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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB/A
 (Amendment No. 1)
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the Year Ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from to
 Commission file number: 000-25548
 SUTURA, INC.
 (Name of small business issuer in its charter)
 DELAWARE
    
    84-1010269(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 (Address of principal executive offices) (Zip Code)
  (Issuers telephone number)
   o
 þ o
 o
 o þ
      o þ




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TABLE OF CONTENTS  PART IIITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTAIONSITEM 7. FINANCIAL STATEMENTSITEM 8A. CONTROLS AND PROCEDURESPART IIISIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
  
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTAIONS




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Financial Condition and Results of Operations for the year ended December 31, 2007 compared to year ended December 31, 2006




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Twelve months
    
    
    Twelve monthsInterest expenses.
    
    2007
    
    
    2006Note payable related party in Euros
    
    $
    12,191
    
    
    $
    10,321Note payable officer
    
    
    74,112
    
    
    
    68,623Whitebox I
    
    
    846,916
    
    
    
    786,000Whitebox Ia Interest note
    
    
    6,072
    
    
    
    Fusion
    
    
    
    
    
    
    11,971Whitebox II
    
    
    387,900
    
    
    
    274,000Whitebox IIa Interest note
    
    
    2,781
    
    
    
    Whitebox III
    
    
    711,425
    
    
    
    560,000Whitebox IIIa Interest note
    
    
    4,879
    
    
    
    Idylwood Partners L.P.
    
    
    60,000
    
    
    
    40,500Whitebox IV
    
    
    
    
    
    
    21,444Whitebox V
    
    
    120,000
    
    
    
    5,667Whitebox Va Interest note
    
    
    900
    
    
    
    Whitebox VI
    
    
    98,333
    
    
    
    Whitebox VIa Interest note
    
    
    900
    
    
    
    Synapse
    
    
    18,667
    
    
    
    Whitebox VII
    
    
    107,267
    
    
    
    Notes Officers
    
    
    20,000
    
    
    
    Whitebox VIII
    
    
    22,000
    
    
    
    Pandorra
    
    
    2,000
    
    
    
    Other
    
    
    (17,349
    )
    
    
    16,071$
    2,478,997
    
    
    $
    1,794,596
 Twelve months
    
    
    Twelve monthsBeneficial conversion amortization
    
    2007
    
    
    2006Whitebox I
    
    $
    582,754
    
    
    $
    1,165,509Fusion
    
    
    
    
    
    
    144,153Whitebox II
    
    
    67,876
    
    
    
    135,752Repricing warrants Whitebox II
    
    
    
    
    
    
    41,362Whitebox III
    
    
    1,079,365
    
    
    
    503,353Loan Commitment warrants
    
    
    103,192
    
    
    
    Repricing warrants Whitebox III
    
    
    
    
    
    
    92,520Idylwood Partners L.P.
    
    
    34,722
    
    
    
    48,611Whitebox V
    
    
    401,468
    
    
    
    12,660Total conversion feature expense
    
    $
    2,269,378
    
    
    $
    2,143,920Total interest expenses
    
    $
    4,748,374
    
    
    $
    3,938,516




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Sarbanes-Oxley Act of 2002
  Internal Control Integrated Framework




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31.1
    
    Certification of the Chief Executive Officer of Sutura, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer of Sutura, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer of Sutura, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer of Sutura, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.




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SIGNATURES
  SUTURA INCBy:
    
    /s/ BRIAN ABRAHAMBrian Abraham, Chief Executive Officer and DirectorDate:
    
    February 5, 2009By:
    
    /s/ RICHARD BJORKMANRichard Bjorkman, Chief Financial Officer, Vice President Finance
and DirectorDate:
    
    February 5, 2009
  By:
    
    /s/ MARK STREFLINGMark Strefling, Chairman of the Board, DirectorDate:
    
    February 5, 2009By:
    
    /S/ DAVID KERNANDavid Kernan, DirectorDate:
    
    February 5, 2009By:
    
    /s/ JOHN KOPCHIKJohn Kopchik, DirectorDate:
    
    February 5, 2009




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SUTURA, INC.
AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Operations
    
    
    F-4Consolidated Statements of Stockholders Equity
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-7




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F-2




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At December 31,2007ASSETSCURRENT ASSETS:Cash & cash equivalents
    
    $
    7,767,196Marketable securities & Certificates of deposits
    
    
    8,917,690Assets held for sale
    
    
    3,949,397Assets of discontinued operations
    
    
    20,634,283Total Assets
    
    $
    20,634,283LIABILITIES AND STOCKHOLDERS DEFICITLIABILITIES:Accounts payable & accrued expenses
    
    $
    3,358,047Loans and notes payables- related parties
    
    
    1,608,089Notes payables
    
    
    1,800,000Convertible notes payable, net
    
    
    20,840,300Customer deposits
    
    
    1,006,311Liabilities of discontinued operations
    
    
    28,612,747Total Liabilities
    
    $
    28,612,747COMMITMENTS AND CONTINGENCIES
    
    
    STOCKHOLDERS DEFICITSeries A convertible preferred stock, $0.001 par value;
2,000,000 shares authorized, none issued and outstanding
    
    
    Common stock, $0.001 par value; 500,000,000 shares authorized;
issued and outstanding 272,650,262 shares at December 31, 2007
    
    
    272,650Additional paid in capital
    
    
    50,941,329Accumulated deficit
    
    
    (58,134,208
    )Other comprehensive loss
    
    
    (1,058,236
    )Total stockholders deficit
    
    
    (7,978,465
    )$
    20,634,283
  
 Reported
    
    RestatedAt December 31,
    
    At December 31,2007
    
    2007Convertible notes payable- net of
beneficial conversion
    
    $
    16,556,134
    
    
    $
    17,028,603Accumulated deficit
    
    $
    (57,661,739
    )
    
    $
    (58,134,208
    )
 F-3




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RESTATED2007
    
    
    2006OTHER INCOME (EXPENSE)Interest Income
    
    
    33,993
    
    
    
    25,396Interest Expense(1)
    
    
    (4,748,374
    )
    
    
    (3,938,516
    )Other Income
    
    
    687,475
    
    
    
    Litigation settlement
    
    
    23,000,000
    
    
    
    Total other income (expense), net
    
    
    18,973,094
    
    
    
    (3,913,121
    )Income (Loss) from discontinued operations
    
    
    (8,472,615
    )
    
    
    (8,084,495
    )NET INCOME (LOSS)
    
    
    10,500,479
    
    
    
    (11,997,615
    )OTHER COMPREHENSIVE LOSSUnrealized loss on marketable securities
    
    
    (44,271
    )
    
    
    Foreign translation adjustment
    
    
    (76,801
    )
    
    
    (51,190
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    10,379,407
    
    
    $
    (12,048,805
    )BASIC NET INCOME (LOSS) PER SHARE
    
    $
    0.04
    
    
    $
    (0.06
    )DILUTED NET INCOME (LOSS) PER SHARE
    
    $
    0.03
    
    
    $
    (0.06
    )BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    266,730,827
    
    
    
    209,404,663DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    306,112,981
        
    *
    209,404,663
 
 *
    
    Weighted average number of shares used to compute basic and diluted income (loss) per share is the
same since the effect of dilutive securities is anti-dilutive. (1)     Includes amortization of beneficial conversion feature and fair value of warrants of:
    
    $
    2,269,377
    
    
    $
    2,143,920
  
 Reported
    
    RestatedAt December 31,
    
    At December 31,2007
    
    2007Interest Expense
    
    
    (4,275,905
    )
    
    
    (4,748,374
    )NET INCOME
    
    
    10,972,948
    
    
    
    10,500,479
 F-4




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TOTALADDITIONAL
    
    
    OTHER
    
    
    
    
    
    STOCKHOLDERSCOMMON STOCK
    
    
    PAID-IN
    
    
    COMPREHENSIVE
    
    
    ACCUMULATED
    
    
    EQUITYSHARES
    
    
    AMOUNT
    
    
    CAPITAL
    
    
    LOSS
    
    
    DEFICIT
    
    
    (DEFICIT)BALANCE, DECEMBER 31, 2005
    
    
    185,417,282
    
    
    $
    185,418
    
    
    $
    41,542,495
    
    
    $
    (885,974
    )
    
    $
    (56,637,072
    )
    
    $
    (15,795,136
    )Private placement of common stock
    
    
    49,261,530
    
    
    
    49,262
    
    
    
    3,065,015
    
    
    
    
    
    
    
    
    
    
    $
    3,114,277Warrants issued with placement of stock
    
    
    
    
    
    
    
    
    
    
    805,723
    
    
    
    
    
    
    
    
    
    
    $
    805,723Interest expenses converted into shares
    
    
    23,268,588
    
    
    
    23,269
    
    
    
    1,618,176
    
    
    
    
    
    
    
    
    
    
    $
    1,641,445Beneficial conversion feature convertible notes
    
    
    
    
    
    
    
    
    
    
    928,887
    
    
    
    
    
    
    
    
    
    
    $
    928,887Conversion notes payable
    
    
    1,220,708
    
    
    
    1,220
    
    
    
    543,640
    
    
    
    
    
    
    
    
    
    
    $
    544,860Compensation expenses options employees
    
    
    
    
    
    
    
    
    
    
    365,966
    
    
    
    
    
    
    
    
    
    
    $
    365,966Compensation expenses options non-employees
    
    
    
    
    
    
    
    
    
    
    114,672
    
    
    
    
    
    
    
    
    
    
    $
    114,672Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,190
    )
    
    
    
    
    
    $
    (51,190
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,997,615
    )
    
    $
    (11,997,615
    )BALANCE, DECEMBER 31, 2006
    
    
    259,168,108
    
    
    $
    259,169
    
    
    $
    48,984,574
    
    
    $
    (937,164
    )
    
    $
    (68,634,687
    )
    
    $
    (20,328,109
    )Private placement of common stock
    
    
    1,420,455
    
    
    
    1,420
    
    
    
    98,580
    
    
    
    
    
    
    
    
    
    
    $
    100,000Interest expenses converted into shares
    
    
    12,061,699
    
    
    
    12,061
    
    
    
    947,606
    
    
    
    
    
    
    
    
    
    
    $
    959,667Beneficial conversion feature notes commitment fee
    
    
    
    
    
    
    
    
    
    
    412,767
    
    
    
    
    
    
    
    
    
    
    $
    412,767Compensation expenses options employees
    
    
    
    
    
    
    
    
    
    
    330,528
    
    
    
    
    
    
    
    
    
    
    $
    330,528Compensation expenses options non-employees
    
    
    
    
    
    
    
    
    
    
    167,273
    
    
    
    
    
    
    
    
    
    
    $
    167,273Unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,271
    )
    
    
    
    
    
    $
    (44,271
    )Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,801
    )
    
    
    
    
    
    $
    (76,801
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,500,479
    
    
    $
    10,500,479BALANCE, DECEMBER 31, 2007
    
    
    272,650,262
    
    
    $
    272,650
    
    
    $
    50,941,329
    
    
    $
    (1,058,236
    )
    
    $
    (58,134,208
    )
    
    $
    (7,978,465
    )
  F-5




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(RESTATED)2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    10,500,479
    
    
    $
    (11,997,615
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activitiesDepreciation and amortization
    
    
    233,256
    
    
    
    291,348Provision for doubtful debts
    
    
    
    
    
    
    4,468Beneficial conversion feature
    
    
    2,269,377
    
    
    
    2,143,920Stock based compensation expenses- employees
    
    
    330,528
    
    
    
    365,966Stock based compensation expenses- non employees
    
    
    167,274
    
    
    
    114,673Interest expenses converted into shares.
    
    
    1,477,387
    
    
    
    1,641,444Reserve for inventory obsolescence
    
    
    
    
    
    
    250,000(Increase) decrease in current assets:Accounts receivables
    
    
    60,968
    
    
    
    12,772Inventory
    
    
    49,550
    
    
    
    (454,614
    )Prepaid expenses
    
    
    148,460
    
    
    
    182,357Increase (decrease) in current liabilities:Accounts payable and accrued liabilities
    
    
    (621,522
    )
    
    
    752,190Accrued payroll
    
    
    7,851
    
    
    
    (376,127
    )Customer deposits
    
    
    (133,664
    )
    
    
    (31,000
    )Total Adjustments
    
    
    3,989,466
    
    
    
    4,897,396Net cash provided by (used in) operating activities
of discontinued operations
    
    
    14,489,945
    
    
    
    (7,100,219
    )CASH FLOWS INVESTING ACTIVITIES:Acquisition of property and equipment, net
    
    
    (61,698
    )
    
    
    (158,978
    )Net cash used in investing activities
of discontinued operations
    
    
    (61,698
    )
    
    
    (158,978
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from private placements
    
    
    100,000
    
    
    
    3,920,000Proceeds from notes payable
    
    
    3,950,000
    
    
    
    2,250,000Purchases of marketable securities
    
    
    (11,961,961
    )
    
    
    Net cash provided by financing activities
of discontinued operations
    
    
    (7,911,961
    )
    
    
    6,170,000Effect of rate changes on cash and cash equivalents
    
    
    12,754
    
    
    
    10,348NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
    
    
    6,529,040
    
    
    
    (1,078,849
    )CASH & CASH EQUIVALENTS, BEGINNING BALANCE
    
    
    1,238,154
    
    
    
    2,317,003CASH & CASH EQUIVALENTS, ENDING BALANCE
    
    $
    7,767,196
    
    
    $
    1,238,154SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    
  F-6




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F-7




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F-8




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Computer software
    
    3 yearsOffice furniture and fixtures
    
    5-7 yearsEquipment
    
    5 years
     Revenue Recognition
  F-9




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F-10




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
    
    Level 1 Inputs            Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
    
    Level 2 Inputs            Inputs other than quoted prices in active markets
that are observable either directly or indirectly; and
    
    Level 3 Inputs            Unobservable inputs in which there is little or no
market data, which require us to develop our own assumptions.
    Year to dateIncome
    
    Shares
    
    Per share(Numerator)
    
    (Denominator)
    
    amountBasic earnings per share
    
    $
    10,500,479
    
    
    
    266,730,827
    
    
    $
    0.0394Effect of dilutive securities
Options
    
    
    
    
    
    
    12,657,0848% convertible loans
    
    $
    324,800
    
    
    
    26,725,070Income available to shareholders +
assumed conversions
    
    $
    10,825,279
    
    
    
    306,112,981Diluted earnings per share
    
    
    
    
    
    
    
    
    
    $
    0.0354
 F-11




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Twelve months ended December 312007
    
    2006Weighted average shares outstanding  basic
    
    
    266,730,827
    
    
    
    271,229,807Weighted average shares outstanding  diluted
    
    
    306,112,981
    
    
    
    271,229,807
         F-12




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Three months ended
    
    Three months ended
    
    YTD
    
    YTDDec 31, 2007
    
    Dec 31, 2006
    
    Dec 31, 2007
    
    Dec 31, 2006Sales in USA
    
    $
    2,046
    
    
    
    3
    %
    
    $
    15,995
    
    
    
    15
    %
    
    $
    21,999
    
    
    
    9
    %
    
    $
    282,798
    
    
    
    45
    %Sales in Europe
    
    
    36,684
    
    
    
    47
    %
    
    
    57,415
    
    
    
    55
    %
    
    
    139,542
    
    
    
    55
    %
    
    
    276,672
    
    
    
    44
    %Sales Far East
    
    
    39,500
    
    
    
    50
    %
    
    
    31,000
    
    
    
    30
    %
    
    
    90,500
    
    
    
    36
    %
    
    
    75,100
    
    
    
    12
    %Total sales
    
    $
    78,230
    
    
    
    100
    %
    
    $
    104,410
    
    
    
    100
    %
    
    $
    252,041
    
    
    
    100
    %
    
    $
    634,569
    
    
    
    100
    %
 YTD
    
    YTDDec 31, 2007
    
    Dec 31, 2006Long lived assets Europe
    
    $
    7,205
    
    
    $
    9,381Long lived assets USA
    
    
    244,199
    
    
    
    411,711Total long lived assets
    
    $
    251,404
    
    
    $
    421,092
 Three months ended
    
    Three months ended
    
    YTD
    
    YTDSales major countries
    
    Dec 31, 2007
    
    Dec 31, 2006
    
    Dec 31, 2007
    
    Dec 31, 2006France
    
    $
    16,272
    
    
    
    21
    %
    
    $
    20,210
    
    
    
    19
    %
    
    $
    67,319
    
    
    
    27
    %
    
    $
    82,434
    
    
    
    13
    %Sweden
    
    
    7,264
    
    
    
    9
    %
    
    
    17,717
    
    
    
    17
    %
    
    
    5,111
    
    
    
    2
    %
    
    
    37,688
    
    
    
    6
    %Italy
    
    
    9,879
    
    
    
    13
    %
    
    
    16,535
    
    
    
    16
    %
    
    
    31,873
    
    
    
    13
    %
    
    
    83,317
    
    
    
    13
    %Spain
    
    
    3,269
    
    
    
    4
    %
    
    
    8,858
    
    
    
    8
    %
    
    
    35,239
    
    
    
    14
    %
    
    
    8,508
    
    
    
    1
    %Hong Kong
    
    $
    39,500
    
    
    
    50
    %
    
    $
    31,000
    
    
    
    30
    %
    
    $
    90,500
    
    
    
    36
    %
    
    $
    75,100
    
    
    
    12
    %
 Three months ended
    
    Three months ended
    
    YTD
    
    YTDSales major customers
    
    Dec 31, 2007
    
    Dec 31, 2006
    
    Dec 31, 2007
    
    Dec 31, 2006Customer 1
    
    $
    39,500
    
    
    
    50
    %
    
    $
    31,000
    
    
    
    30
    %
    
    $
    90,500
    
    
    
    36
    %
    
    $
    75,100
    
    
    
    12
    %Customer 2
    
    
    9,879
    
    
    
    13
    %
    
    
    16,535
    
    
    
    16
    %
    
    
    31,873
    
    
    
    13
    %
    
    
    83,317
    
    
    
    13
    %Customer 3
    
    
    10,460
    
    
    
    13
    %
    
    
    11,024
    
    
    
    11
    %
    
    
    45,337
    
    
    
    18
    %
    
    
    64,284
    
    
    
    10
    %Customer 4
    
    
    3,269
    
    
    
    4
    %
    
    
    8,858
    
    
    
    8
    %
    
    
    35,239
    
    
    
    14
    %
    
    
    8,508
    
    
    
    1
    %
    F-13




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F-14




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F-15




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F-16




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##### Table of Contents



Reported
    
    RestatedAt December 31,
    
    At December 31,2007
    
    2007Convertible notes payable- net of
beneficial conversion
    
    $
    16,556,134
    
    
    $
    17,028,603Accumulated deficit
    
    $
    (57,661,739
    )
    
    $
    (58,134,208
    )
 
 Reported
    
    RestatedAt December 31,
    
    At December 31,2007
    
    2007Interest Expense
    
    
    (4,275,905
    )
    
    
    (4,748,374
    )NET INCOME
    
    
    10,972,948
    
    
    
    10,500,479
    F-17




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##### Table of Contents



Acquisition
    
    
    Market
    
    
    Accumulatedcost at
    
    
    value at
    
    
    unrealizedDec 31 2007
    
    
    Dec 31 2007
    
    
    Gain (Loss)Taxable auction rate securities
    
    $
    4,000,232
    
    
    $
    4,000,000
    
    
    $
    (232
    )Government bonds
    
    
    6,339,587
    
    
    
    6,303,767
    
    
    
    (35,820
    )Corporate bonds
    
    
    477,000
    
    
    
    478,605
    
    
    
    1,605Totals
    
    $
    10,816,819
    
    
    $
    10,782,372
    
    
    $
    (34,447
    )
  Acquisition
    
    
    Market
    
    
    Accumulatedcost at
    
    
    value at
    
    
    unrealizedDec 31 2007
    
    
    Dec 31 2007
    
    
    LossCertificates of deposit  Short term
    
    $
    760,286
    
    
    $
    754,616
    
    
    $
    (5,670
    )Certificates of deposit  Long term
    
    
    384,855
    
    
    
    380,702
    
    
    $
    (4,153
    )$
    1,145,141
    
    
    $
    1,135,318
    
    
    $
    (9,823
    )
  Fairvalue at
    
    Fair value measurement at reporting date usingDec 31 2007
    
    Level 1
    
    Level 2
    
    Level 3Taxable auction rate securities
    
    $
    4,000,000
    
    
    $
    
    
    
    $
    4,000,000
    
    
    $
    Government bonds
    
    
    6,303,767
    
    
    
    
    
    
    
    6,303,767
    
    
    
    Corporate bonds
    
    
    478,605
    
    
    
    
    
    
    
    478,605Certificates of deposit
    
    
    1,135,318
    
    
    
    
    
    
    
    1,135,318
    
    
    
    Less investments held for sale
    
    
    (3,000,000
    )
    
    
    
    
    
    
    (3,000,000
    )Total
    
    
    8,917,690
    
    
    $
    
    
    
    
    8,917,690
    
    
    
    
 F-18




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##### Table of Contents



Accounts receivables
    
    $
    31,603Inventories
    
    
    410,569Prepaid expenses
    
    
    54,558Property, plant & equipment
    
    
    251,404Deposits
    
    
    201,263Marketable securities
    
    
    3,000,000Total Assets Held For Sale
    
    $
    3,949,397
   December 312007Total accounts receivables
    
    $
    87,714Allowance for bad debts
    
    
    (56,111
    )Net accounts receivables
    
    $
    31,603
    December 312007Raw material/WIP
    
    $
    367,473Work in process
    
    
    279,721Finished goods
    
    
    113,375760,569Less: Reserve for obsolescence
    
    
    (350,000
    )$
    410,569
 F-19




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##### Table of Contents



December 312007Computers
    
    $
    357,406Office furniture and fixtures
    
    
    583,740Machinery and equipment
    
    
    2,652,7883,593,934Less: Accumulated depreciation
    
    
    (3,342,530
    )$
    251,404
   December 312007Opening balance per January 1st, 2007
    
    $
    1,139,975Applied against shipments
    
    
    133,664Ending balance per December 31, 2007
    
    $
    1,006,311
     December 312007Accounts payable   trade creditors
    
    $
    227,629Accounts payable   legal and professional
    
    
    53,646Accrued expenses
    
    
    155,110Accrued compensation
    
    
    2,080,446Accrued interest payable
    
    
    841,215$
    3,358,047
 F-20




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##### Table of Contents



December 312007Loans payable to officers on demand,
interest free and unsecured
    
    $
    58,526Loans payable to officers on demand,
interest free and unsecured
    
    
    61,333$
    119,858
  st
 F-21




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##### Table of Contents



December 312007Notes payable to officer on demand
bearing interest rate of 8%, unsecured
    
    $
    926,408Total notes payable to officers
    
    $
    926,408
    st  
 December 312007Notes payable with interest at 8%
due and demandable on December 31, 2007
    
    $
    161,823
         F-22




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F-23




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##### Table of Contents



F-24




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##### Table of Contents



F-25




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##### Table of Contents



F-26




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##### Table of Contents



F-27




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##### Table of Contents



F-28




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##### Table of Contents



1.
    
    the shares of Common Stock issuable upon conversion of any principal or interest due
under any notes issued in connection with any of the Whitebox financings;2.
    
    the shares of Common Stock issued in connection with any Whitebox financings;3.
    
    the shares of Common Stock issuable upon exercise of any warrants issued in connection
with any Whitebox financings; and4.
    
    the shares of Common Stock issuable upon conversion of principal or interest due under
the note issued to Synapse Capital, LLC in connection with the settlement of the
shareholder litigation.
     F-29




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##### Table of Contents



December 31
    
    
    December 312007
    
    
    2006Whitebox I
    
    $
    6,746,500
    
    
    $
    6,550,000Whitebox Ia
    
    
    202,395
    
    
    
    Whitebox II
    
    
    3,090,000
    
    
    
    3,000,000Whitebox IIa
    
    
    92,700
    
    
    
    Whitebox III
    
    
    7,210,000
    
    
    
    7,000,000Whitebox IIIa
    
    
    162,625
    
    
    
    Idylwood Partners LLP
    
    
    
    
    
    
    750,000Whitebox V
    
    
    1,500,000
    
    
    
    1,500,000Whitebox Va
    
    
    30,000
    
    
    
    Whitebox VI
    
    
    1,500,000
    
    
    
    Whitebox VIa
    
    
    30,000
    
    
    
    Synapse settlement note
    
    
    400,000
    
    
    
    Whitebox VIII
    
    
    1,000,000
    
    
    
    $
    21,964,220
    
    
    $
    18,800,000Debt issue costs
    
    
    (193,664
    )
    
    
    (437,832
    )Loan commitment expenses
    
    
    (372,374
    )
    
    
    Beneficial conversion feature
    
    
    (557,881
    )
    
    
    (2,414,491
    )$
    20,840,301
    
    
    $
    15,947,678Classified as current liability
    
    $
    3,811,698
    
    
    
    Classified as long term liability
    
    $
    17,028,603
    
    
    $
    15,947,678
  Conversion
    
    
    
    
    
    
    Intrinsic
    
    
    Conversion
    
    
    
    
    
    
    Intrinsicshares per
    
    
    Conversion
    
    
    value per
    
    
    shares per
    
    
    Conversion
    
    
    value perDec 31 2006
    
    
    price
    
    
    December
    
    
    Dec 31 2007
    
    
    price
    
    
    DecemberWhitebox I
    
    
    43,666,667
    
    
    $
    0.1500
    
    
    $
    
    
    
    
    84,331,250
    
    
    
    0.0800
    
    
    $
    Whitebox Ia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,529,938
    
    
    
    0.0800
    
    
    
    Whitebox II
    
    
    20,000,000
    
    
    
    0.1500
    
    
    
    
    
    
    
    38,625,000
    
    
    
    0.0800
    
    
    
    Whitebox IIa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,158,750
    
    
    
    0.0800
    
    
    
    Whitebox III
    
    
    46,666,667
    
    
    
    0.1500
    
    
    
    
    
    
    
    90,125,000
    
    
    
    0.0800
    
    
    
    Whitebox IIIa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,032,813
    
    
    
    0.0800
    
    
    
    Idylwood Partners
    
    
    15,151,515
    
    
    
    0.0495
    
    
    
    7,576
    
    
    
    
    
    
    
    0.0495
    
    
    
    LLP
Whitebox V
    
    
    33,333,333
    
    
    
    0.0450
    
    
    
    166,667
    
    
    
    33,333,333
    
    
    
    0.0450
    
    
    
    500,000Whitebox Va
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    666,667
    
    
    
    0.0450
    
    
    
    10,000Whitebox VI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,333,333
    
    
    
    0.0450
    
    
    
    500,000Whitebox VIa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    666,667
    
    
    
    0.0450
    
    
    
    10,000Synapse settlement note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,666,667
    
    
    
    0.1500
    
    
    
    Whitebox VIII
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,285,714
    
    
    
    0.0700
    
    
    
    158,818,182
    
    
    
    
    
    
    $
    174,242
    
    
    
    303,755,131
    
    
    
    
    
    
    $
    1,020,000
 F-30




---



##### Table of Contents



plus
 plus
  December 31


December 312007


2006Whitebox VII
    
    $
    1,700,000
    
$

    F-31




---



##### Table of Contents



plus
   December 31


December 312007


2006Officers
    
    $
    400,000
    
$

       F-32




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##### Table of Contents



Net deferred tax asset
    
    $
    (14,444,134
    )Inventory Reserve
    
    
    119,000Less valuation allowance
    
    
    (14,325,134
    )Net deferred tax asset
    
    $
    
  December 31
    
    December 312007
    
    2006Tax expense (credit) at statutory
rate federal
    
    
    (32
    )%
    
    
    (32
    )%State tax expense net of federal tax
    
    
    (8
    )
    
    
    (8
    )Permanent differences
    
    
    1
    
    
    
    1Valuation allowance
    
    
    39
    
    
    
    39Tax expense at actual rate
    
    
    
    
    
    
    
       F-33




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##### Table of Contents



Year EndingDecember 31,2007
    
    
    
    $
    327,6002008
    
    
    
    
    337,4092009
    
    
    
    
    337,4092010
    
    
    
    
    337,4092011
    
    
    
    
    337,409Total
    
    
    
    $
    1,677,236
        F-34




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##### Table of Contents



Pham v. Nobles, et al.
    F-35




---



##### Table of Contents



1st
 2nd
  nd
 nd
  2nd
   F-36




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##### Table of Contents



.
    F-37




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##### Table of Contents



Years ended December 302007
    
    2006Expected life (years)
    
    
    10
    
    
    
    10Expected stock price volatility
    

    95%-191%

    

    95%-191%Weighted average stock price volatility
    
    
    115%

    

    115%Expected dividend yield
    
    
    0
    
    
    
    0Risk-free interest rate
    

    4.10%-4.80%

    

    4.10%-4.80%
     Weightedaverageremaining
    
    
    AggregateWeighted
    
    
    contractual
    
    
    IntrinsicTotal
    
    
    price
    
    
    term (years)
    
    
    ValueOUTSTANDING,
December 31, 2006
    
    
    42,617,899
    
    
    $
    0.103
    
    
    
    3.9
    
    
    $
    493,159Granted in 2007
    
    
    2,400,000
    
    
    $
    0.0700Cancelled in 2007
    
    
    
    
    
    
    Exercised in 2007
    
    
    
    
    
    
    OUTSTANDING,
December 31, 2007
    
    
    45,017,899
    
    
    $
    0.101
    
    
    
    3.0
    
    
    $
    691,890Exercisable at
December 31, 2007
    
    
    38,749,774
    
    
    $
    0.094
    
    
    
    2.0
    
    
    $
    691,890
   F-38




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##### Table of Contents



Remaining
    
    
    AggegrateLife in
    
    
    IntrinsicTotal
    
    
    Price
    
    
    Years
    
    
    ValueWarrants issued in 2004
    
    
    6,311,951
    
    
    $
    0.6259
    
    
    
    1.3
    
    
    $Warrants Fusion
    
    
    1,220,565
    
    
    
    0.4464
    
    
    
    2.3Warrants Whitebox I
    
    
    14,423,512
    
    
    
    0.4541
    
    
    
    1.7Warrants Whitebox II
    
    
    1,666,667
    
    
    
    0.4500
    
    
    
    2.2Warrants Whitebox III
    
    
    1,609,197
    
    
    
    0.4500
    
    
    
    2.7Warrants Whitebox IV
    
    
    10,400,000
    
    
    
    0.0913
    
    
    
    4.0Cancelled in 2007
    
    
    
    
    
    
    
    
    
    
    Exercised in 2007
    
    
    
    
    
    
    
    
    
    
    Outstanding December 2007
    
    
    35,631,891
    
    
    $
    0.3780
    
    
    
    2.4
    
    
    $
    
    Recent Conversions of Debt-to-Equity by Whitebox Affiliates
  F-39




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##### Table of Contents



Whitebox Convertible Arbitrage Partners, L.P. 
    
    
    25,859,437Whitebox Hedged High yield Partners, L.P. -
    
    
    20,687,550Whitebox Intermarket Partners, L.P. -
    
    
    8,275,012Pandora Select Partners, L.P. -
    
    
    10,343,775
    F-40




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##### Table of Contents



provided
   F-41




---



##### Table of Contents



Past Officer Litigation
  Loan from Whitebox and Repayment
  Patent Infringement Litigation
  F-42




---



##### Table of Contents



F-43