When I got home this afternoon, I decided I would figure it out and photograph the process.
First, cut 5" squares form each corner of the 12" square.
Cut the 5" cross bars into 1/2" strips. Don't cut into the 2" square area in the center.
Fold the center square diagonally. It will form the bottom of the bag.
Fold in the four strips closest to the bottom fold, to form a 90 degree angle. They are the start of the sides of the bag.
Repeat with the next two rows.
The instructions didn't say anything about securing the weave at the top before cutting, but I would use a tiny dab of tacky glue or some double stick tape before cutting.
I hope my photos help frustrated weavers!