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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Year Ended December 31, 2005
 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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##### 



PART IItem 1 .
    
    Description of Business

2Item 2 .
    
    Description of Property

13Item 3 .
    
    Legal Proceedings

14Item 4 .
    
    Submission of Matters to a Vote of Security Holders

15PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters

15Item 6 .
    
    Managements Discussion and Analysis or Plan of Operation

16Item 7.
    
    Financial Statements

22Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

22Item 8A.
    
    Controls and Procedures

23Item 8b.
    
    Other Information

23PART IIIItem 9.
    
    Directors and Executive Officers of the Registrant; Compliance with Section 16 (a) of the Securities Exchange Act of 1934; Code of ethics

23Item 10.
    
    Executive Compensation

25Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

28Item 12.
    
    Certain Relationships and Related Transactions

32Item 13.
    
    Exhibits

35Item 14.
    
    Principal Accountant Fees and Services

37Exhibit 3.3Exhibit 3.4Exhibit 3.5Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 10.8Exhibit 10.9Exhibit 10.10Exhibit 10.26Exhibit 10.27Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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1




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Overview
    2




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Recent Developments
 Whitebox Amendment to Extend Note Maturity Dates
    3




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
    
    The maturity dates on each of the Whitebox I and Whitebox II notes was extended until
July 1, 2007.
    
    The commencement of payments of principal due under the Whitebox III notes was extended
from April 30, 2007 until July 1, 2007.
    
    The per share exercise price of the warrants issued in connection with Whitebox II
and Whitebox III was changed to $0.45.
    
    The unpaid principal balance under the Whitebox I, Whitebox II and Whitebox III notes
hereof from time to time outstanding shall bear interest at the rate of eight percent
(8%) per annum if Maker raises $10 million or more in equity financing on or before
July 31, 2006. Notwithstanding the preceding, if Maker raises at least $10 million in
capital on or before July 31, 2006, but such capital consists of less than $10 million
of equity financing, then commencing on September 18, 2006, as to the Whitebox II
Notes, and September 7, 2007, as to the Whitebox III notes, the interest rates under
such notes shall be nine percent (9%) per annum. Further, if Maker fails to raise $10
million of capital by July 31, 2006, then commencing on September 18, 2006 , as to the
Whitebox II Notes, and September 7, 2007, as to the Whitebox III notes, the interest
rate under such notes shall be twelve percent (12%) per annum.
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
    
    The interest payments due on March 31, 2006 under the Whitebox I, Whitebox II and
Whitebox III notes is deferred to July 31, 2006.
    
    The Company will file a registration statement with the Securities and Exchange
Commission on or before April 10, 2006 covering all of the securities issuable to
Whitebox upon conversion of the notes or exercise of the warrants. If such
registration statement is not filed within the required timeframe, the amendment will
terminate and the notes and warrants will revert back to their original terms and
provisions.
 Conversion of Fusion Capital Note
    Sutura, Inc. 2006 Stock Option Plan
  5




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SuperStitch Products
    Suturas current products are:
 6




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7




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Business Strategy
  
    
    Continue to develop features that make our products safe, easy
to use and reliable.
    
    Expand our product offering such that we have a solution for every potential need for
suturing tissue.
    
    Hire a direct sales force to introduce our products to potential
customers, provide focused physician training in product use and to maintain close
relationships for input regarding product performance and development plans.
    
    Expand our
international distribution through distributors that are willing to invest in local
product specialists dedicated to our products.
 Sales, Marketing and Distribution
    8




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Manufacturing
   Competition
  9




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
    
    The VasoSeal ® device, manufactured and marketed by Datascope Corp.,
seals the tissue tract by placing a dry collagen plug in the tissue tract adjacent to
the puncture in the artery.
    
    Angio-Seal ® device, sold by the Daig division of St. Jude Medical, Inc. and
developed by Kensey Nash Corporation, seals the puncture site through the use of a
collagen plug on the outside of the artery connected by a suture to a biodegradable
anchor which is inserted into the artery.
    
    The Closer device, sold by Perclose, Inc., a subsidiary of Abbott Laboratories,
seals the puncture site through the use of a suture device that enables a physician to
perform a minimally invasive replication of open surgery.
    
    The StarClose device, sold by Perclose, Inc., a subsidiary of Abbott
Laboratories, seals the tract above the puncture site through the use of a staple.
 Patents and Proprietary Rights
    10




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Government Regulation
     11




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12




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Product Liability and Insurance
  
   13




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14




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MARKET INFORMATION
  mark-ups
 PERIOD
    
    HIGH
    
    LOWFiscal Year Ended December 31, 2004
    
    First Quarter
    
    $0.14
    
    $0.05Second Quarter
    
    $0.11
    
    $0.05Third Quarter
    
    $0.08
    
    $0.05Fourth Quarter
    
    $0.11
    
    $0.03Fiscal Year Ended December 31, 2005
    
    First Quarter
    
    $1.35
    
    $0.60Second Quarter
    
    $0.96
    
    $0.42Third Quarter
    
    $1.40
    
    $0.48Fourth Quarter*
    
    $0.99
    
    $0.60
 
 *
    
    Through December 30, 2005 15




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DIVIDENDS
  RECENT SALES OF UNREGISTERED SECURITIES
   
     16




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17




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18




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19




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Financial Condition and Results of Operations for the year ended December 31, 2005
compared to year ended December 31, 2004
      20




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21




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22




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Anthony
Nobles
 Egbert
Ratering
 23




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John
Crew, M.D.
 Charles
Terrell, Sr.
 Audit Committee Financial Expert
    24




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CODE OF ETHICS
  
  Executive Employment Agreements
 NOBLES EMPLOYMENT AGREEMENT
  RATERING EMPLOYMENT AGREEMENT
  25




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COMPENSATION
  SUMMARY COMPENSATION TABLEANNUAL COMPENSATIONOTHER ANNUALNAME AND PRINCIPAL POSITION
    
    YEAR
    
    SALARY
    
    
    
    BONUS
    
    COMPENSATIONAnthony Nobles
    
    2005
    
    $92,877
    
    
    
    $0
    
    $3,250 (10)Chief executive officer and President (1)Egbert Ratering
    
    2005
    
    $54,000
    
    
    
    $0
    
    $5,400 (10)Chief Financial Officer and ExecutiveVice President (2)James B. Lahey
    
    2005
    
    $145,000
    
    (5) (8)CEO, President (3)
    
    2004
    
    $150,000
    
    (5) (6) (7)2003
    
    $150,000
    
    (5) (6) (7)James A, Giansiracusa
    
    2005
    
    $145,000
    
    (5) (9)COO, CFO, Secretary (4)
    
    2004
    
    $150,000
    
    (5) (6) (7)2003
    
    $150,000
    
    (5) (6) (7)
 
 (1)
    
    Mr. Nobles became an executive officer and employee of the Company on
August 19, 2005 as a result of the merger of the Company with Prior Sutura.
Accordingly, the table sets forth the compensation that Mr. Nobles received since
becoming an executive officer of the Company. Mr. Nobles annual salary is
$250,000. The amounts shown paid in 2005 reflects the amounts paid since becoming an
officer on August 19, 2005 following the Merger Transaction with Prior Sutura.(2)
    
    Mr. Ratering became an executive officer and employee of the Company on
August 19, 2005 as a result of the merger of the Company with Prior Sutura.
Accordingly, the table sets forth the compensation that Mr. Ratering received since
becoming an executive officer of the Company. Mr. Raterings annual salary is Euro
120,000, which is approximately U.S. $150,000. The amounts shown paid in 2005
reflects the amounts paid since becoming an officer on August 19, 2005 following the
Merger Transaction with Prior Sutura.(3)
    
    Mr. Lahey served as the Chief Executive Officer and President of the
Company for 2003, 2004 and from January 1, 2005 until consummation of the merger
of the Company and prior Sutura. August 19, 2005. After August 19, 2005, he
has served as the Chief Executive Officer and President of Technology Visions, Inc.,
a subsidiary of the Company. 26




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(4)
    
    Mr. Gianciracusa served as the Chief Operations Officer and Chief Financial
Officer of the Company for 2003, 2004 and from January 1, 2005 until consummation
of the merger of the Company and prior Sutura. August 19, 2005. After August
19, 2005, he has served as the Chief Operations Officer and Chief Financial Officer
of Technology Visions, Inc., a subsidiary of the Company.(5)
    
    While serving as Executive Officers of Sutura, Mr. Lahey and Mr. Giansiracusa
had agreed to defer their compensation in favor of the companys operations and
progress. As described in note 9 below, accrued but unpaid salary, debt and interest
was converted into common stock. Since August 19, 2006, each of Messrs. Lahey
and Gianciracusa has received cash compensation as employees of the subsidiary based
on an annual salary of $125,000.(6)
    
    In October 2004, $228,049 of accrued but unpaid salary in favor of Mr. Lahey
was converted into 4,560,988 shares of common stock (pre 12-for-1 reverse stock
split) of the Company and $293,049 of accrued but unpaid salary of Mr. Giansiracusa
was converted into 5,860,988 (pre 12-for-1 reverse stock split) shares of common stock
of the Company. The accrued but unpaid salary was converted in common stock at the
rate of $0.05 per share, reflecting the average of the trading price of the common
stock for the ten day period from October 11, 2004 through October 22, 2004.(7)
    
    As of December 31, 2004, $548,512 of accrued but unpaid salary in favor of Mr.
Lahey was converted into 7,412,319 (pre 12-for-1 reverse stock split) shares of
common stock of the Company. As of December 29, 2004, $548,512 of accrued but
unpaid salary in favor of Mr. Giansiracusa was converted into 7,412,319 (pre 12-for-1
reverse stock split) shares of common stock of the company. The accrued but unpaid
salary was converted in common stock at the rate of $0.074 per share, reflecting the
average of the trading price of the common stock for the ten day period of November
23, 2004 through December 7, 2004, reflecting the price of the common stock
following the initial announcement of the Merger.(8)
    
    As of August 19, 2005, the closing date of the merger of the Company and
Prior Sutura, $531,102 of accrued but unpaid salary in favor of Mr. Lahey was
converted into 598,088 shares of common stock of the Company. The accrued but
unpaid salary was converted in common stock at the rate of $0.888 per share. All
compensation due Mr. Lahey prior to August 19, 2005 was converted to shares of
common stock of the Company. Mr. Lahey has received $45,138 of cash
compensation in 2005 as an employee of the subsidiary.(9)
    
    As of August 19, 2005, the closing date of the merger of the Company and
Prior Sutura, $192,196 of accrued but unpaid salary in favor of Mr. Gianciracusa was
converted into 216,437 shares of common stock of the Company. The accrued but unpaid
salary was converted in common stock at the rate of $0.888 per share. All
compensation due Mr. Gianciracusa prior to August 19, 2005 was converted to shares of common stock of
the Company. Mr. 27




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Gianciracusa has received $ 45, 138 of cash compensation in 2005 as an employee of the subsidiary.(10)
    
    These amounts represent automobile allowances from August 19 through
December 31, 2005.    
    28




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COMMON STOCK BENEFICIAL OWNERSHIP TABLENUMBER OF
    
    
    PERCENTAGE OFSUTURA SHARES
    
    
    SUTURA SHARESNAME AND ADDRESS OF
    
    BENEFICIALLY
    
    
    BENEFICIALLYBENEFICIAL OWNER
    
    HELD
    
    
    OWNED5% STOCKHOLDERS:Anthony Nobles (1)
    
    
    101,138,381
    
    
    
    54.55
    %Egbert Ratering (2)
    
    
    97,944,181
    
    
    
    52.82
    %Grootkasteel, B.V.
    
    
    68,040,874
    
    
    
    36.70
    %Go Industries, Inc.
    
    
    13,494,664
    
    
    
    7.28
    %Alfred Novak (3)
    
    
    14,969,968
    
    
    
    8.07
    %Synapse Capital Fund (4)
    
    
    24,845,368
    
    
    
    13.40
    %Whitebox (5)
    
    
    45,402,231
    
    
    
    24.49
    %EXECUTIVE OFFICERS & DIRECTORSAnthony Nobles
    
    
    101,138,381
    
    
    
    54.55
    %Egbert Ratering
    
    
    97,944,181
    
    
    
    52.82
    %John Crew, MD (6)
    
    
    759,346
    
    
    
    *Charles Terrell, Sr.
    
    
    108,478
    
    
    
    *All directors & officers as a group(7)
    
    
    131,909,512
    
    
    
    71.14
    %
 
 (1)
    
    Includes 9,687,954 shares of Registrant held by Anthony Nobles;
6,508,680 shares of Registrant held by The Anthony Nobles Family Limited Partnership;
86,783 shares of Registrant held by Rhonda Nobles; 68,040,874 shares of Registrant
held by Grootkasteel B.V.; and 16,814,090 shares of Registrant issuable upon the
exercise of options held by Anthony Nobles. Anthony Nobles is an officer and
director of Grootkasteel B.V. and holds the power to vote all shares held by The
Anthony Nobles Family Limited Partnership. Rhonda Nobles is the spouse of Mr.
Nobles.(2)
    
    Includes 16,343,557 shares of Registrant held by Egbert Ratering; 2,169,560
shares of Registrant held by Franck Ratering; 2,169,560 shares of Registrant held by
Alex Ratering; 2,169,560 shares of Registrant held by Harry Ratering; 68,040,874
shares of Registrant held by Grootkasteel B.V.; and 7,051,070 shares of Registrant
issuable upon conversion of options held by Egbert Ratering. Egbert Ratering is an
officer and director of Grootkasteel B.V. Franck Ratering, Alex Ratering and Harry
Ratering are members of Mr. Raterings immediate family.(3)
    
    Includes 13,494,664 shares of Registrant held by Go Industries, Inc.;
21,696 shares of Registrant held by Irwin Novak; 43,392 shares of Registrant held
by Jessica Novak; 21,696 shares of Registrant held by Judi Novak; 43,392 shares of
registrant held by Ryan Powell; 43,392 shares of Registrant held by Taylor Powell;
and 1,301,736 of Registrant shares issuable upon exercise of options held by Alfred
Novak. Alfred Novak holds a controlling interest in Go Industries, Inc. Irwin,
Jessica and Judi Novak and Ryan and Taylor Powell are members of Mr. Novaks
immediate family.(4)
    
    Includes 10,253,124 shares of Registrant issued to Synapse Fund I LLC and
14,592,244 shares of Registrant issued to Synapse Fund 29




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II LLC. Synapse Capital Fund is the managing member of both Synapse Fund I and
Synapse Fund II.(5)
    
    Includes all shares of Registrant beneficially owned by Pandora Select
Partners L.P., a British Virgin Islands limited partnership; Whitebox Hedged High Yield
L.P., a British Virgin Islands limited partnership; Whitebox Convertible Arbitrage
Partners L.P. a British Virgin Islands limited partnership; Gary S. Kohler and Scot
W. Malloy. The number of shares is subject to adjustment based on various factors,
including the trading price of the combined company following the Merger.(6)
    
    Includes 650,868 shares of Registrant issuable upon exercise of options and
108,478 shares of Registrant issuable upon the exercise of warrants.(7)
    
    Calculation includes all shares of Registrant beneficially owned by Anthony
Nobles (as indicated in footnote 1 above); plus all shares of Registrant beneficially
owned by Egbert Ratering (as indicated in footnote 2 above) less shares of Registrant
held by Grootkasteel B.V. which were included once in the calculation of the Nobles
shares; plus all shares of Registrant beneficially owned by John Crew, MD (as
indicated in footnote 6 above) and Charles Terrell, Sr. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
   30




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Number ofSecurities to beissued upon
    
    
    Weighted-average
    
    Number of securitiesexercise of
    
    
    exercise price of
    
    remaining availableoutstanding
    
    
    outstanding
    
    for future issuanceoptions, warrants
    
    
    options, warrants
    
    under equityand rights
    
    
    and rights
    
    compensation plansPlan Category
    
    Name of plan
    
    
    
    a
    
    
    b
    
    cEquity compensation
    
    Sutura 1999 option plan
    
    1
    
    
    34,615,337
    
    
    0.077
    
    0plans approved by
    
    Sutura 2001 option plan
    
    1
    
    
    6,595,469
    
    
    0.230
    
    0security holders
    
    TVGR  option plan
    
    2
    
    
    566,667
    
    
    0.600
    
    0Equity compensation
    
    Sutura 2003 options
    
    3
    
    
    1,084,780
    
    
    0.230plans not approved by
    
    Sutura 2004 warrants
    
    4
    
    
    1,735,648
    
    
    0. 626security holders
    
    Sutura 2004 warrants
    
    5
    
    
    2,255,174
    
    
    0.626Sutura 2004 warrants
    
    6
    
    
    2,321,129
    
    
    0.626Sutura 2006 option plan
    
    
    
    
    5,625,00
    
    
    0.350
    
    14,375,000
 
 
 
 
 
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 
  32




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3.1
    
    Certificate of Incorporation13.2
    
    Certificate of Amendment to Certificate of Incorporation23.3
    
    Certificate of Amendment to Certificate of Incorporation3.4
    
    Certificate of Merger3.5
    
    Bylaws4.1
    
    Form of Common Stock Certificate110.1
    
    Sutura Inc. 2001 Stock Option Plan10.2
    
    Sutura Inc. 1999 Stock Option Plan10.3
    
    Employment Agreement with Egbert Ratering10.4
    
    Employment Agreement with Anthony Nobles10.5
    
    Sutura Inc. 2006 Stock Option Plan10.6
    
    Lease for Fountain Valley Location10.7
    
    Sucor License Agreement10.8
    
    Sterilis License Agreement
 
 1
    
    Previously filed as part of the Form 10-KSB filed in May 1995 and amendments
thereto which are hereby
incorporated by reference.2
    
    Previously filed as part of the Form 10-KSB for the period ending December 31, 2001. 35




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10.9
    
    Option and Distribution Agreement with Getz Bros. & Co ., Inc., dated September
20, 200210.10
    
    Convertible Promissory Note in Favor of Getz Bros. & Co ., Inc., dated September
20, 200210.11
    
    Purchase Agreement, dated as of September 17, 2004 by and between Sutura, Inc. and
certain other parties thereto.310.12
    
    Purchase Agreement, dated as of March 24, 2005 by and between Sutura, Inc. and
certain other parties thereto.310.13
    
    Form of Secured Convertible Promissory Note, dated September 17, 2004.310.14
    
    Form of Secured Convertible Promissory Note dated March 24, 2005.310.15
    
    Form of Warrant, dated September 17, 2004.310.16
    
    Form of Warrant dated, March 24, 2005.310.17
    
    Purchase Agreement, dated September 9, 2005 by and between Sutura, Inc. and certain
other parties thereto.310.18
    
    Second Amended Security Agreement, dated September 9, 2005 by and between Sutura,
Inc. and certain other parties thereto.310.19
    
    Second Amended Patent and Trademark Security Agreement, dated September 7, 2005 by and
between Sutura, Inc. and certain other parties thereto.310.20
    
    Second Amended Registration Rights Agreement, dated September 7, 2005 by and between
Setura, Inc. and certain other parties thereto.310.21
    
    Form of Secured Convertible Promissory Note, dated September 7, 2005.310.22
    
    Form of Warrant dated September 7, 2004.3
 
 3
    
    Previously filed as an exhibit to Form 8-K, filed on September 13, 2005. 36




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10.23
    
    Amendment to Secured Convertible Promissory Notes and
Warrants, dated September 7, 2005 by and between Sutura,
Inc. and certain other parties thereto.310.24
    
    Amendment to Secured Convertible Promissory Notes and
Warrants, dated March 31, 2006 by and between Sutura, Inc.
and certain other parties thereto.410.25
    
    Agreement and Plan of Merger dated November 22, 2004.510.26
    
    Distributor Agreement with Getz Bros & Co ., Inc. dated
September 20, 2002.10.27
    
    Distribution Agreement with The Lifemed Group, Inc. dated
January 16, 2006.14.1
    
    Code of ethics for the Board of Directors.614.2
    
    Code of ethics for Executive Officers.631.1
    
    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.
 
    
 4
    
    Previously filed as an exhibit to Form 8-K filed on March 31, 2006.5
    
    Previously filed as an exhibit to Form 8-K filed on December 1, 2004.6
    
    Previously filed as part of the Form 10-KSB for the period ending December 31, 2003. 37




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SIGNATURES
  SUTURA INC
 By:
    
    /s/ Anthony NoblesAnthony Nobles, Chairman, President,Chief Executive Officer and DirectorDate:
    
    April 10, 2006
  By:
    
    /s/ ANTHONY NOBLESAnthony Nobles, Chairman, President, Chief Executive Officer and DirectorDate:
    
    April 10, 2006By:
    
    /s/ EGBERT RATERINGEgbert Ratering, Executive Vice President, Chief Financial Officer and DirectorDate:
    
    April 10, 2006By:
    
    /s/ JOHN CREW, M.D.John Crew, M.D., DirectorDate
    
    April 10, 2006By:
    
    /s/ CHARLES TERRELL, SR.Charles Terrell, Sr., DirectorDate:
    
    April 10, 2006
 39




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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
 F-1




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ASSETSCURRENT ASSETS:Cash & cash equivalents
    
    $
    2,317,003Accounts Receivable, Net
    
    
    101,787Inventory
    
    
    248,108Prepaid expenses
    
    
    649,825Total current assets
    
    
    3,316,722PROPERTY AND EQUIPMENT, net
    
    
    553,288DEPOSITS
    
    
    127,599$
    3,997,609LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    4,289,457Loan payable  officers
    
    
    130,483Customer deposits
    
    
    1,170,975Notes payable  officers
    
    
    686,618Notes payable
    
    
    94,736Convertible
notes payable  net of beneficial conversion feature
    
    
    355,847Total current liabilities
    
    
    6,728,116LONG TERM LIABILITIES:Convertible
notes payable  net of beneficial conversion feature
    
    
    13,064,629COMMITMENTS 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;
185,417,282 shares issued and outstanding
    
    
    185,418Additional paid in capital
    
    
    41,542,494Accumulated deficit
    
    
    (56,637,072
    )Other comprehensive loss
    
    
    (885,974
    )Total stockholders deficit
    
    
    (15,795,136
    )$
    3,997,609
  F-3




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2005
    
    
    2004NET SALES
    
    $
    238,915
    
    
    $
    28,581COST OF GOODS SOLD
    
    
    1,863,844
    
    
    
    757,383GROSS LOSS
    
    
    (1,624,929
    )
    
    
    (728,802
    )OPERATING EXPENSES:Employee option benefits
    
    
    31,769
    
    
    
    793,440Research and development
    
    
    477,879
    
    
    
    214,835General and administrative
    
    
    2,825,439
    
    
    
    2,709,571Sales and marketing
    
    
    1,248,424
    
    
    
    620,386Total operating expenses
    
    
    4,583,512
    
    
    
    4,338,233OPERATING LOSS
    
    
    (6,208,441
    )
    
    
    (5,067,035
    )OTHER INCOME (EXPENSE)Interest Income
    
    
    38,623
    
    
    
    1,827Interest Expense
    
    
    (1,377,530
    )
    
    
    (656,085
    )Beneficial conversion feature
    
    
    (4,931,205
    )
    
    
    (545,388
    )Gain on settlement of debt
    
    
    69,523
    
    
    
    638,013Other Income
    
    
    5,287
    
    
    
    167,303Total other income (expense), net
    
    
    (6,195,302
    )
    
    
    (394,330
    )NET LOSS
    
    
    (12,403,744
    )
    
    
    (5,461,366
    )OTHER COMPREHENSIVE GAIN (LOSS)Translation adjustment
    
    
    69,060
    
    
    
    (211,040
    )COMPREHENSIVE LOSS
    
    $
    (12,334,684
    )
    
    $
    (5,672,405
    )BASIC AND DILUTED NET LOSS PER SHARE
    
    $
    (0.07
    )
    
    $
    (0.03
    )BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    169,363,198
    
    
    
    160,432,353
 
 *
    
    Weighted average number of shares used to compute basic and diluted loss per share
is the same since the effect of dilutive securities is anti-dilutive.  F-4




---



##### Table of Contents



OTHER
    
    
    DEFICITADDITIONAL
    
    
    COMPREHENSIVE
    
    
    ACCUMULATED
    
    
    TOTALCOMMON STOCK
    
    
    PAID-IN
    
    
    INCOME
    
    
    DURING
    
    
    STOCKHOLDERSSHARES
    
    
    AMOUNT
    
    
    CAPITAL
    
    
    (LOSS)
    
    
    DEVELOPMENT
    
    
    EQUITYBALANCE, JANUARY 1, 2004
    
    
    159,204,709
    
    
    $
    159,205
    
    
    $
    28,331,816
    
    
    $
    (743,994
    )
    
    $
    (38,771,962
    )
    
    $
    (11,024,935
    )Warrants exercised
    
    
    1,084,780
    
    
    
    1,085
    
    
    
    (585
    )
    
    
    
    
    
    
    
    
    
    
    500Private placement of common stock
    
    
    1,228,644
    
    
    
    1,229
    
    
    
    1,283,965
    
    
    
    
    
    
    
    
    
    
    
    1,285,194Shares issued for consulting
    
    
    162,717
    
    
    
    163
    
    
    
    60,737
    
    
    
    
    
    
    
    
    
    
    
    60,900Compensation expenses warrants non employees
    
    
    
    
    
    
    
    
    
    
    622,811
    
    
    
    
    
    
    
    
    
    
    
    622,811Compensation expenses options employees
    
    
    
    
    
    
    
    
    
    
    793,440
    
    
    
    
    
    
    
    
    
    
    
    793,440Buy back of stock
    
    
    (1,984,107
    )
    
    
    (1,984
    )
    
    
    (523,016
    )
    
    
    
    
    
    
    
    
    
    
    (525,000
    )Beneficial conversion feature Whitebox 1 notes
    
    
    
    
    
    
    
    
    
    
    6,550,000
    
    
    
    
    
    
    
    
    
    
    
    6,550,000Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211,040
    )
    
    
    
    
    
    
    (211,040
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,461,366
    )
    
    
    (5,461,366
    )BALANCE, DECEMBER 31, 2004
    
    
    159,696,742
    
    
    
    159,698
    
    
    
    37,119,169
    
    
    
    (955,034
    )
    
    
    (44,233,328
    )
    
    
    (7,909,495
    )Recapitalization on reverse merger
    
    
    10,468,945
    
    
    
    10,469
    
    
    
    (276,585
    )
    
    
    
    
    
    
    
    
    
    
    (266,116
    )Private placement of common stock
    
    
    111,277
    
    
    
    111
    
    
    
    99,901
    
    
    
    
    
    
    
    
    
    
    
    100,012Beneficial conversion feature convertable notes
    
    
    
    
    
    
    
    
    
    
    2,556,118
    
    
    
    
    
    
    
    
    
    
    
    2,556,118Conversion notes payable Officers
    
    
    15,140,318
    
    
    
    15,140
    
    
    
    2,012,124
    
    
    
    
    
    
    
    
    
    
    
    2,027,264Compensation expenses options employees
    
    
    
    
    
    
    
    
    
    
    31,768
    
    
    
    
    
    
    
    
    
    
    
    31,768Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,060
    
    
    
    
    
    
    
    69,060Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,403,744
    )
    
    
    (12,403,744
    )BALANCE, DECEMBER 31, 2005
    
    
    185,417,282
    
    
    $
    185,418
    
    
    $
    41,542,494
    
    
    $
    (885,974
    )
    
    $
    (56,637,072
    )
    
    $
    (15,795,136
    )
  F-5




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##### Table of Contents



2005
    
    
    '2004CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (12,403,744
    )
    
    $
    (5,461,366
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    283,186
    
    
    
    284,636Beneficial conversion feature
    
    
    4,931,205
    
    
    
    545,388Common shares issued for services
    
    
    
    
    
    
    60,900Stock based
compensation expenses  employees
    
    
    31,769
    
    
    
    793,440Stock based
compensation expenses  non employees
    
    
    
    
    
    
    622,811Bad debt expense
    
    
    
    
    
    
    51,000(Increase) decrease in current assets:Accounts receivables
    
    
    (101,785
    )
    
    
    (33,969
    )Inventory
    
    
    (248,108
    )
    
    
    Prepaid expenses
    
    
    (732,301
    )
    
    
    (10,876
    )Increase (decrease) in current liabilities:Accounts payable and accrued liabilities
    
    
    304,981
    
    
    
    (810,681
    )Accrued payroll
    
    
    (380,793
    )
    
    
    330,050Customer deposits
    
    
    (3,317
    )
    
    
    Total Adjustments
    
    
    4,084,836
    
    
    
    1,832,700Net cash used for operating activities
    
    
    (8,318,908
    )
    
    
    (3,628,665
    )CASH FLOWS INVESTING ACTIVITIES:Acquisition of property and equipment, net
    
    
    (184,270
    )
    
    
    32,171Cash balance acquired in reverse acquistion
    
    
    1,703
    
    
    
    Net cash provided by (used for) investing activities
    
    
    (182,567
    )
    
    
    32,171CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of warrants
    
    
    
    
    
    
    500Proceeds from private placements
    
    
    22,617
    
    
    
    1,285,206Proceeds from notes payable
    
    
    10,500,000
    
    
    
    6,459,517Pay off notes payables
    
    
    (327,868
    )
    
    
    (3,000,000
    )Buy back of stock
    
    
    
    
    
    
    (525,000
    )Net cash provided by financing activities
    
    
    10,194,749
    
    
    
    4,220,223NET INCREASE IN CASH & CASH EQUIVALENTS
    
    
    1,693,274
    
    
    
    623,729CASH & CASH EQUIVALENTS, BEGINNING BALANCE
    
    
    623,729
    
    
    
    CASH & CASH EQUIVALENTS, ENDING BALANCE
    
    $
    2,317,003
    
    
    $
    623,729SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    1,347,648
    
    
    $
    255,637Income taxes
    
    $
    
    
    
    $
    
  F-6




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##### Table of Contents



F-7




---



##### Table of Contents



Computer software
    
    3 yearsOffice furniture and fixtures
    
    5-7 yearsEquipment
    
    5 years
   F-8




---



##### Table of Contents



F-9




---



##### Table of Contents



F-10




---



##### Table of Contents



2005
    
    
    2004Net loss, as reported
    
    $
    (12,403,744
    )
    
    $
    (5,461,366
    )Total stock-based employee compensation expense
determined under fair-value based method for all
awards, net of tax
    
    
    (118,707
    )
    
    
    (176,961
    )Pro forma net loss
    
    $
    (12,522,451
    )
    
    $
    (5,638,327
    )Basic and diluted weighted average shares outstanding
    
    
    169,363,198
    
    
    
    160,432,353Basic and diluted as reported
    
    $
    (0.07
    )
    
    $
    (0.03
    )Basic and diluted pro forma
    
    
    (0.07
    )
    
    
    (0.03
    )
 F-11




---



##### Table of Contents



1.
    
    Requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing
contract.2.
    
    Requires all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.3.
    
    Permits an entity to choose Amortization method or Fair value measurement method
for each class of separately recognized servicing assets and servicing liabilities:4.
    
    At its initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights, without
calling into question the treatment of other available-for-sale securities under Statement
115, provided that the available-for-sale securities are identified in some manner as
offsetting the entitys exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value.5.
    
    Requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing liabilities.


F-
12    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
13    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS     December 312005Financial consulting Whitebox II
    
    $
    120,000Financial consulting Whitebox III
    
    
    497,000Other prepaid expenses
    
    
    32,825Total prepaid expenses
    
    $
    649,825
      December 312005Raw material/WIP
    
    $
    204,595Work in process
    
    
    85,323Finished goods
    
    
    58,190348,108Less: Reserve for obsolescence
    
    
    (100,000
    )$
    248,108


F-
14    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   December 312005Computers
    
    $
    353,563Office furniture and fixtures
    
    
    579,778Machinery and equipment
    
    
    2,442,6763,376,018Less: Accumulated depreciation
    
    
    (2,822,731
    )$
    553,288
   December 312005Opening balance per January 1st, 2005
    
    $
    1,173,225Applied against shipments
    
    
    2,250Ending balance per December 31, 2005
    
    $
    1,170,975
   December 312005Accounts payable   trade creditors
    
    $
    556,253Accounts payable   legal and professional
    
    
    969,620Accrued expenses
    
    
    186,841Accrued compensation
    
    
    2,344,585Accrued interest payable
    
    
    232,158Total accounts payable & accrued expenses
    
    $
    4,289,457


F-
15    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   December 312005Loans payable to officers on demand,
interest free and unsecured.
    
    $
    77,249Loans payable to officers on demand,
interest free and unsecured.
    
    
    53,234$
    130,483
    December 312005Notes payable to officer on demand
bearing interest rate of 8%, unsecured
    
    $
    686,618$
    686,618


F-
16    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
 Notes payablesDecember 312005Notes payable with interest at 8%
due and demandable on December 31, 2006
    
    
    94,736$
    94,736


F-
17    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
18    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
19    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
20    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 312005Whitebox I
    
    $
    6,550,000Fusion Capital
    
    
    500,000Whitebox II
    
    
    3,000,000Whitebox III
    
    
    7,000,000$
    17,050,000Beneficial conversion feature
    
    
    (3,629,524
    )$
    13,420,476


F-
21    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net deferred tax asset
    
    $
    14,836,940Inventory Reserve
    
    
    39,834Less valuation allowance
    
    
    (14,876,774
    )Net deferred tax asset
    
    $
    
  December 31
    
    December 312005
    
    2004Tax 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-22
    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS      Year EndingDecember 31,2006
    
    $
    312,0002007
    
    
    312,0002008
    
    
    312,0002009
    
    
    312,0002010
    
    
    312,000Total
    
    $
    1,560,000


F-
23    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
24    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-
25    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS     1999 Plan
    
    2001 plan
    
    TVGR
    
    Total
    
    Weighted priceOUTSTANDING, DECEMBER 2004
    
    
    35,732,661
    
    
    
    6,660,557
    
    
    
    
    
    
    
    42,393,218
    
    
    
    0.108Granted in 2005
    
    
    
    
    
    
    
    
    
    
    816,667
    
    
    
    816,667
    
    
    
    0.600Cancelled in 2005
    
    
    (32,544
    )
    
    
    (65,088
    )
    
    
    (250,000
    )
    
    
    (347,632
    )Exercised in 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OUTSTANDING, DECEMBER 2005
    
    
    35,700,117
    
    
    
    6,595,469
    
    
    
    566,667
    
    
    
    42,862,253
    
    
    
    0.111


F-
26    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS OPTIONS EXERCISABLE END OF DECEMBER 2005
 EXERCISE
    
    ISSUE
    
    NEW NUMBER
    
    NUMBERPRICES
    
    DATE
    
    OUTSTANDING
    
    EXERCISABLE$0.0230
    
    Feb-99
    
    
    1,833,283
    
    
    
    1,833,283$0.0254
    
    Feb-99
    
    
    18,441,260
    
    
    
    18,441,260$0.1152
    
    Nov-99
    
    
    6,508,680
    
    
    
    6,508,680$0.1152
    
    Jan-00
    
    
    3,037,384
    
    
    
    3,037,384$0.1844
    
    Apr-99
    
    
    1,301,736
    
    
    
    1,301,736$0.2305
    
    Nov-99
    
    
    2,972,298
    
    
    
    2,972,298$0.2305
    
    May-00
    
    
    75,936
    
    
    
    75,936$0.2305
    
    Aug-00
    
    
    444,760
    
    
    
    444,760$0.2305
    
    Oct-01
    
    
    6,595,469
    
    
    
    6,595,469$0.2305
    
    May-03
    
    
    1,084,780
    
    
    
    1,084,780$0.6000
    
    Jan-02
    
    
    16,667
    
    
    
    13,334$0.6000
    
    Jan-03
    
    
    16,667
    
    
    
    10,000$0.6000
    
    Jan-04
    
    
    16,667
    
    
    
    6,667$0.6000
    
    Jan-05
    
    
    16,666
    
    
    
    3,333$0.6000
    
    Aug-05
    
    
    500,000
    
    
    
    0TOTAL:
    
    
    
    
    42,862,253
    
    
    
    42,328,920
   RemainingWARRANTS OUTSTANDING
    
    Total
    
    Price
    
    LifeOUTSTANDING, DECEMBER 2004
    
    
    6,311,951
    
    
    
    0.626
    
    
    4.5 YearsGranted in 2005
    
    
    
    
    
    
    
    
    
    Cancelled in 2005
    
    
    
    
    
    
    
    
    
    Exercised in 2005
    
    
    
    
    
    
    
    
    
    OUTSTANDING, DECEMBER 2005
    
    
    6,311,951
    
    
    
    0.626
    
    
    3.5 Years


F-
27    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS      Sutura, Inc. 2006 Stock Option Plan
  .


F-
28    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Whitebox Amendment to Extend Note Maturity Dates (Unaudited)
     
    
    The maturity dates on each of the Whitebox I and Whitebox II notes was extended
until July 1, 2007.
    
    The commencement of payments of principal due under the Whitebox III notes was
extended from April 30, 2007 until July 1, 2007.
    
    The per share exercise price of the warrants issued in connection with Whitebox
II and Whitebox III was changed to $0.45.
    
    The unpaid principal balance under the Whitebox I, Whitebox II and Whitebox III
notes hereof from time to time outstanding shall bear interest at the rate of eight
percent (8%) per annum if Maker raises $10 million or more in equity financing on or
before July 31, 2006. Notwithstanding the preceding, if Maker raises at least $10
million in capital on or before July 31, 2006, but such capital consists of less than
$10 million of equity financing,


F-
29    Table of Contents  SUTURA INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS then commencing on September 18, 2006, as to the
Whitebox II Notes, and September 7, 2007, as to the Whitebox III notes, the interest
rates under such notes shall be nine percent (9%) per annum. Further, if Maker fails
to raise $10 million of capital by July 31, 2006, then commencing on September 18, 2006, as to the Whitebox II Notes, and September 7, 2007, as to the Whitebox III notes, the
interest rate under such notes shall be twelve percent (12%) per annum.
 
    
    The interest payments due on March 31, 2006 under the Whitebox I, Whitebox II
and Whitebox III notes are deferred to July 31, 2006.
    
    The Company will file a registration statement with the Securities and Exchange
Commission on or before April 10, 2006 covering all of the securities issuable to
Whitebox upon conversion of the notes or exercise of the warrants. If such
registration statement is not filed within the required timeframe, the amendment will
terminate and the notes and warrants will revert back to their original terms and
provisions.
 Conversion of Fusion Capital Note (Unaudited)
    F-30