<PAGE>

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

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


                                   FORM 10-KSB


                        FOR ANNUAL AND TRANSITION REPORT
                     PURSUANT TO SECTIONS 13 OF 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

|X|       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
          For the fiscal year ended December 31, 2005
                                       OR
|_|       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
          For the transition period from ______________ to ______________

                        COMMISSION FILE NUMBER: 333-74846
                                  _____________

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                 (Name of Small Business Issuer in Its Charter)

            COLORADO                                    84-1573852
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

      1241 E. DYER ROAD, SUITE 150
             SANTA ANA, CA                                 92705
(Address of principal executive offices)                (Zip Code)

                    ISSUER'S TELEPHONE NUMBER: (949) 623-9300

        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)
                                  _____________

           Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. [ ]

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

           Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

           Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
Yes [ ] No [X]

           Issuer's revenues for its most recent fiscal year were $289,236.



<PAGE>

           The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices (as reported by Pink
Sheets, LLC) of $0.72 per share as of March 21, 2006 was $36,479,144. 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.

           State the number of shares outstanding of each of the issuer's
classes of common equity outstanding as of the latest practicable date:
54,204,367 shares of Common Stock, $0.001 par value, as of March 21, 2006.

           Until December 2, 2003, the Registrant's common stock traded on the
Over-The-Counter Bulletin Board under the symbol "PFII". On December 3, 2003,
the Registrant's name was changed to "Raptor Networks Technology, Inc." and the
common stock began trading on the Over-The-Counter Bulletin Board under the
symbol "RPTN."

           Documents Incorporated by Reference:  None.

           Transitional Small Business Disclosure Format:        Yes [ ] No [X]


<PAGE>


                                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.      Management's Discussion and Analysis of Financial
               Condition and Results of Operations............................19
Item 7.      Financial Statements.............................................26
Item 8.      Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure............................26
Item 8A.     Controls and Procedures..........................................26
Item 8B.     Other Information................................................26

                                    PART III

Item 9.      Directors and Executive Officers of the Registrant...............27
Item 10.     Executive Compensation...........................................30
Item 11.     Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholder Matters.....................37
Item 12.     Certain Relationships and Related Transactions...................38
Item 13.     Exhibits.........................................................39
Item 14.     Principal Accountant Fees and Services...........................41
Signatures....................................................................43
Index to Financial Statements                                                F-1
Index to Exhibits



                                        i


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                                     PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.

           When used in this report on Form 10-KSB (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-


<PAGE>

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 us and 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.

                                      -2-


<PAGE>

           We remain an early stage technology company and, commencing with our
inception, have operated, and are now operating, at a significant loss. While we
have seen minimal quarter over quarter revenue growth, we have realized
negligible revenues. Although our management is optimistic with regard to
prospective business, there can be no assurance that we will not encounter
unforeseen and unanticipated obstacles to near-term revenue or ultimately
achieving profitability.

           Our principal headquarters are located at 1241 E. Dyer Road, Suite
150, Santa Ana, California 92705 and our phone number is 949-623-9300. 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 this significant barrier to 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 up to 80 kilometers per hop. 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


                                      -3-


<PAGE>

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.

           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 as much as 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.

           Beginning in late 2004 and continuing throughout 2005, we placed
evaluation units with high-potential launch customers and continue to work on
converting these evaluations into sales. In 2005, we had sales to clients in the
scientific research community and to budget-constrained customers upgrading
their legacy networks. Opportunities with potential end-user and systems
integration customers continue to progress and we are in ongoing discussions
with target clients for whom we might serve as an original equipment
manufacturer (OEM). However, due to longer selling cycles than anticipated, our
efforts have not yet resulted in significant sales. Taking into account the
price and performance value of our technologies, we believe that OEM business,
private labeling, and licensing may in the future be a potential source of
revenues, in addition to our current efforts to secure direct product sales to
end-users and integration customers.

           Based on positive feedback from some of our customers and target
clients, we believe that our product line and architectural approach is gaining
acceptance from these users. Several customers that have placed our equipment
into operational service have indicated that our unique products provide stable,
high-performance connectivity at an affordable value.

           We remain an early stage technology company and, commencing with our
inception, have operated, and are now operating, at a significant loss. While we
have seen minimal revenue growth, we have realized negligible revenues. Although
our management is optimistic with regard to prospective business, there can be
no assurance that we will not encounter unforeseen and unanticipated obstacles
to near term revenue or ultimately achieving profitability.

OUR PRODUCTS

           Our products include two core switches: the Ether-Raptor-1010
("ER-1010"), which is a combination 1Gb/GbE and 10 Gb/GbE switch, and the
Ether-Raptor-1808 ("ER-1808"), which is a pure 10GbE switch. We also offer a
pure edge switch, the Ovi-Raptor-1048 ("OR-1048"), which was added to allow us
to offer an end-to-end solution in new systems integration projects. All of our
products are based upon a common family of merchant silicon and embedded
software.

                                      -4-


<PAGE>

           ER-1010 & ER-1808
           -----------------

           Our ER-1010 1Gb/GbE and 10Gb/GbE network switch and ER-1808 10Gb/GbE
network switch significantly reduce 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-1808 consists of eight ports
of 10Gb/GbE. Both the ER-1010 and the ER-1808 are 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 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 and the ER-1808 improves
redundancy, keeps latency very low across broad distances, allows for simpler
management, and is priced significantly lower than chassis-based alternatives.

           OR-1048
           -------

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

MARKET TRENDS AND OUR RESPONSE

           We believe that the Ethernet switching and routing market appears to
be poised for growth. According to the 2005 Ethernet Switch Five Year Forecast
Report, published by the research firm the Dell'Oro Group, the Ethernet switch
market is expected to grow steadily over the next five years. In addition, the
Dell'Oro Group has projected that 10-Gigabit Ethernet switch port shipments will
double in each of 2005, 2006, and 2007. Although 10-Gigabit Ethernet port
shipments are expected to double in each of these years, revenues may grow at a
slower rate due to pricing pressures from increased competition, particularly
from offshore competitors, and rapid technological change.

           We see two business drivers that are pacing the growth and viability
of any network switching company in today's marketplace: (1) the presence of a
leader in the industry who commands in excess of 75% market share, and (2) the
market entry of low cost replicas of the market leader's products, largely from
Far East competitors. We believe that the key to success for any network
switching company is to successfully compete with the market leader in the
developed world, while addressing the availability of low cost replica products
in the developing world.

           We believe our solution is unique with respect to both of these
challenges. Our patent-pending distributed network architecture is significantly
less expensive and more efficient than the products offered by our competitors,
which allows us to compete with the industry leader on performance, while
simultaneously competing with the low cost replica products on price. Given the
advantages of our products, we believe that the most significant impediment to
our success is developing brand awareness and acceptance of the quality and
technological features of our products. For this reason, we have pursued and
continue to pursue OEM partnerships with companies having well established
channels to market and competitively undifferentiated networking products.

           The key architectural driver we see in the current marketplace is the
conflict between the desire for new features, such as network security, and the
need for increased speed to handle latency-sensitive applications such as VoIP,
streaming video and other high-bandwidth applications. However, increased speed
demands that network transport occur at Layer 2, yet the function of inline
network security and similar functions occur at Layer 3 or 4, and the two cannot
both be met by current technologies. Customers must choose between the speed of
Layer 2 transport networks or the functionality, such as security, offered by
slower Layer 3 and Layer 4 transport. We believe that the market's requirement
for speed outweighs the benefits of additional functionality and we have
designed our products to operate at wire-speed, rather than adding
functionalities that would impede the speed and efficiency by which our products
transport data.

                                      -5-


<PAGE>

           The importance of network transport speed is illustrated by the
emerging applications of VoIP, streaming video, IPTV and high speed digital
access, referred to as "triple play" service offering due to their high
sensitivity to time delays in the network over which they operate. Users have
discovered that VoIP on traditional networks, which were originally designed to
handle uncomplicated traffic such as email and simple data transfers, suffers
from poor voice quality and, under heavy network load, can cease to function
entirely. These problems can be even more pronounced when running IPTV on
traditional networks. The fundamental cause of these problems is that the
latencies inherent in traditional centralized networks are incongruent with the
speed requirements of these "triple play" applications. It was a desire to
create a practical, cost-effective solution to these problems that drove the
creation of our distributed network architecture, which provides for seamless,
Layer 2 transport at wire-speed over significant distances.

           Internet Protocol version 6 ("IPv6") is another emerging standard
feeding the tension between a need for high transport speed and the desire for
new functionality. Interest in and adoption of IPv6 is gaining momentum in
international markets, and the U.S. Federal Government has made IPv6 a
requirement for its upcoming procurements in the next several years. However, we
believe the widespread adoption of IPv6 in the U.S. commercial sector is likely
to take several years. Given that our primary focus is to offer products with
ultra-high speed transport, while we are currently capable of implementing full
IPv6 software in our products, we have elected not to do so at this time because
it would result in slower network transport performance. Instead, our products
are configured as protocol agnostic transport pipes operating at wire speed that
seamlessly pass IPv6 traffic. At such time as IPv6 functionality is fully
implemented in hardware rather than in software, we intend to design, develop
and offer fully compliant IPv6 switch products that operate at wire-speed.

           Security is another Layer 3 or Layer 4 function generating great
interest in today's marketplace. We have recognized that network security is a
major concern for many customers and have incorporated several major security
features into our systems. These include IEEE 802.1X support with Radius
authentication, Layer 2 ACLs and MAC filters, and Layer 3 and 4 ACLs. More
unique, however, is the fact that our distributed fabric technology, RAST, is
inherently more secure from monitoring because it is a unique and unrecognizable
protocol to those attempting to breach the network fabric from outside the
network. We consider our products among the most secure on the market today, but
plan to continuously evaluate the possible addition of new security functions so
long as such additions do not compromise the wire-speed performance of our
products.

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, and made progress toward the development of
our second product, the ER-1808. 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 of our network switching systems employed in a network connected
through fiber to work as one system, even if such systems are located up to 80
kilometers apart. In September and October 2004, we developed a 10-Gige-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. Toward the end of 2005, the development of the ER-1808 was to a
large extent finalized and we began the testing of a new edge switch, the OR-
1048. In the fourth quarter of 2005 certain parts of the ER-1010 were upgraded,
including the design of a dual power supply to replace the existing single power
supply, 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.

           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.

                                      -6-


<PAGE>

           It is expected that in 2006 our engineering team will finalize our
ER-1010 upgrading activities, and begin the design of additional products and
product features.


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, Georgia and Virginia. In addition, we have finder's fee
agreements in place with a number of independent third parties to facilitate the
sale of our products.

           We anticipate that original equipment manufacturers (OEMs) may
eventually constitute another important sales channel. Potential OEMs may
include our product in their offerings to end users and system integrators.
While we are currently pursuing multiple OEM relationships, at this time, none
have been secured and there can be no guarantee that we will succeed in securing
such relationships.

COMPETITION

           We believe the key competitive factors in today's network switching
market are, in order of priority: price, speed, capacity and compatibility with
legacy products. We intend to become competitive by offering products that offer
unique wire-speed performance at a price that cannot be meet by today's legacy
alternative networks. 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 Extreme Networks, Nortel Networks, Enterasys
Networks, 3Com, Huawei Technologies, Force 10 Networks, and Alcatel, 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.

           Competitive pressures and other factors, such as new product or new
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 10Gigabit switching fabric in our distributed
architecture. Another major supplier is Tyco Corporation, which supplies PCB
fabrication, optical components and PCB design and analyses support. Our
operating system is based on WindRiver's VxWorks, which is widely used
throughout the information technology industry.

                                      -7-


<PAGE>

           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 is owned and controlled by the in-laws of our
director Albert Wong. We entered into a manufacturing agreement with EMI in
November 2003, six months prior to Mr. Wong joining our Board of Directors. The
agreement has never been modified or amended. We do not have any minimum
purchase requirements under the agreement and the agreement does not create an
exclusive relationship between us and EMI. The term of the agreement is one
year, which automatically renews on an annual basis unless earlier terminated
pursuant to terms of the agreement. The agreement may be terminated for
convenience by either party upon providing the other party 180 days' prior
written notice or by the non-defaulting party in an event of default. Prices are
quoted to us by EMI on an order-by-order basis. We are required to provide EMI
firm purchase orders at least 90 days prior to the scheduled delivery date. The
prices quoted to us by EMI may be adjusted up or down subsequent to us
submitting a firm purchase order based on a number of factors, including without
limitation rescheduling, cancellations, engineering changes, specification
changes and the cost of required supplies and materials. The costs charged to us
by EMI may also increase if we provide EMI less than the required 90-day lead
time. Payment terms are net 30 days after our receipt of an order.

           EMI's manufacturing activities for us consist of the insertion of
chips on our printed circuit boards, testing of our equipment and final assembly
of our products. We store our high-cost inventory at our principal headquarters
and supply it to EMI as needed to meet our orders. Our low-cost inventory (such
as component parts) are stored at EMI's warehouse at no additional cost to us so
long as we continue to utilize EMI as our manufacturer. We currently conduct
final systems testing at our principal headquarters, but we anticipate that this
responsibility will be transferred to EMI sometime during 2006.

           All price quotes received by us from EMI must be reviewed and
approved by both our operations department and financing department prior to us
placing any firm purchase order with EMI. Our management and operations team
believe, based on their industry experience, that the prices quoted and charged
to us by EMI are competitive within the industry given our low order quantities.
We also engage in comparative manufacturing pricing analysis from time to time
to ensure EMI's price quotes are in line with current market rates. We have no
reason to believe that Mr. Wong's relationship with EMI has resulted in us being
charged materially less or materially more than EMI would charge unaffiliated
third parties for comparable services.

           We utilize "best in class" 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 minimize facility costs and speed the design-to-production
transition of new silicon switching innovations.

EMPLOYEES

           As of March 21, 2006, we had 21 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 filed a broad aspect patent for Ethernet Distributed Switch
Fabrics, which is currently in the application process. This patent describes in
detail the processes required to create an Ethernet distributed switch fabric
and is intended to protect the broad concept of the switch fabric. The Ethernet
Distributed Switch Fabrics patent application has been filed for United States
and worldwide (PCT) protection.

           While we believe that our use of the technology encompassed in the
Ethernet Distributed Switch Fabrics patent application 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
application, and any challenge to or claim of infringement relating to the
patent application could materially and adversely affect our business and
results of operations.

                                      -8-


<PAGE>

           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").

           Immediately prior to the Raptor Acquisition, we had 4,034,000 shares
of common stock issued and outstanding. Of those shares, 3,000,000 were
"restricted securities," as defined in Rule 144 ("Rule 144") under the
Securities Act of 1933, as amended ("Securities Act"), held by our founder, Tina
Bogani, who was our sole officer and director immediately prior to the Raptor
Acquisition. The remaining 1,034,000 shares were sold and issued by us pursuant
to our Registration Statement of Form SB-2 filed with the Commission on May 22,
2002 (Registration No. 333-74846) and were held by approximately 25 holders as
of the Raptor Acquisition.

           Raptor was organized under the laws of the State of California on
July 24, 2003. At the time of the Raptor Acquisition, Raptor was a start-up,
development stage company working on the design and development of data network
switching technologies based on the pre-incorporation design efforts of its
founders. Immediately prior to the Raptor Acquisition, Raptor had 19,161,256
shares of its common stock issued and outstanding, all of which were "restricted
securities" as defined under Rule 144. Of those shares, 10,000,000 were held by
Raptor's three founders in the following amounts: Lyle Pearson, 4,000,000
shares; Eddie Hoffman, 3,000,000 shares; and Ananda Perera, 3,000,000. The
remaining 9,161,256 shares were issued to private investors and service
providers 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, and were held by approximately 32 holders as of 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 a material term of the Raptor Acquisition, we redeemed the 3,000,000
shares of our common stock held by Tina Bogani in consideration for us
transferring to Ms. Bogani all of the assets held by us immediately prior to the
Raptor Acquisition. As a result of these transactions, Raptor became our
wholly-owned subsidiary, with the former shareholders of Raptor owning
19,161,256, or 94.9%, of our issued and outstanding common stock.

           Concurrently with the Raptor Acquisition, Tina Bogani appointed
Raptor's directors, Lyle Pearson and Edwin Hoffman, as our directors and,
immediately thereafter, Ms. Bogani resigned as our officer and director.
Concurrently with Ms. Bogani's resignation, Lyle Pearson and Edwin Hoffman, in
their capacity as directors, appointed the officers of Raptor as our officers as
follows: Lyle Pearson, President and Chief Executive Officer; Edwin Hoffman,
Vice President and Chief Technical Officer; Ananda Perera, Vice President of
Engineering; and Bob van Leyen, Chief Financial Officer.

           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.

                                      -9-


<PAGE>

           Based on our review of the Raptor Acquisition documentation, our
discussions with Edwin Hoffman, Ananda Perera and Bob van Leyen (each of which
was an officer of Raptor as of the date of the Raptor Acquisition), and our
communications with various other parties related to the Raptor Acquisition, we
believe that the Raptor Acquisition was planned and structured for the most part
by our former CEO and President, Lyle Pearson, while he was CEO and President of
Raptor prior to the Raptor Acquisition.

           Mr. Pearson resigned as our officer and director on March 12, 2004,
however, we were able to contact Mr. Pearson to confirm certain details
surrounding the Raptor Acquisition as follows: Mr. Pearson informed us that his
actions in conjunction with the Raptor Acquisition were based on advice he
received from one of the early investors in Raptor, Mr. Mirco Teta. Mr. Teta,
who we are informed later deceased in 2005, informed Mr. Pearson approximately
in July 2003 that he would be able to secure investors and funding for Raptor
contingent upon the consummation of Raptor's reverse merger with a publicly
traded company. Mr. Teta then introduced Mr. Pearson to Mr. Keith Webb who, in
turn, set up meetings with, and introduced Mr. Pearson to, Sierra West Capital
("Sierra") and an attorney, Mr. Randall Lanham, to assist Raptor in finding a
suitable publicly traded "shell" company with which Raptor could enter into a
reverse merger transaction.

           It is our understanding that Sierra enabled Mr. Pearson to make
contact with our pre-Raptor Acquisition management, who together with Mr.
Pearson and Mr. Lanham negotiated the terms of the Raptor Acquisition. It is our
belief that Marc Bogani, brother to Tina Bogani, also had some involvement in
bringing us and Raptor together and facilitating the Raptor Acquisition. As
consideration for the services rendered by them in connection with the Raptor
Acquisition, we granted Keith Webb a total of 250,000 shares of our common stock
and we granted Jeff Chatfield (a representative of Sierra) and Mark Bogani each
warrants to purchase 100,000 shares of our common stock at an exercise price of
$0.01 per share. Messrs. Chatfield and Bogani each exercised their respective
warrants in December 2003. To our knowledge, other than (i) the shares granted
to Mr. Webb, (ii) the warrants granted to Messrs. Chatfield and Bogani, (iii)
the payment of attorneys' fees, and (iv) the issuance of 19,161,256 shares of
our common stock in exchange for an equal number of shares of Raptor, no other
consideration was paid by us in conjunction with the Raptor Acquisition.

           The issuances of shares and warrants in connection with the Raptor
Acquisition 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.

           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.

                                  RISK FACTORS

OUR INDEPENDENT AUDITORS 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.

           Our independent auditors have qualified their opinion 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, 2005, 2004 and 2003. Reports of independent auditors
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 certified public
accountants 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.

                                      -10-


<PAGE>

OUR SUBSTANTIAL ACCUMULATED DEFICIT, LIMITED WORKING CAPITAL AND EXPECTATION OF
FUTURE LOSSES REQUIRES THAT WE OBTAIN ADDITIONAL FINANCING TO CONTINUE
OPERATIONS THROUGH 2006, WHICH WE MAY NOT BE ABLE TO SECURE ON ACCEPTABLE TERMS,
IF AT ALL.

           We are a start-up stage company and have had no significant revenues
from operations to date. As of December 31, 2005, we had an accumulated deficit
of $41,610,497. 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 2005 and 2004 were $13,390,940 and $20,574,984,
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.

           Historically, we have relied upon cash from financing activities to
fund nearly all of the cash requirements of our operating activities. We
anticipate that additional capital must be raised to fund operations through
fiscal year 2006 and there can be no assurance that sufficient revenues will be
generated thereafter to fund our operating requirements. 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.
Should we be unable to raise additional capital, investors in our Company could
lose their entire investment. Moreover, in the event we are able to raise
additional funds through the sale of shares of our common stock or other
interests in us, our investors may experience significant dilution of their
equity invested in us.

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

           We are a start-up 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.

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 with a
financial institution 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.

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.

           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


                                      -11-


<PAGE>

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.

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.

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.

                                      -12-


<PAGE>

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 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.

           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.

                                      -13-


<PAGE>

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 products 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 effect 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. (which is controlled by the in-laws of Albert Wong, one of
our directors) and may in the future subcontract with other third-party
manufacturers. In addition, some Company-branded products are manufactured by
third party 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 effected 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:

o    negative customer reactions;
o    product liability claims;
o    negative publicity regarding us and our products;


                                      -14-


<PAGE>

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 rapid 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 PRINCIPALS 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.

CHANGES IN ACCOUNTING POLICIES REGARDING THE TREATMENT OF EMPLOYEE STOCK OPTIONS
WILL ADVERSELY AFFECT OUR EARNINGS.

           Stock options have from time to time been a component of the
compensation packages for many of our employees. We currently do not deduct the
expense of employee stock option grants from our income. However, beginning
January 1, 2006, we are (pursuant to SEC rules) required to change our
accounting policy to record the value of stock options issued to employees as an
expense and a charge against earnings. This required change in our accounting
policy will adversely affect our earnings.

                                      -15-


<PAGE>

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
us our Company) currently are highly volatile. The market price of our common
stock has fluctuated significantly in the past. In fact, during 2004, the high
and low closing sale prices of a share of our common stock were $4.65 and $0.36,
respectively. During 2005, the high and low closing sale prices of a share of
our common stock were $0.90 and $0.39, respectively. 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:

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 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 21, 2006, we
had outstanding 54,204,367 shares of common stock, of which approximately
43,887,123 shares were restricted under the Securities Act of 1933, as amended
(the "Securities Act"). As of March 21, 2006, we also had outstanding options,
warrants, and convertible promissory notes that were exercisable for or
convertible into approximately 18,275,087 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 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 warrants to purchase our common stock,
noncompensatory 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, 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 options and warrants. In
addition, holders of certain options and warrants have registration rights with
respect to the common stock underlying such options and warrants, the
registration of which will cause us to incur a substantial expense.

                                      -16-


<PAGE>

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 Bulletin Board (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.

ITEM 2.    PROPERTIES

           In August 2004, we relocated into a Federal Empowerment Zone in Santa
Ana, California, which reduced our overhead expenses and created a more
appropriate facility for our activities. The address of our facilities is 1241
E. Dyer Road, Suite 150, Santa Ana, California 92705. Those facilities,
consisting of 11,118 square feet, include our executive offices and research and
development laboratory and are leased from an unrelated third party. The term of
the lease is 36 months commencing August 1, 2004, with a scheduled termination
date of July 31, 2007. The base rent for the first year of occupancy was $16,677
per month ($1.50 per rentable square foot). Pursuant to the terms of the lease,
on August 1, 2005, the monthly rent increased to $17,232.90 ($1.55 per square
foot) and on August 1, 2006 the monthly rent will increase to $17,788.80 ($1.66
per square foot). Our suite is on the first floor of a two-story multi-unit
business complex and is in good condition.

           We believe that the monthly rental rates are comparable to rents
charged for comparable properties in the market area. We believe that the
current facilities are adequate for our expected needs through at least the end
of fiscal year 2006. We require full compliance by the lessor with applicable
state and EPA environmental standards at our facility.

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 matter was submitted to a vote of our shareholders during the
fourth quarter ended December 31, 2005.

                                      -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 commenced trading under the symbol
"RPTN" on the OTC Bulletin Board during December 2003. 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 interdealer quotation medium. The quotations
reflect inter-dealer prices, without retail markup, markdown, or commissions,
and may not necessarily represent actual transactions.



                                                           Fiscal 2005
                                                  ------------------------------
                   Fiscal Quarter Ended:           High                    Low
                                                  -----                   -----
                        December 31               $0.85                   $0.50
                        September 30              $0.64                   $0.43
                        June 30                   $0.73                   $0.48
                        March 31                  $0.90                   $0.39

                                                           Fiscal 2004
                                                  ------------------------------
                   Fiscal Quarter Ended:           High                    Low
                                                  -----                   -----
                        December 31               $0.90                   $0.36
                        September 30              $1.50                   $0.80
                        June 30                   $4.40                   $1.45
                        March 31                  $4.65                   $3.20

           On March 21, 2006, the average bid and ask price of our common stock
as reported by Pink Sheets, LLC, was $0.72 per share.

HOLDERS

           On March 21, 2006, we had 54,204,367 shares of our common stock
outstanding held by approximately 812 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 have no present intention to pay cash dividends in the foreseeable future.
The current policy of our Board of Directors is to retain earnings to provide
funds for the operation and expansion of our business. Our Board of Directors,
in light of the circumstances then existing, including our earnings and
financial requirements and general business conditions, will determine the
timing and amount of future dividends, if any.

SALES OF UNREGISTERED SECURITIES

           We engaged in several private placement offerings of our securities
during fiscal year ended December 31, 2005. All such sales previously have been
reported on our Quarterly Reports on Form 10-QSB 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.    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, 2004 and 2005. 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 Factor" 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 ESTIMATES AND JUDGMENTS

           Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States (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 inventory valuations,
license fees and the recovery of deferred income tax assets.

           We determine our inventory value at the lower of average cost or
market. When required, a provision is made to reduce excess and obsolete
inventory to estimated net realizable value.

           We have paid $260,000 to a supplier for a software platform related
to our ER-1010 product. This license fee will be amortized and charged to cost
of sales over the sale of 1,000 ER-1010 systems, which approximates the number
of systems expected to be sold using the platform. We amortized $520 for the
sale of two ER-1010 systems and $4,160 for the sale of 16 ER-1010 systems in
2004 and 2005, respectively.

           We review our 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 their 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.
We are required to exercise a considerable amount of judgment when estimating
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates. No assets were considered impaired for either
of the years ended December 31, 2004 or 2005.

           As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves us estimating the
actual current tax liabilities together with assessing temporary differences
resulting from different treatment of items for tax and accounting purposes. We
recognize deferred tax assets and liabilities based on differences between the
financial reporting and tax bases of assets and liabilities using the enacted
federal, state, and local income tax rates and laws that are expected to be in
effect when the differences reverse.

                                      -19-


<PAGE>

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.

       RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004,
         COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2005 (IN THOUSANDS)


                                     December 31, 2004   December 31, 2005
                                     -----------------   -----------------
Net Sales                                     $     54            $    289
Cost of Sales                                       27                 120
                                              --------            --------
Gross Profit                                        27                 169

Operating expenses
   Consulting Fees                                 715                  --
   Finder's Fees                                   986               1,064
   Cost of warrants granted                        120               3,433
   Stock for services (non cash)                11,209                  --
   Salary expense                                3,032               2,630
   Marketing expense                               190                 349
   Research and Development Costs                1,167                 403
   Selling, general and administrative           3,075               2,767
                                              --------            --------
Total operating expenses                        20,494              10,646

  Net Other Income (loss)                         (108)             (2,913)

Loss before Income tax provision               (20,575)            (13,390)
  Income tax provision                              --                  --
                                              --------            --------
Net loss                                      $(20,575)           $(13,390)
                                              ========            ========
NET SALES

           For the fiscal years ended December 31, 2004 and December 31, 2005,
we realized only minimal revenues of $54, 040 and $289,236, respectively. The
$235,196 increase in revenues between 2004 and 2005 resulted from our sale of 16
ER-1010 units in 2005, as compared to the sale of two ER-1010 units in 2004. Our
2005 sales were made to seven customers in different industries such as
education, entertainment, healthcare services and research labs, whereas our
sales in 2004 were made to a single customer.

           A majority of our 2005 revenues were earned in the fourth quarter of
2005. During that quarter we realized $155,800 in revenues, a substantial
increase over revenues from the first three quarters of 2005, which were
$15,000, $96,000 and $22,436, respectively. This increase in revenues in the
fourth quarter of 2005 is a result of the sale of eight ER-1010 units to three
customers during that quarter, as compared to the sale of a total of eight
ER-1010s to three customers during all of the first three quarters of 2005.

           Our flagship product, the ER-1010, is now fully installed at
approximately 20 separate locations. Installations at eight of these locations
represent products that we have sold to customers. Installations at the other 12
locations represent customers who are evaluating our products, but have not yet
made any firm commitment to purchase. We expect that sales of the ER-1010 in
fiscal 2006 will increase over fiscal 2005 numbers. In addition, we expect that
new products such as our ER-1808 and OR-1048 will contribute to 2006 revenue
levels. The OR-1048 became commercially available in March 2006 and we expect
that the ER-1808 will be commercially available by mid-2006. We also engaged in
discussions with various third parties during the fourth quarter of 2005
regarding the possibility of incorporating our products into the product and
service offerings of several large systems integrators, which we believe could
result in increased sales in fiscal 2006. However, at this point we are engaged
only in preliminary, non-binding discussions and there can be no guarantee that
we will be able to secure any relationship with systems integrators.

                                      -20-


<PAGE>

OPERATING EXPENSES

           In 2005, we took affirmative steps to further manage our expenses
proportionately to our limited revenues. Total operating expenses were
$10,646,911 for 2005 and $20,494,261 for 2004. The following descriptions detail
our total operating expenses by expense category.

           CONSULTING FEES

           We did not incur any consulting related fees in 2005. Of the $715,000
in consulting expenses for 2004, we incurred approximately $553,000 in expenses
in conjunction with various consulting contracts regarding treasury and channel
management support. The remaining consulting expenses for 2004 totaling
approximately $158,000 relates to charges in connection with investment relation
services.

           FINDER'S FEES

           Expenses related to finder's fees amounted to $1,064,405 in 2005 and
$985,857 in 2004. In both 2005 and 2004 our finder's fee expenses consisted
entirely of placement agent fees paid in cash in connection with private
placements we have engaged in to raise capital to support our ongoing
operations. The variation in placement agent related expenses between these two
years results from differences in both the amount of gross proceeds raised
through private placements during each year and the percentage of such proceeds
that were paid as fees pursuant to our agreements with the placement agents. In
2005, we raised gross proceeds of approximately $9,088,000 through private
placements and in 2004 we raised gross proceeds of approximately $9,550,000
through private placements.

           COST OF WARRANTS GRANTED

           In 2005, we issued warrants to purchase shares of our common stock to
investors and placement agents in connection with our 2005 private placements.
The total charge for these warrants calculated as required by accounting rule
EITF 96-13 amounted to 3,432,994. For more details on this charge refer to the
table: "Cost of Warrants Granted" under Note 6 to our consolidated financial
statements beginning on page F-1 of this Report. In 2004, we incurred a charge
for the issuance of warrants in the amount of $120,000 in accordance with
accounting rule EITF 96-13.

           STOCK FOR SERVICES

           During 2005, we did not issue any of our stock in consideration for
services. In 2004, we incurred a $11,209,000 charge for stock issued for
services, which resulted in part from our issuance of three million shares of
our common stock to our then newly appointed President and Chief Executive
Officer as a hiring bonus and 400,000 shares of our common stock to our Chief
Financial Officer as a retention incentive bonus. In addition, in 2004 another
key employee received 100,000 shares of our common stock as a retention
incentive bonus and eight service providers received 2,420,600 shares of our
common stock in consideration for various consulting services and other service
assistance provided to us. The total charge to stock for services for the
foregoing issuances of our common stock in 2004 was approximately $9.3 million.
The remaining 2004 charge to stock for services in the amount of approximately
$1.9 million related to stock issued to certain shareholders in consideration
for them entering into a "lock up" agreement in conjunction with one of our 2004
private placements, and stock issued for services in conjunction with agreements
that terminated in 2003, but were charged to 2004. All of the aforementioned
consulting agreements and other stock for service agreements were terminated on
or before December 31, 2004.

           SALARY EXPENSES

           Salary expenses decreased from $3,032,000 in 2004 to $2,630,000 in
2005, a 13.3% decrease. The primary reason for this decrease is that we lowered


                                      -21-


<PAGE>

annual salary levels for management level employees by an aggregate of $235,000
for 2005 in order to reduce expense run rates. The remaining decrease of
approximately $170,000 was caused by a decrease in the average salary for
non-management employees. However, these 2005 salary expenses may not be
indicative of our future salary expenses due to the fact that we intend to begin
restoring annual salary levels for management level employees to what we believe
to be more competitive levels once we achieve certain revenue goals.

           MARKETING EXPENSES

           Marketing expenses increased from $189,843 in 2004 to $349,310 in
2005. This 82% increase reflects our increased emphasis on attempting to
generate products sales in 2005 and consists of increased advertising expenses,
increased exhibition attendance costs and the production of a greater amount
promotional materials in 2005 as compared to 2004. In addition, we charged
$81,000 in 2005 to marketing expenses in connection with the write-off of
equipment used for promoting our products.

           RESEARCH AND DEVELOPMENT

           The amount we spent on research and development ("R&D") was $403,057
in 2005 and $1,167,068 in 2004. This 65% decrease is attributable in part to a
major expense reduction in our parts consumption and scrap expenses, which
amounted to $450,000 in 2004 compared to $150,000 in 2005. This expense
reduction was possible because a major portion of our hardware design activities
had been finalized in 2004. Another effect of the reduction in hardware design
activities towards the end of 2004 and continuing throughout 2005 was our
reduced need for the use of design tools, resulting in a decrease in expenses
for design tools from $228,000 in 2004 to $103,000 in 2005. In addition, costs
associated with industrial design and software design amounting to approximately
$205,000 in 2004 were reduced to $15,000 in 2005.

           SELLING, GENERAL AND ADMINISTRATIVE

           Selling, General and Administrative ("SG&A") expenses decreased from
$3,075,302 in 2004 to $2,766,716 in 2005, a 10% decrease. Our decreases in SG&A
expenses in 2005 as compared to 2004 consist of IT support services expenses,
which decreased from $94,000 in 2004 to $50,000 in 2005; and our legal fees,
which decreased from $578,000 in 2004 to $469,000 in 2005, mainly as a result of
our settlement of legal proceedings in late 2004 and early 2005. In addition, in
2004 we incurred $770,000 in SG&A expenses in conjunction with the settlement of
legal proceedings and did not incur a similar expense in 2005. These decreases
in SG&A expenses in 2005 were offset to some extent by SG&A categories that
increased in 2005 as compared to 2004. The significant increases in SG&A expense
categories in 2005 were depreciation expenses, which increased from $180,000 in
2004 to $316,000 in 2005, mainly in connection with an increase in our purchase
of test equipment resulting in a higher charge for depreciation; travel
expenses, which increased from $189,000 in 2004 to $232,000 in 2005 in
connection with increased selling activities; recruiting expenses, which
increased from $112,000 in 2004 to $162,000 in 2005 because of increased use of
outside recruiters; and the cost of attending conferences, which increased from
$2,000 in 2004 to $105,000 in 2005 due to our increased attendance at sales and
finance related conferences. We also charged approximately $211,000 to selling
expenses in 2005 in connection with a provision for inventory in the possession
of third parties, and we did not incur a similar charge in 2004.

           OTHER INCOME/ (LOSS)

           Other expenses increased substantially to $2,912,965 in 2005 as
compared with $107,433 in 2004. The primary reason for this increase is that we
incurred a charge of $2,652,000 as prescribed under paragraph 13 of accounting
rule EITF 98-5 in connection with the conversion of our 10% Notes and 8% Notes
in 2005 (as described below under the caption "Liquidity and Capital Resources"
and the table "Cost Associated with Convertible Debt" under Note 6 to our
consolidated financial statements beginning on page F-1 of this Report). We did
not incur a similar expense in 2004 as the terms of the 10% Notes were amended
during that year, increasing the number of warrants to be issued in conjunction
with the 10% Notes and decreasing the exercise price of such warrants. It was
further agreed that the 10% Notes would only convert after the contingency of a
$4,000,000 financing was achieved and, therefore, the cost of the conversion of
the 10% Notes was charged fully in 2005. In addition, interest expense on our
bridge loan debt was $247,756 in 2005, as compared to $102,172 in 2004. This


                                      -22-


<PAGE>

$145,584 increase in bridge loan interest expense in 2005 over 2004 reflects our
increased outstanding bridge loan debt between those periods, which averaged
$4,045,200 in 2005 and $1,214,000 in 2004. However, as a result of the
conversion of our 10% Notes and 8% Notes, our outstanding bridge loan debt as of
March 21, 2006 was $1,214,290. The remaining amount included in interest expense
of $15,988 in 2005 and $12,942 in 2004 relates to "other interest" paid.

LIQUIDITY AND CAPITAL RESOURCES

           Our independent auditors have qualified their opinion 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, 2005, 2004 and 2003. Reports of independent auditors
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 certified public accountants
and our consolidated financial statements and related notes beginning on page
F-1 of this Report, the cautionary statements included in the "Risk Factor"
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 our
Company.

           For the years ended December 31, 2004 and 2005, we sustained net
losses of $20,574,984 and $13,390,940, respectively. As of December 31, 2005, we
had working capital of $2,926,802. Our management has made efforts to address
these financial conditions by raising capital through the use of convertible
debt and private placements of common stock and warrants, as more fully
described below.

December 2003 - April 2004 Convertible Loans
--------------------------------------------

           During the period between December 2003 through April 2004, we
obtained convertible loans totaling $1,214,290. Interest on these loans accrues
at an annual rate of 8%. The loans are convertible into shares of our common
stock at any time during the three year period following initial funding of the
loans. The conversion rate is $3.50 per share. If not previously voluntarily
converted, the total amount of principal and accrued but unpaid interest
thereunder shall automatically convert into shares of our common stock at a
conversion rate of $3.50 per share on April 15, 2007.

April 2004 Financing
--------------------

           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 $2.03 per share as of
March 21, 2006.

June 2004 Financing
-------------------

           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 expire 60 days
after the effective date of a registration statement covering the common stock,
Series C Warrants and Series D Warrants issued in our June 2004 financing. A
registration statement covering these securities has been filed with the SEC,
but has not yet been declared effective. 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 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.

                                      -23-


<PAGE>

10% Convertible Bridge Notes
----------------------------

           During the period between November 2004 and February 2005, we issued
convertible notes (the "10% Notes") to forty-one accredited investors in the
aggregate principal amount of $2,360,000 in exchange for $2,360,000 in cash. Our
net proceeds were $2,124,000, after the payment of a 10% placement agent fee to
Burnham Hill Partners, a division of Pali Capital, Inc. (a NASD-registered
broker-dealer) ("Burnham Hill"), who acted as placement agent for the financing.
The 10% Notes bore interest at a rate of 10% per annum. Pursuant to the terms of
the 10% Notes, the outstanding principal amount of these notes, together with
all accrued but unpaid interest thereunder, would automatically convert into
shares issued in an equity based financing with gross proceeds of at least
$4,000,000, if any, of the sale of our common stock or other equity-based
equivalent, and at a price per share not to exceed $0.50 per share (a "10% Note
Qualified Financing"). However, for the purpose of determining the number of
shares and warrants to be received by the holders upon such conversion following
a 10% Note Qualified Financing, the holders would be deemed to have tendered
120% of the outstanding balance of the 10% Notes.

           As of the August 25, 2005 closing of our 2005 Private Placement of
"units" (described below under the caption "2005 Private Placement of Common
Stock and Warrants") we had raised total gross proceeds of $3,558,500 through
the 2005 Private Placement. In addition, between February 2005 and April 2005
(and as described below under the heading "8% Convertible Bridge Notes"), we
secured additional private debt financing in the original aggregate principal
amount of $600,000 through the issuance of 8% Convertible Bridge Notes. After
adding this $600,000 in convertible debt financing to the gross proceeds of the
2005 Private Placement, our aggregate gross proceeds were $4,158,500. As a
result, we achieved a 10% Note Qualified Financing and, accordingly, the
$4,000,000 automatic conversion event of the 10% Notes was triggered upon the
August 25, 2005 closing of the 2005 Private Placement.

           As of August 25, 2005, the total principal and accrued interest under
the 10% Notes was $2,509,971. After taking into account the provision of the 10%
Notes which provided that the holders would be deemed to have tendered 120% of
the outstanding balance of the 10% Notes, the holders of the 10% Notes were
deemed to have tendered $3,011,965 for the purpose of determining the number of
shares and warrants to be received by the holders upon such conversion. Based on
the offering terms of our 2005 Private Placement, the holders were entitled to
an aggregate of 6,023,932 shares of our common stock (based on a $0.50 price per
share of common stock included within the units offered to investors in the 2005
Private Placement) and 1,505,989 Series G-BH Warrants to purchase our common
stock. The Series G-BH Warrants have an exercise price of $2.50 per share of
common stock, expire August 25, 2010, and, so long as certain other conditions
set forth in the Series G-BH Warrants are met, are callable by us the first day
after the 30-trading-day average price of our common stock exceeds $3.50 per
share.

           In addition, the 10% Note holders were issued 1,416,000 Series E
Warrants. These Series E Warrants have an exercise price of $0.60 per share of
common stock and expire five years from the respective noteholder's 10% Note
issuance date. In the event the closing bid price of our common stock exceeds
$2.50 per share and certain other conditions set forth in the Series E Warrants
are met, 50% of the Series E Warrants are callable by us during the first two
years after their respective date of issuance, and 100% of the Series E Warrants
are callable by us thereafter.

           We also issued 602,393 Series J placement agent warrants to designees
of Burnham Hill for placement agent services provided in conjunction with the
10% Note financing. The Series J Warrants have an exercise price of $0.50 per
shares of common stock and expire August 25, 2010.

8% Convertible Bridge Notes
---------------------------

           During the period between February 2005 and April 2005, we secured
private debt financing from ten accredited investors in the original aggregate
principal amount of $600,000. Our net proceeds were $528,000 after the payment
of a 12% placement agent fee to Brookstreet Securities Corporation (a
NASD-registered broker-dealer), who acted as placement agent for the financing.
The debt was evidenced by thirteen Convertible Bridge Notes (the "8% Notes"),
which bore interest at a rate of 8% per annum. The 8% Notes contained a
conversion provision whereby the entire principal and accrued interest of the 8%
Notes would automatically convert into shares of our common stock if we raised


                                      -24-


<PAGE>

at least $3,000,000 in a private equity financing after the issuance of the 8%
Notes (an "8% Note Qualified Financing"). For purposes of such conversion, the
conversion price would reflect a 20% discount from the per share purchase price
in the 8% Note Qualified Financing. In addition, the $600,000 in 8% Notes was to
be added to the proceeds from the 8% Note Qualified Financing for purposes of
calculating the $3,000,000 amount, which triggered the automatic conversion.

           As of the July 15, 2005 closing of our 2005 Private Placement, we had
raised total gross proceeds of $2,416,000 through the 2005 Private Placement.
After adding the $600,000 in 8% Notes to these gross proceeds as required by the
conversion provisions of the 8% Notes, the aggregate gross proceeds from the
2005 Private Placement and 8% Notes was $3,016,000. As a result, we achieved an
8% Note Qualified Financing and, accordingly, the $3,000,000 automatic
conversion event of the 8% Notes was triggered upon the July 15, 2005 closing of
the 2005 Private Placement.

           As of July 15, 2005, the total principal and accrued interest under
the 8% Notes was $616,097. Pursuant to the 20% discount in conversion price
discussed above, the conversion price of the 8% Notes was $0.40 per share of our
common stock (based on a $0.50 price per share of common stock included within
the units offered to investors in the 2005 Private Placement). Based on this
$0.40 per share conversion price, the holders of the 8% Notes were entitled to
an aggregate of 1,540,244 shares of our common stock.

           We also issued 231,036 Series F placement agent warrants to
Brookstreet Securities Corporation and its designees for placement agent
services provided in conjunction with the 8% Note financing. The Series F
Warrants have an exercise price of $0.40 per share of common stock and expire on
the earlier of April 23, 2010 or upon a merger, acquisition, consolidation, sale
of voting control or sale of substantially all of our assets in which our
shareholders do not own a majority of the outstanding shares of the surviving
corporation.

2005 Private Placement of Common Stock and Warrants
---------------------------------------------------

           During the period between April 2005 and November 2005, we sold a
combination of common stock and warrants in a private placement transaction to
189 accredited investors (the "2005 Private Placement"). The common stock and
warrants were sold as "units," with each unit consisting of four shares of
common stock and one Series G Warrant to purchase common stock. The price per
unit was $2.00. We raised aggregate gross proceeds of $7,128,375 under this
private placement transaction and issued 14,256,750 shares of common stock and
Series G Warrants to purchase an aggregate of 3,564,188 shares of common stock.
The Series G Warrants have an exercise price of $2.50 per share of common stock,
expire five years from their respective date of issuance, and, so long as
certain other conditions set forth in the Series G Warrants are met, are
callable by us the first day after the 30-trading-day average price of our
common stock exceeds $3.50 per share. Our net proceeds were $6,272,970 after the
payment of $855,405 in placement agent fees to Brookstreet Securities
Corporation, who acted as placement agent for the transaction.

           In addition, we issued Series H placement agent warrants to acquire
up to 2,138,513 shares of common stock to Brookstreet Securities Corporation and
its designees for placement agent services rendered in conjunction with the 2005
Private Placement. 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 upon a
merger, acquisition, consolidation, sale of voting control or sale of
substantially all of our assets in which our shareholders do not own a majority
of the outstanding shares of the surviving corporation.

           The foregoing capital raises during fiscal years ended December 31,
2004 and 2005 have enabled us to further enhance and stabilize product
performance, reduce the cost of manufacturing by redesign, build an inventory of
finished products and generate a certain level of interest in the marketplace.
However, we anticipate that additional capital must be raised to fund operations
through fiscal year 2006 and there can be no assurance that sufficient revenues
will be generated thereafter to fund our operating requirements. 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.

           The descriptions of the agreements discussed above are qualified by
reference to the complete text of those agreements. However, the
representations, warranties, covenants and other provisions of those agreements
are not intended as documents for investors and the public to obtain factual


                                      -25-


<PAGE>

information about our current state of affairs. Rather, investors and the public
should look to other disclosures contained in our reports under the Securities
Exchange Act of 1934, as amended.

ITEM 7.    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 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           We have had no change of, nor disagreements with, our accountants
since our inception.

ITEM 8A.   CONTROLS AND PROCEDURES.

           Our Chief Executive Officer and Chief Financial Officer (the
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of December 31, 2005 ("Evaluation
Date"), that the design and operation of our "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-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 or submitted by
us under the Exchange Act is accumulated, recorded, processed, summarized and
reported 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.

           During the quarter ended December 31, 2005, there were no changes in
our internal controls over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

ITEM 8B.   OTHER INFORMATION.

           None.

                                      -26-


<PAGE>

                                    PART III

ITEM 9.    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 Wittenschlaeger         48        Chief Executive Officer, President,
                                           Director and Chairman of the Board
Bob van Leyen                  62        Chief Financial Officer and Secretary
Ken Bramlett                   46        Director (1) (2)
Larry L. Enterline             53        Director (1) (3)
Albert Wong                    57        Director (1) (4)

--------------------
(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.

           TOM WITTENSCHLAEGER, (age 48), is our Chief Executive Officer,
President, a director and Chairman of the Board. Mr. Wittenschlaeger has
accumulated more than twenty-two 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 been our Chairman of the
Board, President and Chief Executive Officer since March 15, 2004.

           LARRY L. ENTERLINE, (age 53), is one of our directors and Chairperson
of the Audit Committee. In February 2006, Mr. Enterline was appointed as the
Chief Executive Officer of COMSYS IT Partners, Inc, a leading provider of
information technology services. From September 2004 to February 2006, Mr.
Enterline acted as a private investor. From 2000 to September 2004, Mr.
Enterline served as Chief Executive Officer and as a director of Venturi
Partners, Inc., a leading provider of information technology and professional
staffing services nationwide. From 1989 to 2000, Mr. Enterline served in various
management roles with Scientific Atlanta, Inc., a leading national global
manufacturer and supplier of cable network products. Mr. Enterline brings
decades of market-defining successes to our Board. Mr. Enterline is also a
member of the board of directors of COMSYS IT Partners, Inc. and Concurrent
Computers Corp. Mr. Enterline has been one of our directors since October 18,
2004.

           KEN BRAMLETT, (age 46), is one of our directors and Chairperson of
the Nominating and Governance 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 brings 20 years of experience in
corporate law and governance, public and private equity, and mergers and
acquisitions to our Board. Mr. Bramlett has been one of our directors since
December 2, 2004.

                                      -27-


<PAGE>

           ALBERT WONG, (age 57), is one of our directors and Chairperson of the
Compensation Committee. Mr. Wong has more than twenty years of experience in the
high-tech industry, from start-up phase to executive management. He is a
co-founder of AST Research, a world class PC manufacturer founded in 1980, where
he served as director, Chief Technology Officer & Executive Vice President from
1980 to 1989. Later, he founded AMKLY Systems, a producer of high performance PC
and network servers. He was President & CEO of AMKLY through 1996. In October
1998, Mr. Wong was recruited by Clarion Co., Ltd. to start a North America
research and development center. He served as director, President & CEO of
Clarion Advanced Technology (later as Zandiant Technologies) until June 2003.
Since June 2003, Mr. Wong has acted as a private investor. Mr. Wong has also
served as a member of board of directors with Printrak International, a leading
fingerprint identification company, Netsoft and InfoGation Corporation. He is an
advisor to Express Manufacturing, Inc., a leading contract manufacturing
company, where he has served as an advisor to the board since May, 2002. Mr.
Wong has been one of our directors since May 17, 2004.

           BOB VAN LEYEN, (age 62), is our Chief Financial Officer and
Secretary. Mr. van Leyen has more than twenty-four 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. 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, Ken Bramlett and Albert Wong 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 three Board members, Larry L.
Enterline, Albert Wong and Ken Bramlett. Mr. Enterline is the chairperson of the
Audit Committee. The duties of the Audit Committee include meeting with our
independent public accountants 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
public accountants' performance and has sole authority to appoint or replace the
independent auditor (subject, if applicable, to shareholder ratification) and to
determine whether the independent 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 three Board
members, Larry L. Enterline, Ken Bramlett and Albert Wong. 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


                                      -28-


<PAGE>

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

           The Compensation Committee consists of three Board members, Larry L.
Enterline, Ken Bramlett and Albert Wong. Mr. Wong 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.

           We have conducted a review of our process and procedures concerning
possible deficiencies in our monitoring of, and assuring compliance with, SEC
reporting requirements concerning changes in beneficial ownership of our
securities. In connection with such efforts, we reviewed copies of such reports
furnished to us during the fiscal year ended December 31, 2005, and written
representations we received from our directors and officers and the certain
beneficial owners of more than 10% of our common stock concerning our compliance
with Section 16(a) of the Exchange Act. Based on this review, we believe that
during the 2005 fiscal year, administrative errors caused the following
deficiencies: (i) a late filing of a Form 4 Statement of Changes in Beneficial
Ownership of Securities by director Larry L. Enterline, consisting of two
transactions that was not reported on a timely basis for fiscal year 2005, (ii)
a late filing of a Form 4 Statement of Changes in Beneficial Ownership of
Securities by director Albert Wong, consisting of two transactions that were not
reported on a timely basis for fiscal year 2005, (iii) a late filing of a Form 4
Statement of Changes in Beneficial Ownership of Securities by President, CEO and
Chairman of the Board Thomas Wittenschlaeger, consisting of two transactions
that were not reported on a timely basis for fiscal year 2005, and (iv) a late
filing of a Form 4 Statement of Changes in Beneficial Ownership of Securities by
CFO and Secretary Bob van Leyen, consisting of two transactions that were not
reported on a timely basis for fiscal year 2005. These filings have now been
made and improved processes are in place to assist in assuring future
compliance.

                                      -29-


<PAGE>

ITEM 10.     EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS AND MANAGEMENT

           The summary compensation table below shows certain compensation
information for services rendered in all capacities to us by our Chief Executive
Officer and by each other of the highest paid executive officers (up to a
maximum of four) whose total annual salary and bonus exceeded $100,000 during
the fiscal years ended December 31, 2005, 2004 and 2003 (the "Named Executive
Officers"). Other than as set forth below, no executive officer's total annual
salary and bonus exceeded $100,000 during our last fiscal year.

<TABLE>
                                               SUMMARY COMPENSATION TABLE
                                                                                            LONG TERM
                                                         ANNUAL COMPENSATION               COMPENSATION
                                                     ------------------------------     ----------------
                                                                                            SECURITIES
                                      FISCAL                                                UNDERLYING            ALL OTHER
NAME AND PRINCIPAL POSITION            YEAR           SALARY             BONUS             STOCK OPTIONS        COMPENSATION($)
---------------------------            ----           ------             -----             -------------        ---------------
<S>                                    <C>           <C>               <C>                   <C>                      <C>
Thomas Wittenschlaeger (1)             2005          $155,000(2)               --            350,000(3)            $29,381(4)
President, CEO and Chairman of Board   2004          $148,458(2)       $4,815,000(5)         350,000(3)            $19,694(6)
                                       2003                --                  --                 --                    --

Bob van Leyen                          2005          $125,000(7)               --            300,000(8)            $14,638(9)
CFO and Secretary                      2004          $183,750(7)         $632,000(10)             --               $14,761(11)
                                       2003           $41,045                  --            300,000(8)                 --

Edwin Hoffman (12)                     2005          $125,000(13)                                 --                $9,079(15)
Chief Development Officer              2004          $187,083(13)         $40,000(14)             --               $21,192(16)
                                       2003           $63,125                  --                 --                    --

Ananda Perera (17)                     2005          $125,000(18)         $25,000(19)             --                $2,760(20)
Chief Technical Officer                2004          $178,333(18)         $60,000(21)             --                $2,798(22)
                                       2003           $65,833                  --                 --                    --

Lyle Pearson (23)                      2005                --                  --                 --                    --
Former CEO and Chairman of Board       2004           $62,500                  --                 --                $2,272(24)
                                       2003           $87,500                  --                 --                    --
</TABLE>
__________________________
(1)        Mr. Wittenschlaeger commenced employment with us on March 15, 2004
           and was named President and Chief Executive Officer as of that date.
(2)        In November 2004, we decreased all executive annual salary levels in
           order to reduce expense run rates, resulting in a reduction of Mr.
           Wittenschlaeger's annual salary from $195,000 to $155,000. This
           reduced salary level remained in effect throughout 2005. It is our
           intention to begin restoring executive compensation to what we
           believe to be more competitive levels once we achieve certain revenue
           goals.
(3)        On July 15, 2004, Mr. Wittenschlaeger was granted a non-plan stock
           option to purchase 350,000 shares of our common stock at an exercise
           price of $1.75 per share, which vests at the rate of 33-1/3% on each
           of July 15, 2005, 2006 and 2007, and expires on July 15, 2012. On
           January 5, 2005, our Board of Directors unilaterally repriced the
           exercise price of all outstanding stock options held by our employees
           and directors that had an exercise price greater than $1.00 per share
           to have a new exercise price equal to $1.00 per share. As a result,
           on January 5, 2005, the exercise price of Mr. Wittenschlaeger's July
           15, 2004 stock option was repriced to $1.00 per share. The other
           terms of Mr. Wittenschlaeger's July 15, 2004 stock option, including
           the number of shares covered by the option, the rate of vesting and
           the expiration date, were not changed. The repricing is deemed to
           have resulted in a cancellation and regrant of Mr. Wittenschlaeger's
           July 15, 2004 stock option as of January 5, 2005 and, hence, is
           reported in both fiscal year 2004 and 2005.
(4)        Consists of $20,694 in reimbursement of temporary living expenses for
           an apartment in Southern California and $8,687 in health and life
           insurance premiums.

                                      -30-


<PAGE>

(5)        Mr. Wittenschlaeger was granted 3,000,000 shares of our common stock
           in conjunction with the commencement of his employment with us. The
           value of the shares, issued to Mr. Wittenschlaeger on March 17, 2004,
           is calculated based upon a $1.58 fair market price per share
           valuation as of the date of grant. The shares were issued to Mr.
           Wittenschlaeger as "restricted securities" under the Securities Act
           of 1933, as amended, and are not the subject of a registration
           statement filed with the SEC or any state securities authority. Also
           includes a $75,000 hiring bonus paid in connection with Mr.
           Wittenschlaeger's relocation from Atlanta, Georgia to Southern
           California.
(6)        Consists of $11,064 in reimbursement of temporary living expenses for
           an apartment in Southern California and $8,630 in health and life
           insurance premiums.
(7)        In November 2004, we decreased all executive annual salary levels in
           order to reduce expense run rates, resulting in a reduction of Mr.
           Van Leyen's annual salary from $190,000 to $125,000. This reduced
           salary level remained in effect throughout 2005. It is our intention
           to begin restoring executive compensation to what we believe to be
           more competitive levels once we achieve certain revenue goals.
(8)        On September 29, 2003, Mr. van Leyen was granted a non-plan stock
           option to purchase 300,000 shares of our common stock at an exercise
           price of $1.50 per share, which vests at the rate of 33-1/3% on each
           of September 29, 2004, 2005 and 2006, and expires on September 29,
           2011. On January 5, 2005, our Board of Directors unilaterally
           repriced the exercise price of all outstanding stock options held by
           our employees and directors that had an exercise price greater than
           $1.00 per share to have a new exercise price equal to $1.00 per
           share. As a result, on January 5, 2005, the exercise price of Mr.
           van Leyen's September 29, 2003 stock option was repriced to $1.00
           per share. The other terms of Mr. van Leyen's September 29, 2003
           stock option, including the number of shares covered by the option,
           the rate of vesting and the expiration date, were not changed. The
           repricing is deemed to have resulted in a cancellation and regrant
           of Mr. van Leyen's September 29, 2003 stock option as of January 5,
           2005 and, hence, is reported in both fiscal year 2003 and 2005.
(9)        Consists of $14,638 in health and life insurance premiums.
(10)       Mr. van Leyen was granted 400,000 shares of our common stock as a
           retention incentive bonus on April 15, 2004. The value of the shares
           is calculated based upon a $1.58 fair market price per share
           valuation as of the date of grant. The shares were issued to Mr. Van
           Leyen as "restricted securities" under the Securities Act of 1933, as
           amended, and are not the subject of a registration statement filed
           with the SEC or any state securities authority.
(11)       Consists of $14,761 in health and life insurance premiums.
(12)       Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Mr. Hoffman no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended. Mr. Hoffman's new title
           is "Founder and Chief Solutions Architect."
(13)       In November 2004, we decreased all executive annual salary levels in
           order to reduce expense run rates, resulting in a reduction of Mr.
           Hoffman's annual salary from $190,000 to $125,000. This reduced
           salary level remained in effect throughout 2005. It is our intention
           to begin restoring executive compensation to what we believe to be
           more competitive levels once we achieve certain revenue goals.
(14)       Mr. Hoffman was granted a retention incentive bonus of $40,000 in
           November 2005.
(15)       Consists of $9,079 in health and life insurance premiums.
(16)       Consists of $12,000 in reimbursement for expenses incurred by Mr.
           Hoffman in relocating from England to Southern California, and $9,192
           in health and life insurance premiums.
(17)       Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Mr. Perera no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended. Mr. Perera's new title
           is "Founder and Chief Enterprise Architect."
(18)       In November 2004, we decreased all executive annual salary levels in
           order to reduce expense run rates, resulting in a reduction of Mr.
           Perera's annual salary from $180,000 to $125,000. This reduced salary
           level remained in effect throughout 2005. It is our intention to
           begin restoring executive compensation to what we believe to be more
           competitive levels once we achieve certain revenue goals.
(19)       Mr. Perera was granted a performance bonus of $25,000 in December
           2005.
(20)       Consists of $2,760 in health and life insurance premiums.
(21)       Mr. Perera was granted a performance bonus of $60,000 in July 2004.
(22)       Consists of $2,798 in health and life insurance premiums.
(23)       Mr. Pearson resigned as an officer and director on March 12, 2004.
(24)       Consists of $2,272 in health and life insurance premiums.

                                      -31-


<PAGE>

Special Note Regarding Stock Bonuses Paid in 2004
-------------------------------------------------

           In late 2003 and early 2004, our Board or Directors reviewed and
assessed our then existing management structure, which included the resignation
of then CEO, Lyle Pearson, and the hiring of current CEO, President and Chairman
of the Board, Thomas Wittenschlaeger in March 2004. In order to retain the
services of a CEO with the necessary qualifications, and given our Board of
Directors' assessment that our start-up company budget would prevent us from
being able to pay the market-rate salary for a qualified CEO in light of our
unfavorable financial situation, our Board of Directors determined that it was
necessary to offer Mr. Wittenschlaeger 3,000,000 shares of our common stock as a
hiring bonus as part of his initial compensation for joining our management
team. Similarly, in order to retain the services of our CFO, Bob van Leyen, who
our Board of Directors deemed to be a vital component of our management
structure through the period of CEO transition from Mr. Pearson to Mr.
Wittenschlaeger, our Board of Directors deemed it appropriate to grant to Mr.
van Leyen 400,000 shares of our common stock in April 2004 as a retention
incentive bonus.

           The 3,000,000 shares of common stock granted to Mr. Wittenschlaeger
and the 400,000 shares of common stock granted to Mr. van Leyen (the "2004 Bonus
Stock") were issued in private transactions without registration under the
Securities Act of 1933, as amended (the "Securities Act"), and bear an
appropriate restrictive legend. As of the dates of grant, the fair market value
of the 2004 Bonus Stock was determined by our Board of Directors to be $1.58 per
share, based on the then current OTC Bulletin Board trading price of our common
stock and the restricted status of the shares. On March 21, 2006, the average
bid and ask price of the Company's common stock as reported by Pink Sheets, LLC,
was $0.72 per share.

           Mr. Wittenschlaeger and Mr. van Leyen are contractually prohibited
from selling any shares held by them, including the 2004 Bonus Stock, pursuant
to an agreement with Brookstreet Securities Corporation until 180 days after the
effective date of a registration statement covering the securities issued in our
2005 Private Placement described under the "Liquidity and Capital Resources"
caption under Item 6 above. A registration statement covering the securities
issued in our 2005 Private Placement has been filed with the SEC, but has not
yet been declared effective. As of March 21, 2006, none of the 2004 Bonus Stock
had been sold or transferred by either Mr. Wittenschlaeger or Mr. van Leyen. Any
sales or transfers of the 2004 Bonus Stock would need to be made pursuant to
registration under the Securities Act or an appropriate exemption from
registration. We have no plans to register for resale any of the 2004 Bonus
Stock under the Securities Act.

STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING FISCAL 2005

           The following table summarizes options to purchase shares of our
common stock granted by us during the fiscal year ended December 31, 2005, to
each of the Named Executive Officers.

<TABLE>
                                                                    PERCENT OF TOTAL OPTIONS     EXERCISE OF
                                         NUMBER OF SECURITIES        GRANTED TO EMPLOYEES IN     BASE PRICE
               NAME                       UNDERLYING OPTIONS              FISCAL YEAR              ($/SH)          EXPIRATION DATE
------------------------------           --------------------       ------------------------     ------------      ---------------
<S>                                              <C>                           <C>                    <C>             <C>
Thomas Wittenschlaeger(1)                        350,000                       14.1%                  $1.00           7/15/2012
Bob van Leyen(2)                                 300,000                       12.1%                  $1.00           9/29/2011
Edwin Hoffman(3)                                       0                       --                     --                  --
Ananda Perera(4)                                       0                       --                     --                  --
</TABLE>
__________________________

(1)        On July 15, 2004, Mr. Wittenschlaeger was granted a non-plan stock
           option to purchase 350,000 shares of our common stock at an exercise
           price of $1.75 per share, which vests at the rate of 33-1/3% on each
           of July 15, 2005, 2006 and 2007, and expires on July 15, 2012. On
           January 5, 2005, our Board of Directors unilaterally repriced the
           exercise price of all outstanding stock options held by our employees


                                      -32-


<PAGE>

           and directors that had an exercise price greater than $1.00 per share
           to have a new exercise price equal to $1.00 per share. As a result,
           on January 5, 2005, the exercise price of Mr. Wittenschlaeger's July
           15, 2004 stock option was repriced to $1.00 per share. The other
           terms of Mr. Wittenschlaeger's July 15, 2004 stock option, including
           the number of shares covered by the option, the rate of vesting and
           the expiration date, were not changed. The repricing is deemed to
           have resulted in a cancellation and regrant of Mr. Wittenschlaeger's
           July 15, 2004 stock option as of January 5, 2005 and, hence, is
           reported as an option grant in 2005.
(2)        On September 29, 2003, Mr. van Leyen was granted a non-plan stock
           option to purchase 300,000 shares of our common stock at an exercise
           price of $1.50 per share, which vests at the rate of 33-1/3% on each
           of September 29, 2004, 2005 and 2006, and expires on September 29,
           2011. On January 5, 2005, our Board of Directors unilaterally
           repriced the exercise price of all outstanding stock options held by
           our employees and directors that had an exercise price greater than
           $1.00 per share to have a new exercise price equal to $1.00 per
           share. As a result, on January 5, 2005, the exercise price of Mr. van
           Leyen's September 29, 2003 stock option was repriced to $1.00 per
           share. The other terms of Mr. van Leyen's September 29, 2003 stock
           option, including the number of shares covered by the option, the
           rate of vesting and the expiration date, were not changed. The
           repricing is deemed to have resulted in a cancellation and regrant of
           Mr. van Leyen's September 29, 2003 stock option as of January 5, 2005
           and, hence, is reported as an option grant in 2005.
(3)        Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Edwin Hoffman no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended.
(4)        Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Ananda Perera no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

           The following table summarizes exercises of stock options during the
fiscal year ended December 31, 2005 by each of the Named Executive Officers and
the year-end value of unexercised options for the Named Executive Officers.

<TABLE>

                                                                            NUMBER OF
                                                                     UNEXERCISED SECURITIES           VALUE OF UNEXERCISED
                                    SHARES            VALUE            UNDERLYING OPTIONS             IN-THE-MONEY OPTIONS
                                   ACQUIRED          REALIZED          AT FISCAL YEAR END               AT FISCAL YEAR END
                NAME              ON EXERCISE          ($)          EXERCISABLE/UNEXERCISABLE       EXERCISABLE/UNEXERCISABLE
-------------------------------   -----------        --------       -------------------------       -------------------------
<S>                                    <C>             <C>                 <C>                                <C>
Thomas Wittenschlaeger                 0               N/A                 116,667/233,333                    N/A(1)
Bob van Leyen                          0               N/A                 200,000/100,000                    N/A(1)
Edwin Hoffman(2)                       0               N/A                       0/0                          N/A
Ananda Perera(3)                       0               N/A                       0/0                          N/A
</TABLE>
__________________________

(1)        As of December 31, 2005, none of the options held by the Named
           Executive Officers were in-the-money.
(2)        Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Edwin Hoffman no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended.
(3)        Effective as of July 1, 2005, as a result of the continued evolution
           of our organizational structure, Ananda Perera no longer meets the
           criteria of an "officer" as defined in Rule 16a-1(f) under the
           Securities Exchange Act of 1934, as amended.

Long-Term Incentive Plan Awards

           In 2005, no awards were given to named executives under long-term
incentive plans.

                                      -33-


<PAGE>

DIRECTOR'S COMPENSATION

           Each of our non-employee directors currently receive cash
compensation in the amount of $15,000 per year for service on our board of
directors and all of our directors are reimbursed for reasonable expenses in
connection with attendance at board meetings. The directors' fees earned in the
fiscal year ended December 31, 2005 are as follows:

                                   DIRECTOR'S FEES EARNED IN THE FISCAL YEAR
           DIRECTOR                        ENDING DECEMBER 31, 2005
           ------------------      -----------------------------------------
           Larry Enterline                         $15,000
           Ken Bramlett                            $15,000
           Albert Wong                             $15,000

           Our Board of Directors previously adopted a policy to grant each
non-employee director an initial option to purchase shares of our common stock
on the date of his/her commencement of service as a director. Pursuant to this
policy, non-employee directors were granted options to purchase shares of our
common stock in fiscal years 2004 and 2005 as follows: Mr. Wong, 100,000 shares
on May 17, 2004, exercisable at $3.50 per share; Mr. Enterline, 75,000 shares on
October 18, 2004 and 25,000 shares on January 20, 2005, exercisable $1.50 per
share and $1.00 per share, respectively; and Mr. Bramlett, 100,000 shares on
December 2, 2004, exercisable at $1.00 per share. On January 5, 2005, our Board
of Directors unilaterally repriced the exercise price of all outstanding stock
options held by our employees and directors that had an exercise price greater
than $1.00 per share to have a new exercise price equal to $1.00 per share. As a
result, on January 5, 2005, the 100,000 options with an exercise price of $3.50
per share held by Mr. Wong and the 75,000 options with an exercise price of
$1.50 per share held by Mr. Enterline were repriced to have an exercise price of
$1.00 per share of our common stock. The options granted to Messrs. Wong,
Enterline and Bramlett vest in three equal annual installments commencing on the
first anniversary of the original date of grant (rather than the January 5, 2005
repricing date for repriced options) and expire on the eight-year anniversary of
the original date of grant.

EMPLOYMENT AGREEMENTS

           There are no employment contracts, termination agreements, or
change-in-control arrangements between us and any of our Named Executive
Officers.

STOCK OPTION PLAN

      GENERAL

           Our 2005 Stock Plan (the "2005 Plan") was approved by our Board of
Director's on April 7, 2005 and approved by our shareholders on June 9, 2005 at
our 2005 Annual Meeting of Shareholders.

           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 21, 2006, options to purchase a total of 1,707,500 shares of common
stock were outstanding under Non-Plan Options. We anticipate that future stock
options will be issued pursuant to our 2005 Stock Plan or other future stock
option plans as may be approved by our Board and shareholders in the future. As
of March 21, 2006, there were no options to purchase common stock outstanding
under our 2005 Stock Plan and 3,000,000 shares were available for issuance under
our 2005 Stock Plan, subject to the limitations of authorized common stock. We
are in the process of filing registration statements on Form S-8 for our 2005
Stock Plan and outstanding Non-Plan Options.

      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.

                                      -34-


<PAGE>

      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 (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.

           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 will be 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 will be 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.

                                      -35-


<PAGE>

           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.

           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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.

                                      -36-


<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

           The following table sets forth, as of March 21, 2006, certain
information with respect to the beneficial ownership of our common 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 Commission, 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 54,204,367 shares of common stock outstanding
as of March 21, 2006.

<TABLE>
                                                      NUMBER OF SHARES OF COMMON STOCK         PERCENT OF COMMON STOCK
NAME OF BENEFICIAL OWNER(1)                                  BENEFICIALLY OWNED                    BENEFICIALLY OWNED
---------------------------                                  ------------------                    ------------------
<S>                                                                   <C>                                   <C>
Thomas M. Wittenschlaeger                                             3,116,667(2)                          5.74%

Bob van Leyen                                                           600,000(3)                          1.10%

Edwin Hoffman(4)                                                      1,875,000                             3.46%

Ananda Perera(5)                                                      2,125,000                             3.92%

Tarek Obaid
Fininfor Conseil
11 rue du General-Du-Four
1204 Geneve, Switzerland                                              3,099,919(6)                          5.72%

Albert Wong                                                             450,000(7)                          *

Ken Bramlett                                                             33,333(8)                          *

Larry L. Enterline                                                       33,333(9)                          *

All executive officers and directors as a group
(7 persons)                                                           8,233,333(10)                         15.00%
</TABLE>

* Less than 1%.
__________________________

(1)        Unless otherwise indicated, the address is c/o Raptor Networks
           Technology, Inc., 1241 E. Dyer Road, Suite 150, Santa Ana, California
           92705.
(2)        Thomas Wittenschlaeger is our President, Chief Executive Officer and
           Chairman of the Board. Includes 116,667 shares of common stock
           issuable upon the exercise of options which were exercisable as of
           March 21, 2006 or exercisable within 60 days after March 21, 2006.
(3)        Bob van Leyen is our Chief Financial Officer and Secretary. Includes
           200,000 shares of common stock issuable upon the exercise of options
           which were exercisable as of March 21, 2006 or exercisable within 60
           days after March 21, 2006.
(4)        Edwin Hoffman is our former Chief Development Officer. Effective as
           of July 1, 2005, as a result of the continued evolution of our
           organizational structure, Mr. Hoffman no longer meets the criteria of
           an "officer" as defined in Rule 16a-1(f) under the Securities
           Exchange Act of 1934, as amended. Mr. Hoffman's new title is "Founder
           and Chief Solutions Architect."
(5)        Ananda Perera is our former Chief Technical Officer. Effective as of
           July 1, 2005, as a result of the continued evolution of our
           organizational structure, Mr. Perera no longer meets the criteria of
           an "officer" as defined in Rule 16a-1(f) under the Securities
           Exchange Act of 1934, as amended. Mr. Perera's new title is "Founder
           and Chief Enterprise Architect."


                                      -37-


<PAGE>

(6)        Includes 683,463 shares of common stock directly owned by Tarek Obaid
           and an additional 2,416,456 shares of common stock which we are
           informed and believe are indirectly beneficially owned by Tarek Obaid
           as follows: 1,072,456 shares owned by Turki bin Abdullah, 672,000
           shares owned by Almamlaka, Ltd., and 672,000 shares owned by The
           Leopard-Alliance.
(7)        Albert Wong is one of our directors. Includes 33,333 shares of common
           stock issuable upon the exercise of options which were exercisable as
           of March 21, 2006 or exercisable within 60 days after March 21, 2006.
           Also includes 138,889 shares of common stock, 138,889 shares
           underlying Series C Warrants and 138,889 shares underlying Series D
           Warrants held by DMK Investments, LLC, the power to vote or dispose
           of which is shared by Albert Wong and Lia Wong as Managers of DMK
           Investments, LLC.
(8)        Ken Bramlett is one of our directors. Includes 33,333 shares of
           common stock issuable upon the exercise of options which were
           exercisable as of March 21, 2006 or exercisable within 60 days after
           March 21, 2006.
(9)        Larry L. Enterline is one of our directors. Includes 33,333 shares of
           common stock issuable upon the exercise of options which were
           exercisable as of March 21, 2006 or exercisable within 60 days after
           March 21, 2006.
(10)       Includes 400,000 shares of common stock and 200,000 shares issuable
           upon the exercise of options held by Bob van Leyen; 3,000,000 shares
           of common stock and 116,667 shares issuable upon the exercise of
           options held by Thomas Wittenschlaeger; 1,875,000 shares of common
           stock held by Edwin Hoffman; 2,125,000 shares of common stock held by
           Ananda Perera; 33,333 shares issuable upon the exercise of options
           held by Albert Wong; 33,333 shares issuable upon the exercise of
           options held by Ken Bramlett; and 33,333 shares issuable upon the
           exercise of options held by Larry L. Enterline. Also includes 138,889
           shares of common stock, 138,889 shares underlying Series C Warrants
           and 138,889 shares underlying Series D Warrants held by DMK
           Investments, LLC, the power to vote or dispose of which is shared by
           Albert Wong and Lia Wong as Managers of DMK Investments, LLC.

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, 2005.

<TABLE>

                                        Number of Shares to be       Weighted Average       Number of Securities Available
Plan Category                             Issued Upon Exercise         Exercise Price                 for Issuance
----------------------------------      ----------------------       ----------------       ------------------------------
<S>                                            <C>                           <C>                      <C>
PLANS APPROVED BY STOCKHOLDERS
    2005 Stock Plan(1)                              0                        N/A                        3,000,000

PLANS NOT APPROVED BY STOCKHOLDERS
    Non-Plan Stock Options(2)                   2,020,000                  $1.00                           N/A
    Warrants for Services(3)                   10,008,119                   1.59                           N/A
TOTAL                                          12,028,119                   1.49                        3,000,000
</TABLE>
__________________________

(1)        Our 2005 Stock Plan (the "2005 Plan") was approved by our Board of
           Director's 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.
(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
           33-1/3% 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. On January 5, 2005, our Board of Directors unilaterally
           repriced the exercise price of all outstanding stock options held by
           our employees and directors that had an exercise price greater than
           $1.00 per share to have a new exercise price equal to $1.00 per
           share.
(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 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           On November 7, 2003, we entered into an agreement with Express
Manufacturing, Inc. ("EMI") to provide us contract manufacturing services. EMI
is owned by director Albert Wong's in-laws. Mr. Wong is an advisor to EMI, but
has no direct financial interest in the company. EMI manufactures printed board
assemblies for us in quantities and prices as set forth in quotations delivered


                                      -38-


<PAGE>

to us for review and acceptance. Under this arrangement, we made no payments to
EMI in the fiscal year ended December 31, 2003 and approximately $183,000 and
$143,000 in payments during fiscal year ended December 31, 2004 and 2005,
respectively. Please refer to the detailed description of our manufacturing
arrangement with EMI set forth in Item 1 of this Report under the caption
"Manufacturing and Suppliers" for more information regarding our relationship
with EMI.

           We previously entered into a consulting agreement with Alchemy
Advisors, LLC and Atlantic Communications, Inc., entities under the common
control of shareholder Mr. Micro Teta, who as of December 31, 2003, owned,
directly or indirectly, 17.73% of our common stock. This shareholder
subsequently informed our Chief Financial Officer that he had reduced his
shareholdings to one million shares (or 3.2% of shares outstanding) as of
December 31, 2004, although we are unable to verify the amount of such holdings.
The consulting agreement was for a two-year period beginning July 1, 2003 and
included payment of $180,000 and the issuance of 3,136,100 shares of our common
stock (valued at $1,568,050 at the time of issuance). The consulting agreement
was terminated by mutual consent of the parties as of December 31, 2004, prior
to its scheduled expiration. We are informed and believe that Mr. Teta passed
away in 2005 and we are unaware of how his estate has distributed any shares of
our common stock held by him.

           Director Albert Wong is Manager and controlling shareholder of DMK
Investments, LLC ("DMK"). In June 2004, DMK purchased 138,889 shares of our
common stock, 138,889 Series C Warrants and 138,889 Series D Warrants. DMK
purchased the common stock and warrants at the same price ($1.80 per unit, each
unit consisting of one share of common stock, one Series C Warrant and one
Series D Warrant) and on the same terms and conditions as all other investors in
our June 2004 financing. The Series C Warrants expire 60 days after the
effective date of a registration statement covering the common stock, Series C
Warrants and Series D Warrants issued in our June 2004 financing. A registration
statement covering these securities has been filed with the SEC, but has not yet
been declared effective. The Series C Warrants had an original exercise price of
$3.00 per share. On August 13, 2004, we amended the terms of the Series C
Warrants to have an exercise price of $1.25 per share. The Series D Warrants
expire on June 1, 2009 and had an original exercise price of $3.50 per share. On
December 12, 2005, we entered into an amendment with the holders of our Series D
Warrants, including DMK, to reduce the exercise price of the Series D Warrants
to $0.50 per share. The amendments to reduce the exercise price of both the
Series C Warrants and the Series D Warrants were in each case unanimously
approved by our Board of Directors.

ITEM 13.     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   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)
      3.4   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)


                                      -39-


<PAGE>

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

      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).
      10.2x Turnkey Manufacturing Services Agreement dated November 7, 2003
            between Express Manufacturing, Inc. and Raptor Networks Technology,
            Inc.
      10.3  Form of Security Purchase Agreement in conjunction with April 2004
            equity funding (incorporated herein by reference to Exhibit 10.1 to
            the Company's 10-KSB for fiscal year ended December 31, 2003, filed
            with the SEC on April 14, 2004)
      10.4  Form of Registration Rights Agreement in conjunction with April 2004
            equity funding (incorporated herein by reference to Exhibit 10.2 to
            the Company's 10-KSB for fiscal year ended December 31, 2003, filed
            with the SEC on April 14, 2004)
      10.5  Form of Series A Warrant (incorporated herein by reference to
            Exhibit 10.4 to the Company's 10-KSB for fiscal year ended December
            31, 2004, filed with the SEC on April 15, 2005)
      10.6  Form of Series B Warrant (incorporated herein by reference to
            Exhibit 10.5 to the Company's 10-KSB for fiscal year ended December
            31, 2004, filed with the SEC on April 15, 2005)
      10.7  Form of Convertible Loan Letter Agreement (8% interest) issued in
            conjunction with bridge loan financing between December 2003 and
            April 2004 (incorporated herein by reference to Exhibit 10.10 to the
            Company's 10-KSB for fiscal year ended December 31, 2004, filed with
            the SEC on April 15, 2005)
      10.8  Securities Purchase Agreement by and among Raptor Networks
            Technology, Inc., DMK Investments, LLC, Transglobal Investments,
            LLC, and Uptrend Investments, Inc. in conjunction with June 2004
            private placement of common stock and warrants (incorporated herein
            by reference to Exhibit 10.14 to the Company's 10-KSB for fiscal
            year ended December 31, 2004, filed with the SEC on April 15, 2005)
      10.9  Registration Rights Agreement by and among Raptor Networks
            Technology, Inc., DMK Investments, LLC, Transglobal Investments,
            LLC, and Uptrend Investments, Inc. in conjunction with June 2004
            private placement of common stock and warrants (incorporated herein
            by reference to Exhibit 10.15 to the Company's 10-KSB for fiscal
            year ended December 31, 2004, filed with the SEC on April 15, 2005)
      10.10 Amendment No. 1 to Registration Rights Agreement, effective December
            12, 2005, by and among Raptor Networks Technology, Inc., DMK
            Investments, LLC, Transglobal Investments, LLC, and Uptrend
            Investments, Inc. (incorporated herein by reference to Exhibit 4.4
            to the Company's Registration Statement on Form SB-2, Registration
            No. 333-131184, filed with the SEC on January 20, 2006)
      10.11 Letter Agreement, effective as of September 20, 2005, by and among
            Raptor Networks Technology, Inc., DMK Investments, LLC, Transglobal
            Investments, LLC, and Uptrend Investments, Inc. (incorporated herein
            by reference to Exhibit 10.1 to the Company's Current Report of Form
            8-K filed with the SEC on September 26, 2005)
      10.12 Form of Series C Warrant (incorporated herein by reference to
            Exhibit 10.6 to the Company's 10-KSB for fiscal year ended December
            31, 2004, filed with the SEC on April 15, 2005)
      10.13 Form of Letter Amendment to Series C Warrant reducing exercise price
            to $1.25 per share (incorporated herein by reference to Exhibit 10.7
            to the Company's 10-KSB for fiscal year ended December 31, 2004,
            filed with the SEC on April 15, 2005)
      10.14 Amendment No. 1 to Series C Warrant, effective December 12, 2005, by
            and among Raptor Networks Technology, Inc., DMK Investments, LLC,
            Transglobal Investments, LLC, and Uptrend Investments, Inc.
            (incorporated herein by reference to Exhibit 4.8 to the Company's
            Registration Statement on Form SB-2, Registration No. 333-131184,
            filed with the SEC on January 20, 2006)
      10.15 Form of Series D Warrant (incorporated herein by reference to
            Exhibit 10.8 to the Company's 10-KSB for fiscal year ended December
            31, 2004, filed with the SEC on April 15, 2005)

                                      -40-


<PAGE>

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

      10.16 Amendment No. 1 to Series D Warrant, effective December 12, 2005, by
            and among Raptor Networks Technology, Inc., DMK Investments, LLC,
            Transglobal Investments, LLC, and Uptrend Investments, Inc.
            (incorporated herein by reference to Exhibit 4.10 to the Company's
            Registration Statement on Form SB-2, Registration No. 333-131184,
            filed with the SEC on January 20, 2006)

      10.17 Managing Dealer Agreement dated March 22, 2005 between Brookstreet
            Securities Corporation and Raptor Networks Technology, Inc., entered
            into in conjunction with our 2005 Private Placement of "units"
            (incorporated herein by reference to Exhibit 10.16 to the Company's
            10-KSB for fiscal year ended December 31, 2004, filed with the SEC
            on April 15, 2005)
     10.18x 2005 Stock Plan effective June 9, 2005 **
     10.19x Form of 2005 Stock Plan Stock Option Agreement **
      21x   Subsidiaries of the Registrant
      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
      32x   Certification of Chief Executive Officer and 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.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

           The following table sets forth the aggregate fees billed to us for
the fiscal years ended December 31, 2005 and December 31, 2004 by our auditors,
Comiskey & Company, P.C. ("Comiskey & Company").

                                              FISCAL 2005         FISCAL 2004
                                              -----------         -----------

          Audit Fees(1)                    $       19,023        $     18,431

          Audit-Related Fees(2)            $          364        $          0

          Tax Fees(3)                      $        3,000        $      3,000

          All Other Fees(4)                $            0        $          0
-------------------

(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 Comiskey
           & Company 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 auditor 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.


                                      -42-


<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, 2006                       RAPTOR NETWORKS TECHNOLOGY, INC.


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


Dated: March 31, 2006                       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, 2006
------------------------------------
    Thomas M. Wittenschlaeger


/s/ Ken Bramlett                             Director         March 31, 2006
------------------------------------
    Ken Bramlett


/s/ Larry L. Enterline                       Director         March 31, 2006
------------------------------------
    Larry L. Enterline


/s/ Albert Wong                              Director         March 31, 2006
------------------------------------
    Albert Wong

                                      -43-


<PAGE>


                                                                            F-1

                        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' Equity (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



The Board of Directors
Raptor Networks Technology, Inc.


We have audited the accompanying consolidated balance sheets of Raptor Networks
Technology, Inc. as of December 31, 2004 and 2005, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended December 31, 2004 and 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Raptor Networks
Technology, Inc. as of December 31, 2004 and 2005, and the consolidated results
of its operations, changes in stockholders' equity (deficit) and cash flows for
the years ended December 31, 2004 and 2005 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements are presented assuming the company will
continue as a going concern. As more fully described in Note 1 to the financial
statements, the Company has sustained accumulated losses from operations
totaling more than $37,500,000 at December 31, 2005. This condition, and the
fact that the Company has had no 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 financial statements. The accompanying financial statements do not include
any adjustments which might be necessary if the Company is unable to continue.


Denver, Colorado
March 15, 2006

                                                          /S/ COMISKEY & COMPANY
                                                        PROFESSIONAL CORPORATION

                                      F-2


<PAGE>
<TABLE>
<S>       <C>
                                         RAPTOR NETWORKS TECHNOLOGY, INC.
                                            CONSOLIDATED BALANCE SHEETS

                                                                               December 31,    December 31,
                                                                                  2005            2004
                                                                               ------------    ------------
                                                      ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                                    $  1,442,130    $     39,213
   Inventory, net                                                                  1,132,322       1,212,290
   Prepaid expenses                                                                  199,246         260,297
   License fees                                                                      305,320         259,480
   Other current assets                                                              199,899           9,633
                                                                                ------------    ------------
      Total current assets                                                         3,278,917       1,780,913

PROPERTY AND EQUIPMENT, NET                                                          587,659         770,446

OTHER ASSETS
   Debt issue cost                                                                    12,838          25,676
   Deposits                                                                          102,362         104,333
                                                                                ------------    ------------

TOTAL ASSETS                                                                    $  3,981,776    $  2,681,368
                                                                                ============    ============

                                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
   Accounts payable                                                             $    155,412    $    418,320
   Deferred revenue                                                                       --          44,000
   Accrued liabilities                                                               144,239       1,097,686
   Short-term debt                                                                        --          87,817
   Short-term convertible debt                                                            --       1,000,000
   Accrued interest payable                                                           52,464          51,719
                                                                                ------------    ------------
      Total current liabilities                                                      352,115       2,699,542

Long-term convertible debt                                                         1,214,290       1,214,290

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, no par value; 5,000,000 shares authorized                             --              --
   Common stock, $.001 par; 75,000,000 and 50,000,000 shares
      authorized 54,204,367 and 30,845,942 shares issued and outstanding              54,204          30,846
   Additional paid-in capital                                                     43,971,664      26,956,247
   Accumulated deficit                                                           (41,610,497)    (28,219,557)
                                                                                ------------    ------------
      Total stockholders' equity (deficit)                                         2,415,371      (1,232,464)
                                                                                ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                            $  3,981,776    $  2,681,368
                                                                                ============    ============

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



                                                        F-3


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                  December 31,     December 31,
                                                      2005             2004
                                                  ------------     ------------

REVENUE, NET                                      $    289,236     $     54,040
COST OF SALES                                          120,300           27,330
                                                  ------------     ------------

GROSS PROFIT                                           168,936           26,710
                                                  ------------     ------------

OPERATING EXPENSES
   Consulting                                               --          714,935
   Finder's Fees                                     1,064,405          985,857
   Cost of warrants granted                          3,432,994          120,000
   Stock for services                                       --       11,208,856
   Salary expense and salary related costs           2,630,429        3,032,400
   Marketing expense                                   349,310          189,843
   Research & Development                              403,057        1,167,068
   Selling, general and administrative               2,766,716        3,075,302
                                                  ------------     ------------

    Total operating expenses                        10,646,911       20,494,261
                                                  ------------     ------------

Loss from operations                               (10,477,975)     (20,467,551)
                                                  ------------     ------------

OTHER INCOME (EXPENSE)
   Interest income                                       2,779            7,681
   Cost associated with convertible debt            (2,652,000)              --
   Interest expense                                   (263,744)        (115,114)
                                                  ------------     ------------

Total other income (loss)                           (2,912,965)        (107,433)
                                                  ------------     ------------

Loss before income taxes                           (13,390,940)     (20,574,984)
                                                  ------------     ------------

Income tax benefit                                          --               --

NET LOSS                                          $(13,390,940)    $(20,574,984)
                                                  ============     ============

Basic and diluted net loss per share              $      (0.33)    $      (0.73)
                                                  ============     ============

Basic and diluted weighted average number
  of shares outstanding                             40,001,954       28,364,188
                                                  ============     ============


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



                                       F-4


<PAGE>

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



                                                 Common Stock                     Additional                               Total
                                    ---------------------------------  Additional  Paid-in                             stockholders'
                                      Number of                         Paid-in    Capital-    Deferred    Accumulated    equity
                                       shares    Amount    Subscribed   Capital    Warrants  Compensation    Deficit     (deficit)
                                    ------------ --------- ---------- ----------- ---------- ------------- ----------- ------------

Balance, December 31, 2003           20,556,719   20,557      (500)    9,831,677          --  (1,543,996)  (7,644,573)     663,165

Common stock issued for services,
March 17, 2004 $1.58 per share        5,920,600    5,921        --     9,348,627          --          --           --    9,354,548

Common stock issued for cash,
April 2, 2004 $1.75 per share         3,200,000    3,200        --     5,596,800          --          --           --    5,600,000

Common stock issued for cash,
April-June $1.80 per share              972,223      973        --     1,749,029          --          --           --    1,750,002

Common stock issued for services,
April-June 2004 $1.58 per share         200,000      200        --       315,800          --          --           --      316,000

Write-off of common stock
subscribed, May 2004                         --       --       500            --          --          --           --          500

Common stock retired                     (3,600)      (5)       --        (5,686)         --          --           --       (5,691)

Valuation conversion related to
issuance of warrants                         --       --        --            --     120,000          --           --      120,000

Net loss for the year ended
December 31, 2004                            --       --        --            --          --   1,543,996  (20,574,984) (19,030,988)
                                    ----------- --------   -------   -----------  ----------  ----------  -----------  -----------

Balance, December 31, 2004           30,845,942   30,846        --    26,836,247     120,000          --  (28,219,557)  (1,232,464)
                                    ----------- --------   -------   -----------  ----------  ----------  -----------  -----------
Common stock issued for legal
settlement, January 12, 2005
$0.40 per share                         975,000      975        --       388,538          --          --           --      389,513

Common stock issued for legal
settlement, January 12, 2005
$0.578 per share                        262,500      262        --       151,463          --          --           --      151,725

Common stock and warrants issued
for Cash, April - June 2005 $0.50
per share                             4,262,000    4,262        --     2,126,738          --          --           --    2,131,000

Common stock and warrants issued
for Cash, July - September 2005
$0.50 per share                       6,355,000    6,355        --     3,171,145          --          --           --    3,177,500

Common stock issued in bridge loan
conversion $0.40 per share            1,540,244    1,540        --       614,557          --          --           --      616,097

Common stock issued in bridge loan
conversion $0.50 per share            6,023,931    6,024        --     2,503,947          --          --           --    2,509,971

Common stock issued for services
issued for Note                         300,000      300        --       157,800          --          --           --      158,100

Beneficial conversion
Feature of convertible notes                 --       --        --            --   2,271,400          --           --    2,271,400

Detachable common stock purchase
warrants                                     --       --        --            --     380,600          --           --      380,600

Warrants issued as a financing
incentive                                    --       --        --            --   3,432,994          --           --    3,432,994

Common stock and warrants issued
for Cash, Oct - December 2005
$0.50 per share                       3,639,750    3,640        --     1,816,235          --          --           --    1,819,875

Net loss for the year ended December
31, 2005                                     --       --        --            --          --          --  (13,390,940) (13,390,940)
                                    ----------- --------   -------   -----------  ----------  ----------  -----------  -----------

Balance, December 31, 2005           54,204,367   54,204        --    37,766,670   6,204,994          --  (41,610,497)   2,415,371
                                    ----------- --------   -------   -----------  ----------  ----------  -----------  -----------

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

                                                               F-5


<PAGE>

                                       RAPTOR NETWORKS TECHNOLOGY, INC.
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                    December 31, 2005   December 31, 2004
                                                                    -----------------   -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                        $(13,390,940)        $(20,574,984)
      Adjustments to reconcile net loss
      to net cash flows from operating
      activities:
           Depreciation                                                    316,388              180,387
           Amortization                                                     12,838            1,556,834
           Common stock issued for services/settlements                    699,338            9,670,548
           Interest expense related to debt conversion                   2,652,000                   --
           Common stock issued for interest payable related to
           debt conversion                                                 166,068                   --
           Warrants issued                                               3,432,994              120,000
           Forgiveness of Stock receivable                                      --                  500
      Gain on disposal of property and equipment                                --               (1,271)
      Changes in operating assets
           and liabilities:
            Other current assets                                          (190,266)              28,472
            Note receivable                                                     --               60,000
            Deposits                                                         1,971              (79,413)
            Prepaid assets                                                  61,051              123,109
            License fees                                                   (45,840)            (173,480)
            Inventories                                                     79,968             (983,216)
            Accounts payable                                              (262,908)             (26,644)
            Interest payable                                                   745               51,719
            Other accrued liabilities                                     (953,447)           1,063,632
            Deferred Revenue                                               (44,000)              44,000
            Accrued payroll and payroll taxes                                   --             (129,024)
                                                                      ------------         ------------
      Net cash flows from operating
       activities                                                       (7,464,040)          (9,068,831)
                                                                      ------------         ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
           Proceeds from sale of property and equipment                         --                2,410
           Property and equipment purchases                               (133,601)            (569,714)
                                                                      ------------         ------------
      Net cash flows from investing
       activities                                                         (133,601)            (567,304)
                                                                      ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
           Issuance of Common Stock                                      7,128,375            7,350,002
           Retirement of shares                                                 --               (5,691)
           Payments on short-term debt                                     (87,817)                  --
           Proceeds from convertible Debt                                1,960,000            2,014,290
                                                                      ------------         ------------
      Net cash flows from investing
       activities                                                        9,000,558            9,358,601
                                                                      ------------         ------------

NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                                    1,402,917             (277,534)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            39,213              316,747
                                                                      ------------         ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                            $  1,442,130         $     39,213
                                                                      ============         ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY

Property and equipment acquired by short term note                               -               87,817
Interest paid                                                               80,922               50,543
Taxes paid                                                                      22                2,400

</TABLE>

                                                     F-6


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


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. In 2003, the Company was in the development stage.
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 1241 E. Dyer Rd., 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. 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.

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.

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

PREPAID EXPENSES
----------------
Prepaid expenses represent amounts paid in advance for contracts extending past
the period end date.

                                      F-7


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


1.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
           ------------------------------------------------------

INVENTORY
---------
Inventory is recorded at the lower of average cost or market. When required, a
provision is made to reduce excess and obsolete inventory to estimated net
realizable value. Inventory at December 31, 2005 consists of raw materials and
finished goods.

LICENSE FEES
------------
The Company capitalizes software license fees from third party software which is
included in its systems. These costs will be amortized and charged to cost of
sales over the projected number of systems expected to be sold incorporating the
capitalized software. For the years ended December 31, 2004 and 2005, the amount
of capitalized license fees totaled $260,000 and $310,000, respectively.
Amortization of these license fees included in cost of sales for the years ended
December 31, 2004 and 2005 totaled $520 and $4,160 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
-----------------------
Repairs and maintenance of a routine nature are charged as incurred, while those
which extend or improve the life of existing assets are capitalized.

MARKETING COSTS
---------------
Advertising costs are expensed as incurred. For the years ended December 31,
2004 and 2005, advertising costs were $189,843 and $349,310 respectively.

RESEARCH AND DEVELOPMENT COSTS
------------------------------
Research and development costs, which are expensed as incurred, are comprised of
the following costs incurred in performing R&D activities: product design cost
including rental of design tools, consumables, and costs of prototypes.

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.
No assets were considered impaired for the years ended December 31, 2004 and
2005.

DEPOSITS
--------
Deposits represent amounts paid under the Company's office space lease and
various other arrangements with state agencies.

USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.

                                      F-8


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


1.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
           ------------------------------------------------------

INCOME TAXES
------------
The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted federal, state, and local income tax rates and laws that are
expected to be in effect when the differences reverse.

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.

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.

STOCK-BASED COMPENSATION
------------------------
The Financial Accounting Standards Board has issued "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for
employee stock-based compensation under a fair value base method. However, SFAS
123 also allows an entity to continue to measure compensation cost for employee
stock-based compensation using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("Opinion 25"). Entities electing to remain with the accounting under APB
Opinion No. 25 are required to make pro forma disclosures of net loss and loss
per share as if the fair value based method of accounting under SFAS 123 had
been applied.

As permitted by SFAS 123, the Company has elected to account for stock-based
compensation using the intrinsic value method. Accordingly, no compensation cost
has been recognized for stock options granted at or above market value. The
following table illustrates the effect on net loss and net loss per share had
the fair value method of accounting been applied to all of the Company's stock
option grants, which requires recognition of compensation cost ratably over the
vesting period of the underlying equity instruments.

<TABLE>
                                                                             December 31, 2005           December 31,2004
                                                                             -----------------           ----------------
Net Income (loss)
<S>                                                                             <C>                         <C>
    As reported.......................................................          $  (13,390,940)             $ (20,574,984)
    Stock-based employee compensation expense determined under
       the fair value method..........................................                (167,392)                  (619,995)

    Pro forma.........................................................          $  (13,558,332)             $ (21,194,979)
                                                                                ===============             ==============
Basic net loss per share
    As reported.......................................................          $        (0.33)             $       (0.73)

    Pro forma.........................................................          $        (0.34)             $       (0.75)
</TABLE>

                                      F-9


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


1.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
           ------------------------------------------------------

STOCK-BASED COMPENSATION (CONTINUED)

The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:

                                       December 31, 2005     December 31,2004
                                       -----------------     ----------------
    Average Fair Value................   $0.44 - $0.92         $0.48 -$3.55
    Dividend Yield....................         -                    -
    Risk Free Interest Rate...........       6.0%                  6.0%
    Expected Life.....................      3 Years              3 Years
    Expected Volatility...............    612 - 630%            131 - 531%


Effective in the first quarter of 2006, the Company will be required to adopt
the provisions of SFAS No. 123(R) - SHARE-BASED PAYMENT. The Company expects to
record periodic compensation cost over the remaining vesting period of existing
options under the modified prospective method of adoption. New equity awards
will be recorded at fair value over the period that services are rendered, as
adjusted for anticipated forfeitures of equity instruments.

CONSIDERATION OF OTHER COMPREHENSIVE INCOME ITEMS
-------------------------------------------------
The Financial Accounting Standards Board has issued "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 requires companies to present comprehensive
income (consisting primarily of net income plus other direct equity changes and
credits) and its components as part of the basic financial statements. For the
year ended December 31, 2004 and the year ended December 31, 2005, the Company's
financial statements do not contain any changes in equity that are required to
be reported separately in comprehensive income.

CONCENTRATION OF RISK
---------------------
From time-to-time, the Company maintains cash balances in excess of FDIC insured
limits. The amount of such excess at December 31, 2005 was approximately
$1,380,000.

LOSS PER SHARE
--------------
Loss per share was computed using the weighted average number of shares of
common stock and common stock equivalents outstanding during the period.

STOCK BASIS
-----------
Shares of common stock issued for services in 2004 were valued on the same level
as shares sold for cash through a private placement during the second quarter of
2004 minus a discount of 10% for anticipated stock price movements in the open
market.

COMPENSATED ABSENCES
--------------------
During the current year the Company implemented 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. For the years ended December 31, 2004
and 2005 the balance owed for compensated absences was $73,470 and $82,821
respectively.

NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment
of ARB No. 43, Chapter 4." This Statement clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials.
This Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The initial application of SFAS No. 151 will have
no impact on the Company's financial statements.

In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This
Statement references the financial accounting and reporting guidance for real


                                      F-10


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


estate time-sharing transactions that is provided in AICPA Statement of Position
04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement
also states that the guidance for incidental operations and costs incurred to
sell real estate projects does not apply to real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. The initial application of SFAS No. 152
will have no impact on the Company's financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29." This Statement eliminates the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect application of SFAS No. 153 to have a material affect on its financial
statements.

In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections." SFAS 154 replaces APB 20, "Accounting Changes" and SFAS 3,
"Reporting Accounting Changes in Interim Financial Statements" and establishes
retrospective application as the required method for reporting a change in
accounting principle. SFAS 154 provides guidance for determining whether
retrospective application of a change in accounting principle is impracticable
and for reporting a change when retrospective application is impracticable. The
reporting of a correction of an error by restating previously issued financial
statements is also addressed. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of this statement to have a material
impact on the financial statements.

In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments", which is intended to simplify the accounting and
improve the financial reporting of certain hybrid financial instruments (i.e.,
derivatives embedded in other financial instruments). The statement amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities a replacement of FASB Statement No. 125." SFAS
No. 155 is effective for all financial instruments issued or acquired after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
Management is currently evaluating the impact SFAS No. 155 will have on our
consolidated financial statements, if any.

PRESENTATION AS A GOING CONCERN
-------------------------------
The Company has had only a limited operating history with minimal sales, and has
sustained operating losses of $20,574,984 in 2004 and $13,390,940 in 2005.
Although at December 31, 2005, the Company had a working capital position of
$2,926,802 and a stockholders' equity of $2,415,371, these results came
primarily from additional debt financing and the conversion of debt to equity.
Future operations may not sustain these positive positions. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.

Management is looking to address these conditions by raising additional capital
to fund continuing operations. However, the Company currently has no commitments
for any additional financing and there can be no assurance that the Company will
be able to obtain requisite financing on acceptable terms, if at all. The
accompanying financial statements do not reflect any adjustments which might be
necessary if the Company is unable to continue.

                                      F-11


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


2.         PROPERTY & EQUIPMENT
           --------------------

Property and equipment consisted of the following:
                                           December 31, 2005   December 31, 2004
                                           -----------------   -----------------

Furniture and Office equipment               $   188,481         $   136,350
Computer equipment                               193,701             167,048
Testing equipment                                606,738             537,314
Leasehold Improvements                           113,317             127,924
                                             -----------         -----------
                                               1,102,237             968,636
Less: Accumulated depreciation                  (514,578)           (198,190)
                                             -----------         -----------

                                             $   587,659         $   770,446
                                             ===========         ===========

3.         INVENTORY
           ---------

Inventory consisted of the following:
                                           December 31, 2005  December 31, 2004
                                           -----------------  -----------------

Raw Materials                                $   962,483         $ 1,006,385
Finished Goods                                   169,839             205,905
                                             -----------         -----------

                                             $ 1,132,322         $ 1,212,290
                                             ===========         ===========


4.         CONVERTIBLE DEBT
           ----------------
<TABLE>
                                   8%, 3 YEAR NOTES   10% BRIDGE NOTES     8% BRIDGE NOTES
                                   ----------------   ----------------     ---------------
<S>                                     <C>                <C>                 <C>
Balance at December 31, 2004            $ 1,214,000        $ 1,000,000         $        --

   Issuance of Notes                             --          1,360,000             600,000
   Conversion on August 25, 2005                 --         (2,360,000)                 --
   Conversion on July 15, 2005                   --                 --            (600,000)
                                        -----------        -----------         -----------
Balance at December 31, 2005            $ 1,214,000        $        --         $        --
                                        ===========        ===========         ===========
</TABLE>

8%, 3 Year Notes
----------------

During the period December 2003 to April 2004, the Company secured convertible
loans for a total amount of $1,214,290. Interest on these loans accrues at an
annual rate of 8%. The loans are convertible into shares of the Company's common
stock at any time during the three year period following initial funding of the
loans. The conversion rate is $3.50 per share. If the loans are not earlier
voluntarily converted, the total amount owed shall automatically convert into
shares of the Company's common stock at a conversion price of $3.50 per share on
April 15, 2007.

10% Convertible Bridge Notes
----------------------------

During the period between November 2004 and February 2005, the Company issued
forty-two convertible notes (the "10% Notes") to various private-party
non-affiliate accredited investors in the aggregate principal amount of
$2,360,000 in exchange for $2,360,000 in cash, less a 10% placement fee, for net


                                      F-12


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


proceeds of $2,124,000. The 10% Notes bore interest at a rate of 10% per annum.
Pursuant to the terms of the 10% Notes, the outstanding principal amount of
these loans, together with all accrued but unpaid interest thereunder, would
automatically convert into shares issued in an equity based financing with gross
proceeds of at least $4,000,000, if any, of the sale of the Company's common
stock or other equity based equivalent, and at a price per share not to exceed
$0.50 per share (a "10% Note Qualified Financing"); provided, however, that for
the purpose of determining the number of shares and warrants to be received by
the holders upon such conversion, the holders would be deemed to have tendered
120% of the outstanding balance of the 10% Notes.

The 10% Convertible Notes were issued along with 1,416,000 Series E Common Stock
Purchase Warrants to purchase Common shares at $0.60 per share for a term of
five years from issuance. The net proceeds from the issuance of convertible debt
and warrants was first allocated to the convertible debt and the warrants in the
ratio of their respective fair values, resulting in a discount from the debt
related to the Series E Warrants (of which $120,000 was recognized in 2004).
Since the 10% Convertible Notes were due on demand, the entire discount of
$1,743,300 on the convertible debt and $380,600 for the Series E Warrants was
charged to operations in the year incurred. Upon resolution of the Qualified
Financing contingency, the value assigned to the beneficial conversion feature
was recorded as additional debt discount in the amount of $2,124,000 and charged
to operations in 2005.

The Series E Warrants have an exercise price of $0.60 per share and shall expire
five years from the date of issuance. Management believes that it is reasonable
to assume that the 1,416,000 Series E Warrants will be settled in shares. With
respect to the valuation of the 1,416,000 Series E Warrants, issued between
November 2004 and February 2005, a volatility of 88%, a strike price of $0.60,
an option value of $0.27 - $0.72 and using the Black-Scholes model, an
additional expense of financing of $395,190 has been recognized during the year
2005.

As of the August 25, 2005 closing of the Company's most recent "2005 Private
Placement" of units consisting of common stock and warrants, the Company had
raised total gross proceeds of $3,558,500 through such 2005 Private Placement.
In addition, between February 2005 and April 2005 (and as described in more
detail below), the Company secured additional private debt financing from
various private-party non-affiliates in the original aggregate principal amount
of $600,000 through the issuance of 8% Convertible Bridge Notes. After adding
this $600,000 in convertible debt financing to the gross proceeds of the 2005
Private Placement, the aggregate gross proceeds to the Company were $4,158,500.
As a result, the Company achieved a 10% Note Qualified Financing and,
accordingly, the $4,000,000 automatic conversion event of the 10% Notes was
triggered upon the August 25, 2005 closing of the 2005 Private Placement.

As of August 25, 2005, the total principal and accrued interest under the 10%
Notes was $2,509,971. After taking into account the provision of the 10% Notes
which provided that the holders would be deemed to have tendered 120% of the
outstanding balance of the 10% Notes, the holders of the 10% Notes were deemed
to have tendered $3,011,965 for the purpose of determining the number of shares
and warrants to be received by the holders upon such conversion. Based on the
offering terms of the Company's 2005 Private Placement, the holders were
entitled to an aggregate of 6,023,932 shares of the Company's common stock
(based on a $0.50 price per share of common stock included within the units
offered to investors in the 2005 Private Placement) and 1,505,989 Series G-BH
Warrants to purchase the Company's common stock. The Series G-BH Warrants have
an exercise price of $2.50 per share of common stock, expire five years from the
date of issuance, 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. With respect to the valuation of the 1,505,989 Series G-BH Warrants,
issued between November 2004 and February 2005, a volatility of 88%, a strike
price of $2.50, an option value of $0.17 - $0.51 and using the Black-Scholes
model, an additional expense of financing of $552,126 has been recognized during
the year 2005.

8% Convertible Bridge Notes
---------------------------

Between February 2005 and April 2005, the Company secured private debt financing
from various private-party non-affiliates in the original aggregate principal
amount of Six Hundred Thousand Dollars ($600,000). The net proceeds to the


                                      F-13


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


Company were Five Hundred Twenty-Eight Thousand Dollars ($528,000) after the
payment of a 12% placement fee to the placement agent. The debt was evidenced by
thirteen Convertible Bridge Notes (the "8% Notes"), which bore interest at a
rate of 8% per annum. The 8% Notes contained a conversion provision whereby the
entire principal and accrued interest of the 8% Notes would automatically
convert into shares of the Company's common stock if the Company raised at least
Three Million Dollars ($3,000,000) in a private equity financing after the
issuance of the 8% Notes (an "8% Note Qualified Financing"). For purposes of
such conversion, the conversion price would reflect a 20% discount from the per
share purchase price in the 8% Note Qualified Financing. In addition, the
$600,000 in 8% Notes was to be added to the proceeds from the 8% Note Qualified
Financing for purposes of calculating the $3,000,000 amount, which triggered the
automatic conversion.

As of the July 15, 2005 closing of the Company's 2005 Private Placement, the
Company had raised total gross proceeds of $2,416,000 through such 2005 Private
Placement. After adding the $600,000 in 8% Notes to these gross proceeds as
required by the conversion provisions of the 8% Notes, the aggregate gross
proceeds from the 2005 Private Placement and 8% Notes was $3,016,000. As a
result, the Company achieved an 8% Note Qualified Financing and, accordingly,
the $3,000,000 automatic conversion event of the 8% Notes was triggered upon the
July 15, 2005 closing of the 2005 Private Placement.

As of July 15, 2005, the total principal and accrued interest under the 8% Notes
was $616,097. Pursuant to the 20% discount in conversion price discussed above,
the conversion price of the 8% Notes was $0.40 per share of the Company's common
stock (based on a $0.50 price per share of common stock included within the
units offered to investors in the 2005 Private Placement). Based on this $0.40
per share conversion price, the holders of the 8% Notes were entitled to an
aggregate of 1,540,244 shares of the Company's common stock. The conversion of
the 8% Notes did not entitle the holder's thereof to any warrants to purchase
common stock.

Since the conversion of the 8% Notes was contingent on the fact that an equity
based financing of at least $3,000,000 be obtained, the total charge was
measured as per the date of issuance of the notes in the first and second
quarter of 2005 and this charge was recognized during the third quarter of 2005
as prescribed under paragraph 13 of EITF 98-5 upon obtaining the 8% Note
Qualified Financing of $3,000,000. For the valuation of the conversion feature
of the note, an effective conversion price was assumed to be $0.40 per share
(based on an offering price of $0.50); using the fair market values on the dates
of receipt of proceeds ranging from $0.55 - $0.76 and a volatility of 88%, the
total amount charged to operations during the year 2005 is $528,000.

The total interest expenses for all of the notes referenced in this Note 4
amounted to $102,172 and $2,586,678 for the years ended December 31, 2004 and
2005 respectively.

5.    STOCKHOLDERS' EQUITY
      --------------------

As of December 31, 2004, 30,845,942 shares of the Company's $0.001 par value
common stock were issued and outstanding. Of these, 20,712,100 shares had been
issued for services, 4,627,619 shares had been issued at $0.50 per share for
total proceeds of $2,313,810, 3,200,000 shares were issued at $1.75 per share
for total proceeds of $5,600,000, 972,223 shares were issued at $1.80 per share
for total proceeds of $1,750,000, 300,000 shares had been issued at $0.01 per
share for total proceeds of $3,000, and 1,034,000 shares remain from the reverse
merger described in the audited financial statements at December 31, 2003.

 In the fourth quarter of 2004, the Company retired a total of 3,600 shares.
These shares were initially issued in connection with an agreed upon contract
with a provider of investment relations (IR) services. The parties agreed on a
change of contract conditions and the shares were no longer required. The IR
firm never received the shares and the Company returned these shares to the
transfer agent for retirement.

During 2003 the Company's former corporate lawyer was granted 50,000 shares at
$0.01. Based on this grant a stock subscription receivable of $500 was booked.
In connection with the non-renewal of the contract with the Company's former
corporate lawyer, the Company considered it appropriate to write off the
subscription receivable in 2004.

                                      F-14


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


During 2005, the Company issued 975,000 shares and 262,500 shares, respectively,
in connection with the settlement of two lawsuits as more fully described in the
Company's Current Reports on Form 8-K filed with the SEC on January 24, 2005 and
February 22, 2005, respectively. The Company also issued 300,000 shares for
services. In connection with the Company's 2005 Private Placement and the
conversion of convertible debt, the Company issued 14,256,750 shares at $0.50
per share for total proceeds of $7,128,375, 1,540,243 shares at $0.40 per share
for total proceeds of $616,097 (as a result of the conversion of the 8% Notes
discussed in Note 4 above) and 6,023,932 shares at $0.42 per share for total
proceeds of $2,509,971 (as a result of the conversion of the 10% Notes discussed
in Note 4 above).

The Company's authorized capital consists of 50,000,000 and 75,000,000 shares of
common stock, par value $0.001 per share at December 31, 2004 and December 31,
2005, respectively, and 5,000,000 shares of preferred stock, no par value per
share.

                                      F-15


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


6.         STOCK OPTIONS AND WARRANTS
           --------------------------

On July 15, 2004, the Company's Board of Directors approved a formal stock
option plan subject to shareholder approval which, on April 7, 2005, was
superceded by a Board approved 2005 Stock Plan. The 2005 Stock Plan was approved
by the Company's shareholders on June 9, 2005 at the Company's 2005 Annual
Meeting of Shareholders. As of December 31, 2005, all stock options have been
issued outside of the 2005 Stock Plan. Effective January 4, 2005, the Company
re-priced 895,000 of its issued and outstanding stock options, with original
exercise prices ranging from $1.50-$1.75 per share, to a new exercise price of
$1.00 per share. During the period between January 2005 and December 2005,
5,070,177 warrants were granted with an exercise price of $2.50 per share,
231,036 warrants were granted with an exercise price of $0.40 per share,
2,740,906 warrants were granted with an exercise price of $0.50 per share,
1,016,000 warrants were granted with an exercise price of $0.60 per share and
770,000 options were granted subject to board approval with an exercise price of
$1.00 per share. The Company performed an analysis of the variable portion of
the re-priced options and determined there was no financial impact to be
recognized. Options and warrants are summarized as follows:

                                                         Weighted Average
                                           Shares         Exercise Price

Outstanding at December 31, 2003          1,405,000         $   1.50

Granted                                  12,609,468             2.29
Cancelled                                (4,875,000)            1.32
Exercised                                        --               --
                                        -----------         --------
Outstanding at December 31, 2004          9,139,468         $   2.67

Granted                                   9,828,119             1.58
Cancelled                                  (692,500)            1.00
Exercised                                        --               --
                                        -----------         --------
Outstanding at December 31, 2005         18,275,087         $   1.09
                                        ===========         ========

The following table summarizes options and warrants outstanding at December 31,
2005:

      Range        Number     Wtd. Ave. Life   Wtd. Ave. Price    Exercisable
      -----        ------     --------------   ---------------    -----------

    .50-3.50     18,275,087     1.18 years          $1.09         16,808,419

As further consideration for securing the 8% Notes (as described in Note 4
above), the placement agent is entitled to warrants to purchase shares of the
Company's common stock in an amount equal to 15% of the number of shares issued
upon conversion of the 8% Notes. Based on the 1,540,243 shares of common stock
issuable as a result of the conversion of the 8% Notes on July 15, 2005, the
placement agent and its designees were issued an aggregate of 231,036 Series F
Warrants. Fair value is calculated at the conversion date. 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 upon a merger, acquisition, consolidation, sale of voting
control or sale of substantially all of the assets of the Company in which the
shareholders of the Company do not own a majority of the outstanding shares of
the surviving corporation. Management believes that it is reasonable to assume
that the 231,036 Series F Warrants will be settled in shares. With respect to
the valuation of the 231,036 Series F Warrants, issued between February and
April 2005, a volatility of 88%, a strike price of $0.40, an option value of
$0.42 - $0.76 and using the Black-Scholes model, an additional expense of
financing of $146,349 has been 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


                                      F-16


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


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 4 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 exercise price of $0.50 per share of common stock and expire on August 25,
2010. Management believes that it is reasonable to assume that the 602,393
Series J Warrants will be settled in shares. With respect to the valuation of
the 602,393 Series J Warrants, issued on August 25, 2005, a volatility of 88%, a
strike price of $0.50, an option value of $0.40 and using the Black-Scholes
model, 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.

During the period between April 2005 and November 2005, the Company raised
$7,128,375 in gross proceeds from its 2005 Private Placement. Pursuant to the
terms of the 2005 Private Placement, the Company issued 3,564,188 Series G
Warrants to investors in conjunction with the $7,128,375 in gross proceeds. 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. With respect to the valuation of the 3,564,188 Series G
Warrants, issued between April 2005 and November 2005, a volatility of 88%, a
strike price of $2.50, an option value of $0.23 - $0.30 and using the
Black-Scholes model, 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
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 or upon a merger,
acquisition, consolidation, sale of voting control or sale of substantially all
of the assets of the Company in which the shareholders of the Company do not own
a majority of the outstanding shares of the surviving corporation. Management
believes that it is reasonable to assume that the 2,138,513 Series H Warrants
will be settled in shares. With respect to the valuation of the 2,138,513 Series
H Warrants, issued in November 2005, a volatility of 88%, a strike price of
$0.50, an option value of $0.37 - $0.47 and using the Black-Scholes model, an
additional expense of financing of $906,023 has been recognized during the year
2005.

Following is a summary of expenses incurred in connection with the cost of
warrants granted for our financing activities in 2004 and 2005 and the cost
associated with convertible debt. For complete details related to these tables
see Note 4 and Note 6.

                                 COST OF WARRANTS GRANTED
                     WARRANTS                    2005               2004
                     --------                    ----               ----
                     Series E                 $  395,190         $ 120,000

                     Series F                    146,349                 -

                     Series G                  1,106,349                 -

                     Series G-BH                 552,126                 -

                     Series H                    906,023                 -

                     Series I                     86,000                 -

                     Series J                    240,957                 -
                                              -----------        ----------
                     Total cost of warrants
                     granted                   $3,432,994         $ 120,000
                                              -----------        ----------

                                      F-17


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


                           COST ASSOCIATED WITH CONVERTIBLE DEBT
                                                 2005                2004
                                                 ----                ----
                    10% Convertible Notes     $ 2,124,000                -
                    8% convertible notes          528,000                -
                                                                         -
                                              ------------       ----------
                    Total cost associated
                    with convertible debt     $ 2,652,000                -
                                              ------------       ----------


7.         COMMITMENTS AND LEASES
           ----------------------

As of December 31, 2005, the Company leases for its use office space and
workstations under a non-cancelable operating lease expiring in 2007. In
addition, the Company leases a copier through 2008 and has agreements related to
inventory purchase commitments requiring future payments through 2006.

Future minimum payments for commitments over the next three years are as
follows:

                          For the year ended
                             December 31,                 Amount
                             ------------                 ------

                                2006                   $  252,748
                                2007                       96,548
                                2008                        6,340
                                                       ----------
                                Total                  $  355,636
                                                       ==========

Rent expense for the years ended December 31, 2004 and 2005 was $207,892 and
$205,062, respectively.

In addition, at December 31, 2005, the Company has $241,861 in purchase order
commitments. Also, we have entered into a $300,000 software license agreement
related to the implementation of a second software platform. At December 31,
2005, we have capitalized an advance payment of $50,000 towards this agreement.
The payment of the remaining balance of $250,000 has been postponed due to
commercial delays in the release of a third-party chip set.

                                      F-18


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


8.         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 at December
31, 2005 and 2004 are as follows:

                                            December 31, 2005  December 31, 2004
                                            -----------------  -----------------
Deferred tax assets
      Deferred compensation costs             $         --       $         --
      Non-benefited  tax losses and credits     12,926,000         8,778,,000
                                              ------------       ------------
               Total deferred tax assets        12,926,000         8,778,,000
Deferred tax liabilities
     Net book value of assets                       44,000            132,000
                                              ------------       ------------

              Total deferred tax liabilities        44,000            132,000
                                              ------------       ------------
              Total net deferred tax assets     12,882,000          8,646,000
     Valuation allowance                       (12,882,000)        (8,646,000)
                                              ------------       ------------
              Net deferred tax assets         $         --       $         --
                                              ============       ============

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
approximately $41,000,000 expiring between 2023 and 2025.

9.         RELATED PARTY TRANSACTIONS
           --------------------------

On November 7, 2003, we entered into an agreement with Express Manufacturing,
Inc. ("Express Manufacturing") to provide us contract manufacturing services.
Express Manufacturing is owned by director Albert Wong's in-laws. Mr. Wong is an
advisor to Express Manufacturing, but has no direct financial interest in the
company. Express Manufacturing manufactures printed board assemblies for us in
quantities and prices as set forth in quotations delivered to us for review and
acceptance. Under this arrangement, we paid to Express Manufacturing
approximately $183,000 and $143,000 in payments during fiscal years ended
December 31, 2004 and 2005, respectively.

Director Albert Wong is Manager and controlling shareholder of DMK Investments,
LLC ("DMK"). In June 2004, DMK purchased 138,889 shares of our common stock,
138,889 Series C Warrants and 138,889 Series D Warrants. DMK purchased the
common stock and warrants at the same price ($1.80 per unit, each unit
consisting of one share of common stock, one Series C Warrant and one Series D
Warrant) and on the same terms and conditions as all other investors in our June
2004 financing. The Series C Warrants expire 60 days after the effective date of
a registration statement covering the common stock, Series C Warrants and Series
D Warrants issued in our June 2004 financing. A registration statement covering
these securities has been filed with the SEC, but has not yet been declared
effective. The Series C Warrants had an original exercise price of $3.00 per
share. On August 13, 2004, we amended the terms of the Series C Warrants to have
an exercise price of $1.25 per share. The Series D Warrants expire on June 1,
2009 and had an original exercise price of $3.50 per share. On December 12,
2005, we entered into an amendment with the holders of our Series D Warrants,
including DMK, to reduce the exercise price of the Series D Warrants to $0.50
per share.

                                      F-19


<PAGE>

                        RAPTOR NETWORKS TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2005


10.        SUBSEQUENT EVENTS
           -----------------

OPTIONS ISSUED
--------------
Subsequent to December 31, 2005, the Company awarded a total of 12,500 common
stock purchase options, subject to final Board approval, to certain employees
which vest at the rate of 33-1/3% on each of the first, second and third
anniversaries of the date of grant, expire on the eight-year anniversary of the
date of grant, and have an exercise price of $1.00 per share of the Company's
common stock. Also, subsequent to December 31, 2005, the Company cancelled
325,000 options granted in 2005.


                                      F-20


<PAGE>


                    INDEX TO EXHIBITS FILED WITH THIS REPORT
    EXHIBIT
    NUMBER                          DESCRIPTION
    ------                          -----------

       10.2   Turnkey Manufacturing Services Agreement dated November 7, 2003
              between Express Manufacturing, Inc. and Raptor Networks
              Technology, Inc.
       10.18  2005 Stock Plan effective June 9, 2005 **
       10.19  Form of 2005 Stock Plan Stock Option Agreement **
       21     Subsidiaries of the Registrant
       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     Certification of Chief Executive Officer and Chief Financial
              Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002

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







<PAGE>

                                                                    EXHIBIT 10.2

                    TURNKEY MANUFACTURING SERVICES AGREEMENT

1.       AGREEMENT:

1.1      This Agreement is entered into between Express Manufacturing
         Incorporated, a California corporation whose principal place of
         business is located at 3519 W. Warner Avenue, Santa Ana, California
         92704 (hereafter referred to as "EMI") and Raptor Networks Technology
         (hereafter referred to as "CUSTOMER") whose principal place of business
         is located at 65 Enterprise, Aliso Viejo, California for the purchase
         of various assembled and tested printed circuit boards (Products) in
         accordance with the terms and conditions set forth below.

2.       TERM:

2.1      This Agreement shall commence upon execution and continue in full force
         and effect for a period of one (1) year. This Agreement shall
         automatically renew from year to year, for subsequent one-year terms
         unless terminated pursuant to the provisions of this Agreement.

3.       ORDER QUANTITY AND PRICING:

3.1      CUSTOMER hereby orders and agrees to purchase from EMI and EMI hereby
         agrees to sell and deliver to CUSTOMER, all printed circuit board
         assemblies (Products) in the quantities specified and at the prices
         stated in the Quotation.

3.2      Prices are firm for the quantities specified. Notwithstanding the
         foregoing, if a supplier increases EMI's cost of any electronic
         component or part, EMI may increase its price(s) of any undelivered
         product upon prior notice to CUSTOMER.

4.       PURCHASE ORDERS/FORECASTS: 4.1 PURCHASE ORDERS:

4.1.1    CUSTOMER will provide to EMI firm purchase orders a minimum of ninety
         (90) days in advance of delivery ("Firm Order Period"). Purchase orders
         must be in writing and submitted via hard copy, facsimile, electronic
         mail, or other electronics means as the parties may agree from time to
         time. Such purchase orders issued shall contain the following
         information:

4.1.1.1  CUSTOMER's part number, description and revision level of product to be
         shipped.

4.1.1.2  The unit price and the delivery schedule.

4.1.1.3  Purchase orders shall allow sufficient lead-time per EMI's sales
         quotation.

4.1.1.4  CUSTOMER's specifications including workmanship standards and test
         specifications.

4.1.1.5  All purchase orders whether made before or after this Agreement shall
         be bound by the terms of this Agreement and all are incorporated herein
         by reference.

4.2      FORECASTS:

4.2.1    CUSTOMER shall schedule and maintain firm order requirements with EMI
         for at least ninety (90) days periods. On a monthly basis, CUSTOMER
         shall provide EMI with a non-binding "rolling" forecast of CUSTOMER's



<PAGE>

         order requirements for ninety (90) day periods beyond the Firm Order
         Period. CUSTOMER shall ensure that at all times, EMI is in possession
         of a minimum six (6) month's projection of planned product
         requirements.

4.3      RESCHEDULES:

4.3.1    Request for reschedules must be made in writing, and may be submitted
         via hard copy, facsimile or electronic mail. CUSTOMER agrees that any
         order scheduled to ship within thirty (30) days cannot be rescheduled.

4.3.2    A delivery may be rescheduled (whether in whole or in part) from its
         original agreed delivery date provided that EMI is given notice of such
         rescheduling no less than forty-five (45) days before the original
         shipment date.

4.3.3    CUSTOMER will be responsible for costs associated with carrying
         incurred by EMI to accommodate any reschedule. CUSTOMER will be charged
         a carrying fee at the rate of two percent (2%) per month of the value
         of components actually purchased by EMI for the reschedule delivery.
         EMI shall use its best efforts to return to its suppliers any component
         parts affected by such reschedules in order to minimize any and all
         carrying charges to CUSTOMER under this section. Carrying charges will
         begin to accumulate fifteen (15) days after the original delivery date
         and will be billable monthly.

4.3.4    If such reschedule represents an acceleration or increase, EMI will
         make best effort to meet the request, subject to material and capacity
         availability.

4.3.5    EMI may invoice CUSTOMER for NCNR and CUSTOMER specific component
         inventories that are held in its possession for longer than sixty (60)
         days, when CUSTOMER demands are rescheduled causing EMI's component
         inventory to be in excess of that required to meet the production plan
         as defined by the original delivery date commitments. Any such invoices
         will be due and payable in accordance with the payment terms set forth
         in this Agreement. Upon payment in full, all component inventory shall
         then become consigned inventory, owned by CUSTOMER.

4.3.6    CUSTOMER reserves the right to reschedule deliveries on orders that are
         due forty-five (45) days or more from the date such change notice is
         given to EMI. EMI will have the right to invoice for full material cost
         incurred by EMI as a result of delays (longer than 5 days) caused by
         ECO implementation or shortages of customer-supplied components.

4.4      CANCELLATIONS:

4.4.1    Orders scheduled to be shipped within thirty (30) days may not be
         cancelled under any circumstances. An order that is not scheduled to be
         shipped before thirty (30) days may only be cancelled in writing by
         CUSTOMER, in which writing must be received by EMI no later than
         forty-five (45) days prior to the scheduled shipment. Notwithstanding
         the cancellation of any order, CUSTOMER is responsible for all
         cancellation charges as described in 4.4.2 and will be due and payable
         in accordance with the payment terms set forth in this Agreement.

4.4.2    Upon cancellation of a Purchase Order in the Firm Order Period,
         CUSTOMER shall be liable as follows:

                                      -2-


<PAGE>

         a.       Finished Products are products that are ready to be shipped,
                  shipped and/or in transit. In the event that CUSTOMER wishes
                  to terminate any/all Products specified in the Purchase Order
                  and such termination exceeds EMI's cancellation period.
                  CUSTOMER shall be liable for the amount of cancelled Finished
                  Products.

         b.       Materials/Parts: In the event that CUSTOMER wishes to
                  terminate any/all Products specified in the Forecast or
                  Purchase Orders and such termination exceeds EMI's
                  cancellation period, CUSTOMER shall be liable for Materials or
                  Parts procured pursuant to section 13 herein, to support the
                  Forecasts or Purchase Orders. EMI, however, agrees to make
                  commercially reasonable attempts to minimize CUSTOMER's
                  liability by reallocating standard Materials to customer's
                  other products, EMI shall have no responsibility to attempt to
                  reallocate any Unique Material that was procured solely to
                  support CUSTOMER's order.

         c.       Processing Fee: Without limiting any of the foregoing,
                  CUSTOMER shall also pay a processing fee in the amount of five
                  hundred dollars ($500.00), for each sales order.

         d.       Notwithstanding the cancellation of any order, CUSTOMER is
                  also responsible for all cancellation charges, including the
                  purchase order price of all finished goods and WPI, component
                  inventories on and, component inventories on purchase orders
                  from EMI, and supplier cancellation and other costs charges to
                  EMI (including restocking fees). Such cancellation charges
                  will be submitted by EMI to CUSTOMER within ten (10) days of
                  the request for cancellation, and will be due and payable in
                  accordance with the payment terms set forth in this Agreement.

4.5      UPSIDE AND DOWNSIDE FLEXIBILITY:

4.5.1    Products scheduled for delivery forty-five (45) to sixty (60) days of
         written notice of change may be increased or decreased by up to 50%.

4.5.2    Products scheduled for delivery beyond sixty (60) clays of written
         notice of change may be increased or decreased up to 100%.

4.6      ORDERING ADDITIONAL PRODUCTS:

4.6.1    Whenever CUSTOMER wishes to purchase products not currently quoted, the
         following procedures are to be followed:

4.6.1.1  CUSTOMER shall provide EMI with a request for quote (RFQ) which
         incorporates CUSTOMER's specifications for the additional products.

4.6.1.2  EMI shall provide CUSTOMER with a written quotation for the additional
         products in response to the RFQ) (noting exceptions where necessary).

4.6.1.3  If CUSTOMER elects to purchase such products, it shall issue EMI a
         written Purchase Order for such goods that shall reference EMI's
         quotation and include the specifications for the products.

4.6.1.4  Such additional products shall be covered under this Agreement with the
         issuance of said CUSTOMER Purchase Order and attached Quote.

                                      -3-


<PAGE>

5.       ENGINEERING CHANGE ORDERS (ECO):

5.1      CUSTOMER may, from time to time, request that EMI implement ECOs. The
         following procedures shall be followed to effect such ECOs in a timely
         and cost-effective manner.

5.1.1    CUSTOMER shall notify EMI of a proposed ECO in writing. This
         notification should include the appropriate documentation to support
         EMI's determination of the impact of this request.

5.1.2    Upon notice of an ECO, EMI will make best effort to review all costs
         and other impacts within one (1) week. All cost impacts and material
         availability issues will be mutually reviewed and agreed to with
         CUSTOMER prior to implementation.

5.1.3    Emergency ECOs will be implemented immediately at CUSTOMER's request-
         CUSTOMER will be liable for costs associated with emergency ECO
         implementation, particularly as pertain to any required interruption of
         the production process.

6.       CHANGES IN SPECIFICATIONS:

6.1      CUSTOMER may request, in writing, changes to any order, including
         changes to the relevant specifications or Product by a written ECN
         (Engineering Change Notice). EMI shall notify CUSTOMER in writing as to
         the impact of each such change on the price, delivery schedule end any
         other terms. Such changes shall become effective only upon the signing
         by both parties of such documentation which incorporates the agreed
         upon price and terms of the change.

7.       DELIVERY/SHIPMENT:

7.1      Delivery of finished goods and terms are FOB Origin (Shipping Point).
         EMI transfers title and risk of loss to the Products upon delivery to
         the carrier at the EMI dock even if EMI has arranged for
         transportation.

7.2      CUSTOMER will arrange transportation and insurance and specify carriers
         and transportation instructions. If CUSTOMER has not done so, EMI shall
         arrange for transportation and insurance on CUSTOMER's behalf and add
         these costs to the shipment invoice.

7.3      EMI will use its reasonable efforts to deliver Products no more than
         three (3) days before and zero (0) days after the agreed delivery date,
         but if shipments are delayed by causes beyond EMI's control, EMI will
         immediately notify CUSTOMER and may ship partial shipments. If EMI
         continues to be unable to meet the agreed delivery date due to supply
         constraints, a report of existing supply constraints and actions to
         minimize impact of these constraints will be provided to CUSTOMER. EMI
         will bear the cost of any reasonable additional freight charges
         incurred as a result of being persistently late.

7.4      If the CUSTOMER does not provide EMI sufficient lead-time coverage by
         its purchase orders and requires EMI to meet deliveries inside of the
         accepted lead-time, EMI may use labor overtime, material expedite
         charges and other means in attempts to pull in deliveries that are
         inside of lead-time. EMI will quote and CUSTOMER will be invoiced for
         all such expediting fees and costs.

                                      -4-


<PAGE>

7.5      All Products will be packed by EMI in secure packaging considered
         appropriate by EMI or as otherwise may be agreed. All CUSTOMER required
         packaging standards shall be specified in Request for Quote and may not
         be changed except as mutually agreed in writing.

7.6      CUSTOMER is responsible for obtaining or payment of:

7.6.1    Any necessary export and import licensing relating to Products and
         complying with all applicable export control laws and regulations.

7.6.2    Any government or regulatory approvals relating to the marketing, sale
         or use of Products and maintaining compliance with all applicable laws
         and regulations in any jurisdiction to or from which Products are
         shipped or in from which the Products are marketed, distributed or
         sold.

7.6.3    Any taxes, fees or duties imposed by any jurisdiction or entity once
         Product has left EMI's FOB Origin shipping point.

8.       QUALITY CONFORMANCE:

8.1      Products sold under this Agreement will conform to those specifications
         referenced in the Quotation and as may be modified from time to time by
         mutual written agreement. All other standards or CUSTOMER's
         specifications will be reviewed and are subject to acceptance by EMI in
         writing. CUSTOMER shall specify and divulge any special requirements as
         a part of its purchase order. If CUSTOMER has no workmanship standard
         of its own, then EMI shall conform to IPC-A-610 Class 2 (or most recent
         revision thereof) as a minimum or as otherwise noted.

9.       ACCEPTANCE:

9.1      INSPECTION/ACCEPTANCE:

9.1.1    CUSTOMER shaft inspect all products delivered under this Agreement
         promptly upon receipt at the receiving destination and may reject any
         product that fail to meet the specifications described in the EMI's
         sales quotation and CUSTOMER's purchase order. Products not rejected by
         written notification to EMI within fourteen (14) days of receipt at
         CUSTOMER's facility shall be deemed to have been accepted.

9.2      SOURCE INSPECTION:

9.2.1    CUSTOMER may, at its option, elect to inspect and accept assemblies at
         EMI's facility. EMI will provide sufficient workspace for such
         inspection activities. Should CUSTOMER elect to inspect at EMI's
         facility, EMI will not be obligated to hold completed assemblies for
         CUSTOMER's inspection beyond seven (7) clays from the scheduled
         delivery date.

9.3      RETURN MATERIAL AUTHORIZATIONS (RMA):

9.3.1    In the event that products manufactured under this Agreement are found
         to be defective, CUSTOMER must request a Return Material Authorization
         (RMA) from EMI prior to exercising any return of products to EMI. An
         RMA number will be issued promptly (within three (3) working days)
         provided that CUSTOMER provides a written statement detailing the
         failure. The RMA number must appear on all return documents and


                                      -5-


<PAGE>

         packaging sent to EMI. Returns shall be shipped freight prepaid to
         EMI's manufacturing facility. EMI will, at its option and expense,
         repair or replace said rejected products within fourteen (14) business
         days. EMI will prepay transportation charges back to CUSTOMER.

9.4      CUSTOMER SUPPLIED COMPONENTS:

9.4.1    Should CUSTOMER elect to supply any components to EMI, and EMI agrees
         to such action, such components in acceptable quantities and usable
         packaging format, including provision for attrition and failure parts,
         will be delivered to EMI not later than two (2) weeks prior to each
         scheduled delivery date. Failure to comply with this provision may
         result in schedule delays and/or premium charges.

10.      PAYMENT:

10.1     EMI shall invoice CUSTOMER upon shipment of finished goods to
         CUSTOMER-designated location. Payment for all such products shall be
         net thirty (30) days from date of invoice, subject to the approval and
         continuation of such approval of credit by EMI. CUSTOMER agrees to
         submit such financial information from time to time as may be
         reasonably requested by EMI for the establishment and/or continuation
         of credit terms.

10.2     EMI reserves the right to require partial payment prior to completion
         of tooling for some forms of custom tooling or NRE as defined in any
         Quotes, including payments prior to initiation of work.

10.3     CUSTOMER will pay all invoices in full and will not offset any amounts
         EMI may owe or be deemed to be owed to CUSTOMER without the approval of
         EMI.

10.4     Payments are due thirty (30) days from date of invoice. If payments are
         more than twenty (20) days late or CUSTOMER's financial condition
         deteriorates. EMI may put shipments on credit hold and/or require
         payments in advance, require a letter of credit, or require other
         assurances acceptable to EMI. Furthermore, EMI may, in addition to its
         other rights and remedies, charge a late payment charge of one and
         one-half percent (1.5%) per month, together with any additional costs,
         charges and expenses incurred by EMI in collecting the overdue payment.
         Should this 1.5% rate exceed the maximum rate that is lawful under the
         circumstances, then the maximum rate that is allowed shall apply.

10.5     Where prices are related to volume and CUSTOMER does not purchase the
         anticipated volume of Product, EMI reserves the right to adjust prices
         to reflect the actual quantities of Products shipped to CUSTOMER and
         invoice CUSTOMER for the difference between the price paid and the
         adjusted price.

10.6     EMI reserves the right to place a lien on all of the Products it sells
         to CUSTOMER on net thirty (30) credit terms. In furtherance of this
         right, EMI may from time to time, file such U.C.C. financing statements
         covering Products as it determines are necessary. For such purpose,
         CUSTOMER shall execute and deliver to EMI the UCC-1 financing statement
         provided by the California Secretary of State and such further
         statements as EMI shall from time to time request. CUSTOMER hereby
         irrevocably appoints EMI as its attorney-in-fact to execute such U.C.C.
         financing statements on CUSTOMER's behalf, as EMI shall require if


                                      -6-


<PAGE>

         CUSTOMER shall fail to execute the same promptly after demand. CUSTOMER
         acknowledges that such appointment is coupled with an interest and is
         therefore irrevocable for so long as any consigned or unpaid Products
         are in the possession of CUSTOMER. EMI will remove the UCC lien on each
         order after payment has been received.

11.      COLLECTION OF ACCOUNTS:

11.1     In the event that an account becomes past due and EMI submits the
         account for collection or legal action, CUSTOMER shall pay all costs of
         collection, court costs, and reasonable attorney fees.

12.      TAXES:

12.1     CUSTOMER shall bear all applicable federal, state, municipal and other
         governmental taxes (such as sales, customs duty, use, etc.); and all
         personal property taxes assessable to the Products after delivery to
         the carrier. EMI is obligated to charge CUSTOMER sales or use tax on
         all amounts due under this agreement unless Customer provides EMI a
         valid exemption certificate.

13.      MATERIAL REQUIREMENTS:

13.1     In the event that EMI uses a supplier per CUSTOMER's (AVL) Approved
         Vendor List and for either reasons of quality, cost or market
         conditions, the costs exceed that which EMI and CUSTOMER previously
         agreed upon, the parties shall seek to reach agreement on cost
         adjustment to the CUSTOMER (PPV) Price Purchase Variance. Until EMI and
         CUSTOMER reach an agreement, EMI shall not proceed pursuant to the
         involved purchase order until such an agreement is reached in writing.
         In the event that the parties cannot reach agreement promptly on such
         net adjustment, the CUSTOMER shall be free to pursue alternative
         sources for (PPV) items.

13.2     EMI will purchase reeled components in the minimum quantity of standard
         full reel sizes necessary to satisfy CUSTOMER's orders. CUSTOMER we pay
         for any reasonably excess quantity of these reeled components and for
         all other reasonably excess material purchased on CUSTOMER's behalf,
         and with CUSTOMER's preapproval, that cannot be used for CUSTOMER's
         benefit or returned to the supplier due to minimum lot sizes, partial
         reels, or Noncancelable/Nonreturnable (NCNR) conditions. CUSTOMER
         agrees and accepts NCNR terms as stated in EMI's quotation or NCNR Form
         as part of this Agreement as reasonably mandated by its AVL suppliers.

13.3     EMI will provide CUSTOMER, in writing, a list of all suppliers and
         parts in which NCNR approvals are required, prior to placing orders.
         Once approved by CUSTOMER, EMI shall place such orders for NCNR
         materials. CUSTOMER will be fully responsible for the liability of such
         material in the event CUSTOMER no longer needs such part(s).

13.4     If the Purchase Order lead time does not provide EMI with enough lead
         time for the purchase of identified long lead parts, then the CUSTOMER
         and EMI must agree to execute a "Forecast Ordering Agreement" allowing
         EMI to place orders for identified long lead parts with CUSTOMER
         approval. All parts purchased or placed on order under this Agreement
         become the responsibility of the CUSTOMER.

                                      -7-


<PAGE>

14.      WARRANTY:

14.1     EMI warrants that the Products sold hereunder will comply with all
         applicable CUSTOMER specifications and shall be free from defects in
         material and workmanship and shall successfully satisfy the acceptance
         criteria as outlined in Section 9.2 of this Agreement. This warranty
         shall be effective for a period of one (1) year from the date of EMI's
         Date Code.

14.2     The foregoing warranty shall not apply to completed assemblies which
         are defective as a result of engineering or design problems, customer
         misuse, accident, neglect, alteration, improper testing, error in
         CUSTOMER's specifications or BOM (bill of materials), improper storage,
         or damaged components caused by CUSTOMER or its end user. The foregoing
         warranty shall also not apply if the product or components parts have
         been subjected to unauthorized repair, rework or installation.

14.3     This warranty does not extend to CUSTOMER-supplied components and/or
         components purchased from CUSTOMER's designated contract manufacturers.

14.4     Prototypes and pre-production/pilot Products are provided on an "AS IS
         " basis without warranty of any kind.

14.5     CUSTOMER's sole remedy and EMI's sole obligation shall be to repair or
         replace (at EMI's option) the nonconforming Product. Any Product
         returned to EMI which, after inspection and test by EMI, is found to be
         conforming shall be subject to a NDF (No Defect Found) charge.

14.6     All returns must first be authorized by the issuance of an RMA (return
         material authorization) from EMI. EMI will provide the RMA number
         within one (1) business day of receipt of notice. Product returned to
         EMI without an RMA will be refused and returned to CUSTOMER at the
         CUSTOMER's expense. The CUSTOMER must place a buy back or replacement
         purchase order, matching the corresponding RMA part number and
         quantity, to receive authorization to return Products to EMI. CUSTOMER
         will forward the nonconforming Product to EMI freight prepaid. EMI will
         return the repaired or replaced Product, using the same method and
         priority of shipment as from CUSTOMER, but no later than thirty (30)
         days from the day EMI received the nonconforming Product.

14.7     If EMI determines the warranted Product is un-repairable or EMI no
         longer possesses tools and equipment necessary to perform the repairs,
         EMI shall have the option to refund the purchase price in lieu of
         repair or replacement. However, if the CUSTOMER provided tools and
         equipment necessary to perform the repair has been returned to CUSTOMER
         at its request, and EMI is unable to repair the Product due to lack of
         this equipment, then EMI will have no responsibility for warranty or
         non-warranty repairs, or for refund of the purchase price.

14.8     The foregoing warranties are expressly in lieu of any other warranties
         and EMI makes no other warranty, expressed or implied, with respect to
         the completed assemblies and in particular, EMI disclaims any warranty
         with respect to the merchantability of such goods or the fitness of
         such completed assemblies for the Customer's intended purpose or use.
         EMI neither assumes nor authorizes CUSTOMER or any other person to
         assume on behalf of EMI any other liabilities in connection with the
         sale of goods,

                                      -8-


<PAGE>

14.9     IN NO EVENT WILL EMI BE LIABLE FOR ANY SPECIAL, INCIDENTAL, OR
         CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO INTERRUPTION OF
         PRODUCTION, ADMINISTRATIVE EXPENSES OR OVERHEAD, OR LOSS OF PROFITS,
         EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EMI'S LIABILITY IN
         ANY EVENT FOR DIRECT DAMAGES UNDER THIS AGREEMENT SHALL NOT EXCEED ONE
         MILLION DOLLARS OR THE TOTAL AMOUNT PAID BY CUSTOMER, WHICHEVER IS
         LESS, AND EMI'S LIABILITY FOR ANY ONE PRODUCT SHALL NOT EXCEED THE
         PRICE PAID BY CUSTOMER FOR THAT PRODUCT.

14.10    Non-warranty repairs will be returned following the same procedure for
         warranty repairs. CUSTOMER and EMI will develop a repair price matrix
         for EMI performing such repairs and this pricing will be included in
         this Agreement as amendment. EMI shall not have any responsibility for
         providing parts or services after termination of this Agreement unless
         otherwise agreed in writing.

15.      LIMITATION OF LIABILITY:

15.1     In no event shall either party be liable for any, indirect, incidental
         or consequential damages, including without limitation lost profits,
         arising in connection with any products sold hereunder, whether for
         breach of contract, breach of warranty, liability in tort (whether
         strict liability or negligence), or without limitation otherwise,
         personal property damage, personal injury and third party liabilities,
         all of which are hereby expressly excluded.

15.2     Circumstances may arise where CUSTOMER is entitled to recover damages
         from EMI. In each such instance and for any cause of action, EMI is
         liable for no more than direct damages up to the price paid for the
         Product(s), which is subject to the claim.

16.      TERMINATION:

16.1     FOR CONVENIENCE:

16.1.1   Either party may terminate this Agreement or convenience upon
         one-hundred and twenty (120) days' written notice to the other party.
         If EMI does not have sufficient material to cover material lead-time,
         EMI's notice to CUSTOMER must be at least as far in advance as the
         longest lead-time item. Both parties shall fulfill their obligations
         under any pending open Purchase Orders

16.2     FOR CAUSE:

16.2.1   This Agreement may be terminated by either party at any time upon the
         occurrence of any one or more of the following Events of Default:

16.2.1.1 The insolvency of the other party, including reorganization through
         bankruptcy or similar proceedings,

16.2.1.2 The other party shall cease to function as a going concern,

16.2.1.3 Failure of the other party: 1) to perform pursuant to the terms and
         conditions of this Agreement; and 2) to cure such performance
         deficiency within sixty (60) days after receiving written notice
         thereof.

                                      -9-


<PAGE>

16.3     MATERIALS, WORK IN PROCESS, COMPLETED PRODUCT:

16.3.1   Notwithstanding termination of this Agreement, CUSTOMER shall be liable
         for any materials acquired plus handling charges pursuant to purchase
         orders and long lead-time items purchased to forecast work in process
         and completed assemblies still in EMI's possession. All such materials
         and products shall be shipped promptly to CUSTOMER upon termination and
         shall be subject to the then-current pricing schedule and payment
         terms.

16.3.2   CUSTOMER shall also be liable for any unamortized investment incurred
         by EMI at time of termination as previously agreed to in writing.

16.3.3   Notwithstanding sections 16.3.1 and 16.3.2, in the event that the
         agreement is terminated pursuant to section 16.2.1.1, EMI at its option
         may liquidate all completed assemblies, work in process and all other
         materials procured under this agreement, in such a case CUSTOMER shall
         remain liable to EMI for the difference between the liquidated amount
         received and the amount owing by CUSTOMER under 16.3.1 and 16.3.2.

17.      CONFIDENTIALITY:

17.1     For a period of two years from the date of any CUSTOMER's order, the
         parties agree to hold in confidence, and not to disclose to any person,
         firm or corporation without the express prior written authorization of
         the other party, all confidential and proprietary information which was
         specifically identified as Confidential or proprietary and is stamped
         or marked as such. Confidential information may include materials,
         drawings, bills of materials, specifications "and other technical
         information concerning CUSTOMER or EMI. The receiving party will use no
         less care to protect the confidentiality of such information as it uses
         to protect its own confidential and proprietary information. The
         obligations set forth in this paragraph shall not apply if;

17.1.1   The information was already known by the party prior to disclosure of
         such information by the other party or by a third party:

17.1.2   The information is independently developed by the party without use of
         the information disclosed by the other party or third party;

17.1.3   The information is publicly available at the time of disclosure or
         thereafter becomes publicly available through no fault of the other
         party; or

17.1.4   The information is subsequently disclosed to the party by a third party
         under no obligation to the other party or the customer not to disclose
         such information.

18.      OBSOLETE END/OR SURPLUS MATERIALS:

         When any material is for any reason at any time tendered obsolete
         and/or surplus to CUSTOMER's requirements and that material was ordered
         by EMI against accepted purchase order(s) pursuant to this Agreement,
         EMI will:

18.1     provide to CUSTOMER as soon as reasonably practical following the date
         of the event causing the obsolescence/surplus (the "Obsolescence Date")
         a notice of the potential cost of such obsolescence or surplus
         including relevant handling charges; and

                                      -10-


<PAGE>

18.2     for a period of three (3) weeks from the Obsolescence Date, use its
         reasonable efforts to:

18.2.1   cancel outstanding orders for such material; or

18.2.2   attempt to return such material back to the original supplier; and/or
         EMI will return and invoice such material back to the customer at the
         cost of the material plus the original sale margin,

18.2.3   use excess/uncancellable materials for the manufacture of other
         products.

18.3     After such 3-week period:

18.3.1   EMI will at CUSTOMER's risk and expense, be entitled to deliver to
         CUSTOMER (or, if CUSTOMER so requests, otherwise dispose of ) all
         obsolete and/or surplus materials then held by EMI; and

18.3.2   EMI shall invoice CUSTOMER for the full cost thereof together with the
         costs of all other materials for which EMI remains liable and any price
         variance incurred by EMI in connection with the resale of such
         materials and EMI's reasonable handling charges in respect of all
         obsolete and/or surplus materials originally made obsolete anchor
         surplus. CUSTOMER shall pay such invoice without offset of deduction
         within (14) fourteen days of the invoice date

19.      GENERAL: 19.1 ENTIRE AGREEMENT:

19.1.1   This Agreement constitutes the entire understanding of the parties with
         respect to the subject matter hereof and supersedes all prior
         agreements relating thereto, written or oral, between the parties. This
         Agreement may be modified only in writing and duly signed by authorized
         representatives of both parties.

19.2     SEVERABILITY:

19.2.1   In the event that one or more of the provisions, or parts thereof,
         contained in the Agreement shall for any reason be held to be invalid,
         illegal, or unenforceable by a court of competent jurisdiction, the
         same shall not invalidate or otherwise affect any other provision in
         the Agreement, and the Agreement shall be construed as if such invalid,
         illegal or unenforceable provision had never been contained therein.

19.3     USE OF STANDARD PURCHASE ORDERS:

19.3.1   Although CUSTOMER may use its standard purchase order form to give any
         order or other notice provided for hereunder, said order or notice will
         be governed by the terms and conditions of this Agreement, and any term
         or condition set forth in any such standard form which is inconsistent
         with or in addition to the terms and conditions of this Agreement shall
         have no force or legal effect and will not become part of this
         Agreement.

19.4     INDEMNIFICATION:

19.4.1   Each party agrees to indemnify the other against, and hold the other
         harmless from any and all claims, demands, damages and liabilities,
         including attorneys fees and costs, for personal injury or property
         damage due to such parties' negligence related to the services provided
         under this Agreement. Both parties shall carry and maintain liability
         insurance coverage to satisfactorily cover its obligations under this


                                      -11-


<PAGE>

         Agreement. In addition, CUSTOMER shall indemnify and hold EMI and
         subcontractors harmless against any claim alleging that the products
         supplied pursuant to this Agreement and in accordance with CUSTOMER's
         specifications, infringes any patent, copyright, mask work right or
         other property right of a third party; and CUSTOMER shall defend, at
         its expense, any suit or proceeding against EMI or subcontractor based
         upon such a claim and shall pay all costs and damages awarded therein.

19.5     ASSIGNMENT:

19.5.1   This Agreement may not be assigned in whole or in part or transferred
         by either party without the prior written consent of the other.

19.6     FORCE MAJEURE:

19.6.1   In the event that performance by either party of its obligations under
         this Agreement is prevented due to any Act of God, fire, casualty,
         flood, earthquake, war, strike, lockout, epidemic, destruction of
         production facilities, riot, insurrection, material unavailability, or
         any other cause beyond the reasonable control of the party invoking
         this section, and if such party shall give prompt written notice to the
         other party, its performance shall be excused, and the time for the
         performance shall be extended for the period of delay or inability to
         perform due to such occurrences.

19.7     NOTICES:

19.7.1   All notices and other communications permitted or required by the
         provisions of this Agreement shall be in writing and shall be mailed,
         faxed, e-mailed or delivered to the other party at the address set
         forth in this Agreement and shall be deemed effective upon receipt by
         the other party. Mail delivery shall be deemed effective three (3) days
         after deposit in the U.S. Mail.

19.8     GOVERNING LAW:

19.8.1   This Agreement shall be construed and interpreted in accordance with
         the laws of the State of California.

19.9     ADVERTISEMENT:

19.9.1   CUSTOMER consents to EMI advertising the fact that EMI is providing
         Product to CUSTOMER on EWI's Web site, in marketing materials, and
         otherwise, so long as such advertising does not disclose any specific
         terms of the relationship.

19.10    APPROVED MANUFACTURERS:

19.10.1  EMI will only purchase components specified and approved by CUSTOMER as
         defined in CUSTOMER's AVL (Approved Vendor List). Any changes are
         subject to CUSTOMER's written consent. If CUSTOMER refuses to give such
         consent or fails to respond within ten (10) days of EMI's request and
         EMI has used reasonable efforts to purchase from the approved
         manufacturers and shortages or allocations exist, EMI shall not be
         liable for falling to deliver the affected Product.

19.10.2  If CUSTOMER provides consigned components to EMI, these item must be
         from the CUSTOMER's AVL.

                                      -12-


<PAGE>

19.11    ATTORNEY'S FEES; ARBITRATION:

19.11.1  If any legal action is necessary to enforce the terms of this
         Agreement, the prevailing party shall be entitled to reasonable
         attorney's fees and court costs in addition to any other relief the
         prevailing party may be entitled to. Any controversy or dispute arising
         out of this Agreement, including the interpretation of any of the
         provisions hereof, shall be submitted to arbitration in Orange County,
         California, under the commercial arbitration rules then in effect of
         the American Arbitration Association. Any award or decision obtained
         from any such arbitration proceeding shall be final and binding on the
         parties, and judgment upon any award thus obtained may be entered in
         any court having jurisdiction thereof. No action at law or in equity
         based upon any claim arising out of or rotated to this Agreement shall
         be instituted in any court by any party hereto except (a) an action to
         compel arbitration pursuant to this Paragraph, or (b) an action to
         enforce an award obtained in an arbitration proceeding in accordance
         with this paragraph.

19.12    AMENDMENTS:

         No addition to, deletion from or modification of any of the provisions
         of this Agreement shall be binding upon the Parties unless made in
         writing and signed by a duly authorized representative of both parties.

20.      MISCELLANEOUS:

20.1     A facsimile copy of a signature to this agreement should be deemed an
         original.

20.2     All remedies available to either party for breach of this Agreement are
         cumulative and may be exercised concurrently or separately and the
         exercise of any one remedy shall not be deemed an election of such
         remedy to the exclusion of other remedies.

20.3     Titles and heading sections of this Agreement are for convenience of
         reference only and shall not affect the construction of any provision
         of this Agreement.

20.4     The Waiver by any party of the breach of the other party of any
         provision of this Agreement shall not be construed as a continuing
         waiver of the breach of the same or other provisions of the Agreement.

20.5     The parties agree to cooperate fully and to execute any and all
         supplementary documents and to take any and all additional acts that
         may be necessary or appropriate to give full force and effect to the
         terms, provisions and intentions of the Agreement.

20.6     Customer furnished materials including Documentation, Programmable
         Files (check-sum), Gerber Data, Cad Data, Fabrication Drawings,
         Fabrication Specifications, etc. are to be provided with Revision
         Controlled. EMI will deliver and fabricate according to the furnished
         materials without any alterations. Therefore, the customer holds
         liabilities for products that are produced resulting in inaccuracy of
         its contents.

21.      NON-SOLICITATION:

21.1     During the term of this agreement and for a period of two years after
         the expiration or termination of this agreement, the parties agree not
         to solicit or induce the other parties' employees to leave their
         employment in a management level position or otherwise considered a key
         employee; provided, however, that neither party shall be prohibited
         from employing any person who (a) contacts the party on his or her own
         initiative, or (b) responds to general advertisement or general
         recruiting efforts.

                                      -13-


<PAGE>

21.2     In the event of breach of this provision, the parties agree that the
         nonbreaching party shall be entitled to the following remedies:
         a.       Temporary and Permanent injunctive relief, restraining further
                  breach of this covenant;
         b.       An amount equal to two times the solicited employee's annual
                  salary;
         c.       Any other damages available at law or equity.

22.      APPROVALS:

In witness whereof, the parties hereto have caused this Agreement to be duly and
properly executed by the duly author zed representatives as of the day and year
written below.

On behalf of:                         On behalf of:  Express Manufacturing, Inc.

   /S/ John Moore                         /S/ CP Chin
-------------------------------       ------------------------------------------
Signature                             Signature

John Moore                                CP Chin
-------------------------------       ------------------------------------------
Name                                  Name

Operations Management                     President
-------------------------------       ------------------------------------------
Title                                 Title

Date:  11/4/2003                      Date: 11/7/03


                                      -14-




<PAGE>

                                                                   EXHIBIT 10.18

                        RAPTOR TECHNOLOGY NETWORKS, INC.


                                 2005 STOCK PLAN

         1. PURPOSES OF THE PLAN; LEGAL COMPLIANCE. The purposes of this Stock
Plan (the "PLAN") are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees, Directors and Consultants and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan. It is the
intent of the Plan that it conform in all respects with the requirements of Rule
16b-3 promulgated by the Securities and Exchange Commission under the Exchange
Act. To the extent that any aspect of the Plan or its administration is at any
time viewed as inconsistent with the requirements of Rule 16b-3 or, in
connection with Incentive Stock Options, the Code, that aspect shall be deemed
to be modified, deleted or otherwise changed as necessary to ensure continued
compliance with Rule 16b-3 and the Code. Any Option shall contain any other
terms that the Administrator deems necessary to comply with Applicable Laws.

         2. DEFINITIONS. As used herein, the following definitions shall apply:

                  (a) "ADMINISTRATOR" means the Board or any of its Committees
         as shall be administering the Plan in accordance with SECTION 4 hereof.

                  (b) "APPLICABLE LAWS" means the requirements relating to the
         administration of stock option plans under U.S. state corporate laws,
         U.S. federal and state securities laws, the Code, any stock exchange or
         quotation system on which the Common Stock is listed or quoted and the
         applicable laws of any other country or jurisdiction where Options or
         Stock Purchase Rights are granted under the Plan.

                  (c) "BOARD" means the Board of Directors of the Company.

                  (d) "CODE" means the Internal Revenue Code of 1986, as
         amended.

                  (e) "COMMITTEE" means a committee of Directors appointed by
         the Board in accordance with SECTION 4 hereof.

                  (f) "COMMON STOCK" means the Common Stock of the Company.

                  (g) "COMPANY" means Raptor Technology Networks, Inc.
         ("Raptor"), a Colorado corporation.

                  (h) "CONSULTANT" means any person who is engaged by the
         Company or any Parent or Subsidiary to render consulting or advisory
         services to such entity.


<PAGE>

                  (i) "DIRECTOR" means a member of the Board of Directors of the
         Company.

                  (j) "DISABILITY" means total and permanent disability as
         defined in Section 22(e)(3) of the Code.

                  (k) "EMPLOYEE" means any person, including Officers and
         Directors, employed by the Company or any Parent or Subsidiary of the
         Company. A Service Provider shall not cease to be an Employee in the
         case of (i) any leave of absence approved by the Company or (ii)
         transfers between locations of the Company or between the Company, its
         Parent, any Subsidiary, or any successor. For purposes of Incentive
         Stock Options, no such leave may exceed 90 days, unless reemployment
         upon expiration of such leave is guaranteed by statute or contract. If
         reemployment upon expiration of a leave of absence approved by the
         Company is not so guaranteed, on the 181st day of such leave any
         Incentive Stock Option held by the Optionee shall cease to be treated
         as an Incentive Stock Option and shall be treated for tax purposes as a
         Nonstatutory Stock Option. Neither service as a Director nor payment of
         a director's fee by the Company shall be sufficient to constitute
         "employment" by the Company.

                  (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
         as amended.

                  (m) "FAIR MARKET VALUE" means, as of any date, the value of
         Common Stock determined as follows:

                           (i) If the Common Stock is listed on any established
                  stock exchange or a national market system, including without
                  limitation the Nasdaq National Market or The Nasdaq SmallCap
                  Market of The Nasdaq Stock Market, its Fair Market Value shall
                  be the closing sales price for such stock (or the closing bid,
                  if no sales were reported) as quoted on such exchange or
                  system for the last market trading day prior to the time of
                  determination, as reported in THE WALL STREET JOURNAL or such
                  other source as the Administrator deems reliable;

                           (ii) If the Common Stock is regularly quoted by a
                  recognized securities dealer but selling prices are not
                  reported, its Fair Market Value shall be the mean between the
                  high bid and low asked prices for the Common Stock on the last
                  market trading day prior to the day of determination; or

                           (iii) In the absence of an established market for the
                  Common Stock, the Fair Market Value thereof shall be
                  determined in good faith by the Administrator.

                  (n) "INCENTIVE STOCK OPTION" means an Option intended to
         qualify as an incentive stock option within the meaning of Section 422
         of the Code.

                  (o) "NONSTATUTORY STOCK OPTION" means an Option not intended
         to qualify as an Incentive Stock Option.

                  (p) "OFFICER" means a person who is an officer of the Company
         within the meaning of Section 16 of the Exchange Act and the rules and
         regulations promulgated thereunder.

                                      -2-


<PAGE>

                  (q) "OPTION" means a stock option granted pursuant to the
         Plan.

                  (r) "OPTION AGREEMENT" means a written or electronic agreement
         between the Company and an Optionee evidencing the terms and conditions
         of an individual Option grant. The Option Agreement is subject to the
         terms and conditions of the Plan.

                  (s) "OPTION EXCHANGE PROGRAM" means a program whereby
         outstanding Options are exchanged for Options with a lower exercise
         price.

                  (t) "OPTIONED STOCK" means the Common Stock subject to an
         Option or a Stock Purchase Right.

                  (u) "OPTIONEE" means the holder of an outstanding Option or
         Stock Purchase Right granted under the Plan.

                  (v) "PARENT" means a "parent corporation," whether now or
         hereafter existing, as defined in Section 424(e) of the Code.

                  (w) "PLAN" means this 2005 Stock Plan.

                  (x) "RESTRICTED STOCK" means shares of Common Stock acquired
         pursuant to a grant of a Stock Purchase Right under SECTION 11 below.

                  (y) "SECTION 16(b)" means Section 16(b) of the Securities
         Exchange Act of 1934, as amended.

                  (z) "SERVICE PROVIDER" means an Employee, Director or
         Consultant.

                  (aa) "SHARE" means a share of the Common Stock, as adjusted in
         accordance with SECTION 12 below.

                  (bb) "STOCK PURCHASE RIGHT" means a right to purchase Common
         Stock pursuant to SECTION 11 below.

                  (cc) "SUBSIDIARY" means a "subsidiary corporation," whether
         now or hereafter existing, as defined in Section 424(o) of the Code.

         3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of SECTION 12
of the Plan, Shares which may be subject to Options and issued under the Plan is
3,000,000 Shares.

         If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the Shares of Optioned Stock which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

                                      -3-


<PAGE>

         4. ADMINISTRATION OF THE PLAN.

                  (a) ADMINISTRATOR. The Plan shall be administered by the Board
         or a Committee appointed by the Board, which Committee shall be
         constituted to comply with Applicable Laws.

                  (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
         the Plan and, in the case of a Committee, the specific duties delegated
         by the Board to such Committee, and subject to the approval of any
         relevant authorities, the Administrator shall have the authority in its
         discretion:

                           (i) to determine the Fair Market Value;

                           (ii) to select the Service Providers to whom Options
                  and Stock Purchase Rights may from time to time be granted
                  hereunder;

                           (iii) to determine the number of Shares of Optioned
                  Stock to be covered by each such award granted hereunder;

                           (iv) to approve forms of agreement for use under the
                  Plan;

                           (v) to determine the terms and conditions of any
                  Option or Stock Purchase Right granted hereunder. Such terms
                  and conditions include, but are not limited to, the exercise
                  price, the time or times when Options or Stock Purchase Rights
                  may be exercised (which may be based on performance criteria),
                  any vesting acceleration or waiver of forfeiture restrictions,
                  and any restriction or limitation regarding any Option or
                  Stock Purchase Right or the Common Stock relating thereto,
                  based in each case on such factors as the Administrator, in
                  its sole discretion, shall determine;


                           (vi) to determine whether and under what
                  circumstances an Option may be settled in cash under
                  SUBSECTION 9(e) instead of Common Stock;

                           (vii) to reduce the exercise price of any Option to
                  the then current Fair Market Value if the Fair Market Value of
                  the Common Stock covered by such Option has declined since the
                  date the Option was granted;

                           (viii) to initiate an Option Exchange Program;

                           (ix) to prescribe, amend and rescind rules and
                  regulations relating to the Plan, including rules and
                  regulations relating to sub-plans established for the purpose
                  of qualifying for preferred tax treatment under foreign tax
                  laws;

                           (x) to allow Optionees to satisfy withholding tax
                  obligations by electing to have the Company withhold from the
                  Shares to be issued upon exercise of an Option or Stock
                  Purchase Right that number of Shares having a Fair Market
                  Value equal to the amount required to be withheld. The Fair
                  Market Value of the Shares to be withheld shall be determined


                                      -4-


<PAGE>

                  on the date that the amount of tax to be withheld is to be
                  determined. All elections by Optionees to have Shares withheld
                  for this purpose shall be made in such form and under such
                  conditions as the Administrator may deem necessary or
                  advisable; and

                           (xi) to construe and interpret the terms of the Plan
                  and awards granted pursuant to the Plan.

                  (c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
         determinations and interpretations of the Administrator shall be final
         and binding on all Optionees.

         5. ELIGIBILITY.

                  (a) Nonstatutory Stock Options and Stock Purchase Rights may
         be granted to Service Providers. Incentive Stock Options may be granted
         only to Employees.

                  (b) Each Option shall be designated in the Option Agreement as
         either an Incentive Stock Option or a Nonstatutory Stock Option. All
         Options that are not designated as Incentive Stock Options are intended
         to be Nonstatutory Stock Options. Notwithstanding designation as
         Incentive Stock Options, to the extent that the aggregate Fair Market
         Value of the Shares with respect to which Incentive Stock Options are
         exercisable for the first time by the Optionee (including as a result
         of acceleration of exercisability under the Plan) during any calendar
         year (under all plans of the Company and any Parent or Subsidiary)
         exceeds the $100,000 rule of Code Section 422(d), such Options shall be
         treated as Nonstatutory Stock Options. For purposes of this SECTION
         5(B), Incentive Stock Options shall be taken into account in the order
         in which they were granted. The Fair Market Value of the Shares shall
         be determined as of the time the Option with respect to such Shares is
         granted.

                  (c) Neither the Plan nor any Option or Stock Purchase Right
         shall confer upon any Optionee any right with respect to continuing the
         Optionee's relationship as a Service Provider with the Company, nor
         shall it interfere in any way with his or her right or the Company's
         right to terminate such relationship at any time, with or without
         cause.

         6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten years unless sooner
terminated under SECTION 14 of the Plan.

         7. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than 10% of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five years
from the date of grant or such shorter term as may be provided in the Option
Agreement.

                                      -5-


<PAGE>

         8. OPTION EXERCISE PRICE AND CONSIDERATION.

                  (a) The per share exercise price for the Shares to be issued
         upon exercise of an Option shall be such price as is determined by the
         Administrator, but shall be subject to the following:

                           (i) In the case of an Incentive Stock Option:

                                    (A) granted to an Employee who, at the time
                           of grant of such Option, owns stock representing more
                           than 10% of the voting power of all classes of stock
                           of the Company or any Parent or Subsidiary, the
                           exercise price shall be no less than 110% of the Fair
                           Market Value per Share on the date of grant.

                                    (B) granted to any other Employee, the per
                           Share exercise price shall be no less than 100% of
                           the Fair Market Value per Share on the date of grant.

                           (ii) In the case of a Nonstatutory Stock Option:

                                    (A) granted to a Service Provider who, at
                           the time of grant of such Option, owns stock
                           representing more than 10% of the voting power of all
                           classes of stock of the Company or any Parent or
                           Subsidiary, the exercise price shall be no less than
                           110% of the Fair Market Value per Share on the date
                           of grant.

                                    (B) granted to any other Service Provider,
                           the per Share exercise price shall be no less than
                           85% of the Fair Market Value per Share on the date of
                           grant.

                           (iii) Notwithstanding the foregoing, Options may be
                  granted with a per Share exercise price other than as required
                  above pursuant to a merger or other corporate transaction.

                  (b) The consideration to be paid for the Shares to be issued
         upon exercise of an Option, including the method of payment, shall be
         determined by the Administrator (and, in the case of an Incentive Stock
         Option, shall be determined at the time of grant). Such consideration
         may consist of (i) cash, (ii) check, (iii) promissory note, (iv) other
         Shares which (x) in the case of Shares acquired upon exercise of an
         Option, have been owned by the Optionee for more than six months on the
         date of surrender, and (y) have a Fair Market Value on the date of
         surrender equal to the aggregate exercise price of the Shares as to
         which such Option shall be exercised, (v) consideration received by the
         Company under a cashless exercise program implemented by the Company in
         connection with the Plan, or (vi) any combination of the foregoing
         methods of payment. In making its determination as to the type of
         consideration to accept, the Administrator shall consider if acceptance
         of such consideration may be reasonably expected to benefit the
         Company.

                                      -6-


<PAGE>

         9. EXERCISE OF OPTION.

                  (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
         Option granted under the Plan shall be exercisable according to the
         terms of the Plan at such times and under such conditions as determined
         by the Administrator and set forth in the Option Agreement. Except in
         the case of Options granted to Officers, Directors and Consultants,
         Options shall become exercisable at a rate of no less than 20% per year
         over five years from the date the Options are granted. Unless the
         Administrator provides otherwise, vesting of Options granted hereunder
         shall be tolled during any unpaid leave of absence. An Option may not
         be exercised for a fraction of a Share.

         An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in SECTION 12 of the Plan.

         Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

                  (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
         Optionee ceases to be a Service Provider, such Optionee may exercise
         his or her Option within such period of time as is specified in the
         Option Agreement (of at least 30 days) to the extent that the Option is
         vested on the date of termination (but in no event later than the
         expiration of the term of the Option as set forth in the Option
         Agreement). In the absence of a specified time in the Option Agreement,
         the Option shall remain exercisable for three months following the
         Optionee's termination. If, on the date of termination, the Optionee is
         not vested as to his or her entire Option, the Shares covered by the
         unvested portion of the Option shall revert to the Plan. If, after
         termination, the Optionee does not exercise his or her Option within
         the time specified herein, the Option shall terminate, and the Shares
         covered by such Option shall revert to the Plan. Notwithstanding the
         foregoing, if the Company terminates its relationship with the Optionee
         for "cause" or such relationship is terminated by the Optionee in
         violation of any agreement by the Optionee to remain a Service
         Provider, the Option shall terminate immediately upon termination of
         such relationship and the Option shall be deemed to have been forfeited
         by the Service Provider. For purposes of the Plan, "cause" may include,
         without limitation, any illegal or improper conduct that (i) injures or


                                      -7-


<PAGE>

         impairs the reputation, goodwill or business of the Company, (ii)
         involves the misappropriation of funds of the Company, or the misuse of
         data, information or documents acquired in connection with the
         Optionee's relationship with the Company as a Service Provider, (iii)
         is considered a felony under applicable state law, (iv) involves the
         repeated nonprescription use of any controlled substance (including
         alcohol) which the Company, after consultation with a physician who has
         examined the Optionee, determines has rendered the Optionee unfit to
         serve in the capacity of a Service Provider to the Company, or (v)
         violates any other directive or policy promulgated by the Company. A
         termination for "cause" may also include any resignation in
         anticipation of discharge for "cause" or resignation accepted by the
         Company in lieu of a formal discharge for "cause."

         Neither the creation of the Plan nor the granting of Option(s) under
the Plan shall be deemed to create a right in an Employee Optionee to continued
employment with the Company. Each Employee Optionee shall be and shall remain
subject to discharge by the Company as though the Plan had never come into
existence. Except as specifically provided by the Administrator in any
particular case, the loss of existing or potential profit in options granted
under the Plan shall not constitute an element of damages in the event of
termination of the employment of an Employee even if the termination is in
violation of an obligation of the Company to the Employee by contract or
otherwise.

                  (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
         Service Provider as a result of the Optionee's Disability, the Optionee
         may exercise his or her Option within such period of time as is
         specified in the Option Agreement (of at least six months) to the
         extent the Option is vested on the date of termination (but in no event
         later than the expiration of the term of such Option as set forth in
         the Option Agreement). In the absence of a specified time in the Option
         Agreement, the Option shall remain exercisable for 12 months following
         the Optionee's termination. If, on the date of termination, the
         Optionee is not vested as to his or her entire Option, the Shares
         covered by the unvested portion of the Option shall revert to the Plan.
         If, after termination, the Optionee does not exercise his or her Option
         within the time specified herein, the Option shall terminate, and the
         Shares covered by such Option shall revert to the Plan.

                  (d) DEATH OF OPTIONEE. If an Optionee dies while a Service
         Provider, the Option may be exercised within such period of time as is
         specified in the Option Agreement (of at least six months) to the
         extent that the Option is vested on the date of death (but in no event
         later than the expiration of the term of such Option as set forth in
         the Option Agreement) by the Optionee's estate or by a person who
         acquires the right to exercise the Option by bequest or inheritance. In
         the absence of a specified time in the Option Agreement, the Option
         shall remain exercisable for 12 months following the Optionee's
         termination. If, at the time of death, the Optionee is not vested as to
         the entire Option, the Shares covered by the unvested portion of the
         Option shall immediately revert to the Plan. If the Option is not so
         exercised within the time specified herein, the Option shall terminate,
         and the Shares covered by such Option shall revert to the Plan.

                  (e) REPURCHASE OPTION. Unless the Administrator determines
         otherwise, the Option Agreement shall grant the Company a repurchase
         option exercisable upon the voluntary or involuntary termination of the


                                      -8-


<PAGE>

         Optionee's service with the Company for any reason. The purchase price
         for Shares repurchased pursuant to the Option Agreement shall be the
         Fair Market Value of the Shares as of the date of termination.

         10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The
Option Agreements and Restricted Stock purchase agreements shall provide that
the Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.

         11. STOCK PURCHASE RIGHTS.

                  (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
         either alone, in addition to, or in tandem with other awards granted
         under the Plan and/or cash awards made outside of the Plan. After the
         Administrator determines that it will offer Stock Purchase Rights under
         the Plan, it shall advise the offeree in writing or electronically of
         the terms, conditions and restrictions related to the offer, including
         the number of Shares that such person shall be entitled to purchase,
         the price to be paid, and the time within which such person must accept
         such offer. The terms of the offer shall comply in all respects with
         Section 260.140.42 of Title 10 of the California Code of Regulations.
         The offer shall be accepted by execution of a Restricted Stock purchase
         agreement in the form determined by the Administrator.

                  (b) REPURCHASE OPTION. Unless the Administrator determines
         otherwise, the Restricted Stock purchase agreement shall grant the
         Company a repurchase option exercisable upon the voluntary or
         involuntary termination of the purchaser's service with the Company for
         any reason. The purchase price for Shares repurchased pursuant to the
         Restricted Stock purchase agreement shall be, in the case of unvested
         shares, the original price paid by the purchaser, and in the case of
         vested shares, the Fair Market Value of the vested shares as of the
         date of termination of employment. The purchase price may be paid by
         cancellation of any indebtedness of the purchaser to the Company. The
         repurchase option shall lapse at such rate as the Administrator may
         determine. Except with respect to Shares purchased by Officers,
         Directors and Consultants, the repurchase option shall in no case lapse
         at a rate of less than 20% per year over five years from the date of
         purchase.

                  (c) OTHER PROVISIONS. The Restricted Stock purchase agreement
         shall contain such other terms, provisions and conditions not
         inconsistent with the Plan as may be determined by the Administrator in
         its sole discretion.

                  (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
         exercised, the purchaser shall have rights equivalent to those of a
         shareholder and shall be a shareholder when his or her purchase is
         entered upon the records of the Company or a duly authorized transfer
         agent of the Company. No adjustment shall be made for a dividend or
         other right for which the record date is prior to the date the Stock
         Purchase Right is exercised, except as provided in SECTION 12 of the
         Plan.

                                      -9-


<PAGE>

         12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.

                  (a) CHANGES IN CAPITALIZATION. Subject to any required action
         by the shareholders of the Company, the number of shares of Common
         Stock covered by each outstanding Option or Stock Purchase Right, and
         the number of shares of Common Stock which have been authorized for
         issuance under the Plan but as to which no Options or Stock Purchase
         Rights have yet been granted or which have been returned to the Plan
         upon cancellation or expiration of an Option or Stock Purchase Right,
         as well as the price per share of Common Stock covered by each such
         outstanding Option or Stock Purchase Right, shall be proportionately
         adjusted for any increase or decrease in the number of issued shares of
         Common Stock resulting from a stock split, reverse stock split, stock
         dividend, combination or reclassification of the Common Stock, or any
         other increase or decrease in the number of issued shares of Common
         Stock effected without receipt of consideration by the Company. The
         conversion of any convertible securities of the Company shall not be
         deemed to have been "effected without receipt of consideration." Such
         adjustment shall be made by the Board, whose determination in that
         respect shall be final, binding and conclusive. Except as expressly
         provided herein, no issuance by the Company of shares of stock of any
         class, or securities convertible into shares of stock of any class,
         shall affect, and no adjustment by reason thereof shall be made with
         respect to, the number or price of Shares of Common Stock subject to an
         Option or Stock Purchase Right.

                  (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
         dissolution or liquidation of the Company, the Administrator shall
         notify each Optionee as soon as practicable prior to the effective date
         of such proposed transaction. The Administrator in its discretion may
         provide for an Optionee to have the right to exercise his or her Option
         or Stock Purchase Right until 15 days prior to such transaction as to
         all of the Optioned Stock covered thereby, including Shares as to which
         the Option or Stock Purchase Right would not otherwise be exercisable.
         In addition, the Administrator may provide that any Company repurchase
         option applicable to any Shares purchased upon exercise of an Option or
         Stock Purchase Right shall lapse as to all such Shares, provided the
         proposed dissolution or liquidation takes place at the time and in the
         manner contemplated. To the extent it has not been previously
         exercised, an Option or Stock Purchase Right will terminate immediately
         prior to the consummation of such proposed action.

                  (c) MERGER OR ASSET SALE. In the event of a consolidation of
         the Company with or the merger of the Company into another corporation
         (or other business entity), or the sale of substantially all of the
         assets of the Company, each outstanding Option and Stock Purchase Right
         shall fully vest and the Optionee shall have the immediate right to
         exercise the Option or Stock Purchase Right as to all of the Optioned
         Stock, including Shares as to which it would not otherwise be vested or
         exercisable, unless the Administrator determines otherwise with respect
         to any Optionee. If an Option or Stock Purchase Right becomes fully
         vested and exercisable, the Administrator shall notify the Optionee in
         writing or electronically that the Option or Stock Purchase Right shall
         be fully exercisable for a period of 15 days from the date of such
         notice, and the Option or Stock Purchase Right shall terminate upon the
         expiration of such period.

                                      -10-


<PAGE>

         13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.

         14. AMENDMENT AND TERMINATION OF THE PLAN.

                  (a) AMENDMENT AND TERMINATION. The Board may at any time
         amend, alter, suspend or terminate the Plan.

                  (b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
         approval of any Plan amendment to the extent necessary and desirable to
         comply with Applicable Laws.

                  (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
         alteration, suspension or termination of the Plan shall impair the
         rights of any Optionee, unless mutually agreed otherwise between the
         Optionee and the Administrator, which agreement must be in writing and
         signed by the Optionee and the Company. Termination of the Plan shall
         not affect the Administrator's ability to exercise the powers granted
         to it hereunder with respect to Options granted under the Plan prior to
         the date of such termination.

         15. CONDITIONS UPON ISSUANCE OF SHARES.

                  (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
         the exercise of an Option unless the exercise of such Option and the
         issuance and delivery of such Shares shall comply with Applicable Laws
         and shall be further subject to the approval of counsel for the Company
         with respect to such compliance.

                  (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
         of an Option, the Administrator may require the person exercising such
         Option to represent and warrant at the time of any such exercise that
         the Shares are being purchased only for investment and without any
         present intention to sell or distribute such Shares if, in the opinion
         of counsel for the Company, such a representation is required.

         16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

         17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

         18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within 12 months after the date the Plan is adopted.
Such shareholder approval shall be obtained in the degree and manner required
under Applicable Laws.

                                      -11-


<PAGE>

         19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.


                                      -12-





<PAGE>


                                                                   EXHIBIT 10.19

                        RAPTOR TECHNOLOGY NETWORKS, INC.

                                 2005 STOCK PLAN

                             STOCK OPTION AGREEMENT

         Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Stock Option Agreement.

I.       NOTICE OF STOCK OPTION GRANT

(Optionee's Name and Address)





         The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:

Grant Number                        __________________________

Date of Grant                       __________________________

Vesting Commencement Date           __________________________

Exercise Price Per Share            __________________________

Total Number of Shares Granted      __________________________

Total Exercise Price                __________________________

Type of Option:                     _____    Incentive Stock Option

                                    _____    Nonstatutory Stock Option

Term/Expiration Date:               __________________________

         VESTING SCHEDULE: This Option shall be exercisable, in whole or in
part, according to the following vesting schedule:

         ______________ percent of the Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and __% of the Shares subject
to the Option shall vest each 12 months thereafter, subject to Optionee's
continuing to be a Service Provider on such dates.




<PAGE>


II.      AGREEMENT

         1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee (the "OPTIONEE") named in the Notice of Stock Option Grant (the
"NOTICE OF GRANT") an option (the "OPTION") to purchase the number of Shares set
forth in the Notice of Grant, at the exercise price per Share set forth in the
Notice of Grant (the "EXERCISE PRICE"), and subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.

         If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").

         2.       EXERCISE OF OPTION.

                  (a) RIGHT TO EXERCISE. This Option shall be exercisable during
         its term in accordance with the Vesting Schedule set out in the Notice
         of Grant and with the applicable provisions of the Plan and this Option
         Agreement.

                  (b) METHOD OF EXERCISE. This Option shall be exercisable by
         delivery of an exercise notice in the form attached as EXHIBIT A (the
         "EXERCISE NOTICE") which shall state the election to exercise the
         Option, the number of Shares with respect to which the Option is being
         exercised (the "EXERCISED SHARES"), and such other representations and
         agreements as may be required by the Company. The Exercise Notice shall
         be accompanied by payment of the aggregate Exercise Price as to all
         Exercised Shares. This Option shall be deemed to be exercised upon
         receipt by the Company of such fully executed Exercise Notice
         accompanied by the aggregate Exercise Price.

         No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.

         3. OPTIONEE'S REPRESENTATIONS. If the Shares have not been registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time
this Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or her Investment Representation Statement in the form attached
hereto as EXHIBIT B.

         4. LOCKUP PERIOD. The Optionee hereby agrees that, if so requested by
the Company or any representative of the underwriters (the "MANAGING
UNDERWRITER") in connection with any registration of the offering of any
securities of the Company under the Securities Act, the Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "MARKET


                                      -2-


<PAGE>

STANDOFF PERIOD") following the effective date of a registration statement of
the Company filed under the Securities Act. Such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.

5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:

                  (a) cash or check;

                  (b) consideration received by the Company under a formal
         cashless exercise program adopted by the Company in connection with the
         Plan; or

                  (c) surrender of other Shares which, (i) in the case of Shares
         acquired upon exercise of an option, have been owned by the Optionee
         for more than six months on the date of surrender, and (ii) have a Fair
         Market Value on the date of surrender equal to the aggregate Exercise
         Price of the Exercised Shares.

         6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.

         7. NON-TRANSFERABILITY OF OPTION AND UNDERLYING SHARES. This Option may
not be transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of the Optionee
only by the Optionee. The terms of the Plan and this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee. The Company may require that the Optionee, prior to the issuance of
any such shares issuable pursuant to the exercise of the Option, sign and
deliver to the Company a written statement ("Investment Letter") stating (a)
that the Optionee is purchasing the shares for investment and not with a view to
the sale or distribution thereof; (b) that the Optionee will not sell any shares
received upon exercise of the Option or any other shares of the Company that the
Optionee may then own or thereafter acquire except either (i) through a broker
on a national securities exchange or (ii) with the prior written approval of the
Company after providing to the Company the right, upon 30 days prior written
notice to purchase such shares at their fair market value (as determined in good
faith by the board of directors of the Company) as of the date of such notice;
and (c) containing such other terms and conditions as counsel for the Company
may reasonably require to assure compliance with the Securities Act of 1933 or
other applicable federal or state securities laws and regulations. Such
Investment Letter shall be in form and content acceptable to the Company in its
sole discretion.

         8. TAX CONSEQUENCES. Set forth below is a brief summary of some of the
federal tax consequences of exercise of this Option and disposition of the
Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

                                      -3-


<PAGE>

                  (a) EXERCISE OF ISO. If this Option qualifies as an ISO, there
         will be no regular federal income tax liability upon the exercise of
         the Option, although the excess, if any, of the Fair Market Value of
         the Shares on the date of exercise over the Exercise Price will be
         treated as an adjustment to the alternative minimum tax for federal tax
         purposes and may subject the Optionee to the alternative minimum tax in
         the year of exercise.

                  (b) EXERCISE OF NSO. There may be a regular federal income tax
         liability upon the exercise of an NSO. The Optionee will be treated as
         having received compensation income (taxable at ordinary income tax
         rates) equal to the excess, if any, of the Fair Market Value of the
         Shares on the date of exercise over the Exercise Price. If the Optionee
         is an Employee or a former Employee, the Company will be required to
         withhold from the Optionee's compensation or collect from Optionee and
         pay to the applicable taxing authorities an amount in cash equal to a
         percentage of this compensation income at the time of exercise, and may
         refuse to honor the exercise and refuse to deliver Shares if such
         withholding amounts are not delivered at the time of exercise.

                  (c) DISPOSITION OF SHARES. In the case of an NSO, if Shares
         are held for at least one year, any gain realized on disposition of the
         Shares will be treated as long-term capital gain for federal income tax
         purposes. In the case of an ISO, if Shares transferred pursuant to the
         Option are held for at least one year after exercise and for at least
         two years after the Date of Grant, any gain realized on disposition of
         the Shares will also be treated as long-term capital gain for federal
         income tax purposes. If Shares purchased under an ISO are disposed of
         within one year after exercise or two years after the Date of Grant,
         any gain realized on such disposition will be treated as compensation
         income (taxable at ordinary income rates) to the extent of the
         difference between the Exercise Price and the lesser of (1) the Fair
         Market Value of the Shares on the date of exercise, or (2) the sale
         price of the Shares. Any additional gain will be taxed as capital gain,
         short-term or long-term depending on the period that the ISO Shares
         were held.

                  (d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
         Option granted to the Optionee herein is an ISO, and if the Optionee
         sells or otherwise disposes of any of the Shares acquired pursuant to
         the ISO on or before the later of (1) the date two years after the Date
         of Grant, or (2) the date one year after the date of exercise, the
         Optionee shall immediately notify the Company in writing of such
         disposition. The Optionee agrees that the Optionee may be subject to
         income tax withholding by the Company on the compensation income
         recognized by the Optionee.

         9. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Option Agreement shall be governed by, and construed in
accordance with the laws of the State of California without resort to that
State's conflict of law rules.

                                      -4-


<PAGE>

         10. NO GUARANTEE OF CONTINUED SERVICE. THE OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE THE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE EXCEPT AS MAY OTHERWISE BE SET FORTH IN ANY WRITTEN EMPLOYMENT
AGREEMENT BETWEEN THE COMPANY AND OPTIONEE.

         The Optionee acknowledges receipt of a copy of the Plan and represents
that he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option and
fully understands all provisions of the Option. The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. The
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.


OPTIONEE:                            RAPTOR TECHNOLOGY NETWORKS, INC.



_______________________________      ___________________________________
Signature                            By



_______________________________      ___________________________________
Print Name                           Title


_______________________________
_______________________________
Residence Address


                                      -5-


<PAGE>

                                    EXHIBIT A

                         2005 STOCK PLAN EXERCISE NOTICE


Raptor Technology Networks, Inc.
_____________________________
_____________________________
Attention:  President

         1. EXERCISE OF OPTION. Effective as of today, _____________, _____, the
undersigned ("OPTIONEE") hereby elects to exercise Optionee's option ("OPTION")
to purchase __________ shares of the Common Stock (the "SHARES") of Raptor
Technology Networks, Inc. (the "COMPANY") under and pursuant to the 2005 Stock
Plan (the "PLAN") and the Stock Option Agreement dated ___________, ____ (the
"OPTION AGREEMENT").

         2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.

         3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

         4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.

         5. REPURCHASE OPTION ON TERMINATION OF EMPLOYMENT. If the Optionee's
employment with the Company terminates for any reason whatsoever (a
"TERMINATION") prior to either (i) the initial underwritten public offering of
the Company's Common Stock or (ii) the acquisition (whether by merger, sale of
stock or sale of assets) of the Company by parties other than existing
shareholders of the Company, the Company shall have the option, as determined by
the Administrator, to repurchase any Shares issued upon exercise of the Option
for a period of 90 days following such termination of employment (the
"REPURCHASE OPTION").

         The price of the Shares to be purchased upon the exercise of the
Repurchase Option shall be the Fair Market Value of the Shares as of the date of
the Termination as determined by the Administrator in the exercise of its sole
discretion. The Company shall notify the Optionee of the price so determined at
the time it exercises its Repurchase Option. If the Optionee disputes the price
as set by the Administrator, it shall do so by delivery of written notice to the
Company within ten days after being informed of the price. Within 30 days
following receipt of such notice, the Administrator shall designate an


                                      -1-


<PAGE>

independent third party appraiser to determine the Fair Market Value of the
Shares, which determination shall be made as promptly as practicable and shall
be conclusive and binding upon the parties. If the Administrator is not notified
of any such dispute within such ten day period, the determination of the
Administrator as to the purchase price shall be final. Any time required to
resolve a dispute shall be added to the 90 day period in which the Company may
exercise its Repurchase Option.

         6. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

         7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

                  (a) LEGENDS. Optionee understands and agrees that the Company
         shall cause the legends set forth below or legends substantially
         equivalent thereto, to be placed upon any certificate(s) evidencing
         ownership of the Shares together with any other legends that may be
         required by the Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF REPURCHASE HELD BY THE ISSUER OR ITS
ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
REPURCHASE ARE BINDING ON TRANSFEREES OF THESE SHARES.

                  (b) REFUSAL TO TRANSFER. The Company shall not be required (i)
         to transfer on its books any Shares that have been sold or otherwise
         transferred in violation of any of the provisions of this Agreement or
         (ii) to treat as owner of such Shares or to accord the right to vote or
         pay dividends to any purchaser or other transferee to whom such Shares
         shall have been so transferred.

         8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.

                                      -2-


<PAGE>

         9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.

         10. GOVERNING LAW: SEVERABILITY. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.

         11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.

Submitted by:                           Accepted by:

OPTIONEE:                               RAPTOR TECHNOLOGY NETWORKS, INC.


_______________________________         By:_________________________________
Signature
                                              Its:__________________________
_______________________________
Print Name                              ADDRESS:
                                        --------
                                        ____________________________________
ADDRESS:                                ____________________________________
--------
_______________________________
_______________________________         ____________________________________
                                        Date Received


                                      -3-


<PAGE>

                                    EXHIBIT B

                       INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:

COMPANY:          RAPTOR TECHNOLOGY NETWORKS, INC.

SECURITY:         COMMON STOCK

AMOUNT:

DATE:

         In connection with the purchase of the above-referenced securities (the
"SECURITIES"), the undersigned Optionee makes the following representations to
the Company:

         (a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring the Securities for investment for Optionee's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "SECURITIES
ACT").

         (b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.

         (c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a nonpublic offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. If the Company becomes


                                      -1-


<PAGE>

subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), 90 days thereafter (or
such longer period as any market standoff agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Exchange Act);
and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three-month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.

         If the Company does not qualify under Rule 701 at the time of grant of
the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires the resale to occur not
less than one year after the later of the date the Securities were sold by the
Company or the date the Securities were sold by an affiliate of the Company,
within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a nonaffiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
SECTIONS (1), (2), (3) AND (4) of the paragraph immediately above.

         (d) Optionee further understands that if all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.

                                             Signature of Optionee:


                                             _________________________________

                                             Date: ___________________________


                                      -2-