Fonon Corp - FORM 10-Q - August 20, 2012

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Fonon Corp	v321945_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Fonon Corp	v321945_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Fonon Corp	v321945_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Fonon Corp	v321945_ex32-1.htm

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED, June 30, 2012

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

Commission File Number: 000-51443

MABWE MINERALS INC.

(Exact name of registrant as specified in its charter)

Wyoming

36-4739442

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

41 Howe Lane

Freehold N.J. 07728

(Address of Principal Executive Offices)

(732) 252-5146

(registrant’s telephone number)

Raptor Networks Technology, Inc.

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerate filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ ( Do not check if a smaller reporting company	Smaller reporting company x

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

As of, August 13, 2012, there were 117,890,750 shares of the issuer’s common stock, $0.001 par value, outstanding.

	Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011 (audited)	F-1

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2011 (unaudited) and exploration period June 29, 2012 through June 30, 2012	F-2

Consolidated Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2012 (unaudited)	F-3

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited) and exploration period June 29, 2012 through June 30, 2012	F-4

Notes to Consolidated Financial Statements (unaudited)	F-5

Item 2. Management’s Discussion and Analysis or Plan of Operation	1

Item 4T. Controls and Procedures	8

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	9

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	9

Item 3. Defaults Upon Senior Securities	9

Item 4. Submission of Matters to a Vote of Security Holders	9

Item 5. Other Information	9

Item 6. Exhibits	9

Signatures	11

Exhibits Filed with this Report on Form 10-Q	12

MABWE MINERALS INC.

(FORMERLY RAPTOR NETWORKS TECHNOLOGY, INC.)

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

	June 30, 2012			December 31, 2011
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	-		$	2,323

Total current assets		-			2,323

OTHER ASSETS
Interco-TAG Minerals		-			-

Total Other Assets

TOTAL ASSETS	$	-		$	2,323

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	33,936		$	1,044,056
Detachable warrant liabilities		-			392,310
Conversion option liabilities		-			11,789,870
Senior convertible notes payable		-			11,012,854

Total current liabilities		33,936			24,239,090

TOTAL LIABILITIES		33,936			24,239,090

COMMITMENTS AND CONTINGENCIES					-

STOCKHOLDERS' DEFICIT
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.001 par; 500,000,000 shares authorized; 112,390,750 shares issued and outstanding		112,391			19,801
Additional paid-in capital		84,929,638			66,574,646
Accumulated deficit		(85,075,965	)		(90,831,214	)
Deficits accumulated during the exploration stage		-			-

Total stockholders' deficit		(33,936	)		(24,236,767	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	-		$	2,323

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

F-1

MABWE MINERALS INC.

(FORMERLY RAPTOR NETWORKS TECHNOLOGY, INC.)

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

													For the period
													June 29, 2012
	For the Three Months Ended						For the Six Months Ended						through
	June 30,			June 30,			June 30,			June 30,			June 30, 2012
	2012			2011			2012			2011			(exploration stage)

Continuing Operations:
OPERATING EXPENSES
Professional, consulting and marketing fees	$	29,975		$	-		$	29,975		$	-		$	-
General and administrative		3,962			8,047			4,159			19,372			-

Total operating expenses		33,937			8,047			34,134			19,372			-

Loss from Continuing Operations		(33,937	)		(8,047	)		(34,134	)		(19,372	)		-

OTHER INCOME (EXPENSE)
Interest income		-			4			-			5			-
Loss on sale of property and equipment		-			-			-			(1,697	)		-
Change in fair value of conversion option and warrant liabilities		5,028,882			(1,869,994	)		6,308,136			(3,710,618	)		-
Amortization of discount on convertible debt		-			(24,494	)		-			(184,082	)		-
Interest expense		(256,065	)		(266,913	)		(518,753	)		(534,503	)		-
Miscellaneous Expense		-			525,065			-			525,065			-

Total other income (expense)		4,772,817			(1,636,332	)		5,789,383			(3,905,830	)		-

Income (loss) before income taxes		4,738,880			(1,644,379	)		5,755,249			(3,925,202	)		-

Income tax benefit		-			-			-			-			-

Net income (loss) from continuing operations		4,738,880			(1,644,379	)		5,755,249			(3,925,202	)		-

Discontinued operations:
Gain on disposal of discontinued operations		-			171			-			484,327			-
Loss from discontinued operations		-			(192,154	)		-			(712,025	)		-

Loss from discontinued operations, net of tax		-			(191,983	)		-			(227,698	)		-

NET INCOME (LOSS)	$	4,738,880		$	(1,836,362	)	$	5,755,249		$	(4,152,900	)	$	-

Income (loss) per share - basic
Continuing operations	$	0.22		$	(0.19	)	$	0.28		$	(0.45	)
Discontinued operations	$	-		$	(0.02	)		-			(0.03	)
Weighted average number of shares outstanding - basic (RESTATED 1:10 Reverse Split for prior year)		21,835,871			8,808,098			20,818,400			8,808,098

Income (loss) per share - diluted
Continuing operations	$	0.22		$	(0.19	)	$	0.28		$	(0.45	)
Discontinued operations	$	-		$	(0.02	)	$	-		$	(0.03	)
Weighted average number of shares outstanding - basic (RESTATED 1:10 Reverse Split for prior year)		21,932,581			8,808,098			20,915,110			8,808,098

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

F-2

MABWE MINERALS INC.

(FORMERLY RAPTOR NETWORKS TECHNOLOGY, INC.)

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2012

											Defict
					Additional						Accumulated
	Common Stock				Paid in			Accumulated			During the
	Shares		Amount		Capital			Deficit			Exploration Stage		Total

Balance, January 1, 2012		19,801,181		19,801		66,574,646			(90,831,214	)		-		(24,236,767	)

Net income		-		-		-			1,016,369			-		1,016,369

Balance, March 31, 2012		19,801,181	$	19,801	$	66,574,646		$	(89,814,845	)	$	-		(23,220,398	)

Conversion of convertible notes, warrants and derivative liability to common shares		13,510,752		13,511		18,434,071			-			-		18,447,582.00

Shares issued to RRHI for investment		79,078,817		79,079		(79,079	)		-			-		-

Net income through June 28, 2012		-		-		-			4,738,880			-		4,738,880
Net income period June 29, 2012 through June 30, 2012		-		-		-			-			-		-

Balance, June 30, 2012		112,390,750	$	112,391	$	84,929,638		$	(85,075,965	)	$	-		(33,936.00	)

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

F-3

MABWE MINERALS INC.

(FORMERLY RAPTOR NETWORKS TECHNOLOGY, INC.)

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

							For the period
							June 29, 2012
							through
	Six months ended June 30,						June 30, 2012
	2012			2011			(exploration stage)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	5,755,249		$	(4,152,900	)	$	-
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		-			6,728			-
Amortization of discount on convertible debt and debt issuance costs		-			184,082			-
Loss on sale of property and equipment		-			1,547			-
Change in fair value of conversion option and warrant liabilities		(6,308,136	)		3,710,618			-
Change in inventory reserve		-			(90,367	)		-
Changes in operating assets and liabilities:
Accounts receivable		-			143,568			-
Inventories		-			106,498			-
Prepaid expenses and other assets		-			75,448			-
Accounts payable and accrued liabilities		550,564			(56,468	)		-
Deferred revenue		-			(11,108	)		-
Net cash used in operating activities		(2,323	)		(82,354	)		-
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment		-			500			-
Net cash provided by investing activities		-			500			-
Net decrease in cash and cash equivalents		(2,323	)		(81,854	)		-
CASH AT BEGINNING OF PERIOD		2,323			82,777			-
CASH AT END OF PERIOD	$	-		$	923		$	-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	-		$	18,547		$	-
Cash paid for income taxes	$	-		$	1,600		$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accrued interest payable added to principal balance	$	-		$	252,508		$	-
Increase in debt discount for conversion option liabilities resulting from accrued interest added to principal balance	$	-		$	135,095		$	-
Conversion of debt to equity	$	18,447,582		$	-		$	-

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

F-4

General

Basis of Presentation

The accompanying consolidated financial statements have been prepared by Mabwe Minerals Inc. f/k/a Raptor Networks Technology Inc. (the “Company”) without audit (unless otherwise indicated) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments which, in the opinion of management, are necessary for a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. The June 30, 2012 consolidated balance sheet was derived from audited financial statements as of December 31, 2011. These financial statements should be read in conjunction with the audited financial statements at December 31, 2011 included in the Company’s most recent annual report on Form 10-K. Results of operations for the six months ended June 30, 2012 are not necessarily indicative of the results of operations expected for the full year or for any other period.

Effective with the change in control and conversion of notes and liabilities to equity, the Company entered the exploration stage on June 29, 2012. There was no activity in the 2 day period June 29, 2012 through June 30, 2012.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has nominal activity since they discontinued their operating subsidiary, and has an accumulated deficit of $85,075,965 and a working capital deficit of $33,936 as of June 30, 2012, this is a dramatic improvement over prior periods due to a debt to equity conversion FINRA approved June 28 thus converting the convertible notes, associated conversion liabilities and detachable warrants to equity with the issuance of 13,510,752 shares of common stock. In addition, the Company entered the exploration stage on June 29, 2012.

In September 2008, the Company shifted its principal operating model from product sales to licensing enabling a reduction in headcount, footprint and infrastructure that reduced operating expense run rates substantially. This shift in business model has not been successful as the Company had not generated any revenues from licensing agreements until July 5, 2011, at which time the Company entered into an agreement with California Capital Equity, LLC (“CCE”) granting CCE an exclusive license (even as to the Company) leaving the Company without any continuing rights in or to its intellectual property.

All of our convertible notes payable (see Note 6) have matured and the Company did not pay the principal balances and accrued interest at maturity or thereafter (see Note 2). The note holders exercised their right as a secured lender against the Company’s assets and held a public foreclosure sale of substantially all of the Company’s assets and acquired all of these assets at a price of $100,000, which price was credited against the outstanding notes on August 1, 2011. As a result of the public sale on August 1, 2011, the Company retains no material assets with which to continue its operations. The Company is seeking companies or businesses with an interest in utilizing the Company as a public shell vehicle and in August 2011 signed a non binding “Letter of Intent” with an interested party for a possible merger. . This transaction was completed in December 2011, when Raptor Resources Holdings Inc. (formerly Lantis Laser Inc. (OTCQB: RRHI) acquired an 80% controlling equity stake in the Company. In addition to Raptor Resources Holdings Inc. issuing 5 million shares of their common stock to CCE, they were issued 10,992,831 (post reverse split adjusted) shares in the Company to attain a 55% ownership as of June 28, 2012. The Company filed a Schedule 14C that was effective June 28, 2012 to amend its charter to increase the authorized shares of common stock of the Company to 500,000,000 shares. The Company issued 79,078,817 shares of common stock to Raptor Resources Holdings Inc. to bring the total percentage equity owned by Raptor Resources Holdings Inc. to 80%, and issued 13,510,752 shares of stock to CCE in consideration of the conversion of the convertible notes outstanding to CCE. The convertible notes previously issued by Raptor Networks Technology were converted and the Company engaged in a 1:10 reverse stock split. Former shareholders of Raptor Networks Technology (“RPTN”) were reissued 1 share of Mabwe Minerals Inc. for each 10 shares of RPTN. No fractional shares were issued resulting in a negligible increase to the total outstanding shares on a post split basis. All shares herein are reflected post-split in accordance with the Staff Accounting Bulletin.

The items discussed above raise substantial doubts about the Company's ability to continue as a going concern. In light of these factors, management believes that a comprehensive financial restructuring with the utilization of the public shell entity as a reverse merger vehicle for a new entity is the only way to preserve any value for the public shareholders.

F-5

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

Summary of Significant Accounting Policies

For a complete discussion of the Company’s significant accounting policies, please refer to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011. As of the the fiscal quarter ended June 30, 2012 all significant policies have remained unchanged with exception of the Company moving from an Operating Stage Company to an Exploration Stage Company as a result of the execution of the change in ownership control to the majority controlling interest by Raptor Resources Holdings Inc. This transaction was FINRA deemed effective June 28, 2012 and development stage activities commenced on June 29, 2012. In accordance with ASC 915 the Company will be reporting and disclosing additional information in addition to reporting and disclosure requirements otherwise prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30 , 2012, as compared to the recent accounting pronouncements disclosed in the Company’s Annual Report on Form 10-K that are of material significance, or have potential material significance, to the Company.

Discontinued Operations

On July 5, 2011, the Company entered into an agreement with California Capital Equity, LLC (“CCE”) granting CCE an exclusive license (even as to the Company) leaving the Company without any continuing rights in or to its intellectual property. Additionally, as of July 31, 2011, the Company had defaulted on all of its secured and unsecured notes payable. On August 1, 2011 all of the Company’s remaining assets were sold during a public foreclosure sale pursuant to remedies available under the terms of the secured notes. For further details on these transactions, see the disclosures in the Forms 8-K filed by the Company on July 11, 2011 and August 4, 2011. As a result of the above transactions, the Company classified all of its operations as discontinued operations, except certain general and administrative expenses related to the public shell company, such as EDGAR fees, audit fees and legal expenses related to review of public filings and expenses related to the convertible debt.

F-6

Following are operating results included in discontinued operations for the three and six months ended:

	For the Three Months Ended					For the Six Months Ended
						June 30,
	2012		2011			2012		2011
REVENUE, NET	$	-	$	171		$		$	353,281
COST OF SALES		-		27008					218,489
GROSS PROFIT		-		(26,837	)				134,792
OPERATING EXPENSES
Salary expense and salary related costs		-		108,707					221,447
Research and development		-		108					5,537
General and administrative		-		56,331					135,506
Total operating expenses		-		165,146					362,490
Loss from operations		-		(191,983	)				(227,698	)
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS
Loss on foreclosure		-		-			-		-
Gain on sale of intellectual property		-		-					-
Loss on sale of property and equipment		-		-			-		-
Miscellaneous income		-		-					-
Total gain (loss) on disposal of discontinued operations		-		-					-
Income (loss) before income taxes		-
Income tax benefit		-		-					-
NET INCOME (LOSS)		-		(191,983	)	$			(227,698	)

Loss on Foreclosure

On June 17, 2011, Raptor Acquisition, LLC, a wholly-owned subsidiary of California Capital Equity, LLC (“CCE”) purchased all of the convertible notes payable from the previous note holders in an outside transaction. On July 6, 2011, CCE provided the Company with notice of default on the notes payable and demanded repayment in full. They also informed of their intent to exercise their rights and remedies against the Company’s assets. On August 1, 2011, CCE, in its capacity as a secured lender, held a public foreclosure sale of substantially all of the Company’s assets. CCE was the only bidder and the assets of the Company were acquired for $100,000.

The following assets were acquired by CCE, resulting in a loss on foreclosure of $431,034 for the year ended December 31, 2011.

Net proceeds	$	100,000
Net book value of assets acquired:
Inventories		510,083
Property and equipment		20,951
		531,034
Loss on foreclosure	$	(431,034	)

Gain on Sale of Intellectual Property

Effective July 1, 2011, the Company sold an exclusive, worldwide, perpetual, irrevocable, fully paid, transferable and sublicensable right and license in all of the Company’s registered patent and patent applications for $384,000. The license is exclusive even to the Company, such that the Company no longer has any rights to its intellectual property. Since the Company’s carrying value of its intellectual property was $0, the Company recorded a gain on the sale of intellectual property of $384,000 for the year ended December 31, 2011.

F-7

Stock-Based Compensation

2005 Stock Plan

The Company has one stock-based compensation plan, the 2005 Stock Plan (the “2005 Plan"). Under the 2005 Plan, 3,000,000 shares of stock are reserved for issuance to eligible employees, non-employee directors and certain consultants. The 2005 Plan is administered by the board of directors or committee of the board of directors, who have sole discretion to set vesting, expiration and other terms of awards under the 2005 Plan. As of June 30, 2012, the 2005 Plan had a total of 0 options outstanding as all participants had resigned.

Non-Plan Options

Prior to approval of the 2005 Plan, the Company granted stock options out-of-plan. These non-plan options provided for the periodic issuance of stock options to employees and non-employee members of the board of directors. The vesting period for the non-plan stock options was over a three-year term, commencing on the first anniversary of the date of grant. The maximum contractual term of stock options granted under these out-of-plan options was eight years. As of June 30, 20121, there were 0 non-plan options outstanding as all participants had resigned.

F-8

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The fair value is determined using the Black-Scholes Option pricing model.

No options were granted during the six months ended June 30,2012.

For the six months ended June 30, 2012 and 2011, the Company recognized $0, respectively, of stock-based compensation costs as a result of the issuance of options to employees.

Stock option activity was as follows for the six months ended June 30, 2012:

	Number of Options			Weighted - Average Exercise Price		Weighted- Average Remaining Contract Term (Years)			Aggregate Intrinsic Value

Outstanding, January 1, 2012		146,200		$	1.21		2.79
Granted		-			-
Forfeited / Expired		(146,200	)		1.21		(2.79	)
Exercised		-			-

Outstanding, June 30, 2012		0		$	-		-		$	-
Exercisable, June 30, 2012		0		$	-		-		$	-

Securities Purchase Agreements

The Company entered into four separate securities purchase agreements (the “2006 SPA,” the “2007 SPA,” the “April 2008 SPA” and the “July 2008 SPA,” collectively the “SPAs”) with three institutional investors in connection with private placement transactions that provided for, among other things, the issuance of senior convertible notes (the “2006 Notes,” the “2007 Notes,” the “April 2008 Notes” and the “July 2008 Notes,” collectively the “Notes”), warrants to purchase shares of common stock (the “2006 Warrants,” the “2007 Warrants,” “the April 2008 Warrants,” the “July 2008 Warrants” and the “Replacement Warrants,” collectively the “Warrants”) and the issuance of common stock (the “April 2008 Stock” and the “July 2008 Stock”). Following is a summary of the securities issued pursuant to the terms of the SPAs. Effective June 28, 2012 all “Notes” were converted to equity and thus retired, In addition, all warrants issued in connection with these “Notes” were forfeited. The table below represents value at conversion (all warrants are reflected pre-split).

Initial

Number of

Initial Principal

Series of

Warrants

Shares of

Date of

Amount of

Warrants

Issued to the

Common

Transaction

Financing

Notes

Issued

Investors

Stock Issued

2006 SPA

July 30, 2006⁽¹⁾

8,804,909

L and M

39,797,031

2007 SPA

July 31, 2007

3,500,000

N, O and P

6,047,886

April 2008 SPA

April 1, 2008

3,125,000

6,250,000

3,125,000

July 2008 SPA

July 28, 2008

1,250,000

8,750,000

⁽²⁾

1,250,000

16,679,909

60,844,917

4,375,000

⁽¹⁾ The information presented reflects the January 22, 2007 amendment.

⁽²⁾ Includes 2,500,000 Series R warrants and 6,250,000 Replacement Warrants.

F-9

On July 27, 2010, the Company issued an unsecured convertible note payable (the “July 2010 Note”) to one of the investors from the previous financings in the principal amount of $176,471. All outstanding notes payable are collectively referred to as (the “Notes”).

The Company allocated the proceeds of the April 2008, July 2008 and July 2010 Notes to the individual financial instruments included in the transactions based on their relative estimated fair values as follows:

	April 2008 Notes			July 2008 Notes			July 2010 Notes
Total proceeds	$	3,125,000		$	1,250,000		$	176,471
Allocated to:
Common stock		2,531,250			675,000			-
Warrants		2,993,750			856,750			-
Conversion option		1,002,813			142,500			97,973
		6,527,813			1,674,250			97,973
Debt discount		(3,125,000	)		(1,250,000	)		(97,973	)
Cost of financing convertible notes	$	3,402,813		$	424,250		$	-

Effective June 28, 2012 all “Notes” were converted to equity and thus retired, The table below represents value at conversion.

The fair value of the common stock was based on the closing market price of the Company’s common stock on the date of the transaction. The fair values of the warrants and conversion options were based on the Black-Scholes Option pricing model.

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

F-10

Transaction		Maximum Registration Penalty
	2006 SPA	$	1,100,614
	2007 SPA		437,500
	April 2008 SPA		390,625
	July 2008 SPA		156,250
		$	2,084,989

Effective June 28, 2012 all “Notes” were converted to equity and thus retired, The table below represents value at conversion. The Company is required to assess its potential liability with respect to registration rights agreements. On May 29, 2008, the investors agreed to delay payments in connection with the registration rights agreement contained in the April 2008 SPA and the registration of the shares underlying the L-1 and L-2 warrants. The deadline has been indefinitely extended by the investors. As such, no liability related to the registration rights agreements has been recorded in the accompanying consolidated financial statements.

Significant events of default under the SPAs include:

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

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

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

Additionally, pursuant to the terms of the 2006 Amended SPA, the Company entered into a securities purchase agreement with one of the existing institutional investors in a private placement transaction providing for, among other things, the issuance of senior convertible notes (the “2006 Amended Notes”) in the principal amount of $1.6 million, Series L-2 Warrants to purchase up to 7,281,332 shares of common stock and Series M-2 Warrants to purchase up to 2,366,433 shares of common stock. The Series L-2 Warrants were immediately exercisable. The Series M-2 warrants will become exercisable only upon a mandatory conversion of the 2006 Notes, as defined in the 2006 Notes. Both the Series L-2 Warrants and Series M-2 Warrants have an exercise price of $0.43948 per share and expire on July 31, 2013.

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

The April 2008 SPA also amended the terms of the Series M-1 and M-2 Warrants to eliminate the contingency provisions and therefore, the Series M-1 and Series M-2 warrants became immediately exercisable upon the effective date of the April 2008 SPA.

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

F-11

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

Notes

Information relating to the Notes is as follows:

								Initial		Current
	Initial		Interest					Fixed		Fixed
	Principal		Rate			Maturity		Conversion		Conversion
Transaction	Amount		^{(4), (5), (6)}			Date		Price		Price
2006 Notes⁽¹⁾	$	8,804,909		9.25	%⁽³⁾		7/31/2008	$	0.44	$	0.44
2007 Notes⁽²⁾		3,500,000		9.25	%		8/1/2010	$	1.21	$	0.50
April 2008 Notes⁽⁷⁾		3,125,000		10.00	%		3/31/2010	$	1.00	$	1.00
July 2008 Notes⁽⁷⁾		1,250,000		10.00	%		7/28/2010	$	1.00	$	1.00
July 2010 Note⁽⁷⁾		176,471		15.00	%		7/27/2011	$	1.00	$	1.00
	$	16,856,380

ON JUNE 28, 2012, THE ENTIRE OUTSTANDING PRINCIPAL BALANCE ON THE ABOVE NOTES WAS CONVERTED TO SHARES OF COMMON STOCK. SEE INFORMATION FOLLOWING REGARDING THE ACITVITY IN THE SPECIFIC NOTES.

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

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

(3) The interest rate may be reduced to 7% at the beginning of each quarter if certain conditions are met. No such conditions have been met to date.

(4) The interest rates for the 2006, 2007, April and July 2008 Notes increase to 15% upon the occurrence of an event of default.

(5) The interest rate on the July 2010 Note increases to 21% upon the occurrence of an event of default.

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

(7) Interest for the first two years of the April 2008 Notes and July 2008 Notes was deducted from the proceeds. Interest for the first year of the July 2010 Note was deducted from the proceeds. Prepaid interest is reflected in the accompanying consolidated balance sheets.

(8) On August 2, 2011, the principal balance was reduced by $100,000 from the proceeds of the foreclosure sale.

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

The maturity date of the Notes may be extended at the option of the investors so long as there is not an event of default.

During 2010, the 2007 Notes, April 2008 Notes and July 2008 Notes matured. The Company did not pay the principal balances and accrued interest at maturity or thereafter. The note holders have demanded repayment of all amounts due under the Notes. The Company was unable to make any payments on the Notes and on August 1, 2011, the note holders foreclosed on substantially all assets of the Company.

The July 2010 Notes matured on July 31, 2011 and the Company did not repay the principal.

On June 28, 2012, the entire principal balance of the notes was converted into shares of common stock.

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

F-12

Subject to certain conditions, the Company may require the investors to convert up to 50% of the 2006 Notes at any time when the shares of the Company’s common stock are trading at or above 150% of the initial conversion price or up to 100% of the 2006 Notes at any time when the shares of the Company’s common stock are trading at or above 175% of the initial conversion price. The 2006 Notes contain certain limitations on optional and mandatory conversion. Under certain conditions, the Company may require investors to convert up to either 50% or 100% of the outstanding balance of the 2007 Notes at any time the Company shares are trading at or above $1.80 or $2.11, respectively.

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

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

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

Significant events of default under the Notes include:

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

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

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

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

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

F-13

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

Warrants

In connection with the SPAs, the Company issued detachable warrants (reflected pre-split) as follows:

	Initial Number		Initial		Current				Additional		Total
Series of	of Warrants		Exercise		Exercise				Warrant		Warrants
Warrants	Issued		Price		Price		Term⁽⁴⁾		Grants⁽⁶⁾		Granted

L-1⁽¹⁾		22,754,163	$	0.505	$	0.439		7 years		-		22,754,163
L-2⁽¹⁾		7,281,332	$	0.505	$	0.439		7 years		-		7,281,332
M-1^(1),(3)		7,395,103	$	0.505	$	0.439		7 years		-		7,395,103
M-2^{(1), (3)}		2,366,433	$	0.505	$	0.439		7 years		-		2,366,433
N⁽²⁾		2,909,636	$	1.203	$	0.500		7 years		4,090,364		7,000,000
O^(2),(5)		1,891,263	$	1.203	$	0.500		7 years		2,658,737		4,550,000
P⁽²⁾		1,246,987	$	1.203	$	0.500		7 years		1,753,013		3,000,000
Q^(7),(8)		6,250,000	$	1.000	$	0.500		7 years		-		6,250,000
R		2,500,000	$	0.500	$	0.500		7 years		-		2,500,000
Replacement⁽⁹⁾		6,250,000	$	1.000	$	1.000		7 years		-		6,250,000
		60,844,917								8,502,114		69,347,031

ON JUNE 28, 2012, ALL OF THE ABOVE WARRANTS WERE CONVERTED TO SHARES OF COMMON STOCK. SEE INFORMATION FOLLOWING REGARDING THE ACITVITY IN THE SPECIFIC NOTES AND ATTACHED WARRANTS.

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

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

(3)	The April 2008 SPA modified the warrants to eliminate the contingency provision.

F-14

(4)	The term begins as of the effective date of the registration statement.

(5)	The fair value of the Series O warrants has not yet been recorded since the contingency provisions have not been met.

(6)	Additional warrants were granted due to the anti-dilution provisions in the 2007 SPA.

(7)	Exercise price is the lesser of $0.50 or 75% of the lowest of the following:

(i) The average of the dollar volume-weighted average price of the stock for the 15 consecutive trading days immediately following the public disclosure of an event of default;

(ii) The lowest of the dollar volume-weighted average price of the stock during the 30 consecutive trading days ending on the date of exercise;

(iii) The average of the dollar volume-weighted average price of the stock for the 3 consecutive trading days immediately preceding the date of exercise; or

(iv) The average of the dollar volume-weighted average price of the stock for the 3 consecutive trading days immediately following the date of exercise.

(8)	Exercise price was amended by July 2008 SPA.

(9) The Replacement Warrants are exercisable on a one-to-one basis as the Series Q warrants are exercised. The exercise price is the lowest of $0.50 or 75% of the lowest of the following:

(i) The average of the dollar volume-weighted average price of the stock for the 30 consecutive trading days immediately following the public disclosure of an event of default;

F-15

(ii) The average of the dollar volume-weighted average price of the stock for the 30 consecutive trading days immediately preceding the public disclosure of an event of default;

(iii) The average of 3 lowest volume-weighted average prices of the stock during either (i) or (ii) above.

The holders’ rights to exercise the 9,761,536 Series M warrants were contingent on a mandatory conversion of the 2006 Notes at the option of the Company. A mandatory conversion for a portion of the 2006 Notes took place on July 30, 2007 entitling investors to exercise up to 7,646,361 M warrant shares. The 2008 SPA contained a provision which removed the contingency on the remaining M warrants such that they became immediately exercisable.

Since conversion of the Series O warrants is contingent on a mandatory conversion of the 2007 Notes and since the exercise of the Replacement Warrants is contingent on the exercise of the Series Q warrants, the total charge was measured as of the date of issuance of the Series O warrants and the Replacement Warrants. This charge will not be recognized until the mandatory conversion contingency has been satisfied. The fair values of the Series O warrants and Replacement Warrants when issued were $1,493,341 and $2,725,625, respectively.

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

	June 27, 2012									June 30, 2011
							April 2008,									April 2008,
							July 2008									July 2008
							& July									& July
	2006 Notes			2007 Notes			2010 Notes			2006 Notes			2007 Notes			2010 Notes

Stock price	$	0.0200		$	0.0200		$	0.0200		$	0.01		$	0.01		$	0.01
Exercise price	$	0.018		$	0.018		$	0.017		$	0.0090		$	0.0090		$	0.0085
Expected life (in years)		0.25			1.00			0.50			0.75			1.25			1.00
Volatility		125	%		205	%		205	%		302	%		247	%		207	%
Risk-free rate of return		0.00	%		0.00	%		0.00	%		0.14	%		0.26	%		0.19	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

							April 2008									April 2008
							& July									& July
	2006			2007			2008			2006			2007			2008
	Warrants			Warrants			Warrants			Warrants			Warrants			Warrants

Stock price	$	0.0200		$	0.0200		$	0.0200		$	0.01		$	0.01		$	0.01
Exercise price	$	0.44		$	0.50		$	0.50		$	0.44		$	0.50		$	0.50
Expected life (in years)		0.25			1.00			2.00			0.75			1.50			2.76
Volatility		125	%		205	%		279	%		302	%		229	%		207	%
Risk-free rate of return		0.00	%		0.00	%		0.00	%		0.14	%		0.32	%		0.72	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

F-16

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

				Discount on			Conversion			Detachable
	Principal Balance			Notes Payable			Option Liability			Warrant Liability
Balance, January 1, 2011	$	4,874,416		$	-		$	2,366,800		$	298,477
Accrued interest added to principal balance		112,721			(54,766	)*		54,766			-
Amortization of debt discount		-			54,766	*		-			-
Change in fair value of conversion option and detachable warrant liabilities		-			-			2,806,972			(41,815	)
Balance, December 31, 2011		4,987,137			-			5,228,538			256,662
Change in fair value of conversion option and detachable warrant liabilities		-			-			(647,225	)		(220,765	)
Balance, March 31, 2012		4,987,137			-			4,581,313			35,897
Change in fair value of conversion option and detachable warrant liabilities		-			-			(2,995,035	)		(35,897	)
Conversion of notes payable and warrants to common stock		(4,987,137	)					(1,586,278	)		-
Balance, June 30, 2012	$	-		$	-		$	-		$	-

The entire outstanding principal balance of this note is currently due and payable in full since the maturity date of the note was July 31, 2008. Accordingly, all discount is immediately amortized.

F-17

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

	Principal			Discount on			Conversion Option			Detachable Warrant
	Balance			Notes Payable			Liability			Liability
Balance, January 1, 2011	$	3,014,631		$	-		$	1,725,039		$	187,000
Accrued interest added to principal balance		69,415			(39,686	)*		39,686			-
Amortization of debt discount		-			39,686	*		-			-
Change in fair value of conversion option and detachable warrant liabilities		-			-			1,505,121			(117,971	)
Balance, December 31, 2011		3,084,046			-			3,269,846			69,029
Change in fair value of conversion option and detachable warrant liabilities		-			-			(126,484	)		(46,452	)
Balance, March 31, 2012		3,084,046			-			3,143,362			22,577
Change in fair value of conversion option and detachable warrant liabilities		-			-			(1,002,966	)		13,350
Conversion of notes payable and warrants to common stock		(3,084,046	)		-			(2,140,396	)		(35,927	)
Balance, June 30, 2012	$	-		$	-		$	-		$	-

The entire outstanding principal balance of this note is currently due and payable in full since the maturity date of the note was August 1, 2010.Accordingly, all discount is immediately amortized.

F-18

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

				Discount on			Conversion			Detachable
	Principal Balance			Notes Payable			Option Liability			Warrant Liability
Balance, January 1, 2011	$	2,232,578		$	-		$	1,289,642		$	363,125
Accrued interest added to principal balance		55,814			(32,235	)*		32,235			-
Amortization of debt discount		-			32,235	*		-			-
Change in fair value of conversion option and detachable warrant liabilities		-			-			1,238,644			(315,540	)
Balance, December 31, 2011		2,288,392			-			2,560,521			47,585
Change in fair value of conversion option and detachable warrant liabilities		-			-			(152,026	)		(30,645	)
Balance, March 31, 2012		2,288,392			-			2,408,495			16,940
Change in fair value of conversion option and detachable warrant liabilities		-			-			(876,255	)		84,336
Conversion of notes payable and warrants to common stock		(2,288,392	)		-			(1,532,240	)		(101,276	)
Balance, June 30, 2012	$	-		$	-		$	-		$	-

The entire outstanding principal balance of this note is currently due and payable in full since the maturity date of the note was March 31, 2010. Accordingly, all discount is immediately amortized.

F-19

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

							Conversion			Detachable
	Principal			Discount on			Option			Warrant
	Balance			Notes Payable			Liability			Liability
Balance, January 1, 2011	$	562,250		$	-		$	324,782		$	145,250
Accrued interest added to principal balance		14,558			(8,408	)*		8,408			-
Amortization of debt discount		-			8,408	*		-			-
Proceeds from foreclosure applied to principal balance		(100,000	)		-			-			-
Change in fair value of conversion option and detachable warrant liabilities		-			-			200,319			(126,216	)
Balance, December 31, 2011		476,808			-			533,509			19,034
Change in fair value of conversion option and detachable warrant liabilities								(31,676	)		(12,258	)
Balance, March 31, 2012		476,808			-			501,833			6,776
Change in fair value of conversion option and detachable warrant liabilities		-			-			(182,576	)		33,734
Conversion of notes payable and warrants to common stock		(476,808	)		-			(319,257	)		(40,510	)
Balance, June 30, 2012	$	-		$	-		$	-		$	-

The entire outstanding principal balance of this note is currently due and payable in full since the maturity date of the note was July 28, 2010. Accordingly, all discount is immediately amortized.

F-20

Activity in the July 2010 Notes as follows:

							Conversion
	Principal			Discount on			Option
	Balance			Notes Payable			Liability
Balance, January 1, 2011	$	176,471		$	(57,151	)	$	101,938
Amortization of debt discount		-			57,151			-
Change in fair value of conversion option liability		-			-			95,518
Balance, December 31, 2011		176,471			-			197,456
Change in fair value of conversion option liability		-			-			(11,723	)
Balance, March 31, 2012		176,471			-			185,733
Change in fair value of conversion option liability		-			-			(67,573	)
Conversion of notes payable and warrants to common stock		(176,471	)		-			(118,160	)
Balance, June 30, 2012	$	-		$	-		$	-

F-21

Warrants

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

	Warrant		Weighted Average
	Shares		Exercise Price
Outstanding at January 1, 2012 (pre-split)		70,514,126	$	0.51
Granted		-		-
Cancelled/forfeited		69,913,416		.51
Exercised		-		-
Outstanding at June 30, 2012 (pre-split)		600,710	$	0.44

The following tables summarize warrants outstanding at June 30, 2012 (pre-split):

Range		Number		Weighted Average Life		Weighted Average Exercise Price		Number Exercisable

$	0.44		600,710		1.50 years	$	0.44		600,710

Series		Issue Date	Outstanding at January 1, 2011		Granted		Exercised / Forfeited		Outstanding at June 30, 2012

	L-1	July 2006 & January 2007		22,754,163		-		22,754,163		0
	L-2	July 2006 & January 2007		7,281,332		-		7,281,332		0
	M-1	July 2006 & January 2007		7,395,103		-		7,395,103		0
	M-2	July 2006 & January 2007		2,366,433		-		2,366,433		0
	N	July 2007		7,000,000		-		7,000,000		0
	O	July 2007		4,550,000		-		4,550,000		0
	P	July 2007		3,000,000		-		3,000,000		0
	Q	April 2008		6,250,000		-		6,250,000		0
	Replacement	July 2008		6,250,000		-		6,250,000		0
	R	July 2008		2,500,000		-		2,500,000		0
	Miscellaneous	2003 - 2007		1,167,095		-		566,385		600,710
				70,514,126		-		69,913,480		600,710

F-22

Fair Value Disclosures

ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820-10 are described below:

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

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820-10, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As a result of the conversion of the convertible notes and warrants associated with those notes on June 28, 2012, all Level 3 financial liabilities the Company had, were adjusted to $0. Therefore, no longer exist.

F-23

Stockholders’ Deficit

The Company’s authorized capital consists of 500,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, no par value per share.

During 2012, the Company executed a 1:10 reverse stock split where every ten (10) shares of Mabwe Minerals Inc. Stock was converted to one (1) share. No fractional shares were issued resulting in a negligible increase to the total outstanding shares on a post split basis. All shares are reflected on a post-split basis unless indicated.

On June 28, 2012, the Company issued 79,078,817 shares of common stock to Raptor Resources Holdings Inc. to bring the total percentage equity owned by Raptor Resources Holdings Inc. to 80%, and issued 13,510,752 shares of stock to CCE n consideration of the conversion of the convertible notes outstanding to CCE.During 2011, the Company issued 10,992,831 shares of common stock to Raptor Resources Holdings Inc. in their’ acquisition of 55% of the Company. The transaction was treated as an equity transaction, and Raptor Resources Holdings Inc. issued 5,000,000 shares of their own stock to pay CCE a fee so they would guarantee the conversion of their debt to common stock of the Company upon the Company’s successful amendment to their charter enabling them to increase the authorized shares to 500,000,000 shares and issue them an additional shares of the Company’s stock.

During 2010, the Company issued 20,000 shares of common stock for consulting services valued at $42,000.

During 2010, the Company issued 195,824 shares of common stock for the conversion of $300,000 of the principal balance of the July 2008 Notes. Additionally, the Company increased additional paid-in capital by $195,982 for the reduction in the conversion option liability as a result of the conversion.

8. Subsequent Events

Shares of Mabwe Minerals Inc were issued on July 5, 2012 for services rendered (to be rendered) in lieu of cash payment for public relations, consulting and management services to be(having been) rendered from May 2012 to May 2013 . Total shares in the amount of 5,500,000 at a value of $.02/share were issued based on the opening post split trading price of Mabwe Minerals Inc.

On July 31, 2012 Chiroswa Syndicate entered into a deal to transfer mineral rights, Dodge Mine blocks 1-6, where the rights were restructured to be the basis of industrial mineral mining operations as the core operating business line of Mabwe Minerals Inc. The deal will result in the transfer of a $376,000 net asset to the Company.

Additionally the company has entered into a services rendered agreement August 5 2012 with W.G.B. Kinsey & Company in exchange for 1,000,000 shares of company stock for services. Presently no services have been rendered and shares have not been issued., Services to be rendered to support future core mining operations of the Company.

F-24

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: this report contains forward-looking statements, including statements concerning future conditions in the network switching industry, our future business, financial condition, operating strategies and operational and legal risks. These forward-looking statements generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance, and can generally be identified by the use of the words “plan,” “estimate,” “expect,” “believe,” “should,” “would,” “could,” “anticipate,” “may,” “forecast,” “project,” “pro forma,” “goal,” “continues,” “intend,” “seek” or variations of those terms and other similar expressions, including their use in the negative. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors, including, without limitation:

	·	our inability to continue as a going concern,
	·	our inability to raise additional capital,
	·	lower sales and revenues than forecast,
	·	our inability to carry out our marketing and sales plans,
	·	unexpected costs and operating deficits,
	·	our failure to establish relationships with and capitalize upon access to new customers,
	·	litigation and administrative proceedings involving us or our products,
	·	adverse publicity and news coverage,
	·	adverse economic conditions,
	·	entry of new and stronger competitors,
	·	changes in interest rates and inflationary factors, and
	·	other specific risks that may be referred to in this report or in other reports that we have issued.

These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect. Although we believe that the assumptions and estimates reflected in the forward-looking statements are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements. Except as required by law, we undertake no duty to update any forward-looking statement after the date of this report, either to conform any statement to reflect actual results or to reflect the occurrence of unanticipated events.

Any of the factors described above, elsewhere in this report, or in the “Risk Factors” section of our most recent annual report on Form 10-K could cause our financial results, including our net income (loss) or growth in net income (loss) to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

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 the “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. (the “Company”), terminated our EDGAR filing services operations and, by and through our subsidiary Raptor, became engaged in the data network switching industry.

As of July 31, 2011, all of our convertible notes payable fully matured, representing a total principal amount outstanding of $11,012,854 and accrued interest of $1,304,618 as of June 28, 2012. When the Company originally did not repay these amounts the note holders exercised their right as a secured lender against substantially all of the Company’s assets and held a public foreclosure sale of substantially all of the Company’s assets and acquired all of these assets at a price of $100,000, which was credited against the outstanding notes on August 1, 2011. As a result of the public sale on August 1, 2011, the Company retained no material assets with which to continue its former operations.

On December 5, 2011, we entered into a Stock Purchase Agreement, dated December 2, 2011 (“Stock Purchase Agreement”), with Raptor Resources Holdings Inc. ("Raptor Resources") (RRHI:QB) (formerly Lantis Laser Inc. (LLSR.QB)) pursuant to which we agreed to issue Raptor Resources 109,928,311 shares of our common stock or 55% of our issued and outstanding shares of common stock in exchange for 5,000,000 shares of unregistered Raptor Resources common stock. All officers and directors of Raptor resigned at the time of execution of the Stock Purchase Agreement. Raptor Resources effected a 1:10 reverse stock split, received 80% of the fully diluted shares of Raptor's common stock on a post-split basis, changed the name of Raptor to Mabwe Minerals Inc. and had the company engage in the exploration and mining of gold and other industrial minerals and ceased any involvement with the historical business of Raptor. We are now a majority owned subsidiary of Raptor Resources. The name change to Mabwe Minerals Inc. and the 1:10 reverse split were effective upon approval by FINRA on June 28, 2012. In accordance with the Stock Purchase Agreement all our former outstanding convertible notes that were acquired by California Capital Equity, LLC ("CCE"), were converted to our shares of common stock in exchange for 5,000,000 shares of Raptor Resources Common Stock prior to our 1:10 reverse split and 13,510,752 shares of Raptor Resources Common Stock on a post-split basis.

As of June 28, 2012, we have transitioned to an "exploration stage company" and will accordingly report and disclose information prescribed in ASC 915 and in accordance with accounting principles generally accepted in the United States of America (“GAAP”.) Following the shift of control to Raptor Resources Holdings under the terms of the Stock Purchase Agreement the Company intends to have as its core operations the mining and distribution of non-gold metals and minerals.

Background Prior to the Transaction with Raptor Resources Holdings

Since inception, the Company has incurred losses and realized negligible revenues from product sales. Our government design services contract, which funded a major portion of the Company's operating expenses, expired in April 2011 and all funds generated from this contract were depleted as of June 2011. Throughout 2011 and 2010 the Company was not able to service any of its note debt in cash and all interest on the 2006, 2007 and 2008 notes was, with the approval of the note holders, added to the principal balances of the notes. Additionally, notes with an aggregate principal balance of $11,012,854 as of March 31, 2012 matured and were subject to repayment in full upon demand. The July 2010 Note matured on July 31, 2011 and was subject to repayment in full on demand. The Company did not pay the amount due on the July 2010 Note due to lack of funds.

2006, 2007 and 2008 Note Financings

On July 30, 2006, we entered into financing agreements with 3 accredited investors. On January 22, 2007, we subsequently entered into Amendment and Exchange Agreements with the same investors providing certain amendments to the July 30, 2006 agreements and increasing the total financing to $8,804,909. The 2006 Notes, as amended, were convertible into shares of the Company’s common stock at the lower of $0.43948 or the optional conversion price, defined as 90% of the arithmetic average of the weighted-average prices of the common stock on each of the five consecutive trading days immediately preceding the applicable optional conversion/redemption date. In the aggregate, we issued series L-1 warrants to purchase an aggregate of 22,754,163 shares of common stock, series L-2 warrants to purchase an aggregate of 7,281,332 shares of common stock, series M-1 warrants to purchase an aggregate of 7,395,103 shares of common stock and series M-2 warrants to purchase an aggregate of 2,366,433 shares of common stock. All these warrants had a strike price of $0.43948. The Company received aggregate gross proceeds from these financings of $6.6 million. These notes beared interest at 9.25% per annum, which increased to 15% in case of a default. The entire outstanding principal balance of $4,987,137 as of March 31, 2011, including any outstanding fees or interest, was due and payable in full since the original maturity date of the notes was July 31, 2008.

On July 31, 2007, we entered into a financing agreement with the same investors involved in the June 2006 and January 2007 financings for total gross proceeds of $3.5 million for the issuance of senior secured convertible notes in the aggregate principal amount of $3.5 million, series N warrants to purchase up to an aggregate of 7,000,000 shares of the Company’s common stock (includes dilution from the April 1, 2008 financing), series O warrants to purchase up to an aggregate of 4,550,000 shares of the Company’s common stock (includes dilution from April 2008 financing) and series P warrants to purchase up to an aggregate of 3,000,000 shares of common stock (includes dilution from April 2008 financing). The agreement also granted the investors a first priority perfected security interest in all of our assets. The secured notes bear interest at 9.25% per annum, which may be increased to 15% in case of default. The initial fixed conversion price of the note was $1.20 but was reduced to $0.50 per share in April 2008. The July 2007 Notes are convertible into shares of the Company’s common stock at the lower of $0.50 or the optional conversion price, defined as the lower of (i) 90% of the arithmetic average of the lowest weighted-average price of the common stock during the fifteen consecutive trading days ending on the trading day immediately prior to the optional conversion/redemption date and (ii) 90% of the arithmetic average of the lowest weighted average price of the common stock during any three consecutive trading day period during the fifteen consecutive trading days ending on the trading day immediately prior to the optional conversion/redemption date. The strike price for the N, O and P warrants was initially $1.20 but was reduced to $0.50 in April 2008. The N and P warrants were immediately exercisable. The O warrants become exercisable on a mandatory conversion called by the Company. The entire outstanding principal of $3,084,046 at March 31, 2011, including any outstanding fees or interest, was due and payable in full since the notes matured on August 1, 2010.

On April 1, 2008, we entered into a financing agreement with the same investors involved in the previous financings. For total gross proceeds of $3.125 million, we issued senior secured convertible notes in the aggregate principal amount of $3.125 million, series Q warrants to purchase up to an aggregate of 6,250,000 shares of the Company’s common stock and 3,125,000 shares of our common stock. The agreement granted the investors a first priority perfected security interest in all of the Company’s assets. The notes beared interest at 10% per annum, which could be increased to 15% in the event of default. The April 2008 Notes were convertible into shares of the Company’s common stock at the lower of $1.00 or the optional conversion price, defined as the lower of (i) 85% of the arithmetic average of the weighted-average price of the common stock during the thirty consecutive trading days ending on the trading day immediately prior to the optional conversion/redemption date (“measuring period”) and (ii) 85% of the arithmetic average of the weighted average price of the common stock during the first three consecutive trading day period of such measuring period and (iii) the arithmetic average of the weighted average price of the common stock during the last three consecutive trading day period of such measuring period. The Q warrants initially carried a strike price of $1.00 that was reduced to $0.50 in July 2008 and were immediately exercisable. The entire outstanding principal balance of $2,288,392 at March 31, 2011, including any outstanding fees and interest was due and payable in full since the maturity date was March 31, 2010.

On July 28, 2008 we entered into a financing agreement with the same investors involved in the 2006, 2007 and April 2008 financings. For total gross proceeds of $1.25 million, we issued senior secured convertible notes in the aggregate principal amount of $1.25 million, series R warrants to purchase up to an aggregate of 2,500,000 shares of the Company’s common stock and 1,250,000 shares of the Company’s common stock. The agreement grants the investors a first priority perfected security interest in all of the Company’s assets. The notes beared interest at 10% per annum, which may be increased to 15% in the event of default. The July 2008 notes are convertible into shares of the Company’s common stock at the lower of $1.00 or the optional conversion price, defined as the lower of (i) 85% of the arithmetic average of the weighted-average price of the common stock during the thirty consecutive trading days ending on the trading day immediately prior to the optional conversion/redemption date and (ii) 85% of the arithmetic average of the weighted average price of the common stock during the three lowest trading days with the lowest weighted average price of the common stock during the thirty consecutive trading days ending on the trading day immediately prior to the optional conversion/redemption date. The R warrants carried a strike price of $0.50 per share and were immediately exercisable . The entire outstanding principal balance of $576,808 at March 31, 2011 including any outstanding fees or interest, was currently due and payable in full since the maturity date was July 28, 2010.

During July 2011, the note holders of all of the above notes demanded repayment of all principal and accrued interest. The Company was unable to make the payment and, as a result, the note holders foreclosed on substantially all of the Company’s assets on August 1, 2011.

July 2010 Note Financing

On July 27, 2010, pursuant to the terms of a securities purchase agreement with one of our investors involved in the previous financings, we issued an unsecured convertible note payable in the principal amount of $176,471. We received net proceeds of $150,000 from the note as explained below.

The note beared interest at 15% per annum, which could be increased to 21% upon the occurrence of an event of default, and matured on July 27, 2011. This date could be extended, at the option of the investor, by up to two years. Interest on the notes of $26,471, representing one year of interest, was prepaid to the investors at the closing.

The 2010 note was convertible into shares of the Company’s common stock at the lower of $1.00 or the optional conversion price, defined as the lesser of (i) 85% of the arithmetic average of the weighted-average price of the common stock for the 30 consecutive trading days immediately preceding the conversion date and (ii) 85% of the arithmetic average of the weighted-average price of the common stock for the 3 lowest trading days during the 30 consecutive trading days immediately preceding the conversion date. However, following the disclosure of a SEC event, as defined in the 2010 Notes, the conversion price would be computed using the lowest of (i) 50% of the amounts determined as above; (ii) 50% of the closing price of the common stock on the trading day preceding the date of conversion; or (iii) 50% of the closing price of the common stock on the date preceding the SEC event.

If there was an event of default or a fundamental transaction as defined in the agreement, the investors had the right to redeem all or any portion of the 2010 note, at the greater of (i) up to 125% of the sum of the outstanding principal, interest and late fees, depending on the nature of the default, and (ii) the product of (a) the greater of (1) the closing sale price for the Company’s common stock on the date immediately preceding the event of default, (2) the closing sale price for the Company’s common stock on the date immediately after the event of default and (3) the closing sale price for the Company’s common stock on the date an investor delivers its redemption notice for such event of default, multiplied by (b) 200% of the number of shares into which the Note (including all principal, interest and late fees) could be converted.

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

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

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

On July 31, 2011, the July 2010 Note matured and the Company did not have the funds available to repay the principal.

During the quarter ended June 30, 2011, the Company’s cash position suffered additional deterioration. The lenders demanded repayment in full and since the Company was unable to make the payments, the note holders foreclosed on substantially all of the Company’s assets on August 1, 2011. The Company, in an effort to salvage some value from being a public shell, entered into the Stock Purchase Agreement with Raptor Resources Holdings on December 2, 2011.

Going Concern Qualification

We have a limited operating history with minimal sales and have incurred cumulative net losses of $85,075,965 through June 30, 2012. At June 30 , 2012, we had a deficit in working capital of $33,936. These losses and deficits were wholly attributed to the company prior to the exploration phase.

As mentioned before under the heading “Subsequent events” in this quarterly report the Company sold an exclusive right to its registered patents effective July 1, 2011 and on August 1, 2011 all of the Company’s remaining assets were sold during a public foreclosure sale leaving the Company without any rights to its intellectual property and without any assets

These conditions, among others, raise substantial doubt about our ability to continue as a going concern and our independent registered public accounting firm has qualified their opinions with respect to our consolidated financial statements to include an explanatory paragraph related to our ability to continue as a going concern in their reports for each of our fiscal years ended December 31, 2003 through December 31, 2011.

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying financial statements do not reflect any adjustments which might be necessary if we are unable to continue as a going concern.

RISK FACTORS

Not applicabe.

CRITICAL ACCOUNTING POLICIES

Critical Accounting Estimates and Judgments

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

Derivative Financial Instruments

Our senior convertible notes are classified as non-conventional convertible debt. In the case of non-conventional convertible debt, we bifurcate our embedded derivative instruments and record them at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any prior change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, we will record a non-operating, non-cash charge. If the fair value of the derivative is lower at the subsequent balance sheet date, we will record non-operating, non-cash income. As of June 28, 2012 all derivative instruments and associated liabilities were converted to equity.

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

Deferred Income Taxes

We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. We have considered estimated future taxable income an ongoing tax planning strategies in assessing the amount needed for the valuation allowance.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the Six and Three Months Ended June 30, 2012 and 2011

The following table sets forth selected financial data regarding our financial position and operating results for the six months ended June 30, 2012 and 2011. This data should be read in conjunction with our consolidated financial statements and related notes thereto beginning on page F-1 of this report.

	For the Three Months Ending June 30,												For the Six Months Ending June 30,
	2012			2011			Change ($)			Change (%)			2012			2011			Change ($)			Change (%)

REVENUE, NET		-			171			(171	)		-100	%		-			353,281			(353,281	)		-100	%
COST OF SALES		-			27,008			(27,008	)		-100	%		-			218,489			(218,489	)		-100	%
GROSS PROFIT		-			(26,837	)		26,837			-100	%		-			134,792			(134,792	)		-100	%
OPERATING EXPENSES
Salary expense and salary related costs		-			108,707			(108,707	)		-100	%		-			221,447			(221,447	)		-100	%
Professional, consulting and marketing fees		29,975			-			29,975			100	%		29,975			-			29,975			100	%
Research and development		-			108			(108	)		-100	%					5,537			(5,537	)		-100	%
Selling, General and administrative		3,962			64,378			(60,416	)		-94	%		4,157			154,878			(150,721	)		-97	%
Total operating expenses		33,937			173,193			(139,256	)		-80	%		34,132			381,862			(347,730	)		-91	%
Loss from operations		(33,937	)		(200,030	)		166,093			-83	%		(34,132	)		(247,070	)		212,938			-86	%
OTHER INCOME (EXPENSE)
Interest Income		0			4			(4	)		-100	%					5			(5	)		-100	%
Loss on disposal of property and equipment		-			-			-			0	%		-			(1,697	)		1,697			-100	%
Change in Fair Value of Conversion option and warrant liabilities		5,028,882			(1,869,994	)		6,898,876			-369	%		6,308,136			(3,710,618	)		10,018,754			-270	%
Amortization of discount on convertible debt		-			(24,494	)		24,494			-100	%		-			(184,082	)		184,082			-100	%
Interest Expense		(256,065	)		(266,913	)		10,848			-4	%		(518,753	)		(534,503	)		15,750			-3	%
Miscellaneous Expense					525,065			(525,065	)		-100	%					525,065			(525,065	)		-100	%
Total other income (expense)		4,772,817			(1,636,332	)		6,409,149			-392	%		5,789,383			(3,905,830	)		9,695,213			-248	%
Income (loss) before income taxes		4,738,880			(1,836,362	)		6,575,242			-358	%		5,755,251			(4,152,900	)		9,908,151			-239	%
Income tax benefit		-			-			-			0	%		-			-			-			0	%
NET INCOME (LOSS)		4,738,880			(1,836,362	)		6,575,242			-358	%		5,755,251			(4,152,900	)		9,908,151			-239	%

Net Revenues

Net revenues decreased by $ 171 or 100% in the three months ended June 30, 2012 as compared to the three months ended June 30,2011. Net revenues decreased by $353,281 or 100% in the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. In 2012, revenue from the sale of products was $0 due to discontinued operations as compared to approximately $171 in the three months ended June 30, 2011 and $353,110 in the six months ended June 30, 2011.

Gross Profit

Gross profit from operations increased to $0 from a loss of ($26,837) for the three months ended June 30 2012 and decreased by $134,792 for the six months ended June 30 2012 . The decrease is attributable to discontinued operations for the six months ended June 30, 2012 .

Operating Expenses

The decrease in operating expenses in 2012 compared to the same period of 2011 was $347,730 or 91% for the six months ended June 30, 2011 The decrease in operating expense in 2012 of $139,256 compared to the same period in 2011 for the three months ended June 30, 2012. The decreased expenses resulted from the following:

Salary Expenses

Salary and salary-related expenses decreased by approximately $ $108,707 and $221,447 for the three and six months ended June 30, 2012, respectively, resulting in a 100% decrease. . The decrease of expenses incurred for both periods .was due to elimination of staff pursuant to the Company preparing for merger with a prospective partner looking for a shell vehicle.

Research and Development

Research and development expenses decreased from $5,537 and $108 to $0 and $0 for the three and six months ended June 30, 2012, respectively, resulting in a 100% decrease. .The decrease was due to discontinuance of operations and was due to elimination of staff pursuant to the Company preparing for merger with a prospective partner looking for a shell vehicle.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) decreased from $64,378 and $154,878 to $4,157 and $3,962 for the three and six months ended June 30, 2012, respectively, resulting in a 94% and 97% decrease. The decrease was due to discontinuance of operations and the resultant elimination of staff pursuant to the Company preparing for merger with a prospective partner looking for a shell vehicle.

Net Other Income (Expense)

Net other income in 2012 was $4,772,817 compared to a net other loss ($1,636,332) in 2011 for the three months ended June 30. Net other income in 2012 was $5,789,383 compared to a net other loss ($3,905,830) in 2011 for the six months ended June 30. This change resulted from the following:

For the six months ended June 30, 2012, the fair values of our conversion option and warrant liabilities decreased by $6,308,136 compared to a increase in their fair value of $3,710,618 for the six months ended June30, 2011. For the three months ended June 30, 2012, the fair values of our conversion option and warrant liabilities decreased by $5,028,882 compared to a increase in their fair value of $1,869,994 for the three months ended June 30, 2011 fair values are calculated through June 28, 2012 at which point Notes and correspondent liabilities we converted to equity .

Liquidity and Capital Resources

Our independent registered public accounting firm has qualified their opinion with respect to our consolidated financial statements to include an explanatory paragraph related to our ability to continue as a going concern in their reports for each of our fiscal years ended December 31, 2011, and 2010. Reports of independent registered public accounting firms questioning a company's ability to continue as a going concern generally are viewed very unfavorably by analysts and investors. There are a number of risks and challenges associated with such a qualified report including, but not limited to, a significant impediment to our ability to raise additional capital or seek financing from entities that will not conduct such transactions in the face of such increased level of risk of insolvency and loss, increased difficulty in attracting talent and the diversion of the attention of executive officers and other key employees to raising capital or financing rather than devoting time to the day-to-day operations of our business. We urge potential investors to review the report of our independent registered public accounting firm included in the Company’s annual report on Form 10-K for the year ended December 31, 2011 and our consolidated financial statements and related notes beginning on page F-1 of this Report, the cautionary statements included in the “Risk Factors” section under Item 1A of this Report and to seek independent advice concerning the substantial risks related thereto before making a decision to invest in us, or to maintain an investment in us.

For the years ended December 31, 2011 and 2010, we incurred net losses of $6,439,166 and $468,871 , respectively. Since our inception, including the year ended December 31, 2011, we have realized negligible revenues and have financed our operations almost exclusively from cash on hand raised through the sale of our securities and borrowings. As of December 31, 2011, we had a deficit in working capital of $24,236,767, of which $12,182,180 related to the fair value of derivative financial instruments.

We had no cash at June 30, 2012 compared to $2,323 at December 31, 2011.

We expect to generate revenues from our mining operations during the fourth quarter of 2012 and to seek financing to support our operations until revenues are generated. There is no certainty that any revenues will be generated or that we will be able to raise the necessary debt or equity financing to sustain our operations.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer (currently the same person), after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are not effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 on the basis that we have not been funded sufficiently for us to employ an additional person to serve as our Chief Financial Officer.

Changes in Internal Control over Financial Reporting. During the quarter ended March 31, 2012, 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.

Inherent Limitations on Effectiveness of Controls. Our management, including our Chief Executive Officer and our Chief Financial Officer (who are the same person, Al Pietrangelo) does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

ITEM 1. 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. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibits

Exhibit Number		Description

10.1		Disclosures re entering into an agreement with California Capital Equity, L.L.C. re the granting of an exclusive license of the Company’s intellectual property (incorporated herein by reference to a Form 8K filed with the SEC on July 11, 2011).

10.2		Disclosures re completion of an acquisition of the Company’s assets by California Capital Equity (incorporated herein by reference to a Form 8K filed with the SEC on August 4, 2011).

31.1 x		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 x		Certification of the Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 x		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 x		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

x Filed Herewith

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MABWE MINERALS INC.

Date: August 20, 2012	By:	/s/ Al PIETRANGELO
		Al Pietrangelo, Chief Executive Officer, (principal executive officer), Chief Financial Officer (principal financial and accounting officer)

EXHIBITS FILED WITH THIS QUARTERLY REPORT ON FORM 10-Q

31.1	Certification of the Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Fonon Corp - FORM 10-Q - August 20, 2012

Attached files

Fonon Corp Reports