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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended: September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
   
  þ o
  o þ
  o þ




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##### 



PART IItem 1. Financial StatementsConsolidated Balance Sheet on September 30, 2006 (Unaudited)Consolidated Statement of Operations for the three and nine month periods ended September 30, 2006 and 2005(Unaudited)Consolidated Statement of Cash Flows for the nine month periods ended September 30, 2006 and 2005(Unaudited)Notes to Consolidated Financial Statements (Unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Controls and ProceduresPART IIItem 1. Legal ProceedingsItem 2. Changes In SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSignaturesEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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2006
    
    
    2005ASSETSCURRENT ASSETS:Cash & cash equivalents
    
    $
    1,314,782
    
    
    
    2,317,003Accounts Receivable, Net
    
    
    126,664
    
    
    
    101,787Inventory
    
    
    640,813
    
    
    
    248,108Prepaid expenses
    
    
    32,701
    
    
    
    649,825Total current assets
    
    
    2,114,961
    
    
    
    3,316,722PROPERTY AND EQUIPMENT, net
    
    
    477,903
    
    
    
    553,288DEPOSITS
    
    
    102,510
    
    
    
    127,599$
    2,695,374
    
    
    $
    3,997,609LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    3,944,510
    
    
    $
    4,289,457Loan payable  officers
    
    
    123,694
    
    
    
    130,483Customer deposits
    
    
    1,155,725
    
    
    
    1,170,975Notes payable  officers
    
    
    857,784
    
    
    
    686,618Notes payable  related party
    
    
    130,203
    
    
    
    94,736Convertible notes payable- net of beneficial conversion feature
    
    
    
    
    
    
    355,847Total current liabilities
    
    
    6,211,915
    
    
    
    6,728,116LONG TERM LIABILITIES:Convertible notes payable- net of beneficial conversion feature
    
    
    14,692,889
    
    
    
    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;
253,824,796 shares issued and outstanding
    
    
    253,824
    
    
    
    185,418Additional paid in capital
    
    
    48,281,764
    
    
    
    41,542,494Accumulated deficit
    
    
    (65,828,550
    )
    
    
    (56,637,072
    )Other comprehensive loss
    
    
    (916,468
    )
    
    
    (885,974
    )Total stockholders deficit
    
    
    (18,209,430
    )
    
    
    (15,795,136
    )$
    2,695,374
    
    
    $
    3,997,609




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(Unaudited)THREE MONTHS
    
    
    THREE MONTHS
    
    
    NINE MONTHS
    
    
    NINE MONTHS2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALES
    
    $
    133,360
    
    
    $
    50,190
    
    
    $
    530,160
    
    
    $
    128,173COST OF GOODS SOLD(1)
    
    
    544,969
    
    
    
    547,529
    
    
    
    1,598,649
    
    
    
    1,377,434GROSS LOSS
    
    
    (411,609
    )
    
    
    (497,339
    )
    
    
    (1,068,490
    )
    
    
    (1,249,261
    )OPERATING EXPENSES:Research and development(1)
    
    
    173,283
    
    
    
    182,344
    
    
    
    445,889
    
    
    
    384,690General and administrative(1)
    
    
    955,498
    
    
    
    3,328,589
    
    
    
    3,398,526
    
    
    
    4,583,904Sales and marketing(1)
    
    
    353,567
    
    
    
    473,156
    
    
    
    1,347,483
    
    
    
    900,026Total operating expenses
    
    
    1,482,347
    
    
    
    3,984,089
    
    
    
    5,191,898
    
    
    
    5,868,619OPERATING LOSS
    
    
    (1,893,956
    )
    
    
    (4,481,428
    )
    
    
    (6,260,388
    )
    
    
    (7,117,880
    )OTHER INCOME (EXPENSE)Interest Income
    
    
    4,246
    
    
    
    1,090
    
    
    
    19,074
    
    
    
    2,104Interest Expense(2)
    
    
    (907,910
    )
    
    
    (1,635,875
    )
    
    
    (2,950,168
    )
    
    
    (3,997,889
    )Other Income (Expense)
    
    
    
    
    
    
    303,657
    
    
    
    
    
    
    
    5,287Total other income (expense), net
    
    
    (903,664
    )
    
    
    (1,331,128
    )
    
    
    (2,931,094
    )
    
    
    (3,990,498
    )NET LOSS
    
    
    (2,797,620
    )
    
    
    (5,812,557
    )
    
    
    (9,191,482
    )
    
    
    (11,108,378
    )OTHER COMPREHENSIVE GAIN (LOSS)Translation adjustment
    
    
    6,550
    
    
    
    (298,171
    )
    
    
    (30,494
    )
    
    
    60,153COMPREHENSIVE LOSS
    
    $
    (2,791,070
    )
    
    $
    (6,110,727
    )
    
    $
    (9,221,976
    )
    
    $
    (11,048,225
    )BASIC AND DILUTED NET LOSS PER SHARE
    
    $
    (0.01
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )BASIC AND DILUTED WEIGHTED AVERAGE
    
    
    210,969,512
    
    
    
    172,156,675
    
    
    
    194,435,240
    
    
    
    163,952,251SHARES OUTSTANDING*
 
 *
    
    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.The accompanying notes are an integral part of these unaudited consolidated financial statements. (1) Includes stock-based compensation
charges (credits) of:Cost of good sold
    
    
    15,128
    
    
    
    42,425
    
    
    
    117,016
    
    
    
    42,425Research and development
    
    
    14,208
    
    
    
    
    
    
    
    47,642
    
    
    
    General and administrative
    
    
    46,078
    
    
    
    1,928,400
    
    
    
    464,140
    
    
    
    1,928,400Sales and Marketing
    
    
    8,781
    
    
    
    154,272
    
    
    
    77,632
    
    
    
    154,272(2) Includes amortization of beneficial
conversion feature and warrants
issued of:
    
    
    453,955
    
    
    
    1,321,434
    
    
    
    1,622,535
    
    
    
    3,046,752




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2006
    
    
    '2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (9,191,482
    )
    
    $
    (11,108,378
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    225,645
    
    
    
    237,117Beneficial conversion feature
    
    
    1,622,535
    
    
    
    3,046,752Stock based compensation expenses- employees
    
    
    706,430Stock based compensation expenses- non employees
    
    
    78,318
    
    
    
    (Increase) decrease in current assets:Accounts receivables
    
    
    (21,296
    )
    
    
    (38,435
    )Inventory
    
    
    (390,490
    )
    
    
    (194,837
    )Prepaid expenses
    
    
    226,809
    
    
    
    (72,716
    )Increase (decrease) in current liabilities:Accounts payable and accrued liabilities
    
    
    1,357,101
    
    
    
    445,683Accrued payroll
    
    
    (286,951
    )
    
    
    (141,808
    )Customer deposits
    
    
    (15,250
    )
    
    
    Total Adjustments
    
    
    3,502,849
    
    
    
    5,403,537Net cash used for operating activities
    
    
    (5,688,633
    )
    
    
    (5,704,840
    )CASH FLOWS INVESTING ACTIVITIES:Acquisition of property and equipment, net
    
    
    (149,503
    )
    
    
    (88,772
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from private placements
    
    
    4,080,000
    
    
    
    100,015Proceeds from notes payable
    
    
    750,000
    
    
    
    10,500,000Net cash provided by financing activities
    
    
    4,830,000
    
    
    
    10,600,015Effect of rate changes on cash and cash equivalents
    
    
    5,914
    
    
    
    NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
    
    
    (1,002,222
    )
    
    
    4,806,403CASH & CASH EQUIVALENTS, BEGINNING BALANCE
    
    
    2,317,003
    
    
    
    623,729CASH & CASH EQUIVALENTS, ENDING BALANCE
    
    $
    1,314,782
    
    
    $
    5,048,298SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    




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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.




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a.
    
    A brief description of the provisions of this Statementb.
    
    The date that adoption is requiredc.
    
    The date the employer plans to adopt the recognition provisions of this Statement,
if earlier.




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AggregateWeighted
    
    IntrinsicTotal
    
    
    price
    
    ValueOUTSTANDING, DECEMBER 2005
    
    
    42,862,253
    
    
    $
    0.1112
    
    
    $
    18,327,247Granted in 2006
    
    
    8,575,000
    
    
    $
    0.1835
    
    
    
    Cancelled in 2006
    
    
    (2,576,480
    )
    
    $
    0.2518
    
    
    
    Exercised in 2006
    
    
    OUTSTANDING, SEPTEMBER 2006
    
    
    48,860,773
    
    
    $
    0.1201
    
    
    $
    592,524
    rd st




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NINE. MONTHS
    
    
    TWELVE. MONTHSENDED. SEPTEMBER
    
    
    END. DEC.2005
    
    
    2005Net loss, as reported
    
    $
    (11,108,378
    )
    
    $
    (12,403,744
    )Deduct: Total stock-based employee compensation
expense determined under fair-value based method
for all awards
    
    
    (89,030
    )
    
    
    (118,707
    )Pro forma net loss
    
    $
    (11,197,408
    )
    
    
    (12,522,451
    )Basic and diluted weighted average shares outstanding
    
    
    163,952,251
    
    
    
    169,363,198Basic and diluted as reported
    
    $
    (0.07
    )
    
    $
    (0.07
    )Basic and diluted pro forma
    
    
    (0.07
    )
    
    
    (0.07
    )
     September 30
    
    
    December 312006
    
    
    2005Raw material/WIP
    
    $
    317,200
    
    
    $
    204,595Work in process
    
    
    262,476
    
    
    
    85,323Finished goods
    
    
    161,137
    
    
    
    58,190740,813
    
    
    
    348,108Less: Reserve for obsolescence
    
    
    (100,000
    )
    
    
    (100,000
    )$
    640,813
    
    
    $
    248,108
   September 30
    
    
    December 312006
    
    
    2005Computers
    
    $
    362,191
    
    
    $
    353,563Office furniture and fixtures
    
    
    581,072
    
    
    
    579,778Machinery and equipment
    
    
    2,585,550
    
    
    
    2,442,6763,528,814
    
    
    
    3,376,018Less: Accumulated depreciation
    
    
    (3,050,910
    )
    
    
    (2,822,731
    )$
    477,903
    
    
    $
    553,288




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September 30
    
    
    December 312006
    
    
    2005Accounts payable   trade creditors
    
    $
    471,073
    
    
    $
    556,253Accounts payable   legal and professional
    
    
    1,127,267
    
    
    
    969,620Accrued expenses
    
    
    147,820
    
    
    
    186,841Accrued compensation
    
    
    2,096,269
    
    
    
    2,344,585Accrued interest payable
    
    
    102,081
    
    
    
    232,158Total accounts payable & accrued expenses
    
    $
    3,944,510
    
    
    $
    4,289,457
   September 30
    
    
    December 312006
    
    
    2005Loans payable to officers on demand,
interest free and unsecured
    
    $
    70,409
    
    
    $
    77,249Loans payable to officers on demand,
interest free and unsecured
    
    
    53,285
    
    
    
    53,234$
    123,694
    
    
    $
    130,483
   September 30
    
    
    December 312006
    
    
    2004Opening balance per January 1st, 2006
    
    $
    1,170,975
    
    
    $
    1,173,225Applied against shipments
    
    
    15,250
    
    
    
    2,250Ending balance per March 31, 2006
    
    $
    1,155,725
    
    
    $
    1,170,975
  st
  September 30
    
    
    December 312006
    
    
    2005Notes payable with interest at 8%
due and demandable on December 31, 2006
    
    $
    130,203
    
    
    $
    94,736




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st
  September 30
    
    
    December 312006
    
    
    2005Notes payable to officer on demand
bearing interest rate of 8%, unsecured
    
    $
    857,784
    
    
    $
    686,618




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a.
    
    The Company is required to make quarterly interest payments to the Whitebox Parties
in September 2006 and December 2006 as set forth in the Notes (each, a 2006 Interest
Payment and, together, the 2006 Interest Payments). The parties hereby agree that the
Company may pay the 2006 Interest Payments, or any portion thereof, by issuing to the
Whitebox Parties fully paid and nonassessable shares of its Common Stock in lieu of cash.
The number of shares of Common Stock issuable upon payment of any portion of the 2006
Interest Payments in stock shall be computed by dividing each such applicable portion of
the 2006 Interest Payment to be paid in shares of Common Stock by the Conversion Rate in
effect at such time.b.
    
    The Conversion Rate shall be $0.15.c.
    
    Any Common Stock issued in payment of any portion of the 2006 Interest Payments
shall have those registration rights set forth in the Registration Rights Agreement.




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September 30
    
    
    December 312006
    
    
    2005Whitebox I
    
    $
    6,550,000
    
    
    $
    6,550,000Whitebox II
    
    
    3,000,000
    
    
    
    3,000,000Whitebox III
    
    
    7,000,000
    
    
    
    7,000,000Idylwood Partners LLP
    
    
    750,000
    
    
    
    0$
    17,300,000
    
    
    $
    16,550,000Debt issue costs
    
    
    (416,999
    )Beneficial conversion feature
    
    
    (2,190,113
    )
    
    
    (3,485,371
    )$
    14,692,889
    
    
    $
    13,064,629




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rd
    AggregateRemaining
    
    IntrinsicTotal
    
    Price
    
    Life
    
    ValueOUTSTANDING, DECEMBER 2005
    
    
    6,311,951
    
    
    
    0.6259
    
    
    2.75 Years
    
    
    Warrants Fusion
    
    
    1,220,565
    
    
    
    0.4464
    
    
    3.5 Years
    
    
    Warrants Whitebox I
    
    
    14,423,512
    
    
    
    0.4541
    
    
    3 Years
    
    
    Warrants Whitebox II
    
    
    1,666,667
    
    
    
    0.4500
    
    
    3.5 Years
    
    
    Warrants Whitebox III
    
    
    1,609,197
    
    
    
    0.4500
    
    
    4 Years
    
    
    Warrants Whitebox IV
    
    
    10,400,000
    
    
    
    0.0913
    
    
    5 Years
    
    
    Cancelled in 2006
    
    
    
    
    
    
    
    
    
    
    Exercised in 2006
    
    
    
    
    
    
    
    
    
    
    OUTSTANDING, SEPTEMBER 2006
    
    
    35,631,892
    
    
    
    0.3780
    
    

3.6 Years
    
    
    




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Financial Condition and Results of Operations for the three and nine month periods ended September
30, 2006 compared to the three and nine month periods ended September 30, 2005




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Interest expenses
    
    Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine months2006
    
    
    2005
    
    
    2006
    
    
    2005Note payable in Euros
    
    $
    2,633
    
    
    $
    1,960
    
    
    $
    7,680
    
    
    $
    6,078Note payables
    
    
    
    
    
    
    2,391
    
    
    
    
    
    
    
    6,005Note payable officer
    
    
    17,156
    
    
    
    14,232
    
    
    
    51,467
    
    
    
    47,697Convertible notes officers
    
    
    
    
    
    
    21,893
    
    
    
    
    
    
    
    145,376Whitebox I
    
    
    196,500
    
    
    
    196,500
    
    
    
    589,500
    
    
    
    589,500Fusion
    
    
    
    
    
    
    10,000
    
    
    
    11,971
    
    
    
    22,889WhiteboxII
    
    
    64,000
    
    
    
    33,556
    
    
    
    184,000
    
    
    
    98,222Whitebox III
    
    
    140,000
    
    
    
    35,778
    
    
    
    420,000
    
    
    
    35,778Idylwood Partners L.P.
    
    
    15,000
    
    
    
    
    
    
    
    25,500
    
    
    
    Whitebox IV
    
    
    18,666
    
    
    
    
    
    
    
    21,444
    
    
    
    Other
    
    
    1
    
    
    
    (1,869
    )
    
    
    16,071
    
    
    
    (408
    )$
    453,956
    
    
    $
    314,441
    
    
    $
    1,327,633
    
    
    $
    951,137
 Beneficial conversion amortization
    
    Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine months2006
    
    
    2005
    
    
    2006
    
    
    2005Whitebox I
    
    $
    291,377
    
    
    $
    1,168,396
    
    
    $
    874,132
    
    
    $
    2,689,819Fusion
    
    
    
    
    
    
    108,408
    
    
    
    144,153
    
    
    
    203,477Whitebox II
    
    
    33,938
    
    
    
    8,510
    
    
    
    101,814
    
    
    
    117,336Repricing options Whitebox II
    
    
    
    
    
    
    
    
    
    
    41,362
    
    
    
    Whitebox III
    
    
    128,640
    
    
    
    36,120
    
    
    
    368,555
    
    
    
    36,120Repricing options Whitebox III
    
    
    
    
    
    
    
    
    
    
    92,520
    
    
    
    Total conversion feature expense
    
    $
    453,955
    
    
    $
    1,321,434
    
    
    $
    1,622,536
    
    
    $
    3,046,752Total interest and conversion expenses
    
    $
    907,910
    
    
    $
    1,635,875
    
    
    $
    2,950,168
    
    
    $
    3,997,889
     
  (a)
    
    Evaluation of disclosure controls and procedures. As of the end of the period covered
by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial
Officer, of the
effectiveness of the design and operation of our disclosure controls




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and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of the end
of the applicable period to ensure that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act (i) is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosures.(b)
    
    Changes in internal controls over financial reporting. There was no change in our
internal control over financial reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.




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ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002




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SUTURA, INC.RegistrantDate: November 20, 2006
    
    By: /s/ David TeckmanDavid Teckman, President and Chief Executive OfficerDate: November 20, 2006
    
    By: /s/ Richard BjorkmanRichard Bjorkman, Chief Financial Officer