Note 1 of our financial statements and
         related notes beginning on page F-1 of this Report. These amounts
         reflect only our accounting expense for these option grants and do not
         correspond to the actual value that will be recognized by our named
         executive officers. See our "Outstanding Equity Awards at December 31,
         2008" table below for more information on options held by the named
         executive officers.
    (2)  Effective August 8, 2006, our Compensation Committee approved an
         increase to Mr. Wittenschlaeger's annual salary from $155,000 to
         $180,000. Effective January 1, 2008 our compensation committee approved
         another increase to Mr. Wittenschlaeger's annual salary from $180,000
         to $192,000. Mr. Wittenschlaeger's annual salary had previously been
         decreased from $195,000 to $155,000 in November 2004 in an effort to
         reduce our expense run rates. Effective November 1, 2008 Mr.
         Wittenschlaeger's annual salary was, on a temporary basis, decreased
         from $192,000 to $152,000 in connection with the cash flow constraints
         the Company is dealing with. This salary level will continue until the
         company is able to improve its cash flow position.
    (3)  Consists of a $10,000 cash performance bonus in September 2007.
    (4)  Consists of $24,000 in reimbursement of living expenses for an
         apartment in Southern California and $9,437 in health and life
         insurance premiums.
    (5)  Consists of $18,000 in reimbursement of living expenses for an
         apartment in Southern California, $11,617 in relocation expenses and
         $13,181 in health and life insurance premiums.
    (6)  Effective August 8, 2006, our Compensation Committee approved an
         increase to Mr. van Leyen's annual salary from $125,000 to $150,000.
         Effective January 1, 2008 our compensation committee approved another
         increase to Mr. van Leyen's annual salary from $150,000 to $160,000.
         Mr. van Leyen's annual salary had previously been decreased from
         $190,000 to $125,000 in November 2004 in an effort to reduce our
         expense run rates. Effective November 1, 2008 Mr. van Leyen's annual
         salary was on a temporary basis decreased from $160,000 to $120,000 in
         connection with the cash flow constraints the Company is dealing with.
         This salary level will continue until the Company is able to improve
         its cash flow position.
    (7)  Consists of $22,608 in health and life insurance premiums.
    (8)  Consists of $19,183 in health and life insurance premiums.

EMPLOYMENT AGREEMENTS AND EXECUTIVE COMPENSATION

         There are no employment contracts, termination agreements, or
change-in-control arrangements between us and any of our named executive
officers. The Compensation Committee reviews and, if deemed appropriate, adjusts
the annual salaries of our named executive officers on at least an annual basis.
The Compensation Committee may from time to time grant performance or similar
cash bonuses to our named executive officers at its discretion. The Compensation
Committee may also periodically award options or warrants to our named executive
officers under our existing option and incentive plans at its discretion.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

         The following table sets forth information about outstanding equity
awards held by our named executive officers as of December 31, 2008.


                                      -35-



<page>

<TABLE>
<S> <C>
                                 OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008

                                                                                            STOCK AWARDS
                                                                                ----------------------------------------
                                                                                                   EQUITY      EQUITY
                                                                                                 INCENTIVE   INCENTIVE
                                         OPTION AWARDS                                              PLAN       PLAN
                 ------------------------------------------------------------   NUMBER             AWARDS:    AWARDS:
                                              EQUITY                             OF      MARKET    NUMBER    MARKET OR
                                             INCENTIVE                          SHARES  VALUE OF     OF        PAYOUT
                                               PLAN                              OR      SHARES   UNEARNED    VALUE OF
                   NUMBER       NUMBER        AWARDS:                           UNITS      OR     SHARES,     UNEARNED
                     OF           OF         NUMBER OF                           OF     UNITS OF   UNITS       SHARES,
                  SECURITIES   SECURITIES    SECURITIES                         STOCK    STOCK    OR OTHER    UNITS OR
                  UNDERLYING   UNDERLYING    UNDERLYING                         THAT      THAT     RIGHTS      OTHER
                  UNEXERCISED  UNEXERCISED  UNEXERCISED   OPTION                HAVE      HAVE      THAT     RIGHTS THAT
                   OPTIONS      OPTIONS       UNEARNED   EXERCISE    OPTION      NOT      NOT     HAVE NOT    HAVE NOT
                     (#)          (#)         OPTIONS     PRICE    EXPIRATION   VESTED   VESTED    VESTED      VESTED
     NAME        EXERCISABLE  UNEXERCISABLE     (#)        ($)        DATE       (#)      ($)        (#)         ($)
---------------  -----------  ------------- -----------  --------  ----------   ------  --------  ---------  -----------
Thomas M.             350,000         --         --        1.00    07/15/2012     --       --        --         --
Wittenschlaeger                   90,000                   0.67    01/02/2016     --       --        --         --
Bob van Leyen         300,000         --         --        1.00    09/29/2011     --       --        --         --
                                  70,000         --        0.67    01/02/2016     --       --        --         --
</TABLE>

--------------------------

COMPENSATION OF DIRECTORS

         Each of our non-employee directors is entitled to receive cash
compensation in the amount of $15,000 per year for service on our board of
directors. Effective July 1, 2008 the Board waived payment of Director's Fees in
connection with the current cash flow constraints the Company is experiencing.
This situation will continue until the Company is able to improve its cash flow
position. We reimburse all directors for out-of-pocket expenses incurred in
connection with attendance at board and committee meetings. We currently have a
policy in place to grant each non-employee director an option to purchase shares
of our common stock on the date of his or her commencement of service as a
director. We may also periodically award options or warrants to our directors
under our existing option and incentive plans.

         The following table provides information concerning the compensation of
our directors for the year ended December 31, 2008.

<TABLE>
<S>     <C>
                              DIRECTOR COMPENSATION

                                                                          CHANGE
                                                                        IN PENSION
                                                                         VALUE AND
                                                           NON-EQUITY   NONQUALIFIED
                    FEES EARNED                            INCENTIVE      DEFERRED
                      OR PAID      STOCK        OPTION        PLAN      COMPENSATION    ALL OTHER
                      IN CASH      AWARDS       AWARDS    COMPENSATION    EARNINGS     COMPENSATION    TOTAL
        NAME            ($)          ($)        ($)(1)        ($)            ($)            ($)         ($)
------------------  -----------    ------      ---------  ------------  -------------  ------------    ------
Larry L. Enterline      7,500        --        22,266(2)        --            --            --         29,766
Ken Bramlett            7,500        --        15,939(3)        --            --            --         23,439
</TABLE>

-------------------
(1)   This column represents the dollar amount recognized for financial
      statement reporting purposes with respect to the year ended December 31,
      2008 for the fair value of stock options granted to each of our directors
      calculated in accordance with SFAS 123R. Pursuant to SEC rules, the
      amounts shown exclude the impact of estimated forfeitures related to
      service-based vesting conditions. For additional information on the
      valuation assumptions with respect to these option grants, refer to Note 1
      of our financial statements and related notes beginning on page F-1 of
      this Report. These amounts reflect only our accounting expense for these
      option grants and do not correspond to the actual value that will be
      recognized by our directors.
(2)   At December 31, 2008, Mr. Enterline held options to purchase an aggregate
      of 100,000 shares of common stock at an exercise price of $1.00 per share,
      of which 100,000 options were vested at December 31, 2008. In addition,
      Mr. Enterline held an additional 90,000 options to purchase common stock
      at an exercise price of $0.67. None of these 90,000 options have vested as
      of December 31, 2008.


                                      -36-



<page>

(3)   At December 31, 2008, Mr. Bramlett held options to purchase an aggregate
      of 100,000 shares of common stock at an exercise price of $1.00 per share,
      of which all 100,000 options were vested at December 31, 2007. In
      addition, Mr. Bramlett held an additional 90,000 options to purchase
      common stock at an exercise price of $0.67. None of these 90,000 options
      have vested as of December 31, 2008.

STOCK OPTION PLAN

     GENERAL

         Our 2005 Stock Plan was approved by our Board of Directors on April 7,
2005, approved by our shareholders on June 9, 2005, and amended and restated as
the First Amended and Restated 2005 Stock Plan ("2005 Plan") by our Board of
Directors on June, 29, 2007.

         We filed a registration statement on Form S-8 with the SEC in May 2007
to cover the issuance of up to 3,000,000 shares of common stock underlying
options and stock purchase rights authorized for issuance under the 2005 Plan
and qualified for issuance the underlying securities with the California
Department of Corporations in July 2007.

         All stock options issued prior to shareholder approval of our 2005 Plan
were granted outside of a formal stock option plan ("Non-Plan Options"). As of
March 24, 2009, options to purchase a total of 850,000 shares of common stock
were outstanding under Non-Plan Options. As of March 24, 2009, there were
992,000 outstanding options to purchase common stock under the 2005 Plan.
Excluding these 850,000 outstanding options 2,150,000 shares will remain
available for issuance under the 2005 Plan, subject to the limitations of
authorized common stock. We anticipate that future stock options will be issued
pursuant to our 2005 Plan or other stock option plans as may be approved by our
Board and shareholders in the future.

     SHARES SUBJECT TO THE PLAN

         A total of 3,000,000 shares of common stock are authorized for issuance
under the 2005 Plan. Any shares of common stock that are subject to an award but
are not used because the terms and conditions of the award are not met, or any
shares that are used by participants to pay all or part of the purchase price of
any option, may again be used for awards under the 2005 Plan.

     ADMINISTRATION

         The 2005 Plan is to be administered by our Board of Directors or an
appropriate committee of our Board of Directors. It is the intent of the 2005
Plan that it be administered in a manner such that option grants and exercises
would be "exempt" under Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").

         Our Board of Directors or an appropriate committee is empowered to
select those eligible persons to whom options shall be granted under the 2005
Plan, to determine the time or times at which each option or stock purchase
right shall be granted, whether options will be incentive stock options ("ISOs")
or nonqualified stock options ("NQOs"), and the number of shares to be subject
to each option, and to fix the time and manner in which each such option may be
exercised, including the exercise price and option period, and other terms and
conditions of such options, all subject to the terms and conditions of the 2005
Plan. Our Board of Directors or an appropriate committee has sole discretion to
interpret and administer the 2005 Plan, and our decisions regarding the 2005
Plan are final.

         The 2005 Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time and from time to time by our Board of
Directors. Neither our Board of Directors nor any committee may materially
impair any outstanding options without the express consent of the optionee or
increase the number of shares subject to the 2005 Plan, materially increase the
benefits to optionees under the 2005 Plan, materially modify the requirements as
to eligibility to participate in the 2005 Plan or alter the method of
determining the option exercise price without shareholder approval. No option
may be granted under the 2005 Plan after April 7, 2015.

     OPTION TERMS

         ISOs granted under the 2005 Plan must have an exercise price of not
less than 100% of the fair market value of the common stock on the date the ISO
is granted and must be exercised, if at all, within ten years from the date of
grant. In the case of an ISO granted to an optionee who owns more than 10% of
our total voting securities on the date of grant, the exercise price may not be
less than 110% of the fair market value of the common stock on the date of
grant, and the option period may not exceed five years. NQOs granted under the
2005 Plan must have an exercise price of not less than 85% of the fair market
value of the common stock on the date the NQO is granted.

                                      -37-



<page>

         Options may be exercised during a period of time fixed by our Board of
Directors or an appropriate committee, except that no option may be exercised
more than ten years after the date of grant. In the discretion of our Board of
Directors or an appropriate committee, payment of the purchase price for the
shares of stock acquired through the exercise of an option may be made in the
manner and for the type of consideration determined by our Board of Directors or
an appropriate committee, which may include cash, check, one or more promissory
notes, shares of our common stock, consideration received under a cashless
exercise program implemented in connection with the 2005 Plan, or any
combination of the foregoing.

     FEDERAL INCOME TAX CONSEQUENCES

         Holders of NQOs do not realize income as a result of a grant of the
option, but normally realize compensation income upon exercise of an NQO to the
extent that the fair market value of the shares of common stock on the date of
exercise of the NQO exceeds the exercise price paid. We are required to withhold
taxes on ordinary income realized by an optionee upon the exercise of a NQO. In
the case of an optionee subject to the "short-swing" profit recapture provisions
of Section 16(b) of the Exchange Act, the optionee realizes income only upon the
lapse of the six-month period under Section 16(b), unless the optionee elects to
recognize income immediately upon exercise of his or her option.

         Holders of ISOs will not be considered to have received taxable income
upon either the grant or the exercise of the option. Upon the sale or other
taxable disposition of the shares, long-term capital gain will normally be
recognized on the full amount of the difference between the amount realized and
the option exercise price paid if no disposition of the shares has taken place
within either two years from the date of grant of the option or one year from
the date of exercise. If the shares are sold or otherwise disposed of before the
end of the one-year or two-year periods, the holder of the ISO must include the
gain realized as ordinary income to the extent of the lesser of the fair market
value of the option stock minus the option price, or the amount realized minus
the option price. Any gain in excess of these amounts, presumably, will be
treated as capital gain. We are entitled to a tax deduction in regard to an ISO
only to the extent the optionee has ordinary income upon the sale or other
disposition of the option shares.

         Upon the exercise of an ISO, the amount by which the fair market value
of the purchased shares at the time of exercise exceeds the option price will be
an "item of tax preference" for purposes of computing the optionee's alternative
minimum tax for the year of exercise. If the shares so acquired are disposed of
prior to the expiration of the one-year and two-year periods described above,
there should be no "item of tax preference" arising from the option exercise.

         THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED UPON PRESENT LAW. EACH HOLDER OF OPTIONS UNDER THE 2005 PLAN
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE TRANSACTION TO HIM OR HER, INCLUDING APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER LAWS.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Section 7-109-102 of the Colorado Business Corporations Act (the
"Colorado Act") authorizes a Colorado corporation to indemnify any director
against liability incurred in any proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

         Unless limited by a corporation's articles of incorporation, Section
7-109-105 of the Colorado Act authorizes a director to apply for indemnification
to the court conducting the proceeding or another court of competent
jurisdiction. Unless limited by the articles of incorporation, Section 7-109-107
of the Colorado Act extends this same right to officers of a corporation as
well.

                                      -38-



<page>

         Unless limited by a corporation's articles of incorporation, Section
7-109-103 of the Colorado Act requires that a Colorado corporation indemnify a
director who was wholly successful in defending any proceeding to which he or
she was a party against reasonable expenses incurred in connection therewith.
Unless limited by the articles of incorporation, Section 7-109-107 of the
Colorado Act extends this same protection to officers of a corporation as well.

         Pursuant to Section 7-109-104 of the Colorado Act, a Colorado
corporation may advance a director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking and a written affirmation of his or
her good faith belief that he or she has met the standard of conduct specified
in Section 7-109-102 described above. Unless limited by the articles of
incorporation, Section 7-109-107 of the Colorado Act extends this same
protection to officers of a corporation as well.

         Regardless of whether a director or officer has the right to indemnity,
Section 7-109-108 of the Colorado Act allows a Colorado corporation to purchase
and maintain insurance on such directors or officers behalf against liability
resulting from his or her role as director or officer.

         Our Articles of Incorporation do not limit any of the rights afforded
to our directors and officers under the Colorado Act and Article VI of our
Bylaws states that any director or officer who is involved in litigation by
reason of his or her position with us as a director or officer shall be
indemnified and held harmless by us to the fullest extent authorized by law as
it now exists or may subsequently be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights). Our directors and officers are also
presently covered by an insurance policy indemnifying them against certain
liabilities, including certain liabilities arising under the Securities Act,
which might be incurred by them in such capacities and against which they may
not be indemnified by us. We believe that the indemnification and insurance
provided to our directors and officers is necessary to attract and retain
qualified persons as directors and officers.

         To the extent indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and
controlling persons under the above provisions, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

         The following table sets forth, as of March 24, 2009, certain
information with respect to the beneficial ownership of our stock by (i) each of
our named executive officers, (ii) each of our directors, (iii) each person
known to us to be the beneficial owner of more than 5% of each class of our
outstanding voting securities, and (iv) all of our directors and executive
officers as a group.

         Beneficial ownership is determined in accordance with the rules of the
SEC, and includes voting or investment power with respect to the securities. To
our knowledge, except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table below have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. Shares of common stock underlying derivative
securities, if any, that currently are exercisable or convertible or are
scheduled to become exercisable or convertible for or into shares of common
stock within 60 days after the date of the table are deemed to be outstanding in
calculating the percentage ownership of each listed person or group but are not
deemed to be outstanding as to any other person or group. Percentage of
beneficial ownership is based on 74,073,311 shares of common stock outstanding
as of March 24, 2009.

                                      -39-



<page>

<TABLE>
<S>     <C>
                                             NUMBER OF SHARES OF COMMON     PERCENT OF COMMON STOCK
NAME OF BENEFICIAL OWNER(1)                   STOCK BENEFICIALLY OWNED        BENEFICIALLY OWNED
---------------------------                  --------------------------     -----------------------
Thomas M. Wittenschlaeger                         3,380,000 (2)                      4.54%
Bob van Leyen                                       723,333 (3)                      0.97%
Ken Bramlett                                        130,000 (4)                          *
Larry L. Enterline                                  130,000 (5)                          *
All executive officers and directors as a         4,363,333 (6)                      5.81%
group (4 persons)
Castlerigg Master Investments Ltd.                7,804,533 (7)                      9.99%
40 West 57th St
26th Floor
New York, NY 10019
</TABLE>

* Less than 0.5%.
--------------------------

(1)    Unless otherwise indicated, the address is c/o Raptor Networks
       Technology,  Inc., 1508 S. Grand Avenue, Suite 150,  Santa Ana,
       California 92705.
(2)    Thomas M. Wittenschlaeger is our President, Chief Executive Officer and
       Chairman of the Board. Includes 380,000 shares of common stock issuable
       upon the exercise of options which were exercisable as of March24, 2009
       or exercisable within 60 days after March 24, 2009.
(3)    Bob van Leyen is our Chief Financial Officer and Secretary. Includes
       323,333 shares of common stock issuable upon the exercise of options
       which were exercisable as of March 24, 2009 or exercisable within 60 days
       after March 24, 2009.
(4)    Ken Bramlett is one of our directors. Represents 130,000 shares of common
       stock issuable upon the exercise of options which were exercisable as of
       March 24, 2009 or exercisable within 60 days after March 24, 2009.
(5)    Larry L. Enterline is one of our directors. Represents 130,000 shares of
       common stock issuable upon the exercise of options which were exercisable
       as of March 24, 2009 or exercisable within 60 days after March 24, 2009.
(6)    Represents 3,000,000 shares of common stock and 380,000 shares issuable
       upon the exercise of options held by Thomas M. Wittenschlaeger; 400,000
       shares of common stock and 323,333 shares issuable upon the exercise of
       options held by Bob van Leyen; 130,000 shares issuable upon the exercise
       of options held by Ken Bramlett; and 130,000 shares issuable upon the
       exercise of options held by Larry L. Enterline.
(7)    Represents 7,804,533 shares of common stock underlying convertible notes
       and warrants held by Castlerigg Master Investments Ltd. ("Master"), which
       represents a portion of the number of shares of common stock that are
       issuable upon the conversion of principal and/or interest, and the
       payment of principal and/or interest in shares of common stock, under
       convertible notes and the exercise of warrants held by Master. The number
       of shares beneficially owned by Master is capped by a contractual 9.99%
       beneficial ownership limitation set forth in the convertible notes and
       warrants held by Master. If the 9.99% beneficial ownership limitation is
       disregarded, Master would beneficially own 3,754,390 shares of common
       stock, approximately 17,541,729 shares underlying the convertible notes
       and 48,330,183 shares underlying the warrants held by it. The actual
       number of shares of common stock issuable upon conversion of the
       convertible notes is subject to adjustment and could be materially more
       than 17,541,729 shares depending on a number of factors including, among
       other factors, the future market price of our common stock. Sandell Asset
       Management Corp. ("SAMC") is the investment manager of Master. Thomas
       Sandell is the sole shareholder of SAMC and may be deemed to have voting
       and dispositive power over the shares beneficially owned by Master. No
       other natural person has voting or dispositive power over the shares
       owned by Master. Castlerigg International Ltd. ("Castlerigg
       International") is the controlling shareholder of Castlerigg
       International Holdings Limited ("Holdings"). Holdings is the controlling
       shareholder of Master. Each of Holdings and Castlerigg International may
       be deemed to share beneficial ownership of the shares beneficially owned
       by Master. SAMC, Mr. Sandell, Holdings and Castlerigg International each
       disclaims beneficial ownership of the securities with respect to which
       indirect beneficial ownership is described.

EQUITY COMPENSATION PLAN INFORMATION

         The following table sets forth information about our common stock that
may be issued upon the exercise of options, warrants and rights under all of our
equity compensation plans as of December 31, 2008.

                                      -40-



<page>

<TABLE>
<S>     <C>
                                        Number of Shares to be      Weighted Average       Number of Securities
Plan Category                            Issued Upon Exercise        Exercise Price       Available for Issuance
-----------------------------------     ----------------------      ----------------      ----------------------
PLANS APPROVED BY STOCKHOLDERS
   2005 Stock Plan(1)                         1,020,000                  $0.73                   1,980,000
PLANS NOT APPROVED BY STOCKHOLDERS
   Non-Plan Stock Options(2)                    850,000                  $1.00                      N/A
   Warrants for Services(3)                   1,551,870                  $1.04                      N/A

TOTAL                                         3,421,870                  $0.94                   1,980,000
--------------------------
</TABLE>

(1)      Our 2005 Stock Plan was approved by our Board of Directors on April 7,
         2005 and approved by our shareholders on June 9, 2005 at our 2005
         Annual Meeting of Shareholders. Under the 2005 Stock Plan, options to
         purchase up to 3,000,000 shares of our Common Stock may be granted. As
         of December 31, 2008, there were 1,020,000 outstanding options to
         purchase common stock.
(2)      Consists of stock options to purchase shares of our common stock
         granted to our employees, executive officers and directors outside of a
         formal stock option plan. These stock options vest at the rate of 33?%
         on each of the first, second and third anniversaries of the date of
         grant and expire on the eight-year anniversary of the date of grant.
(3)      Consists of warrants to purchase shares of our common stock granted in
         consideration for consulting services, advisory services, placement
         agent services and similar services rendered to us by third parties.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         There were no related party transactions in 2008 that require
disclosure.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

         The following table sets forth the aggregate fees billed to us for the
fiscal years ended December 31, 2007 and December 31, 2008 by our auditors,
Stonefield Josephson, Inc. and Mendoza Berger & Company, LLP.

                                                FISCAL 2007         FISCAL 2008
                                                -----------         -----------

          Audit Fees(1)                         $   137,266         $   103,515

          Audit-Related Fees(2)                 $         -         $    29,505

          Tax Fees(3)                           $     2,883         $    13,201

          All Other Fees(4)                     $         -         $         -
--------------------------

(1)      AUDIT FEES consist of fees billed for professional services rendered
         for the audit of our consolidated annual financial statements and
         review of the interim consolidated financial statements included in
         quarterly reports and services that are normally provided by our
         accountants in connection with statutory and regulatory filings or
         engagements.

(2)      AUDIT-RELATED FEES consist of fees billed for assurance and related
         services that are reasonably related to the performance of the audit or
         review of our consolidated financial statements and are not reported
         under "Audit Fees." This category includes fees related to due
         diligence services pertaining to potential business
         acquisitions/disposition; and consultation regarding accounting or
         disclosure treatment of transactions or events and/or the actual or
         potential impact of final or proposed rules, standard or interpretation
         by the SEC, FASB or other regulatory or standard-setting bodies as well
         as general assistance with implementation of the requirements of SEC
         rules or listing standards promulgated pursuant to the Sarbanes-Oxley
         Act of 2002.

(3)      TAX FEES consist of fees billed for professional services rendered for
         tax compliance, tax advice and tax planning. These services include
         assistance regarding federal, state and local tax compliance, planning
         and advice.

                                      -41-



<page>

(4)      ALL OTHER FEES consist of fees for products and services other than the
         services reported above.

         Our Audit Committee is responsible for approving all Audit,
Audit-Related, Tax and Other Services. The Audit Committee pre-approves all
auditing services and permitted non-audit services, including all fees and terms
to be performed for us by our independent registered public accounting firm at
the beginning of the fiscal year. Non-audit services are reviewed and
pre-approved by project at the beginning of the fiscal year. Any additional
non-audit services contemplated by our company after the beginning of the fiscal
year are submitted to the Audit Committee chairman for pre-approval prior to
engaging the independent auditor for such services. Such interim pre-approvals
are reviewed with the full Audit Committee at its next meeting for ratification.


                                     PART IV

ITEM 15.   EXHIBITS

   EXHIBIT
   NUMBER                                  DESCRIPTION
   ------                                  -----------

     2.1       Agreement and Plan of Merger dated August 23, 2003 between
               Pacific InterMedia, Inc., and Raptor Networks Technology, Inc.
               (incorporated herein by reference to Exhibit 2.1 to the Company's
               Form 8-K filed with the SEC on October 22, 2003)
     2.2       Amendment to Agreement and Plan of Merger dated October 15, 2003
               between Pacific InterMedia, Inc., and Raptor Networks Technology,
               Inc. (incorporated herein by reference to Exhibit 2.2 to the
               Company's Form 8-K filed with the SEC on October 22, 2003)
     3.1       Articles of Incorporation, as amended as of June 8, 2005
               (incorporated herein by reference to Exhibit 3.1 to the Company's
               10-KSB for fiscal year ended December 31, 2004, filed with the
               SEC on April 15, 2005)
     3.2       Articles of Amendment to Articles of Incorporation increasing
               Company's authorized common stock to 75,000,000 shares, effective
               June 9, 2005 (incorporated herein by reference to Exhibit 3.1 to
               the Company's Form 8-K filed with the SEC on June 15, 2005)
     3.3       Articles of Amendment to Articles of Incorporation increasing
               authorized common stock to 110,000,000 shares, effective May 31,
               2006 (incorporated herein by reference to Exhibit 3.1 to the
               Company's Form 8-K filed with the SEC on June 5, 2006)
     3.4       Articles of Amendment to Articles of Incorporation (Profit) of
               Raptor Networks Technology, Inc. as filed with the Colorado
               Secretary of State on April 30, 2007 (incorporated herein by
               reference to Exhibit 3.1 to the Company's Form 8-K filed May 4,
               2007)
     3.5       Bylaws (incorporated herein by reference to Exhibit 3.2 to
               Registration Statement on Form SB-2, Registration No. 333-74846,
               filed with the SEC on December 10, 2001)
     3.6       Amendment to Bylaws - Article II, Section 1 (incorporated herein
               by reference to Exhibit 3.3 to the Company's 10-KSB for fiscal
               year ended December 31, 2004, filed with the SEC on April 15,
               2005)
     3.7       Action with Respect to Bylaws certified by the Secretary of
               Raptor Networks Technology, Inc. on May 2, 2007 (incorporated
               herein by reference to Exhibit 3.2 to the Company's Form 8-K
               filed May 4, 2007)
    10.1       Full Service Lease dated May 3, 2004 between PS Business Parks,
               L.P., and Raptor Networks Technology, Inc. (incorporated herein
               by reference to Exhibit 10.1 to the Company's 10-KSB for fiscal
               year ended December 31, 2004, filed with the SEC on April 15,
               2005)
    10.2       First Amendment to Full Service Lease dated May 3, 2007 between
               PS Business Parks, L.P., and Raptor Networks Technology, Inc., a
               California corporation (incorporated herein by reference to
               Exhibit 10.2 to the Company's 10-KSB for fiscal year ended
               December 31, 2007, filed with the SEC on March 31, 2008)
    10.3       Facility lease agreement with Martin Investment dated September
               22,2008 (incorporated herein by reference to Exhibit 10.1 to the
               Company's 10-QSB for fiscal quarter ended September 30, 2008,
               filed with the SEC on November 18, 2008)
    10.4x      Facility lease agreement with Martin Investment dated February 9,
               2009

                                      -42-



<page>

    10.5       Turnkey Manufacturing Services Agreement dated November 7, 2003
               between Express Manufacturing, Inc. and Raptor Networks
               Technology, Inc. (incorporated herein by reference to Exhibit
               10.2 to the Company's 10-KSB for fiscal year ended December 31,
               2005, filed with the SEC on April 3, 2006)
    10.6**     First Amended and Restated 2005 Stock Plan (incorporated herein
               by reference to Exhibit 10.1 to the Company's 10-QSB for fiscal
               quarter ended June 30, 2007, filed with the SEC on August 21,
               2007)
    10.7**     Form of 2005 Stock Plan Stock Option Agreement (incorporated
               herein by reference to Exhibit 10.19 to the Company's 10-KSB for
               fiscal year ended December 31, 2005, filed with the SEC on April
               3, 2006)
    10.8       Securities Purchase Agreement dated July 30, 2006 (incorporated
               herein by reference to Exhibit 10.1 to the Company's Form 8-K
               filed with the SEC on July 31, 2006)
    10.9       Form of Amended and Restated Amendment and Exchange Agreement
               dated January 22, 2007 (incorporated herein by reference to
               Exhibit 10.1 to the Company's Form 8-K filed with the SEC on
               January 23, 2007)
    10.10      Form of Amended and Restated Senior Convertible Note dated July
               31, 2006 (incorporated herein by reference to Exhibit 10.3 to the
               Company's Form 8-K filed with the SEC on January 22, 2007)
    10.11      Senior Convertible Note dated January 19, 2007 (incorporated
               herein by reference to Exhibit 10.4 to the Company's Form 8-K
               filed with the SEC on January 22, 2007)
    10.12      Amended and Restated Registration Rights Agreement dated January
               18, 2007 (incorporated herein by reference to Exhibit 10.9 to the
               Company's Form 8-K filed with the SEC on January 22, 2007)
    10.13      Securities Purchase Agreement dated July 31, 2007 (incorporated
               herein by reference to Exhibit 10.1 to the Company's Form 8-K
               filed August 2, 2007)
    10.14      Registration Rights Agreement dated July 31, 2007 (incorporated
               herein by reference to Exhibit 10.2 to the Company's Form 8-K
               filed August 2, 2007)
    10.15      Form of Senior Secured Convertible Note issued August 1, 2007
               (incorporated herein by reference to Exhibit 10.3 to the
               Company's Form 8-K filed August 2, 2007)
    10.16      Securities Purchase Agreement, dated March 31, 2008 (incorporated
               herein by reference to Exhibit 10.1 to the Company's Form 8-K
               filed with the SEC on April 2, 2008)
    10.17      Registration Rights Agreement, dated March 31, 2008 (incorporated
               herein by reference to Exhibit 10.2 to the Company's Form 8-K
               filed with the SEC on April 2, 2008)
    10.18      Form of Senior Secured Convertible Note (incorporated herein by
               reference to Exhibit 10.3 to the Company's Form 8-K filed with
               the SEC on April 2, 2008)
    10.19      Form of Series Q Warrants (incorporated herein by reference to
               Exhibit 10.4 to the Company's Form 8-K filed with the SEC on
               April 2, 2008)
    10.20      Security Agreement (incorporated herein by reference to Exhibit
               10.5 to the Company's Form 8-K filed with the SEC on April 2,
               2008)
    10.21      Pledge Agreement (incorporated herein by reference to Exhibit
               10.6 to the Company's Form 8-K filed with the SEC on April 2,
               2008)
    10.22      Guaranty (incorporated herein by reference to Exhibit 10.7 to the
               Company's Form 8-K filed with the SEC on April 2, 2008)
    10.23      Securities Purchase Agreement, dated July 28, 2008 (incorporated
               herein by reference to Exhibit 10.1 to the Company's Current
               Report on Form 8-K filed with the SEC on July 31, 2008)
    10.24      Registration Rights Agreement, dated July 28, 2008 (incorporated
               herein by reference to Exhibit 10.2 to the Company's Current
               Report on Form 8-K filed with the SEC on July 31, 2008)
    10.25      Form of Senior Secured Convertible Note issued July 28, 2008
               (incorporated herein by reference to Exhibit 10.3 to the
               Company's Current Report on Form 8-K filed with the SEC on July
               31, 2008)
    10.26      Amended and Restated Security Agreement, dated July 28, 2008
               (incorporated herein by reference to Exhibit 10.7 to the
               Company's Current Report on Form 8-K filed with the SEC on July
               31, 2008)
    10.27      Amended and Restated Pledge Agreement, dated July 28, 2008
               (incorporated herein by reference to Exhibit 10.8 to the
               Company's Current Report on Form 8-K filed with the SEC on July
               31, 2008)
    10.28      Amended and Restated Guaranty, dated July 28, 2008 (incorporated
               herein by reference to Exhibit 10.9 to the Company's Current
               Report on Form 8-K filed with the SEC on July 31, 2008)
    10.29      Letter agreements with regard to certain cash payments dated
               September 30, 2008 (incorporated herein by reference to Exhibits
               99.1 and 99.2 to the Company's Form 8-K filed with the SEC on
               September 30, 2008)


                                      -43-



<page>

    10.30      Letter agreements with regard to certain cash payments dated
               December 31, 2008 (incorporated herein by reference to Exhibits
               99.1 and 99.2 to the Company's Form 8-K filed with the SEC on
               January 6, 2009)
    21         Subsidiaries of the Registrant (incorporated herein by reference
               to Exhibit 21 to the Company's 10-KSB for fiscal year ended
               December 31, 2005, filed with the SEC on April 3, 2006)
    31.1x      Certification of the Chief Executive Officer Required by Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended, as
               Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    31.2x      Certification of the Chief Financial Officer Required by Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended, as
               Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    32.1x      Certification of the Chief Executive Officer Pursuant to 18
               U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002
    32.2x      Certification of the Chief Financial Officer Pursuant to 18
               U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002

x        Filed herewith.
**       This exhibit is a management contract or a compensatory plan or
         arrangement.


                                      -44-



<page>

                                   SIGNATURES

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

Dated: March 31, 2009                       RAPTOR NETWORKS TECHNOLOGY, INC.


                                            By: /s/ Thomas M. Wittenschlaeger
                                                --------------------------------
                                                Thomas M. Wittenschlaeger,
                                                Chief Executive Officer

Dated: March 31, 2009                       RAPTOR NETWORKS TECHNOLOGY, INC.


                                            By: /s/ Bob van Leyen
                                                --------------------------------
                                                Bob van Leyen,
                                                Chief Financial Officer

         Pursuant to requirements of the Securities Exchange Act of 1934, an
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:

                   Signature                         Capacity         Date
                   ---------                         --------         ----

/s/ Thomas M. Wittenschlaeger                        Director    March 31, 2009
------------------------------------------------
    Thomas M. Wittenschlaeger

/s/ Ken Bramlett                                     Director    March 31, 2009
------------------------------------------------
    Ken Bramlett

/s/ Larry L. Enterline                               Director    March 31, 2009
------------------------------------------------
    Larry L. Enterline



                                      -45-



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.

                          INDEX TO FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm .....................F-2

Financial Statements

     Consolidated Balance Sheets.............................................F-3

     Consolidated Statements of Operations...................................F-4

     Consolidated Statements of Stockholders' Deficit........................F-5

     Consolidated Statements of Cash Flows...................................F-6

     Notes to Consolidated Financial Statements..............................F-7


                                      F-1



<page>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
of Raptor Networks Technology, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of Raptor Networks
Technology, Inc. (a Colorado corporation) (the "Company") as of December 31,
2008 and 2007, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Raptor Networks
Technology, Inc. as of December 31, 2008 and 2007, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements are presented assuming the
Company will continue as a going concern. As more fully described in Note 1 to
the consolidated financial statements, the Company has sustained accumulated
losses from operations totaling more than $71,200,000 at December 31, 2008. This
condition and the Company's lack of significant sales of its products to date,
raise substantial doubt about its ability to continue as a going concern.
Management's plans to address these conditions are also set forth in Note 1 to
the consolidated financial statements. The accompanying consolidated financial
statements do not include any adjustments which might be necessary if the
Company is unable to continue as a going concern.


/s/ MENDOZA BERGER & COMPANY, LLP


Irvine, California
March 30, 2009

                                      F-2



<page>

<TABLE>
<S>     <C>

                                RAPTOR NETWORKS TECHNOLOGY, INC.
                                   CONSOLIDATED BALANCE SHEETS


                                                                             DECEMBER 31,    DECEMBER 31,
                                                                                 2008           2007
                                                                             ------------    ------------

                                             ASSETS
CURRENT ASSETS
    Cash and cash equivalents                                                $     62,461    $    952,828
    Accounts receivable, net of allowance for doubtful accounts of
      $59,530 and $30,075 at December 31, 2008 and 2007, respectively              54,467         462,555
    Inventories, net                                                              912,630         940,988
    Prepaid interest                                                              437,500              --
    License fees                                                                  202,930         226,690
    Other current assets                                                           57,006         232,346
                                                                             ------------    ------------
       Total current assets                                                     1,726,994       2,815,407
                                                                             ------------    ------------

PROPERTY AND EQUIPMENT, NET                                                        39,033         153,541

OTHER ASSETS
    Prepaid interest, net of current portion                                      151,042              --
    Debt issuance costs, net                                                       25,071         126,171
    Deposits                                                                        2,505          48,996
                                                                             ------------    ------------

TOTAL ASSETS                                                                 $  1,944,645    $  3,144,115
                                                                             ============    ============

                             LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Accounts payable                                                         $     78,066    $    184,756
    Accrued interest payable                                                      305,280          34,717
    Deferred revenue                                                                2,803          12,980
    Accrued liabilities                                                           760,711         498,761
    Detachable warrant liabilities                                              2,501,517       8,911,086
    Conversion option liabilities                                                 903,709       4,079,890
    Senior convertible note payable, net of debt discount
        of $5,510,528 and $6,345,487 at December 31, 2008 and
        December 31, 2007, respectively                                         8,290,694       3,251,947
                                                                             ------------    ------------
       Total current liabilities                                               12,842,780      16,974,137
                                                                             ------------    ------------

     Commitments                                                                       --              --

STOCKHOLDERS' DEFICIT
    Preferred stock, no par value; 5,000,000 shares authorized;                        --              --
      no shares issued and outstanding
    Common stock, $.001 par; 200,000,000 shares authorized;
      70,827,775 and 65,042,374 shares issued and outstanding
      at December 31, 2008 and December 31, 2007, respectively                     70,828          65,043
    Additional paid-in capital                                                 60,259,217      56,303,256
    Accumulated deficit                                                       (71,228,180)    (70,198,321)
                                                                             ------------    ------------
       Total stockholders' deficit                                            (10,898,135)    (13,830,022)
                                                                             ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                  $  1,944,645    $  3,144,115
                                                                             ============    ============

         The accompanying notes are an integral part of these consolidated financial statements.

                                              F-3



<page>

                                        RAPTOR NETWORKS TECHNOLOGY, INC.
                                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                        FOR THE YEARS ENDED
                                                   DECEMBER 31,    DECEMBER 31,
                                                       2008            2007
                                                   ------------    ------------

REVENUE, NET                                       $    710,330    $  1,035,108
COST OF SALES                                           344,952         385,111
                                                   ------------    ------------

GROSS PROFIT                                            365,378         649,997
                                                   ------------    ------------

OPERATING EXPENSES
   Salary expense and salary related costs            1,807,752       2,596,537
   Marketing expense                                     73,121          97,237
   Research and development                             983,546       1,356,326
   Selling, general and administrative                2,300,546       2,998,641
                                                   ------------    ------------

    Total operating expenses                          5,164,965       7,048,741
                                                   ------------    ------------
Loss from operations                                 (4,799,587)     (6,398,744)
                                                   ------------    ------------

OTHER INCOME (EXPENSE)
   Interest income                                       11,175          23,298
   Change in fair value of warrants and
     conversion option liabilities                   21,622,243      18,956,186
   Senior convertible note restructuring charges             --      (2,089,284)
   Gain (loss) on extinguishment of debt             (5,182,474)     11,571,860
   Cost of financing senior convertible notes        (4,973,096)    (24,557,055)
   Amortization of discount on convertible debt      (6,127,968)     (6,073,669)
   Interest expense                                  (1,273,790)       (941,839)
   Loss from rendering possession of leased
     facility                                          (241,261)             --
   Loss on disposal of property and equipment           (65,101)             --
                                                   ------------    ------------

Total other income (expense)                          3,769,728      (3,110,503)
                                                   ------------    ------------

Loss before income taxes                             (1,029,859)     (9,509,247)
                                                   ------------    ------------
Income tax benefit                                           --              --
                                                   ------------    ------------

NET INCOME (LOSS)                                  $ (1,029,859)   $ (9,509,247)
                                                   ============    ============

Income (loss) per share - basic                    $      (0.02)   $      (0.16)
                                                   ============    ============

Weighted average number of shares
  outstanding - basic                                68,377,785      60,096,402
                                                   ============    ============

 The accompanying notes are an integral part of these consolidated financial statements.

                                      F-4



<page>

                                        RAPTOR NETWORKS TECHNOLOGY, INC.
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT



                                                 Common Stock          Additional                         Total
                                        ---------------------------     Paid-in       Accumulated     Stockholders'
                                           Shares         Amount        Capital         Deficit         Deficit
                                        ------------   ------------   ------------    ------------    ------------

Balance, December 31, 2006                54,360,096   $     54,360   $ 44,316,848    $(60,689,074)   $(16,317,866)
                                        ------------   ------------   ------------    ------------    ------------

Common stock issued upon
      cashless exercise of warrants        1,643,760          1,644         (1,644)             --              --

Common stock issued for cash
      upon exercise of warrants            2,332,647          2,333      1,089,302              --       1,091,635

Stock-based compensation                          --             --        360,058              --         360,058

Common stock issued upon conversion
      of February 2005 note                  397,748            398      1,391,722              --       1,392,120

Common stock issued upon conversions
      of senior convertible notes          6,208,123          6,208      8,801,580              --       8,807,788

Common stock issued upon conversion
      of common stock options                100,000            100         99,900              --         100,000

Beneficial conversion feature                     --             --         78,930              --          78,930

Valuation conversion related to
      issuance of warrants                        --             --        166,560              --         166,560

Net income for the year ended
      December 31, 2007                           --             --             --      (9,509,247)     (9,509,247)
                                        ------------   ------------   ------------    ------------    ------------

Balance, December 31, 2007                65,042,374         65,043     56,303,256     (70,198,321)    (13,830,022)
                                        ------------   ------------   ------------    ------------    ------------

Stock-based compensation                          --             --        216,978              --         216,978

Common stock issued in private
      placements                           4,375,000          4,375      3,201,875              --       3,206,250

Common stock issued upon conversion
      of senior convertible notes and
      accrued interest payable             1,410,401          1,410        537,108              --         538,518

Net income for the year ended
      December 31, 2008                           --             --             --      (1,029,859)     (1,029,859)
                                        ------------   ------------   ------------    ------------    ------------

Balance, December 31, 2008                70,827,775   $     70,828   $ 60,259,217    $(71,228,180)   $(10,898,135)
                                        ============   ============   ============    ============    ============

                 The accompanying notes are an integral part of these consolidated financial statements.


                                                       F-5



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        FOR THE YEARS ENDED
                                                    DECEMBER 31,    DECEMBER 31,
                                                        2008            2007
                                                    ------------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                         $ (1,029,859)   $ (9,509,247)
   Adjustments to reconcile net loss to net
    cash used in operating activities:
     Depreciation                                         51,607         174,179
     Amortization                                      6,135,050       6,192,909
     Change in fair value of conversion option
        and warrant liabilities                      (21,622,243)    (18,956,185)
     Loss (gain) on extinguishment of debt             5,182,474     (11,571,860)
     Stock-based compensation                            216,978         526,618
     Loss from rendering possession of leased
        facility                                         241,261              --
     Loss on sale of property and equipment               65,101              --
     Cost of financing senior convertible notes        4,973,096      26,761,964
     Change in inventory reserve                         (63,228)        101,468
     Interest expense converted to common stock               --           6,005
     Legal fees associated with convertible note
       financings                                        153,000              --
     Changes in operating assets and liabilities:
        Accounts receivable                              408,088        (142,791)
        Inventories                                       91,586         (90,838)
        Prepaid expenses and other assets                532,050         132,676
        Accounts payable and accrued liabilities         440,049         337,904
        Deferred revenue                                 (10,177)        (23,396)
                                                    ------------    ------------
Net cash used in operating activities                 (4,235,167)     (6,060,594)
                                                    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of property and equipment            2,750              --
   Purchase of property and equipment                     (4,950)        (45,160)
                                                    ------------    ------------
Net cash used in investing activities                     (2,200)        (45,160)
                                                    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock warrants                   --       1,106,501
   Proceeds from exercise of stock options                    --         100,000
   Net proceeds on convertible notes payable           3,347,000       5,030,693
                                                    ------------    ------------
Net cash provided by financing activities              3,347,000       6,237,194
                                                    ------------    ------------
Net (decrease) increase in cash and cash
  equivalents                                           (890,367)        131,440
CASH AT BEGINNING OF YEAR                                952,828         821,388
                                                    ------------    ------------
CASH AT END OF YEAR                                 $     62,461    $    952,828
                                                    ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest                           $    875,000    $         --
                                                    ============    ============
   Cash paid for income taxes                       $      3,200    $         --
                                                    ============    ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

Conversion of debt to equity                        $    171,212    $  3,921,765
                                                    ============    ============
Cashless exercise of warrants                       $         --    $      1,644
                                                    ============    ============
Common stock recorded as debt discount              $  3,206,250    $         --
                                                    ============    ============
Reduction of the conversion option liability
   upon conversion                                  $    151,933   $  6,079,443
                                                    ============    ============
Common stock issued for accrued interest payable    $    215,373    $    177,830
                                                    ============    ============
Debt issuance costs for accounts payable            $     40,113    $         --
                                                    ============    ============
Warrants issued for debt issuance costs             $         --    $     78,929
                                                    ============    ============

The accompanying notes are an integral part of these consolidated financial statements.


                                      F-6
</TABLE>



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007

    1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
             ------------------------------------------

DESCRIPTION
-----------
The Company is a provider of integrated high-speed Ethernet switching systems
which enable new emerging high bandwidth critical applications. The data network
market areas that the Company is targeting include video, storage, Internet
Protocol telephony, and technology refresh. The Company is currently focusing on
the United States market. Principal operations have commenced, although minimal
revenues have been recognized to date.

The Company was incorporated under the laws of the state of Colorado on January
22, 2001 under the name Pacific InterMedia, Inc. ("Pacific"). The principal
office of the corporation is 1508 South Grand Avenue, Suite 150, Santa Ana,
California 92705.

On October 17, 2003, Pacific completed a business combination transaction with
Raptor Networks Technology, Inc. ("Raptor"), a closely-held California
corporation, through acquisition of all of the issued and outstanding common
stock of Raptor in exchange for authorized but previously unissued restricted
Common Stock of Pacific. Immediately prior to completion of the acquisition
transaction, Pacific had a total of 4,034,000 shares of its Common Stock issued
and outstanding comprised of 1,034,000 registered shares held by approximately
25 stockholders and 3,000,000 shares of restricted stock held by Pacific's
founder and sole officer and director.

As a material aspect of the acquisition, Pacific re-acquired and cancelled the
3,000,000 restricted shares as consideration for transfer of its remaining
assets consisting of cash and office equipment to the officer and director,
leaving only the registered common stock, 1,034,000 shares, as all of its issued
and outstanding capital stock prior to completion of the Raptor acquisition.

Pursuant to terms of the acquisition agreement, all of the issued and
outstanding common stock of Raptor, 19,161,256 shares, was acquired by Pacific,
share-for-share, in exchange for its authorized but previously unissued common
stock. Upon completion of the acquisition, Raptor became a wholly owned
subsidiary of Pacific and the Raptor shareholders became shareholders of
Pacific. Unless otherwise indicated, all references in these financial
statements to "the Company" include Pacific and its wholly owned subsidiary,
Raptor. All intercompany transactions have been eliminated in consolidation. On
December 3, 2003, Pacific changed its name to Raptor Networks Technology, Inc.

The acquisition transaction has been treated as a reverse merger, with Raptor
considered the accounting acquirer. The Company's reporting year end was
subsequently changed from August 31 to December 31.

RECLASSIFICATIONS
-----------------
Certain previous year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no impact on net earnings,
financial position or cash flows.

USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates made by management include
the collectability of accounts receivable, the reliability of inventories, the
recoverability of long-lived assets, the valuation of stock-based compensation
and the valuation allowance of the deferred tax asset. Actual results could
differ from those estimates.

The Company has contracts with various governments and governmental agencies.
Government contracts are subject to audit by the applicable governmental agency.
Such audits could lead to inquiries from the government regarding the
allowability of costs under applicable government regulations and potential
adjustments of contract revenues. To date, the Company has not been involved in
any such audits.

CASH AND CASH EQUIVALENTS
-------------------------
The Company considers all short-term marketable securities with an original
maturity of three months or less to be cash equivalents.


                                      F-7



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------------------------------
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best estimate of
the amount of probable credit losses in the Company's existing accounts
receivable. The Company establishes provisions for losses on accounts receivable
when it is probable that all or part of the outstanding balance will not be
collected. The Company regularly reviews collectability and establishes or
adjusts the allowance as necessary using the specific identification method.

INVENTORIES
-----------
Inventories are recorded at the lower of cost or market with cost being
determined on the average cost method. When required, a provision is made to
reduce excess and obsolete inventory to estimated net realizable value.
Inventories at December 31, 2008 consist of raw materials, work in process and
finished goods.

LICENSE FEES
------------
The Company capitalizes software license fees of third party software which is
included in its systems. These costs are amortized and charged to cost of sales
over the projected number of systems expected to be sold incorporating the
capitalized software. Amortization of the license fees included in cost of sales
for the years ended December 31, 2008 and 2007 totaled $23,760 and $20,824,
respectively.

PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the assets'
estimated useful lives as follows: computer equipment, furniture and fixtures
and testing equipment are depreciated over three years; office equipment is
depreciated over seven years and leasehold improvements are depreciated over the
term of the lease. Repairs and maintenance of a routine nature are charged as
incurred. Significant renewals and betterments are capitalized. At the time of
retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the consolidated statements of operations.

DEBT ISSUANCE COSTS
-------------------
Debt issuance costs reflect fees incurred to obtain financing. Debt issuance
costs are amortized (included in interest expense) using the straight-line
method over the life of the related debt. Amortization expense for the years
ended December 31, 2008 and 2007 was $7,082 and $119,240 respectively. In
connection with the debt extinguishments in 2008, an additional $53,905 of debt
issuance costs were written off and are included in "loss on extinguishment of
debt" in the consolidated statement of operations for the year ended December
31, 2008.

CONVERTIBLE DEBENTURE AND BENEFICIAL CONVERSION FEATURE
-------------------------------------------------------
If the conversion feature of conventional convertible debt provides for a rate
of conversion that is below market value, this feature is characterized as a
beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a
debt discount pursuant to Emerging Issues Task Force ("EITF") Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingency Adjustable Conversion Ratio," and EITF Issue No. 00-27, "Application
of EITF Issue No. 98-5 to Certain Convertible Instruments." In those
circumstances, the convertible debt will be recorded net of the discount related
to the BCF. The Company amortizes the discount to interest expense over the life
of the debt using the straight-line method which approximates the effective
interest method.

DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
In accounting for non-conventional convertible debt, the Company bifurcates its
embedded derivative instruments and records them under the provisions of FAS
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
and EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock." The Company's
derivative financial instruments consist of embedded derivatives related to
non-conventional debentures entered into with certain investors. These embedded
instruments related to the debenture include the conversion feature, liquidated
damages related to registration rights and default provisions. The accounting
treatment of derivative financial instruments requires that the Company record
the derivatives and related warrants at their fair value as of the inception
date of the agreement and at fair value as of each subsequent balance sheet
date. Any change in fair value will be recorded as non-operating, non-cash
income or expense at each reporting period. If the fair value of the derivatives

                                      F-8



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007

is higher at the subsequent balance sheet date, the Company will record a
non-operating, non-cash charge. If the fair value of the derivative is lower at
the subsequent balance sheet date, the Company will record non-operating,
non-cash income.

EXTINGUISHMENT OF DEBT
----------------------
The Company accounts for modifications of the terms of its convertible debt
pursuant to EITF Issue No. 96-19, "Debtor's Accounting for a Modification or
Exchange of Debt Instruments" and EITF Issue No. 06-6, "Debtor's Accounting for
a Modification (or Exchange) of Convertible Debt Instruments." A modification of
debt is considered substantial if any of the following criteria are met:

    1.   The present value of the cash flows under the terms of the new debt
         instrument is at least 10% different from the present value of the
         remaining cash flows under the terms of the original instrument;
    2.   The fair value of the embedded conversion option immediately before and
         after the modification is at least 10% of the carrying amount of the
         original debt instrument immediately prior to the modification; or
    3.   The modification adds a substantive conversion option or eliminates a
         conversion option that was substantive at the date of the modification.

Modifications of debt that are considered substantial are accounted for as an
extinguishment of debt whereby the new debt instrument is initially recorded at
fair value. The change in the fair value plus any fees paid or received
associated with the old debt instrument are recorded as gain or loss on the
extinguishment debt and are included in other income (expense) in the statements
of operations. If the modification is not substantial, a new effective rate is
calculated and any fees paid or received associated with the old debt are
amortized as an adjustment of interest expense over the remaining term of the
debt.

REVENUE RECOGNITION
-------------------
The Company records revenues when the following criteria are met: (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price
to the customer is fixed or determinable; and (iv) collection of the sales price
is reasonably assured. Delivery occurs when goods are shipped and title and risk
of loss have passed to the customer. Revenue is deferred in all instances where
the earnings process is incomplete. The Company recognizes revenue from
distribution sales when all contingencies are satisfied and upon persuasive
evidence of a sale to end users until such time that historical sell through
ratios have been developed. Payments received before all of the relevant
criteria for revenue recognition are satisfied are recorded as deferred revenue
in the accompanying consolidated balance sheets. Revenues and costs of revenues
from consulting contracts are recognized during the period in which the service
is performed. All revenues are reported net of any sales discounts or taxes.

MARKETING COSTS
---------------
Marketing costs are expensed as incurred. For the years ended December 31, 2008
and 2007, marketing costs were $73,121 and $97,237, respectively.

RESEARCH AND DEVELOPMENT COSTS
------------------------------
Research and development (R&D) costs consist of labor, product design costs
including rental of design tools, consumables, and costs of prototypes and are
expensed as incurred.

COMPENSATED ABSENCES
--------------------
The Company maintains a personal time off policy. Employees of the Company are
entitled to compensated absences depending on their length of service to a
maximum of 25 days per calendar year. As of December 31, 2008 and 2007, the
balance owed for compensated absences was $47,403 and $120,108, respectively.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
-------------------------------------------
The Company reviews its long-lived assets and certain related intangibles for
impairment periodically, and whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. When
necessary, impaired assets are written down to estimated fair value based on the
best information available. Estimated fair value is generally based on either
appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.
The Company disposed of a significant amount of its assets during the year ended
December 31, 2008. Consequently, there were no assets that were considered to be
impaired as of December 31, 2008.

                                      F-9



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


INCOME TAXES
------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("FAS 109"), ACCOUNTING FOR INCOME TAXES and
Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"),
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES--AN INTERPRETATION OF FASB STATEMENT
NO.109. Under the asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates for the periods in
which the differences are expected to reverse. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

The Company records a valuation allowance if based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax asset
will not be realized. In determining the possible realization of deferred tax
assets, the Company considers future taxable income from the following sources:
(i) the reversal of taxable temporary differences, (ii) taxable income from
future operations and (iii) tax planning strategies that, if necessary, would be
implemented to accelerate taxable income into periods in which net operating
losses might otherwise expire.

FIN 48 prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The amount recognized is measured as the largest amount of benefit
that has a greater than 50 percent likelihood of being realized upon ultimate
settlement. If recognized, the tax portion of the adjustment would affect the
effective tax rate.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such instruments.

STOCK-BASED COMPENSATION
------------------------
The Company accounts for stock-based compensation using the fair value
recognition provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123 (revised 2004), "Shared Based Payment" ("FAS 123(R)") using the
Black-Scholes Option pricing model. Under SFAS No. 123(R), all stock-based
compensation cost is measured at the grant date using the Black-Sholes Option
Pricing Model, based on the fair value of the award. The value of the portion of
the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the Company's consolidated statements of
operations.

The fair value of options granted was calculated based upon the following
weighted-average assumptions for the year ended:

                                     December 31, 2008         December 31, 2007
                                     -----------------         -----------------

              Dividend Yield                      0.0%                      0.0%
              Risk-Free Interest Rate            2.84%                     4.49%
              Expected Life                 5.00 years                3.00 years
              Expected Volatility              111.57%                   114.82%

Stock-based compensation expense recognized during the period is based on the
value of the portion of share-based payment awards that is ultimately expected
to vest during the period. SFAS 123(R) requires forfeitures to be estimated at
the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The forfeiture rate that the Company
presently uses is 0%.

SFAS No. 123(R) requires the cash flows resulting from the tax benefits
resulting from tax deductions in excess of the compensation cost recognized for
those options to be classified as financing cash flows. Due to the Company's
loss position, there were no such tax benefits for the years ended December 31,
2008 and 2007.

                                      F-10



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


NET LOSS PER COMMON SHARE
-------------------------
The Company computes net loss per common share in accordance with SFAS No. 128,
"Earnings per Share," and Staff Accounting Bulletin N. 98 ("SAB No. 98"). Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share gives effect to
common stock equivalents; however, potential common shares are excluded if their
effect is anti-dilutive. For the years ended December 31,2008 and December 31,
2007, basic and diluted earnings per share were the same.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards Statement No. 157, "Fair Value
Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The provisions of FAS 157
were adopted January 1, 2008. In February 2008, the FASB staff issued FASB Staff
Position (FSP") No. 157-2 "Effective Date of FASB Statement No. 157" ("FSP FAS
157-2"). FSP FAS 157-2 delayed the effective date of FAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The provisions of FSP FAS 157-2 are effective for the Company's
fiscal year beginning January 1, 2009. The Company has not yet determined the
impact the adoption of FSP FAS 157-2 will have on its results or operations,
financial position or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("FAS 159"). FAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value, with the objective of improving financial reporting by mitigating
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The provisions of FAS 159 were adopted January 1, 2008. The Company
did not elect the fair value option for any of its financial assets or
liabilities, and therefore, the adoption of FAS 159 had no impact on the
Company's consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161 ("FAS 161"), DISCLOSURES ABOUT
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT
NO. 133. FAS 161 establishes disclosure requirements for derivative instruments
and hedging activities and amends and expands the disclosure requirements of
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and of
gains and losses on derivative instruments and disclosures about credit-risk
related contingent features in derivative agreements. FAS 161 is effective for
fiscal years and interim periods beginning after November 15, 2008. Disclosures
for earlier periods presented for comparative purposes at initial adoption are
encouraged, but not required. In the years after initial adoption, comparative
disclosures are required only for periods subsequent to initial adoption. The
Company has not yet determined the impact the adoption of FAS 161 will have on
its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162 ("FAS 162"), THE HIERARCHY OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. FAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements that are presented in accordance with
accounting principles generally accepted in the United States of America. FAS
162 was effective November 15, 2008. The adoption of FAS 162 did not have a
material impact on the Company's consolidated financial statements.

PRESENTATION AS A GOING CONCERN
-------------------------------
The accompanying condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
The Company has sustained net losses of $1,029,859 and $9,509,247 for the years
ended December 31, 2008 and December 31, 2007, respectively. Net cash used in
operations for the year ended December 31, 2008 was $4,235,167. The Company also
has an accumulated deficit of $71,228,180 and a working capital deficit of
$11,115,786 at December 31, 2008, of which $3,405,226 relates to the fair value
of derivative financial instruments. In September 2008 the Company shifted its
principal operating model from product development to licensing enabling a
reduction in headcount, footprint and infrastructure reducing expense run rates
substantially. There can be no assurance that this shift in business model will
be successful.

                                      F-11



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


The items discussed above raise substantial doubts about the Company's ability
to continue as a going concern. If the Company's financial resources are
insufficient, the Company may require additional financing in order to execute
its operating plan and continue as a going concern. The Company cannot predict
whether this additional financing will be in the form of equity, debt or another
form. The Company may not be able to obtain the necessary additional capital on
a timely basis, on acceptable terms, or at all. Should financing sources fail to
materialize, management would seek alternate funding sources such as the sale of
common and/or preferred stock, the issuance of debt or other means. The Company
plans to attempt to address its working capital deficiency by increasing its
sales, maintaining strict expense controls and seeking strategic alliances.

In the event that these financing sources do not materialize, or the Company is
unsuccessful in increasing its revenues and profits, the Company will be forced
to further reduce its costs, may be unable to repay its debt obligations as they
become due, or respond to competitive pressures, any of which circumstances
would have a material adverse effect on its business, prospects, financial
condition and results of operations. Additionally, if these funding sources or
increased revenues and profits do not materialize, and the Company is unable to
secure additional financing, the Company could be forced to reduce or curtail
its business operations unless it is able to engage in a merger or other
corporate finance transaction with a better capitalized entity.

The financial statements do not include any adjustments relating to the
recoverability and reclassification of recorded asset amounts or amounts and
reclassification of liabilities that might be necessary, should the Company be
unable to continue as a going concern.

    2.       FAIR VALUE OF FINANCIAL INSTRUMENTS
             -----------------------------------

FAS 157 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under FAS 157 are described below:

        Level 1    Unadjusted quoted prices in active markets that are
                   accessible at the measurement date for identical,
                   unrestricted assets or liabilities;
        Level 2    Quoted prices in markets that are not active, or inputs
                   that are observable, either directly or indirectly, for
                   substantially the full term of the asset or liability; and
        Level 3    Prices or valuation techniques that require inputs that are
                   both significant to the fair value measurement and
                   unobservable (supported by little or no market activity).

The following table sets forth the Company's financial assets and liabilities
measured at fair value by level within the fair value hierarchy. As required by
FAS 157, assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair values of the Company's
financial assets and liabilities as of December 31, 2008:

<TABLE>
<S> <C>
                                             Total         Level 1         Level 2       Level 3
                                          -----------   -------------   ------------   -----------

         ASSETS:

         Cash equivalents                 $    10,118   $      10,118   $         --   $        --
                                          -----------   -------------   ------------   -----------

                                          $    10,118   $      10,118   $         --   $        --
                                          ===========   =============   ============   ===========

         LIABILITIES:

         Conversion option liabilities    $   903,709   $          --   $         --   $   903,709

         Detachable warrant liabilities     2,501,517              --             --     2,501,517
                                          -----------   -------------   ------------   -----------

                                          $ 3,405,226   $          --   $         --   $ 3,405,226
                                          ===========   =============   ============   ===========
</TABLE>

                                      F-12



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


The Company's cash instrument is classified within Level 1 of the fair value
hierarchy because it is valued using quoted market prices. The cash instrument
that is valued based on quoted market prices in active markets are primarily
money market securities and U.S. Treasury securities.

The Company's detachable warrant and conversion option liabilities are valued
using pricing models and the Company generally uses similar models to value
similar instruments. Where possible, the Company verifies the values produced by
its pricing models to market prices. Valuation models require a variety of
inputs, including contractual terms, market prices, yield curves, credit
spreads, measures of volatility and correlations of such inputs. These financial
liabilities do not trade in liquid markets, and as such, model inputs cannot
generally be verified and do involve significant management judgment. Such
instruments are typically classified within Level 3 of the fair value hierarchy.


    3.       PROPERTY AND EQUIPMENT
             ----------------------

 Property and equipment consisted of the following at:


                                           December 31, 2008   December 31, 2007
                                           -----------------   -----------------
          Furniture and office equipment   $         126,962   $         203,280
          Computer equipment                         214,773             214,773
          Testing equipment                          625,395             620,445
          Finished goods                             113,317             113,317
                                           -----------------   -----------------
                                                   1,080,447           1,151,815
          Less: Accumulated depreciation           1,041,414             998,274
                                           -----------------   -----------------
          Property and equipment, net      $          39,033   $         153,541
                                           =================   =================

Depreciation and amortization expense related to property and equipment for the
years ended December 31, 2008 and 2007 was $51,607 and $174,181, respectively.

    4.       INVENTORIES
             -----------

Inventories consisted of the following at:

                                           December 31, 2008   December 31, 2007
                                           -----------------   -----------------
          Raw materials                    $         631,280   $         628,386
          Work in process                                 --              59,522
          Finished goods                             422,880             457,838
                                           -----------------   -----------------
                                                   1,054,160           1,145,746
          Less: Allowance for obsolescence           141,530             204,758
                                           -----------------   -----------------
          Inventory, net                   $         912,630   $         940,988
                                           =================   =================

    5.       SECURITIES PURCHASE AGREEMENTS
             ------------------------------

The Company entered into four separate securities purchase agreements (the "2006
SPA," the "2007 SPA," the "April 2008 SPA" and the "July 2008 SPA," collectively
the "SPAs") with three institutional investors in connection with private
placement transactions that provided for, among other things, the issuance of
senior convertible notes (the "2006 Notes," the "2007 Notes," the "April 2008
Notes" and the "July 2008 Notes," collectively the "Notes"), warrants to
purchase shares of common stock (the "2006 Warrants," the "2007 Warrants," "the
April 2008 Warrants," the "July 2008 Warrants" and the "Replacement Warrants,"
collectively the "Warrants") and the issuance of common stock (the "March 2008
Stock" and the "July 2008 Stock"). Following is a summary of the securities
issued pursuant to the terms of the SPAs.


                                      F-13



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


<TABLE>
<S>     <C>
                                                                    Numbers of
                                        Principal     Series of      Warrants        Shares of
                         Date of        Amount of     Warrants    Issued to the    Common Stock
    Transaction         Financing         Notes        Issued       Investors         Issued
------------------   ----------------  ------------  ----------  ----------------  ------------

     2006 SPA        July 30, 2006(1)   $ 8,804,909   L and M      39,797,031                 -
     2007 SPA        July 31, 2007        3,500,000  N, O and P     6,047,886                 -
  April 2008 SPA     April 1, 2008        3,125,000      Q          6,250,000         3,125,000
  July 2008 SPA      July 28, 2008        1,250,000      R          8,750,000 (2)     1,250,000
                                       ------------              ----------------  ------------

                                       $ 16,679,909                60,844,917         4,375,000
                                       ============              ================  ============
</TABLE>

(1) The information presented reflects the January 22, 2007 amendment.
(2) Includes 2,500,000 Series R warrants and 6,250,000 Replacement Warrants.


The Company allocated the proceeds of the April 2008 and July 2008 Notes to the
individual financial instruments included in the transactions based on their
relative estimated fair values as follows:

<TABLE>
<S> <C>
                                                     April 2008    July 2008      Total
                                                     -----------  -----------  -----------

        Total proceeds                               $ 3,125,000  $ 1,250,000  $ 4,375,000
                                                     -----------  -----------  -----------

        Debt discount:
             Common stock                              2,531,250      675,000    3,206,250
             Warrants                                  2,993,750      856,750    3,850,500
             Conversion option                         1,002,813      142,500    1,145,313
                                                     -----------  -----------  -----------

                                                       6,527,813    1,674,250    8,202,063
             Allocation to debt discount              (3,125,000)  (1,250,000)  (4,375,000)
                                                     -----------  -----------  -----------

        Cost of financing senior convertible notes   $ 3,402,813  $   424,250  $ 3,827,063
                                                     ===========  ===========  ===========
</TABLE>

The fair value of the common stock was based on the closing market price of the
Company's common stock on the date of the transactions. The fair values of the
warrants and conversion options were based on the Black-Scholes Option pricing
model. All of the SPAs require the Company to maintain authorized shares of at
least 130% of the sum of the maximum number of common shares issuable upon
conversion of the Notes and upon exercise of the Warrants.

All of the SPAs contain registration rights agreements which require the Company
to file registration statements with the SEC for the resale of the shares of
common stock underlying all of the Notes, Warrants and common stock issued. The
Company is required to maintain the effectiveness of the registration statements
through the latest date at which the Notes can be converted or the Warrants can
be exercised. Notwithstanding other remedies available under the SPAs, the
Company will be required to pay liquidated damages equal to 2% of the principal
amount of the Notes on the date of failure and 2% of the principal amount of the
Notes every 30th day thereafter (or for a pro rated period if less than 30 days)
for failure to timely file the registration statements or have them declared
effective by the SEC and failure to maintain the effectiveness of the
registration statements, subject to certain grace periods. Any liquidated
damages not paid timely will accrue interest at the rate of 2% per month.
Registration penalties under SPAs are capped at 12.5% of the principal amount of
the respective Notes. The maximum registration penalties under the Notes are as
follows:


                                      F-14



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


                                              Maximum
                                           Registration
                         Transaction          Penalty
                     -------------------   ------------

                           2006 SPA        $  1,100,614
                           2007 SPA             437,500
                        April 2008 SPA          390,625
                        July 2008 SPA           156,250
                                           ------------

                                           $  2,084,989
                                           ============

The Company accounts for its registration rights agreements pursuant to FPS EITF
Issue No. 00-19-2, which requires the Company to assess its potential liability
with respect to registration rights agreements according to FAS 5. On May 29,
2008, the investors agreed to delay payments in connection with the registration
rights agreement contained in the April 2008 SPA and the registration of the
shares underlying the L-1 and L-2 warrants. The deadline has been indefinitely
extended by the investors. As such, no liability related to the registration
rights agreements has been recorded in the accompanying consolidated financial
statements.

Significant events of default under the SPAs include:

         o    The failure of any registration statement to be declared effective
              by the SEC within 60 days after the date required by the
              applicable registration rights agreement or the lapse or
              unavailability of such registration statement for more than 10
              consecutive days or more than an aggregate of 30 days in any
              365-day period (other than certain allowable grace periods).

         o    The failure to issue unlegended certificates within 3 trading days
              after the Company receives documents necessary for the removal of
              the legend.

In January 2007, the Company amended the 2006 SPA (the "2006 Amended SPA"). The
amendments included, but were not limited to, a waiver of all fees, penalties
and defaults as of January 19, 2007 which related to registration statement
filing failures and/or effectiveness failures, as described in the 2006 SPA, an
increase in the principal amount of the 2006 Notes from an aggregate of $5
million to an aggregate of $7.2 million, issuance of an additional 5,688,540 of
2006 Warrants which increased the aggregate number of shares of common stock
issuable upon exercise of the Series L-1 Warrants from an aggregate of
17,065,623 shares to an aggregate of 22,754,163 shares, and a reduction in the
exercise price of the Series L-1 Warrants and the Series M-1 Warrants from
$0.5054 per share to $0.43948 per share. The Company did not receive any
additional cash consideration for these amendments.

Additionally, pursuant to the terms of the 2006 Amended SPA, the Company entered
into a Securities Purchase Agreement with one of the existing institutional
investors in a private placement transaction providing for, among other things,
the issuance of senior convertible notes (the "2006 Amended Notes) in the
principal amount of $1.6 million, Series L-2 Warrants to purchase up to
7,281,332 shares of common stock and Series M-2 Warrants to purchase up to
2,366,433 shares of common stock. The Series L-2 Warrants were immediately
exercisable. The Series M-2 warrants were to become exercisable only upon a
mandatory conversion of the 2006 Notes, as defined in the 2006 Notes. Both the
Series L-2 Warrants and Series M-2 Warrants have an exercise price of $0.43948
per share and expire on July 31, 2011.

The April 2008 SPA amended the 2007 Notes and the 2007 Warrants. Pursuant to the
2008 SPA, the conversion price of the 2007 Notes and the exercise price of the
2007 Warrants were reduced from $1.20 to $0.50. The April 2008 SPA had no effect
on the 2006 Notes. The July 2008 SPA amended the exercise price of the Series Q
warrants from $1.00 to $0.50.

Since the modifications of the 2006 Notes, the 2007 Notes and the Series Q
warrants resulted in terms that, pursuant to EITF Issue No. 96-19, "Debtor's
Accounting for a Modification or Exchange of Debt Instruments" and EITF Issue
No. 06-6, "Debtor's Accounting for a Modification (or Exchange) of Convertible
Debt Instruments," were substantially different from the terms of the previous
2006 Notes, the modification was recorded as an extinguishment of debt. After
eliminating all liabilities related to the 2006 and 2007 SPAs and adjusting the
fair value of the Series Q warrants to reflect the reduced exercise price, a
loss $5,182,474 and a gain of $11,571,860, respectively, were recorded in the
consolidated statements of operations for the years ended December 31, 2008 and
2007, respectively.

                                      F-15



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


The April 2008 SPA also amended the terms of the Series M-1 and M-2 warrants to
eliminate the contingency provisions and therefore, the Series M-1 and Series
M-2 warrants became immediately exercisable upon the effective date of the 2008
SPA. Pursuant to EITF Issue No. 96-19, the modifications to these warrants were
not considered substantial and the Company did not record any gain or loss
related to the amendments. However, the Company recorded under "cost of
financing" the portion of expense related to the warrants that became
immediately exercisable of $1,146,033 for the year ended December 31, 2008.

The conversion price of the Notes and the exercise price of the Warrants are
subject to customary anti-dilution provisions for stock splits and the like, and
are also subject to full-ratchet anti-dilution protection such that if the
Company issues or is deemed to have issued certain securities at a price lower
than the then applicable conversion or exercise price, then the conversion or
exercise price will immediately be reduced to such lower price.

The Notes and the Warrants contain certain limitations on conversion or
exercise, including that a holder of those securities cannot convert or exercise
those securities to the extent that upon such conversion or exercise, that
holder, together with the holder's affiliates, would own in excess of 4.99% of
the Company's outstanding shares of common stock (subject to an increase or
decrease, upon at least 61-days' notice, by the investor to the Company, of up
to 9.99%).

Notes
-----

Information relating to the Notes is as follows:
<TABLE>
<S>     <C>
                                                                                               Unamortized    Carrying
                                                          Initial     Current    Note Balance    Discount       Value
                                   Interest                Fixed       Fixed         as of        as of         as of
                       Principal     Rate     Maturity   Conversion  Conversion  December 31,  December 31,  December 31,
    Transaction          Amount    (4), (5)     Date       Price       Price         2008          2008          2008
-------------------   ----------- ----------  ---------  ----------  ----------  ------------  ------------  ------------

2006 Notes(1)         $ 8,804,909   9.25%(3)  7/31/2008    $ 0.44      $ 0.44    $  5,926,222  $          -  $  5,926,222
2007 Notes(2)           3,500,000   9.25%      8/1/2010    $ 1.20      $ 0.50       3,500,000    (2,375,000)    1,125,000
April 2008 Notes(6)     3,125,000  10.00%     3/31/2010    $ 1.00      $ 1.00       3,125,000    (2,145,945)      979,055
July 2008 Notes(6)      1,250,000  10.00%     7/28/2010    $ 1.00      $ 1.00       1,250,000      (989,583)      260,417
                      -----------                                                ------------  ------------  ------------
                      $16,679,909                                                $ 13,801,222  $ (5,510,528) $  8,290,694
                      ===========                                                ============  ============  ============
</TABLE>

(1)  All information presented reflects amendments made in January (2007.)

(2)  Fixed conversion price reflects the effect of anti-dilution provision as a
     result of the April 2008 SPA.

(3)  The interest rate may be reduced to 7.00% at the beginning of each quarter
     if certain conditions are met. No such conditions have been met to date.

(4)  The interest rates increase to 15.00% upon the occurrence of an event of
     default.

(5) Interest is calculated on the basis of a 360 day year.

(6)  All interest due under the April 2008 Notes and July 2008 Notes was
     deducted from the proceeds. Prepaid interest is reflected in the
     accompanying balance sheet as of September 30, 2008 as follows:


                                      F-16



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


                                        Current       Long-term         Total
                                      ------------   ------------   ------------
            April 2008 Notes          $    312,500   $     78,125   $    390,625
            July 2008 Notes                125,000         72,917        197,917
                                      ------------   ------------   ------------
                                      $    437,500   $    151,042   $    588,542
                                      ============   ============   ============

The Company may elect to make monthly installment payments in cash or in shares
of the Company's common stock.

The maturity date of the Notes may be extended at the option of the investors so
long as there is not an event of default. The investor in $5,922,946 of the 2006
Notes has deferred the required monthly payments and/or conversions beginning
with the payment due in June 2007 for a period of 2 years such that the next
payment will be due in June 2009. The investors in $2,881,963 of the 2006 Notes
have deferred the required monthly payment and/or conversions beginning with the
July 2007 payment such that the next payment was due in October 2008.

Despite the maturity dates and past deferrals of required payments and/or
conversions, the Notes are classified as current liabilities in the accompanying
consolidated balance sheets because the investors have the right to accelerate
conversion of the Notes up to an amount equal to 20% of the aggregate dollar
trading volume of the Company's common stock over the prior 20 trading day
period. In addition, the Company has the right to call a forced conversion under
certain conditions.

The 2006 and 2007 Notes are convertible into shares of common stock at the
option of the holder at the lower of the fixed conversion price or the optional
conversion price, defined as 90% of the arithmetic average of the
weighted-average price of the common stock for the 5 consecutive trading days
immediately preceding the conversion date. However, if the weighted average
price for the 20 trading days preceding the date of conversion exceeds $1.00,
the conversion price is computed as 92.5% of the weighted average price of the
common stock for the 5 consecutive trading days immediately preceding the
conversion date. However, the Company may, at its option, redeem in cash, up to
an amount equal to 20% of the aggregate dollar trading volume of the Company's
common stock over the prior 20-trading day period on the 2007 Notes.

Subject to certain conditions, the Company may require the investors to convert
up to 50%, of the 2006 Notes after the SEC has declared effective the initial
registration statement at any time when the shares of the Company's common stock
are trading at or above 150% of the initial conversion price or convert up to
100%, of the notes after the SEC has declared effective the initial registration
statement at any time when the shares of the Company's common stock are trading
at or above 175% of the initial conversion price. The 2006 Notes contain certain
limitations on optional and mandatory conversion.

The entire outstanding principal balance of the 2007 Notes and any outstanding
fees or interest shall be due and payable in full on the maturity date. Interest
is payable quarterly, beginning October 1, 2007. Under certain conditions, the
Company may require investors to convert up to either 50% or 100% of the
outstanding balances of the 2007 Notes at any time the Company shares are
trading at or above $1.80 or $2.11, respectively


                                      F-17



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


The April 2008 Notes are convertible into shares of common stock at the lower of
the fixed conversion price or the optional conversion price, defined as 85% of
the arithmetic average of the weighted-average price of the common stock for the
5 consecutive trading days immediately preceding the conversion date. However,
following the disclosure of an SEC event, as defined in the April 2008 Notes,
the conversion price will be computed using the lowest of (i) 50% of arithmetic
average of the weighted average price for the 30 trading days preceding the date
of conversion; (ii) 50% of the closing price of the common stock on the trading
day preceding the date of conversion; or (iii) 50% of the closing price of the
common stock on the date preceding the SEC event.

The July 2008 Notes are convertible into shares of common stock at the lower of
the fixed conversion price or the optional conversion price, defined as the
lesser of (i) 85% of the arithmetic average of the weighted-average price of the
common stock for the 30 consecutive trading days immediately preceding the
conversion date and (ii) 85% of the arithmetic average of the weighted-average
price of the common stock for the 3 lowest trading days during the 30
consecutive trading days immediately preceding the conversion date. However,
following the disclosure of an SEC event, as defined in the April 2008 Notes,
the conversion price will be computed using the lowest of (i) 50% of the amounts
determined as above; (ii) 50% of the closing price of the common stock on the
trading day preceding the date of conversion; or (iii) 50% of the closing price
of the common stock on the date preceding the SEC event.

The Notes are secured by a first priority perfected security interest in all of
the Company's assets and the common stock of the Company's subsidiary.
Additionally, the Notes are guaranteed by the Company's subsidiary.

Significant events of default under the Notes include:

         o    The failure of any registration statement to be declared effective
              by the SEC within 60 days after the date required by the
              applicable registration rights agreement or the lapse or
              unavailability of such registration statement for more than 10
              consecutive days or more than an aggregate of 30 days in any
              365-day period (other than certain allowable grace periods).

         o    The suspension from trading or failure of the common stock to be
              listed for trading on the OTC Bulletin Board or another eligible
              market for more than 5 consecutive trading days or more than an
              aggregate of 10 trading days in any 365-day period.

         o    The failure to issue shares upon conversion of the Notes or for
              more than 10 business days after the relevant conversion date or a
              notice of the Company's intention not to comply with a request for
              conversion.

         o    The Company's failure to pay any amount of principal, interest,
              late charges or other amounts when due.

If there is an event of default, the investors have the right to redeem all or
any portion of the Notes, at the greater of (i) up to 125% of the sum of the
outstanding principal, interest and late fees, depending on the nature of the
default, and (ii) the product of (a) the greater of (1) the closing sale price
for the Company's common stock on the date immediately preceding the event of
default, (2) the closing sale price for the Company's common stock on the date
immediately after the event of default and (3) the closing sale price for the
Company's common stock on the date an investor delivers its redemption notice
for such event of default, multiplied by (b) 130% of the number of shares into
which the notes (including all principal, interest and late fees) may be
converted.

In the event of a default or upon the occurrence of certain fundamental
transactions as defined in the 2007 Notes, the investors will have the right to
require the Company to redeem the 2007 Notes at a premium. In addition, at any
time on or after August 1, 2010, the investors may accelerate the partial
payment of the 2007 Notes by requiring that the Company convert at the lower of
the then conversion price or a 7.5% or 10.0% discount to the recent volume
weighted average price of the Company's common stock, or at the option of the
Company, redeem in cash, up to an amount equal to 20% of the aggregate dollar
trading volume of the Company's common stock over the prior 20-trading day
period.

                                      F-18



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


Warrants
--------

In connection with the SPAs, the Company issued detachable warrants as follows:

<TABLE>
<S>     <C>
                                                                                          Fair Value of
                  Initial                                                    Warrants        Warrant
                 Number of   Initial     Current              Additional   Outstanding   Liability as of
   Series of      Warrants   Exercise    Exercise               Warrant     at December   December 31,
   Warrants       Issued      Price       Price      Term(4)   Grants(6)     31, 2008         2008
---------------  ----------  --------  -----------  --------  -----------  ------------  ---------------

L-1(1)           22,754,163   $0.505    $ 0.439      7 years  $         -    22,754,163  $       841,306
L-2(1)            7,281,332   $0.505    $ 0.439      7 years            -     7,281,332          269,409
M-1(1),(3)        7,395,103   $0.505    $ 0.439      7 years            -     7,395,103          273,619
M-2(1)            2,366,433   $0.505    $ 0.439      7 years            -     2,366,433           87,558
N(2)              2,909,636   $1.203    $ 0.500      7 years    4,090,364     7,000,000          302,400
O(2),(5)          1,891,263   $1.203    $ 0.500      7 years    2,658,737     4,550,000              N/A
P(2)              1,246,987   $1.203    $ 0.500      7 years    1,753,013     3,000,000          129,600
Q(8)              6,250,000   $1.000    $ 0.500(7)   7 years            -     6,250,000          426,875
R                 2,500,000   $0.500    $ 0.500      7 years            -     2,500,000          170,750
Replacement (9)   6,250,000   $1.000    $ 1.000      7 years            -     6,250,000              N/A
                 ----------                                   -----------  ------------  ---------------

                 60,844,917                                   $ 8,502,114    69,347,031  $     2,501,517
                 ==========                                   ===========  ============  ===============
</TABLE>

(1) All information presented reflects amendments made in January (2007)
(2) Current exercise price reflects the effect of anti-dilution provision as a
    result of the April 2008 SPA
(3) The 2008 SPA modified the warrants to eliminate the contingency provision.
(4) The term begins as of the effective date of the registration statement.
(5) These fair value of the O warrants has not yet been recorded since the
    contingency provisions have not been met.
(6) Additional warrants were granted due to the anti-dilution provisions in the
    2007 SPA.
(7) Exercise price is the lesser of $0.50 or 75% of the lowest of the following:
         (i)       The average of the dollar volume-weighted average price of
                   the stock for the 15 consecutive trading days immediately
                   following the public disclosure of an event of default;
         (ii)      The lowest of the dollar volume-weighted average price of the
                   stock during the 30 consecutive trading days ending on the
                   date of exercise;
         (iii)     The average of the dollar volume-weighted average price of
                   the stock for the 3 consecutive trading days immediately
                   preceding the date of exercise; or
         (iv)      The average of the dollar volume-weighted average price of
                   the stock for the 3 consecutive trading days immediately
                   following the date of exercise.
(8) Exercise price was amended by July 2008 SPA.
(9) The Replacement Warrants are expercisable on a one-to-one basis as the
    Series Q warrants are exercised.

                                      F-19



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


The holders' rights to exercise the 9,761,536 Series M warrants was contingent
on a mandatory conversion of the 2006 Notes at the option of the Company. A
mandatory conversion for a portion of the 2006 Notes took place on July 30, 2007
entitling investors to exercise up to 7,646,361 M warrant shares. The 2008 SPA
contained a provision which removed the contingency on the remaining M warrants
such that they are immediately exercisable. The Company recognized $1,146,063 of
expense related to the M warrants for the nine months ended September 30, 2008.
The value of the M warrants was measured at fair value on January 18, 2007 using
the Black-Scholes option pricing model. The Replacement Warrants are exercisable
on a one-for-one basis for every Series Q warrant exercised.

Since conversion of the Series O warrants is contingent on a mandatory
conversion of the 2007 Notes and since the exercise of the Replacement Warrants
is contingent on the exercise of the Series Q warrants, the total charge was
measured as of the date of issuance of the Series O warrants and the Replacement
Warrants. In accordance with EITF Issue No. 98-5, this charge will not be
recognized until the mandatory conversion "contingency" has been satisfied. The
fair values of the Series O warrants and Replacement Warrants at inception were
$1,493,341 and $2,725,625, respectively.

The fair value of the conversion options and the detachable warrant liabilities
were calculated using the Black-Scholes Option Pricing Model with the following
assumptions for the year ended:

<TABLE>
<S> <C>
                                             December 31, 2008                            December 31, 2007
                           ----------------------------------------------------    ------------------------------
                              2006          2007       April 2008     July 2008
                             Notes         Notes         Notes         Notes        2006 Notes       2007 Notes
                           ----------    ----------    ----------    ----------    -------------    -------------

Stock price                $     0.14    $     0.14    $     0.14    $     0.14    $        0.67    $        0.67
Exercise price             $     0.44    $     0.50    $     1.00    $     1.00    $        0.44    $        1.21
Expected life (in years)         0.75          1.50          1.26          1.26             0.60             0.60
Volatility                     165.61%       131.21%       138.78%       138.78%           79.27%           79.27%
Risk-free rate of return         0.32%         0.57%         0.47%         0.47%            3.46%            3.46%
Expected dividend yield          0.00%         0.00%         0.00%         0.00%            0.00%            0.00%


                                             December 31, 2008                            December 31, 2007
                           ----------------------------------------------------    ------------------------------
                              2006          2007       April 2008     July 2008
                            Warrants      Warrants      Warrants      Warrants     2006 Warrants    2007 Warrants
                           ----------    ----------    ----------    ----------    -------------    -------------

Stock price                $     0.14    $     0.14    $     0.14    $     0.14    $        0.67    $        0.67
Exercise price             $     0.44    $     0.50    $     0.50    $     0.50    $        0.44    $        1.21
Expected life (in years)         0.75          1.50          2.76          2.76             0.60             0.60
Volatility                     165.61%       131.21%       124.11%       124.11%           79.27%           79.27%
Risk-free rate of return         0.32%         0.57%         0.94%        94.00%            3.46%            3.46%
Expected dividend yield          0.00%         0.00%         0.00%         0.00%            0.00%            0.00%


                                      F-20



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


Activity in the 2006 Notes and 2006 Warrants was as follows:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------
Balance at July 31, 2006 (inception)           $  5,000,000    $ (5,000,000)   $  3,068,783    $  4,431,011
Amortization of debt discount                            --       1,041,666              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --       3,737,837       5,342,956
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2006                        5,000,000      (3,958,334)      6,806,620       9,773,967

Amortization of debt discount                            --         114,247              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (640,241)       (524,400)
                                               ------------    ------------    ------------    ------------
BALANCE, JANUARY 18, 2007 (DATE OF
     MODIFICATION)                                5,000,000      (3,844,087)      6,166,379       9,249,567

Gain on extinguishment of debt                           --       3,844,087      (6,166,379)     (9,249,567)
Fair value of amended notes, conversion
     option liability and detachable
     warrant liability                            3,804,909      (8,804,909)     10,858,880      16,279,237
Recognize liability due to contingency
     provisions being met                                --              --              --       4,144,328
Conversion of notes to common stock              (2,707,475)             --      (6,079,443)             --
Amortization of debt discount                            --       5,473,312              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (849,975)    (11,727,375)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2007                        6,097,434      (3,331,597)      3,929,462       8,696,190

Amortization of debt discount                            --       1,427,820              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --       2,133,139       7,785,669
                                               ------------    ------------    ------------    ------------
BALANCE, MARCH 31, 2008                           6,097,434      (1,903,777)      6,062,601      16,481,859

Amortization of debt discount                            --       1,427,820              --              --
Conversion of notes to common stock                (171,212)             --        (151,932)             --
Recognition of warrant liabilities upon
     satisfaction of contingency related to
     Series M-1 and M-2 warrants                         --              --              --       1,146,033
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --      (1,618,226)     (4,949,146)
                                               ------------    ------------    ------------    ------------
BALANCE, JUNE 30, 2008                            5,926,222        (475,957)      4,292,443      12,678,746

Amortization of debt discount                            --         475,957              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --      (3,376,290)     (9,967,311)
                                               ------------    ------------    ------------    ------------
BALANCE, SEPTEMBER 30, 2008                       5,926,222              --         916,153       2,711,435

Amortization of debt discount                            --              --              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (417,657)     (1,239,543)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2008                     $  5,926,222    $         --    $    498,496    $  1,471,892
                                               ============    ============    ============    ============


                                      F-21



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


Activity in the 2007 Notes and 2007 Warrants is as follows:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------
Balance at July 31, 2007 (inception)           $  3,500,000    $ (3,500,000)   $  2,297,449    $  3,282,069
Amortization of debt discount                            --         194,444              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (264,486)       (377,837)
                                               ------------    ------------    ------------    ------------
BALANCE, SEPTEMBER 30, 2007                       3,500,000      (3,305,556)      2,032,963       2,904,232

Amortization of debt discount                            --         291,666              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --      (1,882,535)     (2,689,336)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2007                        3,500,000      (3,013,890)        150,428         214,896

Amortization of debt discount                            --         291,666              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --         248,483         354,976
                                               ------------    ------------    ------------    ------------
BALANCE, MARCH 31, 2008                           3,500,000      (2,722,224)        398,911         569,872

Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --         (26,769)        (38,242)
                                               ------------    ------------    ------------    ------------
BALANCE APRIL 1, 2008 (DATE OF
     MODIFICATION)                                3,500,000      (2,722,224)        372,142         531,630

Loss on extinguishment of debt                           --       2,722,224        (372,142)       (531,630)
Fair value of amended notes, conversion
     option liability and detachable warrant
     liability                                           --      (3,500,000)      2,658,600       3,798,000
Amortization of debt discount                            --         375,000              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (203,700)       (291,000)
                                               ------------    ------------    ------------    ------------
BALANCE, JUNE 30, 2008                            3,500,000      (3,125,000)      2,454,900       3,507,000

Amortization of debt discount                            --         375,000              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --      (1,854,300)     (2,649,000)
                                               ------------    ------------    ------------    ------------
BALANCE, SEPTEMBER 30, 2008                       3,500,000      (2,750,000)        600,600         858,000

Amortization of debt discount                            --         375,000              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (298,200)       (426,000)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2008                     $  3,500,000    $ (2,375,000)   $    302,400    $    432,000
                                               ============    ============    ============    ============


                                      F-22



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


Activity in the April 2008 Notes and 2008 Warrants is as follows:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------
Balance at April 1, 2008 (inception)           $  3,125,000    $ (3,125,000)   $  1,002,813    $  2,993,750
Amortization of debt discount                            --         390,625              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (457,188)       (685,000)
                                               ------------    ------------    ------------    ------------
BALANCE, JUNE 30, 2008                            3,125,000      (2,734,375)        545,625       2,308,750

Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --              --        (718,125)
                                               ------------    ------------    ------------    ------------
BALANCE JULY 28,  2008 (DATE OF
     MODIFICATION)                                3,125,000      (2,734,375)        545,625       1,590,625

Gain on extinguishment of debt                           --         701,167              --      (1,590,625)
Fair value of amended notes, conversion
     option liability and detachable warrant
     liability                                           --        (841,400)             --       2,084,375
Amortization of debt discount                            --         369,590              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --        (433,750)     (1,176,875)
                                               ------------    ------------    ------------    ------------
BALANCE, SEPTEMBER 30, 2008                       3,125,000      (2,505,018)        111,875         907,500

Amortization of debt discount                            --         359,073              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --         (38,437)       (480,625)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2008                     $  3,125,000    $ (2,145,945)   $     73,438    $    426,875
                                               ============    ============    ============    ============


                                      F-23



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


Activity in the July 2008 Notes and July 2008 Warrants is as follows:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------
Balance at July 28, 2008 (inception)           $  1,250,000    $ (1,250,000)   $    142,500    $    856,750
Amortization of debt discount                            --         104,167              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --         (97,750)       (491,000)
                                               ------------    ------------    ------------    ------------
BALANCE, SEPTEMBER 30, 2008                       1,250,000      (1,145,833)         44,750         365,750

Amortization of debt discount                            --         156,250              --              --
Change in fair value of conversion
     option and detachable warrant
     liabilities                                         --              --         (15,375)       (195,000)
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2008                     $  1,250,000    $   (989,583)   $     29,375    $    170,750
                                               ============    ============    ============    ============

A summary of the balance as of December 31, 2008 and as of December 31, 2007 follows:

Balance as of December 31, 2008:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------
2006 Notes                                     $  5,926,222    $         --    $    498,496    $  1,471,892
2007 Notes                                        3,500,000      (2,375,000)        302,400         432,000
April 2008 Notes                                  3,125,000      (2,145,945)         73,438         426,875
July 2008 Notes                                   1,250,000        (989,583)         29,375         170,750
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2008                     $ 13,801,222    $ (5,510,528)   $    903,709    $  2,501,517
                                               ============    ============    ============    ============


Balance as of December 31, 2007:

                                                                                Conversion      Detachable
                                                 Principal     Discount on        Option         Warrant
                                                  Balance     Notes Payable     Liability       Liability
                                               ------------    ------------    ------------    ------------

2006 Notes                                     $  6,097,434    $ (3,331,597)   $  3,929,462    $  8,696,190

2007 Notes                                        3,500,000      (3,013,890)        150,428         214,896
                                               ------------    ------------    ------------    ------------
BALANCE, DECEMBER 31, 2007                     $  9,597,434    $ (6,345,487)   $  4,079,890    $  8,911,086
                                               ============    ============    ============    ============

</TABLE>

    6.       STOCKHOLDERS' EQUITY
             --------------------

The Company's authorized capital consisted of 200,000,000 shares of common
stock, par value $0.001 per share and 5,000,000 shares of preferred stock, no
par value per share.

During 2007, in connection with the Company's senior convertible notes, the
Company issued 6,208,123 shares upon conversions of $2,707,475 in notes by the
investors.

During 2007, the Company issued a total of 3,976,407 shares of which 1,643,760
shares related to the exercise of warrants utilizing a cashless feature and the
remaining 2,332,647 shares related to the cash exercise of warrants issued for
total proceeds to the Company of $1,091,635.

In July of 2007, the Company issued 100,000 shares upon the exercise of employee
stock options for total proceeds of $100,000.

A total of 397,748 shares were issued on April 15, 2007 upon the conversion of
the $1,214,290 short term convertible notes.

During 2008, in connection with the Company's senior convertible notes, the
Company issued 1,410,401 shares related to $171,212 of principal, $215,373 in
accrued interest and $151,933 relating to the reduction of the conversion option
liability.

During 2008, the Company issued a total of 4,375,000 shares of common stock in
connection with 2 private placements valued at $3,206,250 (See note 5).



                                      F-24



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


    7.       STOCK OPTIONS
             -------------

2005 Stock Plan
---------------

The Company's 2005 Stock Plan was approved by the Company's Board of Directors
on April 7, 2005, approved by the Company's shareholders on June 9, 2005, and
amended and restated as the First Amended and Restated 2005 Stock Plan ("2005
Plan") by the Company's Board of Directors on June, 29, 2007. The Company filed
a registration statement on Form S-8 with the Securities and Exchange Commission
("SEC") in May 2007 to cover the issuance of up to 3,000,000 shares of common
stock underlying options and stock purchase rights authorized for issuance under
the 2005 Plan and qualified for issuance the underlying securities with the
California Department of Corporations in July, 2007. Prior to that time, the
Company issued only non-plan stock options. The 2005 Plan is now the Company's
only formal plan for providing stock-based incentive compensation to the
Company's eligible employees, non-employee directors and certain consultants.
The Board of Directors or committee of the Board of Directors administering the
2005 Plan has discretion to set vesting, expiration and other terms of awards
under the 2005 Plan. As of December 31, 2008, the 2005 Plan had a total of
1,020,000 options outstanding and 1,980,000 shares reserved for future grants.

Non-Plan Options
----------------

Prior to approval of our 2005 Plan, the Company granted stock options
out-of-plan. These non-plan options provided for the periodic issuance of stock
options to our employees and non-employee board of directors. The vesting period
for the non-plan stock options is three equal annual installments commencing on
the first anniversary of the date of grant. The maximum contractual term of
stock options granted under these out-of-plan options was eight years. As of
December 31, 2008, there were 850,000 non-plan options outstanding.

A summary of the status of the Company's unvested stock options as of December
31, 2008 is presented below:

<TABLE>
<S>     <C>
                                                                  Weighted
                                                   Weighted        Average      Aggregate
                                                   Average        Remaining     Intrinsic
Options                             Shares      Exercise Price  Contract Term     Value
-------                           ----------    --------------  -------------   ---------
Outstanding, December 31, 2006     1,645,500    $         1.00
Granted                              661,500              1.03
Forfeited / Expired                 (406,000)             1.00
Exercised                           (100,000)             1.00
                                  ----------    --------------
Outstanding, December 31, 2007     1,801,000    $         1.01           5.41          --
                                  ==========    ==============  =============   =========
Granted                            1,282,000              0.53
Forfeited / Expired               (1,213,000)             0.89
Exercised                                 --                --
                                  ----------    --------------
Outstanding, December 31, 2008     1,870,000    $         0.76           5.42          --
                                  ==========    ==============  =============   =========
Exercisable, December 31, 2008       949,667    $         1.00           3.61          --
                                  ==========    ==============  =============   =========

As of December 31, 2008 total unrecognized stock-based compensation cost related
to unvested stock options was approximately $208,342 which is expected to be
recognized over a weighted average period of approximately 2.28 years.

                                                                Weighted-Average
                                                   Number         Grant-Date
                                                 of Shares        Fair Value
                                                 ----------        --------
Non-vested at January 1, 2007                       663,836
Granted                                             661,500            0.66
Vested                                             (316,836)           1.08
Non-vested shares forfeited                        (389,333)       $   0.66
                                                 ----------        --------
Non-vested at December 31, 2007                     619,167        $   0.66
Granted                                           1,282,000            0.43
Vested                                             (221,667)           0.64
Non-vested shares forfeited                        (759,667)       $   0.59
                                                 ----------        --------
Non-vested at December 31, 2008                     919,833        $   0.39
</TABLE>

                                      F-25



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


For the year ended December 31, 2008 and December 31, 2007, the Company
recognized $216,978 and $360,058, respectively, in stock-based compensation
costs related to the issuance of options to employees. These costs were
calculated in accordance with FAS 123(R) and are reflected in operating
expenses.

    8.       WARRANTS
             --------

Warrants granted to investors, brokers and other service providers are
summarized as follows:

                                                                Weighted Average
                                                                   Exercise
                                                      Shares        Price
                                                    -----------    --------
         Outstanding at December 31, 2006            39,992,874    $   0.98

           Granted                                   21,729,817        0.65
           Cancelled/Forfeited                          (34,500)       0.47
           Exercised                                 (6,083,747)       0.84
                                                    -----------    --------
         Outstanding at December 31, 2007            55,604,444    $   0.76
                                                    -----------    --------

           Granted                                   23,868,498        0.50
           Cancelled/forfeited                         (400,000)       1.22

           Exercised                                         --          --
                                                    -----------    --------
         Outstanding at December 31, 2008            79,072,942    $   0.63
                                                    ===========    ========

The following tables summarize warrants outstanding at December 31, 2008:

     Range       Number     Wtd. Ave. Life    Wtd. Ave. Price    Exercisable
     -----       ------     --------------    ---------------    -----------
   $.40-2.50   79,072,942        2.10             $.0.63          74,522,942


<TABLE>
<S>     <C>
                          OUTSTANDING   EXERCISED/                 OUTSTANDING   EXERCISED/             OUTSTANDING
 SERIES     ISSUE DATE    AT 12/31/06   FORFEITED     GRANTED      AT 12/31/07   FORFEITED    GRANTED   AT 12/31/08
----------- ----------- --------------  ----------  ------------  -------------  ---------  ----------  -------------
    B       April 2004       3,200,000  (1,249,999)            -      1,950,001          -           -      1,950,001
    D       June, 2004         972,223           -             -        972,223          -           -        972,223
    E        2004-2005       1,416,000  (1,275,000)            -        141,000          -           -        141,000
    F       April 2005         231,036    (216,651)            -         14,385          -           -         14,385
    G       April 2005       3,564,188           -             -      3,564,188          -           -      3,564,188
  G-BH      April 2005       1,505,989           -             -      1,505,989          -           -      1,505,989
    H       April 2005       2,029,763  (2,029,763)            -              -          -           -              -
             February
    I          2005            200,000    (190,000)            -         10,000          -           -         10,000
    J       August 2005        505,343    (489.088)            -         16,255          -           -         16,255
             July 2006
             & January
   L-1         2007         17,065,623           -     5,688,540     22,754,163          -           -     22,754,163
              January
   L-2         2007                  -           -     7,281,332      7,281,332          -           -      7,281,332
   M-1       July 2006       7,395,103           -             -      7,395,103          -           -      7,395,103
              January
   M-2         2007                  -           -     2,366,433      2,366,433          -           -      2,366,433
    N        July 2007               -           -     2,909,636      2,909,636          -   4,090,364      7,000,000
    O        July 2007               -           -     1,891,263      1,891,263          -   2,658,737      4,550,000
    P        July 2007               -           -     1,246,987      1,246,987          -   1,753,013      3,000,000
    Q       April 2008               -           -             -              -          -   6,250,000      6,250,000
Replacement  July 2008               -           -             -              -          -   6,250,000      6,250,000
    R        July 2008               -           -             -              -          -   2,500,000      2,500,000

  MISC       2003-2007       1,907,606    (667,746)      345,626      1,585,486   (400,000)    366,384      1,551,870
                        --------------  ----------  ------------  -------------  ---------  ----------  -------------
TOTAL                       16,255,087  (1,178,023)   24,915,810     55,604,444   (400,000) 23,868,498     79,072,942
                        ==============  ==========  ============  =============  =========  ==========  =============
</TABLE>

                                      F-26



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


2008 Warrants
-------------

On April 1, 2008, pursuant to the terms of the securities purchase agreement the
Company issued $6,250,000 Series Q warrants. These warrants carry an initial
exercise price of $1.00 and expire on March 31, 2017.

In addition, pursuant to the terms of the April 1, 2008 transaction, the
exercise price of the Company's Series N Warrants, Series O Warrants, and Series
P Warrants originally issued in July 2007 were adjusted from $1.20 to $0.50.
Based on this adjustment the Company issued an additional 4,090,364, 2,658,737,
and 1,753,013 Series N, Series O, and Series P Warrants, respectively.

The Company has an agreement with a placement agent that provides compensation
for services provided by the placement agent. For each successful financing, the
Company will pay the placement agent a cash fee of 6% of the gross proceeds of
the financing. Additionally, the Company will issue warrants to purchase a
number of common shares equal to 4% of the gross proceeds at an exercise price
equal to the price in the financing.

In connection with the 2006 SPA, the Company issued to the placement agent
warrants with a term of five years to purchase 600,710 shares of the Company's
common stock at an exercise price of $0.44. In connection with the 2007 SPA, the
Company will issue warrants to purchase 116,385 shares of the Company's common
stock at an exercise price of $1.20. In connection with the 2008 SPA, the
Company will issue warrants to purchase 125,000 shares of the Company's common
stock at an exercise price of $1.00. All placement agent warrants are
immediately exercisable.

The placement agent warrants were measured at fair value using the Black-Scholes
option pricing model. During 2008 and 2007, the Company capitalized $40,113 and
$148,236 as debt issuance cost, respectively. During the three and nine months
ended September 30, 2008, the Company amortized $9,398 and $136,199,
respectively, $53,905 of which is included in loss on extinguishment of debt for
the three and nine months ended September 30, 2008.

2007 Warrants
-------------

In connection with securing the 2007 Notes (as described in Note 5 above), the
three convertible note investors were entitled to Series L-1 Warrants to
purchase up to an aggregate of 22,754,163 shares of the Company's common stock
Series L-2 Warrants to purchase up to an aggregate of 7,281,332 shares of the
Company's common stock and Series M-2 warrants to purchase up to an aggregate of
2,366,433 shares of the Company's common stock. Both the Series L-1 Warrants and
Series M-2 warrants have an original exercise price of $.43948 per share and
expire by August 1, 2016. The Series L-1 Warrants are immediately exercisable.
The Series M-2 Warrants become exercisable only upon a "mandatory conversion" of
the notes, which is callable by the Company.

In connection with securing the July 2007 $3,500,000 Senior Convertible Note (as
described in Note 5 above), the investor was entitled to Series N Warrants to
purchase up to an aggregate of 2,909,636 shares of the Company's common stock,
Series P Warrants to purchase up to an aggregate of 1,246,987 shares of the
Company's common stock and Series O Warrants to purchase up to an aggregate of
1,891,263 shares of the Company's common stock. These series of N, O, and P
warrants have an original exercise price of $1.2029 per share and expire by
August 1, 2016. The Series N and P Warrants are immediately exercisable. The
Series O Warrants become exercisable only upon a "mandatory conversion" of the
notes, which is callable by the Company.

During the second quarter of 2007, the Company issued warrants to a non-related
service provider for providing investment related services for the Company. The
warrants totaling 200,000 were issued in two separate transactions of 100,000
warrants each and have an exercise price of $0.50 and $1.00 per share of the
Company's common stock and expire during the second quarter of 2010. Investment
related costs of $166,500 were recognized for these warrants issued in 2007.


                                      F-27



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


2006 Warrants
-------------

In connection with securing the Senior Convertible Notes (as described in Note 5
above), the three convertible note investors were entitled to Series L Warrants
to purchase up to an aggregate of 17,065,623 shares of the Company's common
stock and Series M Warrants to purchase up to an aggregate of 7,395,103 shares
of the Company's common stock. Both the Series L Warrants and Series M Warrants
had an original exercise price of $0.5054 per share and expire on July 31, 2011.
The Series L Warrants are immediately exercisable. The Series M Warrants become
exercisable only upon a "mandatory conversion" of the notes, which is callable
by the Company. Because the Company was unable to register the number of shares
agreed upon in the Senior Convertible Note financing, the registration statement
filed with the SEC was withdrawn and an amended financing was agreed upon on
January 22, 2007.

In connection with the $5,000,000 private placement, the Company issued to the
placement agent, warrants with a term of five-years, to purchase 455,084 shares
of the Company's common stock. These placement agent warrants are immediately
exercisable and have an exercise price of $0.43948 per share.

During the fourth quarter of 2006, 205,800 warrants were exercised of which
97,050 warrants related to the cashless exercise of Series J warrants and
108,750 warrants related to the cash exercise of Series H warrants issued at
$0.50 per share for total proceeds of $54,375.

In addition, during the third quarter of 2006 all of the Company's outstanding
Series C Warrants to purchase an aggregate of 972,223 shares of the Company's
common stock expired. None of the Series C Warrants were exercised prior to
their expiration.

2005 Warrants
-------------

As further consideration for securing the 8% Notes (as described in Note 5
above), our placement agent was entitled to warrants to purchase shares of the
Company's common stock in an amount equal to 15% of the 1,540,243 shares issued
upon conversion of the 8% Notes on July 15, 2005. Based on the 1,540,243 shares
of common stock issuable the placement agent and its designees were issued an
aggregate of 231,036 Series F Warrants. The Series F Warrants shall have an
exercise price of $0.40 per share and shall expire on the earlier of April 23,
2010 or a change of control of the Company. An additional expense of financing
of $146,349 was recognized during the year 2005.

On July 12, 2005, the Company issued a total of 200,000 Series I Warrants to
seven non-affiliate private-parties for providing financial advisory services to
the Company. The Series I Warrants have an exercise price of $0.60 per share of
the Company's common stock and expire on February 11, 2010. Compensation costs
of $86,000 were recorded for these warrants in 2005.

As further consideration to the placement agent that secured the 10% Note
financing (as described in Note 5 above), upon the August 25, 2005 conversion of
the 10% Notes, the Company became obligated to issue to the placement agent
602,393 Series J Warrants to purchase common stock. The Series J Warrants have
an original exercise price of $0.50 per share of common stock and expire on
August 25, 2010. An additional expense of financing of $240,957 has been
recognized during the year 2005.

On September 20, 2005, the Company amended the terms of its 972,223 previously
issued Series D Warrants to reduce the original exercise price of $3.50 per
share to an amended exercise price of $0.50 per share.

Pursuant to the terms of the 2005 Private Placement, the Company issued
3,564,188 Series G Warrants in 2005 to investors in conjunction with the
$7,128,375 in gross proceeds raised from the 2005 Private Placement. The Series
G Warrants have an exercise price of $2.50 per share of common stock, expire
five years from issuance date and are callable by the Company the first day
after the 30-trading-day average price of the Company's common stock exceeds
$3.50 per share. An additional expense of financing of $1,106,349 has been
recognized during the year 2005.

In addition, as further consideration for securing the $7,128,375 in gross
proceed through the Company's 2005 Private Placement, the placement agent was
entitled to warrants to purchase shares of the Company's common stock in an
amount equal to 15% of the number of shares of common stock issued in the 2005
Private Placement. Based upon the issuance of 14,256,750 shares of common stock


                                      F-28



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


as of the final closing of the 2005 Private Placement on November 22, 2005, the
Company issued 2,138,513 Series H Warrants to the placement agent and its
designees. The Series H Warrants have an exercise price of $0.50 per share of
common stock and expire on the earlier of November 23, 2007 or a change in
control of the Company. An additional expense of financing of $906,023 has been
recognized during the year 2005.

2004 Warrants
-------------

In April 2004, we closed an equity based financing for gross proceeds of
$5,600,000. The financing involved the purchase of 3,200,000 shares of our
common stock, 3,200,000 Series A Warrants and 3,200,000 Series B Warrants. The
Series A Warrants expired on September 30, 2004 and no such warrants were
exercised prior to their expiration. The Series B Warrants expire on April 1,
2009 and had an original exercise price of $3.50 per share. However, pursuant to
the anti-dilution provisions of the Series B Warrants, our subsequent issuances
of securities have resulted in a reduced exercise price of $1.22 per share as of
January 18, 2007.

In June 2004, we closed an equity based financing for gross proceeds of
$1,750,000. The financing involved the purchase of 972,223 shares of our common
stock, 972,223 Series C Warrants to purchase common stock and 972,223 Series D
Warrants to purchase common stock. The Series C Warrants were issued with an
original exercise price of $3.00 per share. In August 2004, we amended the terms
of the Series C Warrants to reduce the exercise price to $1.25 per share. The
Series C Warrants subsequently expired on August 15, 2006 and no such warrants
were exercised prior to their expiration. The Series D Warrants expire on June
1, 2009 and had an original exercise price of $3.50 per share. In December 2005,
we amended the terms of the Series D Warrants to reduce the exercise price to
$0.50 per share.

    9.       COMMITMENTS AND LEASES
             ----------------------

The Company leases office space and workstations under a non-cancelable
operating lease expiring in 2009. Future aggregate minimum rental payments under
this lease amount to $173,562 for 2009. Rent expense for the years ended
December 31, 2008 and 2007 was $231,304 and $246,800, respectively. We rendered
possession of our prior operating facility to the landlord in October 2008 and
charged $241,261 to Other Income in connection with rent due for the remainder
of the lease (October 1, 2008 - July 31, 2009). There can be no assurance that
the landlord will not take legal action against us for breach of this lease as
we have not reached any settlement agreement. If the landlord takes legal action
against us, a negative outcome could have a material adverse effect on our
business and financial condition.

At December 31, 2008, the Company has $2,655 in purchase order commitments.

    10.      INCOME TAXES
             ------------

The Company computes and records taxes payable based upon determination of
taxable income which is different from pre-tax financial statement income. Such
differences arise from the reporting of financial statement amounts in different
periods for tax purposes. The timing differences are a result of different
accounting methods being used for financial and tax reporting.

The Company's total deferred tax assets and deferred tax liabilities were as
follows at:

<TABLE>
<S> <C>
                                                          December 31, 2008   December 31, 2007
                                                          -----------------   -----------------
           Deferred tax assets:
                 Non-cash compensation                    $          95,000    $        158,000
                 Non-benefited  tax losses and credits           29,086,000          21,897,000
                                                          -----------------    ----------------
                          Total deferred tax assets              29,181,000          22,055,000
                                                          -----------------    ----------------
           Deferred tax liabilities

                Net book value of assets                            (26,000             (45,000)
                                                          -----------------    ----------------
                         Total deferred tax liabilities             (26,000)            (45,000)
                                                          -----------------    ----------------
                         Total net deferred tax assets           29,155,000          22,010,000

                Valuation allowance                             (29,155,000)        (22,010,000)
                                                          -----------------    ----------------
                         Net deferred tax assets          $              --    $             --
                                                          =================    ================
</TABLE>

                                      F-29



<page>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2008 AND 2007


A valuation allowance has been established against the realization of the
deferred tax assets since the Company has determined that the operating loss
carryforwards may not be realized.

The Company has federal and state net operating loss carryforwards of
$66,000,000 and $60,000,000, respectively expiring between 2024 and 2028. Should
the Company move out of the enterprise zone, approximately $29,000,000 will be
suspended of the state net operating loss leaving approximately $31,000,000 of
the general state net operating loss remaining.

Internal Revenue Code Section 382 imposes limitation on our ability to utilize
net operating losses if we experience an ownership change and for the NOL's
acquired in the acquisitions of subsidiaries. An ownership change may result
from transactions increasing the ownership percentage of 5% or greater
stockholders in the stock of the corporation by more than 50 percentage points
over a three-year period. The value of the stock at the time of an ownership
change is multiplied by the applicable long-term tax exempt interest rate to
calculate the annual limitation. Any unused annual limitation may be carried
over to later years.

Upon adoption of FIN 48 as of January 1, 2007, the Company had no gross
unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods. At December 31, 2008 and 2007, the
amount of gross unrecognized tax benefits before valuation allowances and the
amount that would favorably affect the effective income tax rate in future
periods after valuation allowances were zero. These amounts consider the
guidance in FIN 48. The Company has not accrued any interest or penalties as a
result of the adoption of FIN 48.

    11.      SUBSEQUENT EVENTS
             -----------------

In a letter agreement dated December 15, 2008, signed by Castlerigg Master
Investments, Ltd., Cedar Hill Capital Partners Onshore, LP, Cedar Hill Capital
Partners Offshore, Ltd. (the "Investors") and the Company, it was agreed that
the Investors will grant the Company a limited waiver by which interest in the
amount of $218,252 due under the secured notes payable on December 31, 2008 will
be added to the principal balance of the secured notes rather than be paid in
cash or through conversion of the notes.

On January 9, 2009, the Company issued 3,245,536 shares of common stock for the
conversion of $1,426,348 of principal and accrued interest on the senior
convertible notes payable.

On February 9, 2009, the Company renewed the lease for its current premises
through September 30, 2009. The lease has a monthly rent of $1,560.


                                      F-30



<page>

                    INDEX TO EXHIBITS FILED WITH THIS REPORT

   EXHIBIT
   NUMBER                            DESCRIPTION
   -------                           -----------
    10.4       Facility lease agreement with Martin Investment dated February 9,
               2009
    31.1       Certification of the Chief Executive Officer Required by Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended, as
               Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    31.2       Certification of the Chief Financial Officer Required by Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended, as
               Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    32.1       Certification of the Chief Executive  Officer Pursuant to 18
               U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002
    32.2       Certification of the Chief Financial  Officer Pursuant to 18
               U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002


                                      F-31