10KSB 1 a39506e10ksb.htm FORM 10KSB e10ksb
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
     
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
incorporation or organization)
  (I.R.S. Employer
Identification No.)
17080 Newhope Street
Fountain Valley, CA 92708
(Address of principal executive offices) (Zip Code)
(714) 437-9801
(Issuer’s telephone number)
Securities registered under section 12(b) of the Exchange Act: None.
Securities registered under section 12 (g) of the Exchange Act: Common stock, Par value $.001
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o     No þ
The issuer’s net sales for the most recent fiscal year were $252,041.
The aggregate market value of the voting stock held by non-affiliates based upon the last sale price on March 15, 2008 was approximately $5,600,000.
As of April 15, 2008, the Registrant had 337,816,037 shares of its Common Stock, $0.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): YES o NO þ
 
 

 


 

Sutura, Inc.
Annual Report on Form 10-KSB
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 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1
 EXHIBIT 32.2

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Part I
Item 1. Description of Business
Cautionary Note Regarding Forward-Looking Statements
In this annual report, references to “Sutura,” “the Company,” “we,” “us,” and “our” refer to Sutura, Inc. and its subsidiaries.
This Form 10-KSB, as well as other reports filed by the Company from time to time with the Securities and Exchange Commission (collectively the “Filings”), contain forward looking statements and information that are based upon beliefs of, and information currently available to, the Registrant’s management as well as estimates and assumptions made by the Company’s management. When used in the Filings the words “may”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to the Registrant’s industry, operations and results of operations and any businesses that may be acquired by the Company. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those in such forward-looking statements.
Overview
Sutura(R), Inc. is a medical device company that has developed a line of innovative, minimally invasive vascular suturing devices to suture vascular structures during open surgery and catheter-based procedures. Sutura’s strategy is to become the leader in the development and manufacturing of minimally invasive vascular suturing devices.
Sutura meets the definition of a “Small Business Issuer” as such term is defined in Item 10(a) of Regulation S-B under the Securities Exchange Act of 1934, as amended. Sutura currently has 32 employees, and maintains its headquarters in Fountain Valley, California, in a 20,000 square foot facility. This facility is a QSR (Food and Drug Administration — Quality Systems Regulations) and ISO (International Standards Organization) certified freestanding facility with 2,000 square feet of cleanroom space and an additional 3,200 square feet convertible to cleanroom, if required. Sales offices (with warehouse space) of approximately 1,000 square feet each are leased in Amsterdam, the Netherlands and La Gaude, France to support sales and marketing efforts in Europe. “Sutura(R)” and “SuperStitch(R)” are registered trademarks.
History
Sutura, Inc. (“Prior Sutura”) was incorporated in Delaware on August 14, 1996, under the name NR Medical, Inc., and changed its name in July 1998 to Sutura, Inc. References to Prior Sutura include Sutura, Inc. and its wholly-owned subsidiary.
On August 19, 2005, Prior Sutura merged with and into Technology Visions Group, Inc. pursuant to the terms of that certain Agreement and Plan of Merger, dated November 22, 2004, by and between Prior Sutura and Technology Visions Group, Inc. (the “Merger Transaction”). Technology Visions Group, Inc. was incorporated in Delaware in 1985 under the name Orbit Technologies, Inc and changed its name to Technology Visions Group, Inc. on December 22, 2000. Pursuant to the Merger Transaction, the separate existence of Prior Sutura ceased and Technology Visions Group, Inc. continued as the surviving corporation under Delaware law. As part of the Merger Transaction, the name of the Company was changed to Sutura, Inc. Further, pursuant to the Merger Transaction, the Company issued 174,948,338 shares of common stock in the aggregate to the former stockholders of Prior Sutura and, as a result, the stockholders of Prior Sutura own approximately 95% of the Company. Accordingly, the merger has been accounted for as a recapitalization of Prior Sutura.

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Recent Developments
Recent Conversions of Debt-to-Equity by Whitebox Affiliates
Effective April 2, 2008, the following affiliates of Whitebox Advisors, LLC converted $5,213,262.50 of convertible debt and accrued interest held by those entities into an aggregate of 65,165,775 shares of the Company’s Common Stock, par value $0.001 per share, as indicated below:
         
Whitebox Convertible Arbitrage Partners, L.P. -
    25,859,437  
Whitebox Hedged High yield Partners, L.P. -
    20,687,550  
Whitebox Intermarket Partners, L.P. -
    8,275,012  
Pandora Select Partners, L.P. -
    10,343,775  
Effective immediately after the conversion, there are 337,816,037 shares of Registrant’s Common Stock outstanding, and Whitebox Advisors, LLC is the beneficial owner of 149,712,197 shares Registrant’s Common Stock and has rights to acquire within the next sixty days up to an additional 264,026,064 shares of Registrant’s Common Stock upon exercise of warrants and rights to convert debt.
Past Officer Litigation
On March 18, 2007, David R. Teckman filed a lawsuit against The Company and Dr Anthony A. Nobles in the District Court, Fourth Judicial District, County of Hennepin, Minnesota, alleging breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment and similar allegations pertaining seeking damages and compensation relating to the recent termination of his employment relationship with the Company. On April 14, 2007, Mr. Teckman dismissed the lawsuit without prejudice.
Officer and Director Resignations
On February 21, 2008, Mr. David Teckman tendered his resignation as President and Chief Executive Officer of the Company and resigned as a member of the Company’s Board of Directors. In addition, at a Special Meeting of the Board of Directors held on that same date, Mr. Richard Bjorkman was appointed as interim Chief Executive Officer and Anthony Nobles, PhD. was appointed as Chief Operations Officer and President.
On March 19, 2008, Mr. Richard Moran, Ph.D. resigned as a member of the Company’s Board of Directors.
On April 4, 2008, at a Special Meeting of the Board of Directors, the following occurred: (i) Charles Terrell, Sr. and John Crew, M.D. resigned as members of the Board of Directors, (ii) Brian Abraham, John Kopchik, Mark Strefling and Richard Vigilante were appointed to the Board to fill the existing four vacancies created by resignations, (iii) Richard Bjorkman resigned as interim Chief Executive Officer and Brian Abraham was appointed Chief Executive Officer of the Company, (iv) Mr. Nobles resigned from his position as Chairman and Mark Strefling was appointed Chairman of the Board. Mr. Bjorkman continues to serve as the Company’s Chief Financial Officer and Vice President, Finance and Mr. Nobles continues to serve as the Company’s President, Chief Operating Officer and Chief Scientific Officer.
John C. Kopchik, 49. Mr. Kopchik is employed at Whitebox Advisors, LLC, a Minneapolis-based SEC-registered investment adviser, and is focused on special situation investments. Prior to joining Whitebox, he was a partner at Common Sense Investments, a hedge fund of funds based in Portland, Oregon, from 2005-2008. From 2001-2005, he was President and Founder of Providence Capital, an Excelsior, Minnesota based hedge fund focused on special situations and capital structure arbitrage investments. Before Providence Capital, he was a Managing Director at Churchill Companies, in Minneapolis, Minnesota, where he was involved in private equity investments, including a medical device company. While at Churchill, he served as CEO of TSI, Inc., a public instrumentation company which Churchill took private. TSI had several products which it sold to the medical device market. Mr. Kopchik started his career at Bain and Company, in Boston, Massachusetts. He holds a BA (1980) from Harvard College and a JD (1983) from Harvard Law School.
Mark M. Strefling, 39. Mr. Strefling is the General Counsel and Chief Legal Officer of Whitebox Advisors, LLC, a Minneapolis-based SEC-registered investment adviser. Mr. Strefling joined Whitebox in 2008. Previous to his position with Whitebox, Mr. Strefling was a Partner in the Investment Management Practice at the law firm of Faegre & Benson LLP in the Minneapolis, Minnesota and was the head of the firm’s Hedge Fund Group. Mr. Strefling joined Faegre & Benson in 1999. Mr. Strefling holds a BA (1991) in Finance and Accounting from the University of St. Thomas; a JD (1996) from Creighton University; and an MBA (1999) in Finance from the Carlson School of Management at the University of Minnesota.
Brian Abraham, MBA, Ph.D., 42. Mr. Abraham is employed at Whitebox Advisors, LLC, a Minneapolis-based SEC-registered investment adviser. Prior to joining Whitebox in 2008, Mr. Abraham was the President and Chief Executive Officer of Bluefin Robotics headquartered in Cambridge, Massachusetts from 2005-2008. Bluefin is an undersea robotics technology developer and manufacturer. From 2001-2008, Mr. Abraham served as the Director of Technology Development at Battelle Memorial Institute, a not-for-profit research institute. Also, from 2003-2008, Mr. Abraham was an Adjunct Professor at both the Babson College in Wellesley, Massachusetts and The Ohio State University in Columbus, Ohio. Prior to 2001, Mr. Abraham served as part of the management team of, or as an advisor to, various technology related companies. Mr. Abraham holds a BA (1988) in Chemistry and Spanish from Skidmore College; a Ph.D. Chemistry and Post Doctoral Fellow (1993) from Tufts University Graduate School of Arts & Sciences and an MBA (2002) from the F.W. Olin Graduate School of Business at Babson College.

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Loan from Whitebox and Repayment
On December 12, 2007, the Registrant issued an unsecured Promissory Note in the principal amount of $100,000 to Pandora Select Partners, L.P., a British Virgin Islands limited partnership, an affiliate of Whitebox Advisors, LLC. The principal balance the note bore a one-time interest charge of Two Thousand Dollars ($2,000). The Company paid the outstanding amounts of principal and interest due under this note on January 15, 2008.
Patent Infringement Litigation
On December 21, 2006, the Company filed a patent infringement lawsuit against Abbott Laboratories, Inc. and Perclose, Inc. in the United States District Court for the Eastern District of Texas. In its Complaint, the Company asserted that Abbott Laboratories and Perclose have been infringing on Sutura’s patents for vascular and cardiovascular suturing. Abbott Laboratories and Perclose responded to the complaint denying the allegations and asserting certain infringement claims against the Company. On December 3, 2007, the Company, Abbott Laboratories and Abbott Vascular Inc. entered into a Settlement, License and Release Agreement to settle and resolve that certain patent infringement lawsuit entitled Sutura, Inc. v. Abbott Laboratories and Perclose, Inc., Civil No. 2:06-CV-536 (TJW), brought in the United States District Court for the Eastern District of Texas. The Settlement License and Release Agreement provided, among other things, for a cross license of certain patents between the parties and a one-time payment by Abbott Laboratories to the Company in the amount of $23.0 million.
Business Strategy
Sutura’s strategy is to become the leader in the engineering, development and manufacturing of minimally invasive vascular and cardiovascular suturing devices. The Company has decided to seek strategic partnerships to sell and market it’s various products and intends to follow a distribution strategy going forward.
The key steps in achieving the Company’s primary objectives are the following:
  -   Continue to develop features that make our products safe, easy to use and reliable.
 
  -   Focus our product offering such that we have a solution for a suturing technique for the application of the SuperStitch EL.
 
  -   Develop strategic partnership(s) for sales, distribution and physician clinical training.
 
  -   Expand our international distribution through distributors that are willing to invest in local product specialists dedicated to our products.

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Technology
Many fluoroscopically guided catheterization procedures rely on percutaneous access to the vascular system through a puncture in the vessel. Many open surgical procedures are performed directly through the arteriotomy, the tissue planes or through a cannula. Following performance of diagnostic or therapeutic treatments or open surgical intervention through the open arteriotomy, catheter sheath or cannula, the arteriotomy site or vascular tissue must be sutured. As part of a typical procedure, a physician inserts the SuperStitch either directly into the arteriotomy, tissue planes or through an introducer sheath or cannula into the vessel, the heart or other vascular structures.
Sutura’s SuperStitch(R) products allow physicians to suture the arteriotomy or vascular tissue using fluoroscopic and/ or ultrasonic guidance while working through the catheter sheath introducer or cannula as well as direct visualization in an open setting.
Patents and Proprietary Rights
Sutura’s policy is to protect its proprietary position by, among other methods, filing United States and foreign patent applications to protect its technology and inventions that are important to its business. Sutura has been granted fifteen patents with claims for its SuperStitch technology. Sutura has additional patents on file, both domestically and internationally.
Although Sutura has attempted to protect its technology through the filing of various patents, patents within the medical device industry are uncertain and involve complex and involving legal and factual questions. The coverage sought by Sutura in its patent applications either may be denied or significantly reduced, both before or after the patent is issued. Accordingly, there can be no assurance that any patent applications will result in the issuance of patents or that the patents issued to Sutura now or in the future will provide significant or even sufficient protection or commercial advantage. Further, there can be no assurance that Sutura will have the financial resources to defend its patents from infringement or claims of invalidity.
Manufacturing
Sutura currently manufactures, assembles, tests and packages its SuperStitch products at its facility in Fountain Valley, California. Sutura purchases certain components from various suppliers and relies on single-source suppliers for certain parts to its devices. To date, Sutura has not experienced any significant adverse effects resulting from shortages of components; however, future shortages or delays as Sutura scales up its activities in support of its sales in the U.S. and internationally could have a material adverse effect on Sutura’s business, financial condition and results of operations. Any problems encountered in manufacturing, scale-up or availability of parts could have a material adverse effect on our business, financial condition and results of operations.

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Sutura is required to register as a medical device manufacturer with the FDA and is subject to inspections by the FDA for compliance with good manufacturing practices and other applicable regulations. Additionally, in connection with its international sales, Sutura is also required to comply with various requirements and standards necessary to permit it to sell its products in other countries. All of these standards and practices require that Sutura maintain processes and documentation in a prescribed manner with respect to its manufacturing, testing and quality control activities relating to its products. Failure to achieve or maintain compliance with the applicable regulatory requirements or standards of the various regulatory agencies would have a material adverse effect on Sutura’s business, financial condition and results of operations.
Research & Development
Sutura believes that its SuperStitch products provide the physician the ability to achieve definitive closure of the arteriotomy or vascular tissue sites following open surgical and fluoroscopically or ultrasonically guided procedures by providing a surgical stitch delivered to the site. Further, the SuperStitch products provide suture delivery allowing the physician to securely close the arteriotomy or vascular tissue site utilizing the existing catheter sheath introducer or cannula during fluoroscopically or ultrasonically guided procedures and directly through the open arteriotomy during open surgical procedures. The SuperStitch products are designed for ease of use by physicians, to provide approximation between tissue planes.
Within the United States the SuperStitch 6F, 8F, 12F and EL devices have been cleared by FDA under section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) for use in performing vascular stitching in general surgery, including endoscopic procedures. It is not intended for blind closure of an arteriotomy site. The SuperStitch device is designed for use with or without an access device (e.g., trocar sheath, or cannula), for use during minimally invasive surgical procedures, fluoroscopically guided procedures, or in an open setting. The SuperStitch line of devices are approved in the European Union and CE marked with the indication for use as follows: The SuperStitch is indicated for use in performing vascular stitching in general surgery, including endoscopic procedures. In the EU there is no requirement for the use of fluoroscopic guidance.
The research and development of Sutura’s products is primarily performed under the direction of Anthony Nobles, PhD., presently the President, Chief Operating Officer and Chief Scientific Officer, and Ben Brosch, V.P. of Engineering and Research and Development. Sutura’s research and development staff have been focused on the recently FDA 510(k) cleared 12F and EL devices along with the current versions of the F6 and F8 SuperStitch products. Sutura’s engineers and their resources are focused to develop and improve existing product designs, to reduce cost and improve the manufacturability of these designs, and to develop advanced designs to be utilized in other applications.
SuperStitch Products
F8 & F6 Superstitch. Sutura released updated versions of the F6 & F8 SuperStitch products in 2007. The updated version incorporates the simple 3-step process as well as additional other features that Sutura believes will improve ease of use of the product.

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Superstitch Guide-Wire. Sutura recently released the guide-wire version of the SuperStitch which allows physicians to re-access a vessel during procedures by placing the sutures first and complete suturing the vessel after performing additional procedures if they choose. The guide-wire version also enables physicians to use the SuperStitch on patients where they feel that maintaining access is more crucial. The guide-wire version of the F8 & F6 has received FDA 510(k) clearance in the USA as well as the CE mark in Europe.
F12 Superstitch. Sutura expects this product to address the growing market of larger sites being used by physicians during procedures such as abdominal aortic aneurysms as well as larger surgical applications. The F12 double suture SuperStitch allows physicians to re-access a vessel during procedures by placing the sutures first and complete suturing the vessel after performing additional procedures if they choose. The F12 SuperStitch model received FDA 510(k) clearance in the USA as well as the CE mark in Europe.
SuperStitch EL. Sutura has received 510K clearance and recently completed the CE marking process for this product in March of 2008. Sutura believes this product will be significant in the expansion of its SuperStitch technology in 2008.
Sales, Marketing and Distribution
Sutura’s products are currently marketed to physicians for open surgical intervention and fluoroscopically guided procedures. We are actively pursuing strategic sales and marketing relationship(s) for the US market.
Sutura has been selling in the European market through its direct sales operation in France and its distribution partners in Italy, Spain Switzerland and Scandinavia. Sutura intends to expand sales into Germany, the U.K. and several other European countries in 2008. The Company distributes its products through an exclusive relationship with Getz Bros. & Co. Inc. in Korea, Japan and the rest of Asia. All efforts to expand sales of the SuperStitch devices into new countries and territories will be subject to the Company obtaining all required regulatory approvals.
In certain of our exclusive distribution relationships, we have accepted advance payments for products. The advance payments are offset against the sale of product to such distributors in the future. In particular, we have accepted advance payments of $1,250,000 from Getz Bros. & Co. Inc. To date, we have shipped only nominal amounts of product to Getz Bros. If the Distributor Agreements with Getz Bros. are subsequently terminated or expire pursuant to their terms, all advance payments that have not been offset by shipped product must be repaid at termination.

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Competition
Competition in the market includes conventional manual compression devices, mechanical compression devices, general surgical suturing systems, common suture and needle holder systems for open surgery, collagen plug devices and suture/staple devices. Many of Sutura’s competitors have substantially greater name recognition and/or financial resources than does Sutura, or have PMA approval from the FDA for more specific claims, all of which may provide a competitive advantage. Further, certain of Sutura’s competitors have greater financial resources and expertise in research and development, manufacturing, marketing and regulatory affairs than does Sutura. There can be no assurance that Sutura’s competitors will not be more effective in marketing and developing products than Sutura or that Sutura will be able to compete effectively against such competitors.
The three principal competitive vascular sealing devices are:
  -   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.
Government Regulation
Sutura’s products are comprehensively regulated in the United States as “medical devices” by the FDA under the Federal Food, Drug and Cosmetic Act, (“FDC Act”) and implementing regulations and require pre-market clearance or approval by the Food and Drug Administration (“FDA”) prior to commercialization. Further, material changes or modifications to medical devices are also subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA also regulates the research, testing, manufacture, safety, labeling, storage, recordkeeping, advertising, distribution and production of medical devices in the U.S. Noncompliance with the applicable requirements can result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, and criminal prosecution.

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Generally, before a new device can be introduced into the U.S. marketplace, the manufacturer or distributor must obtain FDA clearance of a 510(k) notification or approval of a pre-market approval (“PMA”) application. If a medical device manufacturer or distributor can establish that a device is “substantially equivalent” to a “predicate device” which is legally marketed as a class I or class II device or to a pre-amendment class III device for which the FDA has not called for PMAs, the manufacturer or distributor may seek clearance from the FDA to market the device by submitting a 510(k) notification. A 510(k) notification may need to be supported by appropriate data, including clinical data, establishing the claim of substantial equivalence to the satisfaction of the FDA.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained. Following submission of the 510(k) notification, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. No law or regulation specifies the time limit by which the FDA must respond to a 510(k) notification. The FDA’s 510(k) clearance pathway usually takes from four to 12 months, but it can take longer.
If a manufacturer or distributor of a medical device cannot establish that a proposed device is substantially equivalent to a predicate device, the manufacturer or distributor must seek pre-market approval of the device through submission of a PMA application, which requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The PMA approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three years or even longer. A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with Quality System Regulation, or QSR, requirements, which impose elaborate testing, control, documentation and other quality assurance procedures.
Upon submission, the FDA determines if the PMA application is sufficiently complete to permit a substantive review, and, if so, the application is accepted for filing. The FDA then commences an in-depth review of the PMA application, which typically takes one to three years, but may take longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information already provided. The FDA also may respond with a “not approvable” determination based on deficiencies in the application and require additional clinical trials that are often expensive and time consuming and can delay approval for months or even years. During the review period, an FDA advisory committee, typically a panel of clinicians, may be convened to review the application and

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recommend to the FDA whether, or upon what conditions, the device should be approved. Although the FDA is not bound by the advisory panel decision, the panel’s recommendation is important to the FDA’s overall decision making process.
If the FDA’s evaluation of the PMA application is favorable, the FDA often issues an “approvable letter” requiring the applicant’s agreement to specific conditions (e.g., changes in labeling) or specific additional information (e.g., submission of final labeling) in order to secure final approval of the PMA application. Once the approvable letter is satisfied, the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA can include post approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in material adverse enforcement action, including the loss or withdrawal of the approval.
Even after approval of a PMA, a new PMA or PMA supplement is required in the event of a modification to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA.
After a device is placed on the market, numerous post market regulatory requirements apply. These include: the QSR, labeling regulations, the FDA’s general prohibition against promoting products for unapproved or “off-label” uses, the Medical Device Reporting regulation (which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur), and the Reports of Corrections and Removals regulation (which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA).
FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:
  -   fines, injunctions, and civil penalties;
 
  -   recall or seizure of products;
 
  -   operating restrictions, partial suspension or total shutdown of production;
 
  -   refusing requests for 510(k) clearance or PMA approval of new products;
 
  -   withdrawing 510(k) clearance or PMA approvals already granted; and criminal prosecution.
On March 1, 2000, Sutura first received 510(k) clearance to market the F8 SuperStitch devices and subsequently received 510(k) clearance to market the F6, guide-wire F6 and F8, F12 and EL SuperStitch. Sutura has made modifications to these devices, including the current devices,

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which Sutura believes do not require new 510(k) clearance. There can be no assurance that the FDA would agree with any of our determinations not to seek such new clearance or that the FDA would not require us to submit a new 510(k) notice for any of the changes. If the FDA were to do so, we could be prohibited from marketing the modified devices until the FDA grants 510(k) clearance for the modified devices.
The Company is also subject to compliance with the regulatory requirements of foreign countries in which it desires to sell its SuperStitch devices. Sutura has a CE mark permitting sale of the F8 & F6 products in Europe and has also met all of the registration requirements for selling the SuperStitch F8 & F6 devices in Australia. The regulatory requirements vary from country to country. Prior to commencing sales of the devices in countries other than the U.S., Australia and outside of Europe, we must first ensure that the device complies with all regulatory requirements of the applicable country.
Product Liability and Insurance
Sutura’s business involves the risk of product liability claims. Although Sutura maintains product liability insurance, there can be no assurance that product liability claims will not exceed such insurance coverage limits or that such insurance or coverage limits will be available on commercially reasonable terms or at all, each of which could have a material adverse effect on Sutura.
Item 2. Description of Property
Sutura currently leases its headquarters located at 17080 Newhope Street in Fountain Valley, California. This facility consists of approximately 20,000 square feet of space and is a QSR (Food and Drug Administration — Quality Systems Regulations) and ISO (International Standards Organization) certified freestanding facility, with 2,000 square feet of cleanroom space and an additional 3,200 square feet convertible to cleanroom, if required. The term of the lease is for a period of ten years, commencing on August 1, 2004. The base rent is $27,118 per month and is subject to adjustment on an annual basis by the change, if any, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPIW (Urban Wage Earners and Clerical Workers) for Los Angeles, Riverside, Orange Counties). Additionally, the Company leases sales offices (with warehouse space) of approximately 1,000 square feet leased in each of Amsterdam, the Netherlands and La Gaude, France to support our sales and marketing efforts in Europe.
We believe that our facilities are adequate for our needs for the foreseeable future and, in the opinion of the Company’s management; the properties are adequately covered by insurance.

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Item 3. Legal Proceedings
On February 16, 2005, Millenium Holding Group, Inc. filed a complaint against Prior Sutura in the United States District Court, District of Nevada, Case No. CV-S 05-0356-JCM-LRL, alleging, among other things, that Prior Sutura conspired with Fusion Capital to breach the implied covenant of good faith and fair dealing in connection with its termination of a merger agreement with Millenium. In March, 2007, the Company was successful in its motion for Summary Judgement in this action. All that remains is resolution of the Company’s counterclaims against Millenium for payment of $60,000 due under a Promissory Note in favor of the Company. The Company expects to resolve its counterclaims in this matter in the near term.
On June 30, 2005, certain stockholders of Prior Sutura filed two separate, but related, complaints in the Superior Court of the State of California, County of Orange-Central Justice Center. The Company and the primary plaintiffs in the two actions (Synapse Fund I, Synapse Fund II and Go Industries, Inc.) held settlement discussions to resolve the disputes raised in these two complaints, and reached an agreement in principal to settle the litigation between the parties. The settlement agreement was approved by the Superior Court on June 1, 2007. Among other terms, as part of the settlement agreement the Company delivered to Synapse Fund I, LLC, for the benefit of all plaintiffs, a convertible secured promissory note in the principal amount of $400,000. The settlement agreement also contained certain covenants of Messrs. Nobles and Ratering and mutual releases between the parties. The convertible secured promissory note bears interest at 8% per annum, payable quarterly in arrears, and may be paid in capital stock at a conversion rate of $0.08 per share. The principal amount of the note, together with any accrued but unpaid interest will be due and payable in eighteen (18) months or may be converted pursuant to the terms of the note at the rate of $0.15 per share. Lastly, in connection with the settlement agreement, the Company has agreed to provide the plaintiffs with rights to have the shares issuable upon conversion of principal or interest due under the note to be registered for resale pursuant to the Securities Act of 1933 if at any time any Whitebox affiliate exercises its rights to require shares of the Company to be registered.
On July 5, 2007, a shareholder filed a complaint against the Company and Mr. Nobles, an officer of the Company entitled Pham v. Nobles, et al. (Orange County California Superior Court Case No. 07CC07644). Plaintiff has asserted causes of action for breach of contract, fraud and negligent misrepresentation against both the Company and Mr. Nobles. The Company filed an answer to Plaintiff’s complaint on October 31, 2007. The Parties then agreed that Plaintiff’s claims against the Company are subject to a written arbitration agreement and have agreed that the case be stayed and submitted to binding arbitration. On January 31, 2008, the court stayed this case pending binding arbitration and set an order to show cause hearing as to why the case should not be dismissed for July 9, 2008. Plaintiff has not yet filed an arbitration demand nor initiated the arbitration process. The Company intends to vigorously defend all claims brought against it in this matter.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of Sutura during the fourth quarter of fiscal 2007.

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Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Since August 19, 2005, our common stock has been traded over-the-counter and quoted on the OTC Electronic Bulletin Board under the symbol “SUTU.” Prior to August 19, 2005, our common stock was traded over-the-counter and quoted on the OTC Electronic Bulletin Board under the symbol “TVGR.” The symbol change resulted from the change of the Company’s name at the time of its merger with Prior Sutura. Our stock is traded on a limited and sporadic basis.
The reported high and low bid and asked prices for the common stock are shown below for the periods from January 1, 2006 through December 31, 2007. The prices presented are bid and ask prices, which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the broker-dealer. The prices may not necessarily reflect actual transactions.
                     
    PERIOD   HIGH   LOW
         
Fiscal Year Ended December 31, 2006
  First Quarter     $0.80       $0.30  
 
  Second Quarter     $0.62       $0.08  
 
  Third Quarter     $0.15       $0.05  
 
  Fourth Quarter     $0.10       $0.03  
 
                   
Fiscal Year Ended December 31, 2007
  First Quarter     $0.10       $0.05  
 
  Second Quarter     $0.10       $0.07  
 
  Third Quarter     $0.09       $0.05  
 
  Fourth Quarter     $0.09       $0.04  
As of December 31, 2007 there were approximately 403 stockholders of record of Sutura common stock.
The transfer agent for the Company is Continental Stock Transfer & Trust Company, 17 Battery Place, NY, NY 10004, Telephone, (212)509-4000
Dividends
Sutura has not paid any cash dividends on its common stock and does not expect to do so in the foreseeable future. We anticipate that any earnings generated from future operations will be used to finance our operations. No restrictions exist upon our ability to pay dividends.

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Recent Sales of Unregistered Securities
In May and July 2007 we issued options to purchase 2,300,000 and 100,000 shares of common stock, respectively, at a price of $.07 per share to certain officers, directors, employees and consultants of our Company. The options were issued pursuant to the exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), contained in Section 4(2) and/or Regulation D thereof.
Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of Sutura’s results of operations and financial condition should be read together with the audited consolidated financial statements and notes thereto and the other financial information included elsewhere in this Form 10K report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in any forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere in this Information Statement.
General
Sutura is a medical device company that designs, develops, and manufactures a family of patented suture mediated stitching devices for vascular tissue approximation. Sutura’s operations, to date, have consisted mainly of raising capital, research, development, and clinical testing of its SuperStitch vascular suturing devices, obtaining regulatory clearances and approvals in both the U.S. and Europe and limited manufacturing and sales.
Sutura has not generated any pre-tax income to date and therefore has not paid any federal income taxes since inception. No provision or benefit for federal and state income taxes has been recorded for net operating losses incurred in any period since our inception.
Sutura has incurred substantial losses since its inception, and has relied on investment capital and loans to fund its operations. Sutura will need to raise additional funds through issuance of debt and equity to support its planned operations and expansion. There can be no assurance that Sutura will be successful in raising any such funds or, even if successful, raising any such funds on conditions and terms favorable to Sutura. Further, failure to raise such funds on favorable terms could have a material adverse affect on the operations and financial condition of Sutura.

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Critical Accounting Policies and Estimates
Sutura’s audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and management is required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which Sutura believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following:
Principles of consolidation
The consolidated financial statements include the accounts of Sutura Inc. and its wholly owned subsidiaries Technology Visions, Inc., Sutura BV, Sutura SARL and Sutura GMBH. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and disclosures made in the accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation and Transactions
Assets and liabilities of foreign subsidiaries have been translated at year- end exchange rates, while revenues and expenses have been translated at average exchange rates in effect during the year. Resulting cumulative translation adjustments have been recorded as other comprehensive income (loss) as a separate component of stockholders’ equity.
Revenue Recognition
In the United States, Germany and France, Sutura sells its products directly to hospitals and clinics. The Company recognizes revenue as products are shipped based on FOB shipping point terms when title passes to customers. The Company negotiates credit terms on a customer-by-customer basis and products are shipped at an agreed upon price. All product returns must be pre-approved and, if approved, customers will receive full credit. In all other international markets, Sutura sells it products to local distributors, who subsequently resell the products to hospitals and clinics. Sutura has agreements with each of its distributors which provide that title and risk of loss pass to the distributor upon shipment of the products to the distributor. The Company warrants that its products are free from manufacturing defects at the time of shipment to the distributor. Revenue is recognized upon shipment of products to distributors following the receipt and acceptance of a distributor’s purchase order.

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Accounts Receivable
We maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers and distributors. The allowance is estimated based on the customer or distributor’s compliance with our credit terms, the financial condition of the customer or distributor and collection history where applicable. Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates.
Inventories
Inventories are valued at the lower of the actual cost or market (using “first-in, first-out” method). Cost includes materials, labor and production overhead. We periodically evaluate the carrying value of inventories and maintain an allowance for obsolescence to adjust the carrying value as necessary to the lower of cost or market.
Valuation of Long-Lived Assets
Property, plant and equipment, intangible and certain other long-lived assets are amortized over their useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future business operations. In our estimate, no provision for impairment is currently required on any of our long-lived assets.
Research and Development Costs
All research and development costs are charged to operations as incurred.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is being applied on the modified prospective basis. Under the modified prospective approach, SFAS 123R applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled.
Sutura accounts for equity instruments issued to non-employees in accordance with the provisions of Financial Accounting Standards No 123, accounting for Stock-Based Compensation, and as amended by SFAS 148, and Emerging Issues Task Force Issue No 96-18, accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in conjunction with Selling, Goods or Services.
Debt with Stock Purchase Warrants and Beneficial Conversion Features
The proceeds received from debt issued with detachable stock purchase warrants is allocated between the notes and the warrants, based upon the relative fair values of the two securities. The difference between the proceeds allocated to the notes and the face value of the notes is recognized as beneficial conversion feature and reflected as a discount

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from the convertible notes with a corresponding credit to paid-in capital. This beneficial conversion feature together with the value of the warrants is amortized to interest expense over the term of the debt instrument, using the effective interest method.
Reclassification of Expenses
Certain prior period expenses have been reclassified to conform to current period presentation.
Financial Condition and Results of Operations for the year ended December 31, 2007 compared to year ended December 31, 2006
In the fourth quarter of 2006 the Company disbanded its direct US sales force for SuperStitch devices in the United States and scaled down its international expansion. The Company has instead decided to focus its resources on the development of larger and multiple suture placement devices that address opportunities in the fast growing market of interventions with large catheter based devices in Cardiology and Radiology. In addition it is developing longer versions of its stitching devices that allow the placement of sutures inside the Vascular and cardio-vascular structures and allow physicians to address the fast growing market in PFO and other structural heart procedures. Sutura believes that in both markets its unique suture based approach will have major advantages over currently used techniques. Total headcount for the Company remained the same at 32 per the end of December 2007 and 2006.
Net Sales
Net sales were $78,230 for the quarter ending December 31, 2007 compared to $104,410 for the same quarter ending December 31, 2006.
Net sales for the year ending December 31, 2007 were $252,041 compared to $634,569 for the year ended December 31, 2006. The Company decided in 2006 to discontinue its US sales force resulting in a drop of US sales for the year ended December 31, 2007 to $21,999 compared to $282,798 for 2006. Export and international sales were $76,184 for the quarter ended December 31, 2007 and $88,415 for the same quarter 2006. For the year ended December 31, 2007 export and international sales were $230,042 compared to $351,772 for 2006.
Cost of Sales
Cost of sales is comprised of all costs to manufacture our products, including materials, labor and related overhead costs including warranty and service costs. Cost of sales increased 2% to $2,256,331 for the year ended December 31, 2007 from $2,203,690 for year ended December 31, 2006. Manufacturing headcount decreased from 14 per the end of December 2006 to 13 per the end of December 2007. In the year ending December 31, 2007 we had very low manufacturing activity resulting in $230,000 lower overhead absorption from products shipped to inventory compared to last year. On the other hand we had lower obsolescence expenses than last year as we established a reserve of $250,000 in 1996 and had no obsolescence expenses in the year ending December 31, 2007. In the year ended December 31, 2007 the Company incurred payroll expenses that were $74,000 higher than last year as it decided to fully compensate staff and employees for not only all accrued back owed salaries but also award back owed interest to compensate for late payment of such salaries.

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Research and Development
Research and development expenses consist of engineering personnel salaries and benefits, prototype supplies, contract services and consulting fees related to product development. Headcount in R&D was 7 at the end of each of December 31, 2007 and 2006. Research and development expenses increased 27% to $696,448 in the year ended December, 31 2007 from $547,270 in the year ended December 31, 2006. In 2007 the Company has focused its research on both the Super Stitch 12 Fr and the SuperStitch EL for which it incurred, compared to last year, $49,000 higher expenses for components and supplies as well as $20,000 in clinical trial expenses. Also in the year ended December 31, 2007 the Company incurred payroll expenses that were $65,000 higher than last year as it decided to fully compensate staff and employees for not only all accrued back owed salaries but also award back owed interest to compensate for late payment of such salaries.
General and Administrative
General and administrative expenses consist of salaries and benefits of administrative personnel as well as insurance, professional and regulatory fees and provisions for doubtful accounts.
General and administrative expenses increased 16% to $5,144,733 in the year ended December 31, 2007 from $4,434,976 in the year ended December 31, 2006. In the year ended December 31, 2007 the Company incurred payroll expenses that were $781,000 higher than last year as it decided to fully compensate staff and employees for not only all accrued back owed salaries but also award back owed interest to compensate for late payment of such salaries. Headcount in G&A was 8 for both 2007 and 2006. In the year ended December 31, 2007 the Company incurred $1,688,314 in legal expenses compared with $1,560,512 in 2006, or an increase in legal expenses of $128,302 or 8%. The remainder of the increased spending was $198,000 in travel, $26,000 in cars, $28,000 in entertainment, $24,000 in board compensation, and $65,000 in financial consulting. These increases were offset by $400,000 in lower cost of settling lawsuits, $49,000 in lower outside services, $33,000 lower liability insurance, $78,000 lower general insurance expenses and $40,000 lower tax and license expenses.
Sales and Marketing
Sales and marketing expenses consist of salaries and benefits, commissions, and other costs related to our direct sales force, advertising costs and expenses related to trade shows, distributor support and seminars. Headcount in Sales and Marketing was unchanged at 4 people at December 31, 2007 and December 31, 2006. Sales and marketing expenses decreased 59% to $627,144 in the year ended December 31, 2007 from $1,533,128 in the year ended December 31, 2006. The decreases are mainly the result of lower US based marketing and sales activities which were discontinued in late 2006. The lower level of spending for the year ended December 31, 2007 compared to 2006 was $711,000 in payroll related expenses, and $175,000 in travel expenses

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Interest Income/expense
Interest expenses are paid on convertible notes that the Company has issued to finance its operations. Interest expenses for the year ended December 31, 2007 increased by 9% to $4,275,905 compared to $3,938,515 in the year ended December 31, 2006. The increase in interest is a direct consequence of additional borrowing, higher interest rates on most of the Whitebox notes as well as the expense of extending the term on most notes.
                 
    Twelve months     Twelve months  
Interest expenses   2007     2006  
Note payable related party in Euros
  $ 12,191     $ 10,321  
Note payable officer
    74,112       68,623  
Whitebox I
    846,916       786,000  
Whitebox Ia Interest note
    6,072        
Fusion
          11,971  
Whitebox II
    387,900       274,000  
Whitebox IIa Interest note
    2,781        
Whitebox III
    711,425       560,000  
Whitebox IIIa Interest note
    4,879        
Idylwood Partners L.P.
    60,000       40,500  
Whitebox IV
          21,444  
Whitebox V
    120,000       5,667  
Whitebox 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 months  
Beneficial conversion amortization   2007     2006  
Whitebox I
  $ 582,754     $ 1,165,509  
Fusion
          144,153  
Whitebox II
    67,876       135,752  
Repricing warrants Whitebox II
          41,362  
Whitebox III
    606,896       503,353  
Loan Commitment warrants
    103,192        
Repricing warrants Whitebox III
          92,520  
Idylwood Partners L.P.
    34,722       48,611  
Whitebox V
    401,468       12,660  
 
           
Total conversion feature expense
  $ 1,796,909     $ 2,143,920  
 
           
Total interest expenses
  $ 4,275,905     $ 3,938,516  
 
           
Other Income
On December 21, 2006, the Company filed a patent infringement lawsuit against Abbott Laboratories, Inc. and Perclose, Inc. in the United States District Court for the Eastern District of Texas. In its Complaint, the Company asserted that Abbott Laboratories and Perclose have been infringing on Sutura’s patents for vascular and cardiovascular suturing. Abbott Laboratories and Perclose responded to the complaint denying the allegations and asserting certain infringement claims against the Company. On December 3, 2007, the Company, Abbott Laboratories and Abbott Vascular Inc. entered into a Settlement, License and Release Agreement to settle and resolve that certain patent infringement lawsuit entitled Sutura, Inc. v. Abbott Laboratories and Perclose, Inc., Civil No. 2:06-CV-536 (TJW), brought in the United States District Court for the Eastern District of Texas. The Settlement License and Release Agreement provided, among other things, for a cross license of certain patents between the parties and a one-time payment by Abbott Laboratories to the Company in the amount of $23,000,000. This amount was received by the Company as of December 14, 2007. Also, in December of 2007, the Company wrote off $687,475 of old payables which the Company determined were no longer collectible by creditors. The write off resulted in a one time credit to other income of $687,475.

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Liquidity and Capital Resources
The Company ended the year with a cash balance of $7,767,196. For the years ended December 31, 2007 and 2006, we incurred a net profit of $10,972,948 and a net loss of $11,997,615, respectively. The profit of 2007 was the result of a legal settlement of $23,000,000 received in December of 2007. Corrected for this one time income the company would have incurred a loss of $12,027,052 in 2007. As of December 31, 2007, we had an accumulated deficit of $57,661,739.
Historically we have relied on the issuance of notes payables to provide a significant portion of funding for our operations. In 2007 the company arranged additional debt financing of $4,600,000. At December 31, 2007, we had cash, cash equivalents, restricted cash equivalents and marketable securities available for sale of $19,684,886. We believe that current cash and cash equivalents and marketable securities, together with cash receipts generated from sales of the SuperStitch products, will be sufficient to meet anticipated cash needs for operating and capital expenditures through at least December 31, 2008. Nevertheless, we expect to continue to incur substantial costs and cash outlays in 2008 and beyond to support SuperStitch research and development. In 2009 we will require additional funding to continue our operations and will attempt to raise the required capital through either debt or equity arrangements. We cannot provide any assurance that the required capital will be available on acceptable terms, if at all, or that any financing activity would not be dilutive to our current stockholders. If we are not able to raise additional funds, we would likely be required to significantly curtail or halt our operations and this would have a material adverse effect on our financial position, results of operations and cash flows.
Item 7. Financial Statements
The Company’s audited financial statements are listed in the Index to Financial Statements and included elsewhere herein as a part of this Annual Report on Form 10-KSB.

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Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     None.
Item 8A. Controls and Procedures
Evaluation of disclosure controls and procedures
In order to achieve and maintain compliance with Section 404 of the Sarbanes-Oxley Act of 2002 we have developed a comprehensive 404 compliance plan. That plan includes having an understanding of the requirements of the Act, documenting the Company’s background, assessing the control environment, selecting an appropriate framework, determining staffing and timing, developing a test plan, and identifying the major systems. Our management acknowledges that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective, can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management’s annual report on internal control over financial reporting
Our management, including the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on our assessment we believe that, as of December 31, 2007 the Company’s internal control over financial reporting is effective based on those criteria.
Attestation report of the registered public accounting firm
Under current SEC rules, the Company is not required to file an auditor’s attestation report on our management’s assessment of the Company’s internal control over financial reporting until we file our annual report on Form 10-K for the fiscal year ended December 31, 2008. Accordingly, this annual report on Form 10-K for the fiscal year ended December 31, 2007 does not include an auditor’s attestation report on our management’s assessment of the Company’s internal control over financial reporting set forth above, and our auditor, Kabani LLP, has not attested to such report.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting during the fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 8B. Other Information
None.

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Part III
Item 9. Directors and Executive Officers of the Registrant, Compliance with Section 16(a) of the Exchange Act; Code of Ethics
The Directors and executive officers of the Company at December 31, 2007, their ages, their titles, their years of employment with the Company, and their principal occupation for the last five years are as follows:
David Teckman, 51, served as President and CEO from September 21, 2006 until February 21, 2008 and has served as a member of the Board from May 15, 2006 until February 21, 2008. Mr. Teckman was previously a director of Minneapolis-based Whitebox Advisors, LLC, a hedge fund headquartered in Minneapolis, MN with $2.0 billion under management. Affiliates of Whitebox Advisors, LLC have invested a total of $28,450,000 in Sutura in exchange for Common Stock, Secured Convertible Notes and Warrants for shares of Sutura Common Stock. Before joining the Company, Mr. Teckman served as the President and CEO of Vivius, Inc. from 2000 to 2005. Vivius was a venture capital backed consumer driven healthcare company that developed, patented and deployed the first healthcare program allowing consumers to select healthcare benefits and providers on-line. Prior to Vivius he served as the president of Disc Systems Inc., an ambulatory health care software and information technologies company from 1997 to 1999. Mr. Teckman is Chairman of the Board of Mendota Healthcare and is a member of the Board of Visitors for the Pharmacy School at the University of Maryland.
Richard Bjorkman, 58, has served as the Chief Financial Officer, Vice President, Finance and member of our Board since September 21, 2006. Recently, on February 21, 2008, he was appointed interim Chief Executive Officer of the Company, in addition to his existing officer positions, and served as interim Chief Executive Officer until April 4, 2008. Mr. Bjorkman was previously an independent contractor providing CFO services to venture backed start up companies and to companies in turn-around situations. Before that, Mr. Bjorkman served as CFO for Indicast.com from 2001 to 2002. Indicast was an internet voice portal company that was ultimately acquired by Oracle, Inc. Prior to Indicast, he served as CFO for SmithMicro Software, Inc. (Nasdaq: SMSI), a developer of eCommerce software, communication software and provider of professional consulting services. Mr. Bjorkman received his CPA certificate while working for KPMG in their Los Angeles office. He is a past president of Financial Executives International (FEI) Orange County California chapter.
Anthony Nobles, Ph.D., 43, has served as the Chief Scientific Officer since September 21, 2006, and served as our Chairman of the Board until April 4, 2008. Prior to that Mr. Nobles served as the Chief Executive Officer, President and Chairman of the Board of the Company since the consummation of the merger of the Company with Sutura, Inc. (“Prior Sutura”) on August 19, 2005. Recently, on February 21, 2008, he was

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appointed to serve as President and Chief Operating Officer of the Company, in addition to his existing officer positions. Mr. Nobles co-founded Prior Sutura in 1996 with Mr. Ratering and served as Prior Sutura’s Chairman of the Board from the inception of Prior Sutura until consummation of the merger. He also served as Prior Sutura’s President and Chief Executive Officer since the inception of Prior Sutura until consummation of the merger, except for a brief period from January 2000 to October 2001 during which time he held the title of Chief Technology Officer. In addition, Mr. Nobles has founded other medical device companies with Mr. Ratering, for which he serves as an officer and director. He has been awarded various patents for medical devices for use in cardiovascular surgery, neurosurgery, obstetrics/gynecology, and vascular & general surgery. Mr. Nobles holds a Master of Science and Ph.D. Biomedical Engineering (2007) from Redding University and a Ph.D. Biomedical Engineering (2007) from Glendale University.
Egbert Ratering, 59, serves as an Executive Vice President, and continues to serve as a member of our Board since September 21, 2006. Prior to that, he served as the Chief Financial Officer, Executive Vice President and a director of the Company since the consummation of the merger of the Company and Prior Sutura on August 19, 2005. Mr. Ratering co-founded Prior Sutura in 1996 with Mr. Nobles. He served as a director of Prior Sutura and as Executive Vice President and Managing Director of Prior Sutura’s European subsidiaries since Prior Sutura’s inception until consummation of the merger, and served as Prior Sutura’s Chief Financial Officer from January, 2003 until consummation of the merger. In addition, Mr. Ratering has founded other medical device start-up companies with Mr. Nobles, for which he serves as an officer and director. Prior to co-founding Prior Sutura, Mr. Ratering was employed by Cordis Corporation, a JOHNSON-JOHNSON company from 1976 to 1996 and was responsible for worldwide manufacturing for Cordis from 1995 to 1996.
Richard Moran, Ph.D., 57, served as a director of the Company from September 21, 2006 until March 19, 2008. Dr. Moran is a partner of Venrock Associates, a venture capital fund. Prior to that, Dr. Moran served as the Chairman of the Board of Portal Software which was sold to Oracle in 2006. He served also on the Board of r4gs which was sold to Verisign in 2005. He is a former Partner at Accenture, Inc. and a Ph.D. in organizational behavior. Dr. Moran is an author of numerous national best-selling business books and a board member of several educational and philanthropic organizations.
John Crew, M.D., 73, has served as a director of the Company since the consummation of the merger of the Company and Prior Sutura August 19, 2005 until April 4, 2008. Dr. Crew served as a director of Prior Sutura from September, 2002, until the consummation of the merger. Dr. Crew has been a practicing physician in the San Francisco/Daly City, California area since 1964. He is certified by the American Board of Surgery, Vascular and the American Registry of Diagnostic Medical Sonographers. Dr. Crew is currently serving as the Director of Cardiovascular Surgical Research for the San Francisco Heart Institute at Seton Medical Center in Daly City, California and as the Medical Director for the San Francisco Wound Care Center in Daly City, California. He has authored and co-authored numerous published articles on the vascular and cardiovascular related topics.

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Charles Terrell, Sr., 69, has served as a director of the Company from December 1, 2005 until April 4, 2008. Charles Terrell is the former chairman of the Greater Dallas Crime Commission, the former chairman of the Texas Criminal Justice Task Force, the former chairman of the Mayor’s Advisory Committee on Crime for Dallas, Texas, and a former Dallas City Councilman. In 1987, he was appointed by the Governor of Texas to chair the Texas Department of Corrections, the second largest state prison system in the U.S., and the fifth largest prison system in the world. Mr. Terrell is President of “Safer Dallas Better Dallas”, which has a goal of making Dallas the safest major city in America. In 1969, he founded the Unimark Insurance Agencies, for which has has served as the Chairman since its inception. The Unimark Insurance Agencies operate in all phases of commercial insurance. Unimark operate as a retailer for special property and casualty programs for convenience stores, financial institutions, nursing homes, beverage companies, multi-family housing, real estate portfolios, hospitals and insurance programs to replace maintenance service agreements.
Audit Committee Financial Expert
Egbert Ratering and Richard Bjorkman are the Company’s audit committee financial experts; however, both Messrs. Ratering and Bjorkman are executive officers of the Company and are not independent of management.
Section 16(a) — Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who beneficially own more than 10% of the Company’s stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% beneficial owners are required by applicable regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of the forms furnished to the Company and information involving securities transactions of which the Company is aware, the Company is aware of officers, directors and holders of more than 10% of the outstanding common stock of the Company who failed to timely file reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2007. To the Company’s knowledge, to date, Anthony Nobles, Egbert Ratering, John Crew, M.D., Richard Moran and Charles Terrell,.
Code of Ethics
We have adopted a code of ethics that applies to our board of directors and a code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. These codes of ethics will be provided to any person without charge, upon request, by sending such request to us at our principal office. The Code of Ethics was most recently filed with the Company’s Annual Report filed on Form 10-KSB for the fiscal year ended December 31, 2003.

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Item 10. Executive Compensation
Executive Employment Agreements
NOBLES EMPLOYMENT AGREEMENT
Mr. Nobles’ existing Employment Agreement with Sutura was assumed by the Company upon consummation of the merger of the Company with Prior Sutura. Mr. Nobles is currently employed by the Company as its Chief Science Officer and Chairman of the Board. The term of Mr. Nobles’ employment agreement extends from January 1, 2003 until December 31, 2007, and thereafter extends for one (1) year terms unless terminated on ninety (90) days prior notice. Pursuant to his employment agreement, Mr. Nobles receives annual base salary of $250,000, subject to a minimum annual increase of no less than the increase in the average cost of living index. Mr. Nobles has founded, and for which he generally serves as an officer and director, various other medical device companies outside of the arterial vessel closure area. Mr. Nobles’ employment agreement requires that he devote at least 50% of his employable time, attention, skill and efforts to the faithful performance of his duties with the Company. Mr. Nobles’ employment agreement specifically prohibits him from participating in a business that competes with Sutura’s business during his employment.
RATERING EMPLOYMENT AGREEMENT
Mr. Ratering’s Employment Agreement with Sutura was assumed by the Company upon consummation of the merger of the Company with Prior Sutura. Mr. Ratering is currently employed by Sutura as its Executive Vice President European Operations. Mr. Ratering’s employment is at will and provides for an annual salary of Euro 120,000 approximately ($150,000 U.S. dollars) and an additional Euro 20,000 (approximately $25,000 U.S. dollars) in annual benefit allowance.
BJORKMAN EMPLOYMENT AGREEMENT
Mr. Bjorkman entered into his Employment Agreement with Sutura on September 21, 2006. The agreement with Mr. Bjorkman provides, among other things, that Mr. Bjorkman will receive an annual salary of $90,000 in exchange for serving as the Company’s Chief Financial Officer and Vice President, Finance for at least twenty (20) hours per week, and that he will be reimbursed for his COBRA expenses. Mr. Bjorkman is an at-will employee. On March 19, 2008, Mr. Bjorkman’s annual salary was increased to $150,000 in light of his new duties as interim CEO.
TECKMAN EMPLOYMENT AGREEMENT
Mr. Teckman entered into his Employment Agreement with Sutura on September 21, 2006 The agreement with Mr. Teckman through 2006 provided that he would receive annual compensation of $1.00 in exchange for serving as the Company’s President and Chief Executive Officer. In January, 2007, the Board evaluated Mr. Teckman’s compensation package, and determined that his compensation for fiscal year 2007 should be revised to provide for an annual salary of $250,000, a monthly car allowance of $650, and that he be reimbursed for his COBRA expenses. Mr. Teckman was an at-will employee. Mr. Teckman resigned his employment with the Company effective February 21, 2008.

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Compensation
The following table presents, for each of the last three fiscal years, the annual compensation earned by the chief executive officer and the most highly compensated executive officers of the Company for the three fiscal years ended December 31, 2007:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
                                 
                            OTHER ANNUAL  
NAME AND PRINCIPAL POSTION   YEAR     SALARY     INTEREST     COMPENSATION  
 
                               
David Teckman
    2007     $ 250,000 (1)   $ 0     $ 7,150 (6)
Chief executive officer and President
    2006     $ 1 (1)   $ 0     $ 0  
 
                               
Richard Bjorkman
    2007     $ 90,000 (2)                
Chief Financial Officer and Executive
    2006     $ 26,250 (2)   $ 0     $ 0  
Vice President
                               
 
                               
Anthony Nobles, PhD
    2007     $ 250,000 (3)   $ 173,147 (7)   $ 7,800 (6)
Chairman,Chief Scientific officer
    2006     $ 250,000 (3)           $ 7,800 (6)
 
    2005     $ 92,877 (3)           $ 2,898 (5)
 
                               
Egbert Ratering
    2007     $ 151,706 (4)   $ 128,052 (7)   $ 11,540 (6)
Executive Vice President
    2006     $ 137,983 (4)           $ 10,618 (6)
 
    2005     $ 54,000 (4)           $ 5,400 (5)
 
(1)   Mr. Teckman became an executive officer and employee of the Company on September 21, 2006. Mr. Teckman worked for the sum of one dollar for the remainder of 2006. His annual salary during 2007 was $250,000.
 
(2)   Mr. Bjorkman became an executive officer and employee of the Company on September 21, 2006. Mr. Bjorkman devotes twenty hours per week to the Company on a part time basis. Mr. Bjorkman receives half of his annual salary of $180,000 for his time at Sutura. The amounts reflected in the above table reflect the amounts paid to Mr. Bjorkman since his hire date based on his part time status.
 
(3)   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 reflect the amounts paid since becoming an officer on August 19, 2005 following the Merger Transaction with Prior Sutura.

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(4)   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 reflect the amounts paid since becoming an officer on August 19, 2005 following the Merger Transaction with Prior Sutura.
 
(5)   These amounts represent automobile allowances from August 19 through December 31, 2005.
 
(6)   These amounts represent automobile allowances for the full years 2007 and 2006.
 
(7)   These amounts represent interest compensation at 8% on the amount of back owed salaries due such officer for prior year’s employment that had been accrued on company books per the end of 2007.
Compensation of Directors
In 2007, outside non-officer directors received $500 for each director’s meeting physically attended, plus out-of-pocket expenses incurred in connection with attending these meetings. In January of 2008, the Company’s Board of Directors approved an increase in meeting fees to outside non-officer directors in an amount of $500 for telephonic meetings and $1,000 of meetings attended in-person.
The compensation of officers and directors is subject to review and adjustment from time to time by the Board of Directors. From time to time, the Company has granted options to its directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information with respect to beneficial ownership has been furnished for each director, executive officer or beneficial owner of more than 5% of Registrant’s common. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of common stock underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of March 31, 2008 are deemed outstanding for purposes of computing such person’s percentage ownership, but are not deemed outstanding for computing the percentage ownership of any other person. Beneficial ownership including the number and percentage of shares owned is determined in accordance with Rule 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the “Exchange Act”) and is generally determined by voting power and/or investment power with respect to securities. The percentage of beneficial ownership is based on 337,816,037 shares of common stock outstanding as of April 15, 2008.

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Except as otherwise noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the address of the following stockholders is c/o Sutura, Inc., 17080 Newhope Street, Fountain Valley, California 92708.
                     
Common Stock Beneficial Ownership Table
    Number of     Percentage of  
    Sutura Shares     Sutura Shares  
Name and Address of   Beneficially     Beneficially  
Beneficial Owner   Held     Owned  
 
5% STOCKHOLDERS:
               
Nobles, Anthony PhD(1)
    103,558,836       29.12%  
Ratering, Egbert(2)
    111,854,726       31.30%  
Grootkasteel, B.V.
    69,461,329       20.56%  
Synapse Capital, LLC (3)
    27,526,126       8.08%  
Whitebox (4)
    413,734,261       68.75%  
                 
EXECUTIVE OFFICERS & DIRECTORS
               
Teckman, David (5)
    750,000       0.22%  
Bjorkman, Richard (5)
    450,000       0.13%  
Nobles, Anthony PhD(1)
    103,558,836       29.12%  
Ratering, Egbert(2)
    111,854,726       31.30%  
Crew, John MD (6)
    2,409,346       0.71%  
Terrell, Charles, Sr.(7)
    1,308,478       0.39%  
Moran, Richard (5)
    950,000       0.28%  
All directors & officers as a group(8)
    151,820,057       39.86%  
 
*   Indicates less than 1%
 
(1)   Includes 9,687,954 shares of Registrant held by Anthony Nobles,Ph.D.; 6,508,680 shares of Registrant held by The Anthony Nobles Family Limited Partnership; 86,783 shares of Registrant held by Rhonda Nobles; 69,461,329 shares of Registrant held by GrootKasteel B.V.; and 17,814,090 shares of Registrant issuable upon the exercise of options held by Anthony Nobles,Ph.D.. Anthony Nobles,Ph.D. 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; 69,461,329 shares of Registrant held by GrootKasteel B.V.; 11,580,090 shares of Registrant issuable

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    upon conversion of convertible notes and 7,961,070 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 10,264,866 shares of Registrant issued to Synapse Fund I LLC and 14,606,335 shares of Registrant issued to Synapse Fund II LLC. Also includes 2,666,666 shares issuable upon conversion of a promissory note that was issued to Synapse Fund I LLC for the benefit of plaintiffs in connection with a settlement agreement, of which Synapse I claims a beneficial ownership interest as to only 848,485 shares and Synapse II claims a beneficial ownership interest as to only 1,018,182 shares. Synapse Capital, LLC is the Manager of each of Synapse Fund I and Synapse Fund II.
 
(4)   Includes 149,724,259 shares of Registrant beneficially owned by Whitebox Advisors, LLC, as the managing member of each of 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, and by Gary S. Kohler and Scot W. Malloy, who are employed by Whitebox Advisors (collectively, the “Whitebox Affiliates”) and 264,022,064 shares of Registrant issuable to the Whitebox Affiliates upon conversion of notes and warrants.
 
(5)   Shares issuable upon exercise of options.
 
(6)   Includes 2,300,868 shares of Registrant issuable upon exercise of options and 108,478 shares of Registrant issuable upon the exercise of warrants.
 
(7)   Includes 108,478 shares of Registrant beneficially owned and 1,200,000 shares of Registrant issuable upon exercise of options.
 
(8)   Calculation includes all shares of Registrant beneficially owned by Anthony Nobles, Ph.D. (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 David Teckman, Richard Bjorkman, Richard Moran, Ph.D., Dr John Crew, MD and Charles Terrell, Sr.
Securities Authorized for Issuance Under Equity Compensation Plans
On January 6, 2006, the entire Board of Directors of the Company unanimously approved the Sutura, Inc. 2006 Stock Option Plan. The number of shares of the Company’s common stock subject to the plan may not exceed 20,000,000. The plan may be administered by the board of directors or by a committee thereof and permits the issuance of non-qualified stock options to employees, officers, directors and consultants of the Company and incentive stock options only to employees of the Company. The plan has a term of 10 years and incentive stock options may not be issued under the plan. The board or a committee administering the plan has broad authority to determine the amount and vesting terms of any option grant. On May 8, 2007, the

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board authorized the issuance of 2,300,000 options to employees, directors and consultants. On July 2, 2007, the board authorized a further issuance of 100,000 options to employees, directors and consultants. These grants vest 25% following one year of service, and then in equal quarterly installments during the next three years of service. The following table represents the number of shares issuable upon exercise and reserved for future issuance as of December 31, 2007.
                                     
                Number of        
                Securities to be    
                issued upon     Securities
                exercise of   Exercise price of   available for
                outstanding   outstanding   future issuance
                options, warrants   options, warrants   under equity
Plan Category
 
Name of plan
          and rights   and rights   compensation plans
 
                a       b       c  
Equity compensation
 
Sutura 1999 option plan
    1       34,203,119       0.077       0  
Equity compensation
 
Sutura 2003 options
    2       1,084,780       0.230       0  
plans not approved by
 
Sutura 2004 warrants
    3       1,735,648       0.626       0  
security holders
 
Sutura 2004 warrants
    4       2,255,174       0.626       0  
 
 
Sutura 2004 warrants
    5       2,321,129       0.626       0  
Equity compensation
 
Sutura 2006 option plan
    6       4,380,000       0.300       0  
 
 
Sutura 2006 option plan
    7       2,950,000       0.060       0  
 
 
Sutura 2006 option plan
    8       2,400,000       0.070     10,270,000
 
1:   Represents 41,210,806 option shares available under the option plans of Prior Sutura that were assumed by the Company in connection with the merger of the Company and Prior Sutura on August 19, 2005. There are no additional shares available for issuance under this plan as the plan was frozen on the effective date of the merger.
 
2:   Represents options issued to consultants having provided investor relations services for Prior Sutura during 2003 that were assumed by the Company in connection with the merger of the Company and Prior Sutura on August 19, 2005. The options are exercisable for a period of five years.
 
3:   Represents warrants issued to management of Prior Sutura in 2004 that were assumed by the Company in connection with the merger of the Company and Prior Sutura on August 19, 2005. The warrants are exercisable for a period of 5 years.
 
4:   Represents warrants issued to consultants having provided investor relations, legal, marketing and administrative services for Sutura during 2004 that were assumed by the Company in connection with the merger of the Company and Prior Sutura on August 19, 2005. The warrants are exercisable for a period of 5 years.
 
5:   Represents warrants issued to investors as part of private placements during 2004 that were assumed by the Company in connection with the merger of the Company and Prior Sutura on August 19, 2005. The warrants are exercisable for a period of 5 years.
 
6:   Represents 1,450,000 options issued to consultants and 2,930,000 options issued to key employees. The options vest in 4 years and are exercisable for a period of 10 years.
 
7:   Represents 1,750,000 options issued to members of the Board of Directors and members of the Clinical Advisory Board and 1,200,000 options issued to key employees under the 2006 plan.
 
8:   Represents 2,400,000 options issued to members of the Board of Directors and members of the Clinical Advisory Board. The options vest in 4 years and are exercisable for a period of 10 years.

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Item 12. Certain Relationships and Related Transactions
On November 21, 2007, the Company entered into a Common Stock Purchase Agreement with GrootKasteel, B.V., a Dutch company, pursuant to which GrootKasteel purchased 1,420,455 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $.0704 per share. Gauss N.V. holds 100% of the ownership interests of GrootKasteel. Anthony Nobles, PhD. and Egbert Ratering, each an officer and director of the Company, jointly own Gauss N.V.
The Company borrowed an aggregate principal amount of $400,000 evidenced by Promissory Notes (the “ Affiliate Notes”), dated July 16, 2007 and issued to certain officers and directors of the Company, or their affiliates. The Notes were issued to GrootKasteel, B.V. ($200,000 principal amount), the Lynne D. Teckman Trust ($100,000 principal amount), and The Bjorkman Family Trust, dated November 2, 2000 ($100,000 principal amount). The Affiliate Notes are unsecured and are in substantially the same form as the promissory notes issued to certain affiliates of Whitebox Advisors on July 2, 2007. Issuance of the Affiliate Notes was approved by a disinterested majority of the Company’s Board of Directors. The Affiliate Notes bear interest from the date issuance at the rate of twelve percent (12%) per annum. All accrued interest and principal is due and payable in a balloon payment upon the sixtieth (60th) month anniversary of the Affiliate Notes. The Company may prepay the Notes, in whole or in part, upon five (5) days prior written notice to the payee at a cost equal to accrued interest plus the present value of the Affiliate Notes discounted at a rate equal to (x) the then U.S. Treasury rate for 5-year Notes as reported by Bloomberg on the date of such prepayment notice, plus (y) 100 basis points.
The Company, as successor to Prior Sutura, currently owes Mr. Ratering, an officer and director of Registrant, the principal amounts of $516,091 and $410,317 pursuant to two promissory notes. In 2007, each of the notes bore simple interest at 8% and were to be due and payable on December 31, 2007. The accrued interest on such notes as of December 31, 2007 was $41,287 and $32,825 respectively. On January, 17, each of the notes were amended to extend the maturity date of each of the notes to July 1, 2009, to increase the interest rate to 10% (effective as of January 1, 2008), and to provide that each of the notes were to be convertible at the election of Mr. Ratering into 11,580,090 shares of the Company’s Common Stock at a conversion rate of $0.08 per share.
The Company currently owes Gauss N.V. the principal amount of €110,815 (approximately $162,000) U.S. Dollars pursuant to a promissory note bearing simple interest at 8% and becoming due and payable on December 31, 2007. The accrued interest on the note as of December 31, 2007 was €8,840 (approximately $12,910 U.S. Dollars). Gauss N.V. is jointly owned by Mr. Ratering and Mr. Nobles.

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Prior Sutura previously leased its facilities in Fountain Valley, California (Newhope Street Property), from Mr. Nobles.
On August 2, 2004, Mr. Nobles sold the Newhope Street Property to NV Properties LLC, a Nevada limited liability company. At the same time, NV Properties entered into a new lease with Prior Sutura on substantially the same economic terms as the prior lease between Prior Sutura and Mr. Nobles. The term is for a period of ten years, commencing on August 1, 2004. The base rent is $27,118 per month and is subject to adjustment on an annual basis by the change, if any, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPIW (Urban Wage Earners and Clerical Workers) for Los Angeles, Riverside, Orange Counties). Mr. Nobles serves as one of three managers of NV Properties. As of December 31, 2006, Mr. Nobles was a member with a 42.3266% interest in NV Properties. The provisions of the NV Properties’ Operating Agreement provide that actions are taken by majority vote of the managers and that no manager may vote on actions in which he has a direct or indirect financial interest other than as a member or manager of NV Properties. The Operating Agreement specifically prohibits Mr. Nobles from voting on any matter pertaining to the lease of the building by NV Properties to Prior Sutura. On March 26, 2007 Mr. Nobles sold 52.5% of his interest in NV Properties to his partners in that entity, and he now holds a 20.1051% interest in NV Properties.
In September 1999, Prior Sutura entered into a Patent License Agreement with Sterilis, Inc., a California corporation. Sterilis is a medical device company focused on developing business in the obstetrical and gynecological fields and markets. Both Mr. Nobles and Mr. Ratering are officers, directors, and stockholders of Sterilis. Pursuant to the Patent License Agreement, Prior Sutura granted Sterilis an exclusive, worldwide license to manufacture and sell certain suturing devices within the obstetrical, gynecological and urological fields of use, specifically reserving the patent rights for developing products in the cardiological field of use. In exchange for this license, Sterilis paid Prior Sutura a one-time fee of $250,000. The license agreement specifies that, unless terminated sooner under an event of default as defined in the Agreement, the license granted would terminate on the expiration date of the last of the licensed patents. The Patent License Agreement was assumed by the Company pursuant to the Merger Transaction.
On October 1, 2000, Prior Sutura and Sucor, Inc., a California corporation, entered into a License Agreement. Sucor is a medical device company focused on developing business for suturing devices solely used for venous occlusion, including varicose vein closure. Both Mr. Nobles and Mr. Ratering are officers, directors, and shareholders of Sucor. Pursuant to the License Agreement, Prior Sutura granted Sucor an exclusive, worldwide license to manufacture and sell certain suturing devices that would be used solely in the venous occlusion, and vein closure fields of use, specifically reserving the patent rights for developing products in the cardiological field of use. In exchange for this license, Sucor paid to Prior Sutura a non-refundable license fee of $100,000, and issued to Sutura 117,647 shares of its common stock; which stock is now held by the Company as successor to Sutura. The license agreement will expire on the expiration date of the last of the licensed patents. The License Agreement has been assumed by the Company pursuant to the Merger Transaction.

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Item 13. Exhibits
     
Exhibits    
     
3.1   Certificate of Incorporation1
     
3.2   Certificate of Amendment to Certificate of Incorporation2
     
3.3   Certificate of Amendment to Certificate of Incorporation7
     
3.4   Certificate of Merger7
     
3.5   Bylaws7
     
4.1   Form of Common Stock Certificate1
     
10.1   Sutura Inc. 2001 Stock Option Plan7
     
10.2   Sutura Inc. 1999 Stock Option Plan7
     
10.3   Employment Agreement with Egbert Ratering7
     
10.4   Employment Agreement with Anthony Nobles7
     
10.5   Sutura Inc. 2006 Stock Option Plan7
     
10.6   Lease for Fountain Valley Location7
     
10.7   Sucor License Agreement7
     
10.8   Sterilis License Agreement7
     
10.9   Option and Distribution Agreement with Getz Bros. & Co., Inc., dated September 20, 20027
     
10.10   Convertible Promissory Note in Favor of Getz Bros. & Co., Inc., dated September 20, 20027
     
10.11   Purchase Agreement, dated as of September 17, 2004 by and between Sutura, Inc. and certain other parties thereto.3
     
10.12   Purchase Agreement, dated as of March 24, 2005 by and between Sutura, Inc. and certain other parties thereto.3

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10.13   Form of Secured Convertible Promissory Note, dated September 17, 2004.3
     
10.14   Form of Secured Convertible Promissory Note dated March 24, 2005.3
     
10.15   Form of Warrant, dated September 17, 2004.3
     
10.16   Form of Warrant dated, March 24, 2005.3
     
10.17   Purchase Agreement, dated September 9, 2005 by and between Sutura, Inc. and certain other parties thereto.3
     
10.18   Second Amended Security Agreement, dated September 9, 2005 by and between Sutura, Inc. and certain other parties thereto.3
     
10.19   Second Amended Patent and Trademark Security Agreement, dated September 7, 2005 by and between Sutura, Inc. and certain other parties thereto.3
     
10.20   Second Amended Registration Rights Agreement, dated September 7, 2005 by and between Sutura, Inc. and certain other parties thereto.3
     
10.21   Form of Secured Convertible Promissory Note, dated September 7, 2005.3
     
10.22   Form of Warrant dated September 7, 2004.3
     
10.23   Amendment to Secured Convertible Promissory Notes and Warrants, dated September 7, 2005 by and between Sutura, Inc. and certain other parties thereto.3
     
10.24   Amendment to Secured Convertible Promissory Notes and Warrants, dated March 31, 2006 by and between Sutura, Inc. and certain other parties thereto.4
     
10.25   Agreement and Plan of Merger dated November 22, 2004.5

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10.26
  Distributor Agreement with Getz Bros & Co., Inc. dated September 20, 2002.7
     
10.27
  Distribution Agreement with The Lifemed Group, Inc. dated January 16, 2006.7
     
10.28
  Form of Secured Convertible Promissory Note, dated March 5, 2007.8
     
10.29
  Form of Promissory Note, dated May 18, 2007.9
     
10.30
  Form of Promissory Note, dated July 2, 2007.10
     
10.31
  Form of Promissory Note, dated July 16, 2007.11
     
10.32
  Amendment to Secured Promissory Notes, effective as of July 1, 2007.12
     
10.33
  Form of Convertible Promissory Note, dated September 21, 2007.13
     
10.34
  Common Stock Purchase Agreement between Sutura and Grootkasteel, B.V., dated November 21, 2007.14
     
10.35
  Settlement, License and Release Agreement between Sutura, Abbott Laboratories and Abbott Vascular, Inc., effective December 3, 2007.15
     
10.36
  Convertible Promissory Note, dated December 12, 2007.16
     
14.1   Code of ethics for the Board of Directors.6
     
14.2
  Code of ethics for Executive Officers.6
     
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.
 
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.
 
3   Previously filed as an exhibit to Form 8-K, filed on September 13, 2005.
 
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.
 
7   Previously filed as part of the Form 10-KSB for the period ending December 31, 2005.
 
8   Previously filed as an Exhibit to Form 8-K filed on March 7, 2007.
 
9   Previously filed as an Exhibit to Form 8-K filed on May 24, 2007.
 
10   Previously filed as an Exhibit to Form 8-K filed on July 6, 2007.
 
11   Previously filed as an Exhibit to Form 8-K filed on July 19, 2007.
 
12   Previously filed as an Exhibit to Form 8-K filed on September 18, 2007.
 
13   Previously filed as an Exhibit to Form 8-K filed on September 25, 2007.
 
14   Previously filed as an Exhibit to Form 8-K filed on November 26, 2007.
 
15   Previously filed as an Exhibit to Form 8-K filed on December 4, 2007.
 
16   Previously filed as an Exhibit to Form 8-K on December 17, 2007.
Item 14. Principal Accountant Fees and Services
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements and review of financial statements included in the registrant’s Form 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $45,500 and $35,050 for the years ended December 31, 2006 and 2005, respectively.
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements and not reported under Item 1 were $ $-0- and $-0- for the years ended December 31, 2005 and 2004, respectively.
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $-0- and $1,500, respectively. The nature of the services comprising such fees was preparation of tax returns for the Company.

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(4) All Other Fees
There were no other fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than services listed in Items 1 to 3 above.
Policy On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of Independent Auditors
The Company currently does not have a designated Audit Committee and, accordingly, the Company’s Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company’s Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.

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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUTURA INC
         
By:   /s/ BRIAN ABRAHAM, PhD.    
         
    Brian Abraham, PhD.,
Chief Executive Officer and Director
   
         
Date:   April 15, 2008    
         
By:   /s/ RICHARD BJORKMAN    
         
    Richard Bjorkman, Chief Financial Officer,
Vice President Finance and Director
   
         
Date:   April 15, 2008    
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
By:   /s/ MARK STREFLING    
         
    Mark Strefling, Chairman of the Board, Director    
         
Date:   April 15, 2008    
         
By:   /s/ ANTHONY NOBLES, PhD.    
         
    Anthony Nobles, PhD., President, Chief Operating
Officer, Chief Scientific Officer and Director
   
         
Date:   April 15, 2008    
 
By:   /s/ JOHN KOPCHIK    
         
    John Kopchik, Director    
         
Date:   April 15, 2008    
         
By:   /s/ EGBERT RATERING    
         
    Egbert Ratering, Executive Vice
President and Director
   
         
Date:   April 15, 2008    

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SUTURA, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
     
Report of Independent Registered Public Accounting Firm
  F-2
Consolidated Balance Sheets
  F-3
Consolidated Statements of Operations
  F-4
Consolidated Statements of Stockholders’ Equity
  F-5
Consolidated Statements of Cash Flows
  F-6
Notes to the Consolidated Financial Statements
  F-7
F-1

 


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Sutura Inc. and subsidiaries
We have audited the accompanying consolidated balance sheet of Sutura Inc. and subsidiaries as of December 31, 2007 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2007 and 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sutura Inc. and subsidiaries as of December 31, 2007, and the results of its consolidated operations and its cash flows for the years ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
March 17, 2008

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SUTURA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
         
   
ASSETS
CURRENT ASSETS:
Cash & cash equivalents
  $ 7,767,196  
Marketable securities
    10,782,372  
Certificates of deposit — Short Term
    754,616  
Accounts Receivable, Net
    31,603  
Inventory
    410,569  
Prepaid expenses
    54,558  
 
   
Total current assets
    19,800,914  
LONG TERM ASSETS
       
Property & equipment, net
    251,404  
Certificates of deposit — Long Term
    380,702  
Deposits
    201,263  
 
   
Total long term assets
    833,369  
 
   
 
       
 
  $ 20,634,283  
 
   
 
       
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
       
Accounts payable and accrued expenses
  $ 3,358,047  
Loan payable — officers
    119,858  
Customer deposits
    1,006,311  
Notes payable — officers
    926,408  
Notes payable — related party
    161,823  
Notes payables
    100,000  
Convertible notes payable- net of beneficial conversion
    3,811,698  
 
   
Total current liabilities
    9,484,145  
LONG TERM LIABILITIES:
       
Convertible notes payable- net of beneficial conversion
    16,556,134  
Notes payables
    1,700,000  
Notes payables officers
    400,000  
 
   
Total long term liabilities
    18,656,134  
COMMITMENTS AND CONTINGENCIES
     
 
       
STOCKHOLDERS’ DEFICIT
       
Series 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; 272,650,262 shares issued and outstanding
    272,650  
Additional paid in capital
    50,941,329  
Accumulated deficit
    (57,661,739 )
Other comprehensive loss
    (1,058,236 )
 
   
Total stockholders’ deficit
    (7,505,996 )
 
   
 
  $ 20,634,283  
 
   
The accompanying notes are an integral part of these consolidated financial statements.

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     SUTURA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
                 
    2007     2006  
NET SALES
  $ 252,041     $ 634,569  
COST OF GOODS SOLD(1)
    2,256,331       2,203,690  
 
           
GROSS LOSS
    (2,004,290 )     (1,569,121 )
OPERATING EXPENSES:
               
Research and development(1)
    696,448       547,270  
General and administrative(1)
    5,144,733       4,434,976  
Sales and marketing(1)
    627,144       1,533,128  
 
           
Total operating expenses
    6,468,325       6,515,374  
 
           
OPERATING LOSS
    (8,472,615 )     (8,084,495 )
OTHER INCOME (EXPENSE)
               
Interest Income
    33,993       25,396  
Interest Expense(2)
    (4,275,905 )     (3,938,516 )
Other Income
    687,475        
Litigation Settlement
    23,000,000        
 
           
Total other income (expense), net
    19,445,563       (3,913,121 )
 
           
NET INCOME(LOSS)
    10,972,948       (11,997,615 )
 
           
OTHER COMPREHENSIVE LOSS
               
Unrealized Loss on Marketable Securities
    (44,271 )      
Foreign Translation Loss
    (76,801 )     (51,180 )
 
           
COMPREHENSIVE INCOME(LOSS)
  $ 10,851,876     $ (12,048,805 )
 
           
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
  $ 0.04     $ (0.06 )
 
           
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING*
    266,730,827       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 stock-based compensation charges (credits) of:
               
Cost of good sold
  $ 60,512     $ 61,850  
Research and development
    56,832       61,850  
General and administrative
    196,460       186,488  
Sales and Marketing
    16,724       55,778  
(2)Includes amortization of beneficial conversion feature and fair value of warrants of:
  $ 1,796,908     $ 2,143,920  
The accompanying notes are an integral part of these consolidated financial statements.

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SUTURA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2007
                                                 
                                            TOTAL  
                    ADDITIONAL     OTHER             STOCKHOLDERS  
    COMMON STOCK     PAID-IN     COMPREHENSIVE     ACCUMULATED     EQUITY  
    SHARES     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                 $ 3,114,277  
Warrants issued with placement of stock
                    805,723                     $ 805,723  
Interest expenses converted into shares
    23,268,588       23,269       1,618,176                 $ 1,641,445  
Beneficial conversion feature convertible notes
                928,887                 $ 928,887  
Conversion notes payable
    1,220,708       1,220       543,640                 $ 544,860  
Compensation expenses options employees
                365,966                 $ 365,966  
Compensation expenses options non-employees
                114,672                 $ 114,672  
Foreign 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                 $ 100,000  
Interest expenses converted into shares
    12,061,699       12,061       947,606                     $ 959,667  
Beneficial conversion feature notes commitment fee
                412,767                 $ 412,767  
Compensation expenses options employees
                    330,528                     $ 330,528  
Compensation expenses options non-employees
                    167,273                     $ 167,273  
Unrealized loss on marketable securities
                            (44,271 )           $ (44,271 )
Foreign translation adjustment
                            (76,801 )           $ (76,801 )
Net loss
                                    10,972,948     $ 10,972,948  
 
                                   
BALANCE, DECEMBER 31, 2007
    272,650,262     $ 272,650     $ 50,941,329     $ (1,058,236 )   $ (57,661,739 )   $ (7,505,996 )
The accompanying notes are an integral part of these consolidated financial statements.

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\

SUTURA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
                 
    2007     2006  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income (loss)
  $ 10,972,948     $ (11,997,615 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    233,256       291,348  
Provision for doubtful debts
          4,468  
Beneficial conversion feature
    1,796,908       2,143,920  
Stock based compensation expenses- employees
    330,528       365,966  
Stock based compensation expenses- non employees
    167,274       114,673  
Interest expenses converted into shares.
    1,477,387       1,641,444  
Reserve for inventory obsolescence
          250,000  
(Increase) decrease in current assets:
               
Accounts receivables
    60,968       12,772  
Inventory
    49,550       (454,614 )
Prepaid expenses
    148,460       182,357  
Increase (decrease) in current liabilities:
               
Accounts payable and accrued liabilities
    (621,522 )     752,190  
Accrued payroll
    7,851       (376,127 )
Customer deposits
    (133,664 )     (31,000 )
 
           
Total Adjustments
    3,516,997       4,897,396  
 
           
Net cash provided by (used in) operating activities
    14,489,945       (7,100,219 )
 
           
CASH FLOWS INVESTING ACTIVITIES:
               
Acquisition of property and equipment, net
    (61,698 )     (158,978 )
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from private placements
    100,000       3,920,000  
Proceeds from notes payable
    3,950,000       2,250,000  
Purchases of marketable securities
    (11,961,961 )      
 
           
Net cash provided by financing activities
    (7,911,961 )     6,170,000  
 
           
Effect of rate changes on cash and cash equivalents
    12,754       10,348  
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
    6,529,040       (1,078,849 )
CASH & CASH EQUIVALENTS, BEGINNING BALANCE
    1,238,154       2,317,003  
 
           
CASH & CASH EQUIVALENTS, ENDING BALANCE
  $ 7,767,196     $ 1,238,154  
 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
  $     $  
 
           
Income taxes
  $     $  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sutura, Inc. (“Prior Sutura”) was incorporated in Delaware on August 14, 1996, under the name NR Medical, Inc., and changed its name in July 1998 to Sutura, Inc. References to Prior Sutura include Sutura, Inc. and its wholly-owned subsidiary Sutura, BV.
On August 19, 2005, Prior Sutura merged with and into Technology Visions Group, Inc. pursuant to the terms of that certain Agreement and Plan of Merger, dated November 22, 2004, by and between Prior Sutura and Technology Visions Group, Inc. (the “Merger Transaction”). Technology Visions Group, Inc. was incorporated in Delaware in 1985 under the name Orbit Technologies, Inc and changed its name to Technology Visions Group, Inc. on December 22, 2000. Pursuant to the Merger Transaction, the separate existence of Prior Sutura ceased and Technology Visions Group, Inc. continued as the surviving corporation under Delaware law. As part of the Merger Transaction, the name of the Company was changed to Sutura, Inc. Further, pursuant to the Merger Transaction, the Company issued 174,948,338 shares of common stock in the aggregate to the former stockholders of Prior Sutura and, as a result, the stockholders of Prior Sutura own approximately 95% of the Company. Accordingly, the merger has been accounted for as a recapitalization of Prior Sutura.
Sutura(R), Inc. is a medical device company that has developed a line of innovative, minimally invasive vascular suturing devices to suture vascular structures during open surgery and catheter-based procedures. Sutura’s operations, to date, have consisted mainly of raising capital, research, development, and clinical testing of its SuperStitch vessel closure suturing devices, obtaining regulatory clearances and approvals in both the U.S. and Europe and limited manufacturing and sales. Sutura’s objective is to become the leader in medical devices for vascular suturing.
Sutura meets the definition of a “Small Business Issuer” as such term is defined in Item 10(a) of Regulation S-B under the Securities Exchange Act of 1934, as amended. Sutura currently has 32 employees and maintains its headquarters in Fountain Valley, California, in a 20,000 square foot facility. This facility is a QSR (Food and Drug Administration — Quality Systems Regulations) and ISO (International Standards Organization) certified freestanding facility with 2,000 square feet of cleanroom space and an additional 3,200 square feet convertible to cleanroom, if required. Sales offices (with warehouse space) of approximately 1,000 square feet each are leased in Amsterdam, the Netherlands and La Gaude, France to support sales and marketing efforts in Europe.

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Table of Contents

SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BASIS OF PRESENTATION
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of Sutura Inc. and its wholly owned subsidiaries Technology Visions Inc, HeartStitch, Inc., Sutura BV, Sutura SARL and Sutura GMBH. All significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company maintains its cash in bank deposit accounts that may exceed federally insured limits. The company has not experienced any losses in such accounts.
MARKETABLE SECURITIES
The Company’s securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder’s equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold.
PROPERTY & EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using various methods over the estimated useful lives of the assets, ranging from three to seven years. Depreciation is computed using accelerated methods based on the estimated useful lives of the assets, generally as follows:
         
Computer software
  3 years
Office furniture and fixtures
  5-7 years
Equipment
  5 years
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Assets and liabilities of foreign subsidiaries have been translated at year- end exchange rates, while revenues and expenses have been translated at average exchange rates in effect during the year. Resulting cumulative translation adjustments have been recorded as other comprehensive income (loss) as a separate component of stockholders’ equity.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2007 and 2006, comprehensive income included a net translation loss of $121,072 and $51,190 respectively. Other comprehensive loss, as presented on the accompanying consolidated balance sheet in the stockholders’ equity section amounted to $1,058,236 as of December 31, 2007.
REVENUE RECOGNITION
Revenue from sales of our products is recognized in accordance with provisions of SAB 104, under which revenue is recognized when products are shipped, title has transferred, risk of loss has passed to the buyer and collectibility is reasonably assured. The Company sells its products in the United States, Germany and France, directly to hospitals and clinics. In all other international markets, Sutura sells it products to international distributors, who subsequently resell the products to hospitals and clinics. Sutura has agreements with each of its distributors which provide that title and risk of loss pass to the distributor upon shipment of the products to the distributor.
SHIPPING AND HANDLING COSTS
In accordance with the Emerging Issues Task Force (EITF) issue 00-10, “Accounting for Shipping and Handling Fees and Costs,” the Company includes shipping and handling revenues in net sales and shipping and handling costs in cost of sales.
ACCOUNTS RECEIVABLE
The company maintains an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers and distributors. The allowance is estimated based on the customer or distributor’s compliance with our credit terms, the financial condition of the customer or distributor and collection history where applicable. Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.
EARNINGS PER SHARE
Net loss per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share”. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss per share is the same in these financial statements since the effect of dilutive securities is anti-dilutive.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is being applied on the modified prospective basis. Prior to the adoption of SFAS 123R, the Company accounted for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and accordingly, recognized no compensation expense related to the stock-based plans. Under the modified prospective approach, SFAS 123R applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled.
ISSUANCE OF SHARES FOR SERVICE
The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.
DEBT WITH DETACHABLE STOCK PURCHASE WARRANTS AND BENEFICIAL CONVERSION FEATURES
The proceeds received from debt issued with detachable stock purchase warrants is allocated between the notes and the warrants, based upon the relative fair values of the two securities. The difference between the proceeds allocated to the notes and the face value of the notes is recognized as beneficial conversion feature and reflected as a discount from the convertible notes with a corresponding credit to additional paid-in capital. This beneficial conversion feature together with the value of the warrants is amortized to interest expense over the term of the debt instrument, using the effective interest method.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company allocates its resources and assesses the performance of its sales activities based upon geographic locations of its subsidiaries.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of operating information for the years ended December 31, 2007 and 2006:
                 
    December 31     December 31  
    2007     2006  
Sales US
  $ 21,999     $ 282,798  
Total export
    230,042       351,772  
 
           
Total sales
  $ 252,041     $ 634,569  
 
           
        .
CURRENT ACCOUNTING PRONOUNCEMENTS:
In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. The date the employer plans to adopt the recognition provisions of this Statement, if earlier.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The management is currently evaluating the effect of this pronouncement on financial statements.
In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.
The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company’s fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.
RECLASSIFICATION
Certain 2006 amounts have been reclassified to conform to the 2007 presentation.
NOTE 3 MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT
The Company’s securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder’s equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold.
Marketable securities classified as available for sale consisted of the following as of December 31, 2007:
                         
    Acquisition     Market     Accumulated  
    cost at     value at     unrealized  
    Dec 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       1,605  
 
                 
 
                       
Totals
  $ 10,816,819     $ 10,782,372     $ (34,447 )
 
                 

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certificates of deposit consisted of the following as of December 31, 2007:
                         
    Acquisition     Market     Accumulated  
    cost at     value at     unrealized  
    Dec 31 2007     Dec 31 2007     Gain (Loss)  
Short Term Certificates of deposit
  $ 760,286     $ 754,616     $ (5,670 )
Long Term Certificates of deposit
    384,855       380,702     $ (4,153 )
 
                 
 
  $ 1,145,141     $ 1,135,318     $ (9,823 )
 
                 
NOTE 4. ACCOUNTS RECEIVABLES
The company maintains an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers and distributors. The allowance is estimated based on the customer or distributor’s compliance with our credit terms, the financial condition of the customer or distributor and collection history where applicable. Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates. The company has provided allowance for bad debts in amounts of $ 56,111 as on December 31, 2007 of which $ 51,000 is for a note receivable on a company which is involved in litigation against Sutura.
         
    December 31  
    2007  
Total accounts receivables
  $ 87,714  
Allowance for bad debts
    (56,111 )
 
     
Net accounts receivables
  $ 31,603  
 
     
NOTE 5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. The Company has established a reserve of $ 350,000 for potential obsolescence of excess inventory of finished goods and components.
Inventories are comprised of the following:
         
    December 31  
    2007  
Raw material/WIP
  $ 367,473  
Work in process
    279,721  
Finished goods
    113,375  
 
   
 
    760,569  
Less: Reserve for obsolescence
    (350,000 )
 
   
 
  $ 410,569  
 
   

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. PROPERTY & EQUIPMENT
Equipment consisted of the following as of:
         
    December 31
    2007
Computers
  $ 357,406  
Office furniture and fixtures
    583,740  
Machinery and equipment
    2,652,788  
 
   
 
    3,593,934  
Less: Accumulated depreciation
    (3,342,530 )
 
   
 
  $ 251,404
 
   
NOTE 7. CUSTOMER DEPOSITS
In 2002, the Company entered into an option and distribution agreement with a distributor. Under the agreement, the Company received $1,250,000 as an advance payment which will be applied against distributor’s future purchases of products. To date, we have shipped only nominal amounts of product to the distributor as an offset to the advance payments. If the Distributor Agreement is subsequently terminated or expires pursuant to their terms, all advance payments that have not been offset by shipped product must be repaid at termination.
         
    December 31
    2007
Opening balance per January 1st, 2007
  $ 1,139,975  
 
       
Applied against shipments
    133,664  
 
   
Ending balance per December 31, 2007
  $ 1,006,311  
 
   
NOTE 8. ACCOUNTS PAYABLE & ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at,
         
    December 31
    2007
Accounts payable — trade creditors
  $ 227,629  
Accounts payable — legal and professional
    53,646  
Accrued expenses
    155,110  
Accrued compensation
    2,080,446  
Accrued interest payable
    841,215  
 
   
 
       
 
  $ 3,358,047  
 
   

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 LOANS PAYABLE — OFFICER
The Company has borrowed monies from two of its officers. The loans are payable on demand, interest free and are unsecured. The Company owes the officers the following amounts at:
         
    December 31
    2007
Loans payable to officers on demand, interest free and unsecured.
  $ 58,526  
Loans payable to officers on demand, interest free and unsecured.
    61,333  
 
   
 
  $ 119,858  
 
   
NOTE 10. NOTES PAYABLE — OFFICER
The Company owes Mr. Ratering, an officer and director of Sutura, the principal amounts of $393,000 and $293,618 pursuant to two promissory notes, each bearing simple interest at 8% and each becoming due and payable on December 31, 2008. On January 1st 2006 and 2007 respectively $171,166 and $68,623 outstanding but unpaid interest was added to the principal sum of the notes.
         
    December 31
    2007
Notes payable to officer on demand bearing interest rate of 8%, unsecured
  $ 926,408  
Interest expense for the year ended December 31, 2007 and 2006 amounted to $74,112 and $68,623 respectively.
NOTE 11. NOTES PAYABLE RELATED PARTY
The Company has one note payable to Gauss N.V. for the principal amount of 80,000 pursuant to a promissory note bearing simple interest at 8% and becoming due and payable on December 31, 2008. Gauss N.V. is jointly owned by Mr. Ratering and Mr. Nobles, each of whom is an officer and director of Sutura. On January 1st 2007 and 2006 respectively 8,188 and 22,627 outstanding but unpaid interest was added to the principal sum of the note.
         
    December 31
    2007
Notes payable with interest at 8% due and demandable on December 31, 2007
  $ 161,823  
 
   
Interest expense for the year ended December 31, 2007 and 2006 amounted to $12,191 and $10,321 respectively.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. NOTES PAYABLE SHORT TERM
Whitebox bridge loan.
On December 12, 2007, the Registrant issued an unsecured Promissory Note in the principal amount of $100,000 to Pandora Select Partners, L.P., a British Virgin Islands limited partnership, an affiliate of Whitebox Advisors, LLC. The principal balance the note bore a one-time interest charge of Two Thousand Dollars ($2000). The Company paid the outstanding amounts of principal and interest due under this note on January 15, 2008.
NOTE 13. CONVERTIBLE NOTES PAYABLE
WHITEBOX I

On September 17, 2004, the Company arranged a debt financing of $6,550,000 from Whitebox Advisors and affiliated parties in exchange for the issuance of eighteen-month 12% convertible promissory notes and warrants (“Whitebox I”). The performance of the notes is secured by all of the assets of the company.
The notes had conversion rights based on a company valuation of $100 million and if all converted would increase the number of outstanding shares by 14,464,644. The number of shares issuable upon exercise of the Whitebox I warrant and the warrant exercise price were based on a Company valuation of $100 million divided by the number of fully diluted shares of Common Stock outstanding on February 28, 2005. The Whitebox I warrant has a term of 5 years which expires on September 17, 2009. The total numbers of shares issuable upon exercise of the Whitebox I warrant were 14,423,512 at an exercise price of $ 0.4541. The relative fair value of the warrants using the Black Scholes method assuming a volatility of the stock of 89%, term of five years and a discount of 3.52% was determined to be $ 2,928,362. The Company allocated the investment proceeds to the debt and warrants based on their relative fair values. The beneficial conversion feature of the notes was determined to be $ 3,621,636 and together with the value of the warrants recorded as a debt discount, a reduction of the carrying amount of the debt.
Using the effective interest method the total debt discount of the Whitebox I notes has been amortized over the term of the notes and charged to interest expense. In the years ending December 31, 2007 and 2006 $582,755 and $1,165,509 respectively was expensed.
On June 30, 2006, the Company and the Whitebox affiliated parties entered into an agreement amending the notes issued in connection with Whitebox I by extending the maturity dates until July 1, 2007.
On August 25, 2006, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox I by lowering the conversion rate to $ 0.15 per share. If all of the Whitebox I notes are converted the company would have issued to the Whitebox affiliates 43,666,667 shares in the aggregate at a conversion rate of $ 0.15.
On July 1, 2007, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox I by extending the maturity dates until July 1, 2009 in exchange for a 3% consent fee to be added to the note and a new conversion rate of

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$0.08 per share. The amount of the consent fee of $196,500 will be charged to interest expenses over the 2 year term of the note. In the six months period ended December 31, 2007 $49,126 was amortized and charged to interest. The fair value of the conversion rights of the consent fee using the Black Scholes method assuming a volatility of the stock of 184%, term of two years and a discount of 4.80% was determined to be $163,361 and will be charged to interest expenses over the term of the loan. In the six months period ended December 31, 2007 $40,840 was amortized and charged to interest. If all of the Whitebox I notes are converted the company will currently issue to the Whitebox affiliates 84,331,250 shares in the aggregate at a conversion rate of $0.08.
Interest expense for Whitebox I for the year ended December 31, 2007 and 2006 amounted to $846,916 and $786,000 respectively.
As part of the July 1, 2007 agreement the interest expenses payable at the end of each quarter may be converted in a new note at the same terms of the original note. The company elected to issue a new note (Whitebox Ia) of $202,395 per September 30, 2007 with 12% interest and convertible at $0.08 per share. If all of the Whitebox Ia notes are converted the company will currently issue to the Whitebox affiliates 2,529,938 shares in the aggregate at a conversion rate of $0.08.
Interest expense for Whitebox Ia for the year ended December 2007 was $6,072.
WHITEBOX II
On March 24, 2005, the Company arranged a debt financing of $3,000,000 from Whitebox and affiliated parties in exchange for the issuance of eighteen-month 8% secured convertible promissory notes and 1,666,667 warrants at an exercise price of $0.88. (“Whitebox II”). The performance of the notes is secured by all of the assets of the company.
The notes, or any portion thereof, were convertible at the election of Whitebox based upon a conversion rate that is equal to the greater of (i) $150,000,000 divided by the total number of outstanding shares of the Company (on a fully diluted, as converted basis, but excluding any shares issuable pursuant to the Whitebox II notes or warrants) or (ii) the average closing bid price for the Company’s common stock for the 20 trading days preceding the conversion notice.
The Company allocated the investment proceeds to the debt and warrants based on their relative fair values. The relative fair value of the warrants using the Black Scholes method assuming a volatility of the stock of 89%, term of five years and a discount of 3.52% was determined to be $ 325,479 which was recorded as debt discount, a reduction of the carrying amount of the debt. There was no beneficial conversion feature on the notes. Using the effective interest method the fair value of the warrants will be amortized over the term of the note and charged to interest expense. In the years ending December 31, 2007 and 2006 $67,876 and $135,752 respectively was expensed. The Company further incurred financial consulting fees of $ 240,000 which is also recorded as a debt discount, a reduction of the carrying amount of the debt and which will be amortized over the terms of the loan. In the years ending December 31, 2007 and 2006 $40,000 and $80,000 respectively was expensed as a general expense.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 30, 2006, the Company and the Whitebox affiliated parties entered into an agreement amending the Whitebox II notes and warrants by extending the maturity dates until July 1, 2007 and increasing the interest to 12% as per September 18, 2006. The exercise price of the warrants was reduced to $0.45.
The fair value of the change in the exercise price of the warrant is $ 41,362 using the Black Scholes method assuming a volatility of the stock of 95%, remaining term of four years and a discount rate of 4.1%. This amount has been expensed and charged to interest expenses.
On August 25, 2006, the Company and Whitebox entered into a further amendment by lowering the conversion rate of the note to $ 0.15 per share. If all of the Whitebox II notes are converted the company would currently issue to the Whitebox affiliates 20,000,000 shares. Before the amendment the Whitebox I notes were convertible into an aggregate of 5,425,433 shares based on a conversion rate of $0.553.
On July 1, 2007, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox II by extending the maturity dates until July 1, 2009 in exchange for a 3% consent fee to be added to the note and a new conversion rate of $0.08 per share. The amount of the consent fee of $90,000 will be charged to interest expenses over the 2 year term of the note. In the year ended December 31, 2007 $22,500 was amortized and charged to interest. The fair value of the conversion rights of the consent fee using the Black Scholes method assuming a volatility of the stock of 184%, term of two years and a discount of 4.80% was determined to be $74,822 and will be charged to interest expenses over the term of the loan. In the year ended December 31, 2007 $18,706 was amortized and charged to interest. If all of the Whitebox II notes are converted the company will currently issue to the Whitebox affiliates 38,625,000 shares in the aggregate at a conversion rate of $0.08.

Interest expense for the year ended December 31, 2007 and 2006 amounted to $387,900 and $274,000 respectively.
As part of the July 1, 2007 agreement the interest expenses payable at the end of each quarter may be converted in a new note at the same terms of the original note. The company elected to issue a new note (Whitebox IIa) of $92,700 per September 30, 2007 with 12% interest and convertible at $0.08 per share. If all of the Whitebox IIa notes are converted the company will currently issue to the Whitebox affiliates 1,158,750 shares in the aggregate at a conversion rate of $0.08. Interest expenses for Whitebox IIa for the year ended December 2007 were $2,781.
WHITEBOX III

On September 7, 2005, the Company arranged a debt financing of $7,000,000 from Whitebox and affiliated parties in exchange for the issuance of 36 month secured convertible promissory notes and warrants. (“Whitebox III”). The notes are secured by all of the assets of the Company, bear interest at an annual rate of 8% and require interest payments to be made on a quarterly basis. Beginning on April 30, 2007, and on the last day of each month thereafter, through and including August 2008, the Company is required to make aggregate principal payments of $250,000 on the Whitebox III notes.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes were convertible into common stock determined by a company valuation of $250,000,000 divided by the total number of fully diluted shares outstanding on the conversion date. On September 30, 2006, based on the then outstanding shares of the Company, the Whitebox III notes were convertible into an aggregate of 7,595,606 shares resulting in a conversion rate of $0.8848. The total numbers of warrants issued with a term of 5 years are 1,609,197 at an exercise price of $.87. The relative fair value of the warrants using the Black Scholes method assuming a volatility of the stock of 85%, term of five years and a discount of 3.89% was determined to be $ 891,404 and was recorded as debt discount, a reduction of the carrying amount of the debt. The beneficial conversion feature of the notes was determined to be $839,234 and also recorded as a debt discount. Using the effective interest method the beneficial conversion feature and the value of the warrants will be amortized over the 36 months term of the note and charged to interest expense. In the years ending December 31, 2007 and 2006 $606,896 and $503,353 respectively was expensed. The Company further incurred financial consulting fees of $560,000 which is also recorded as a debt discount, a reduction of the carrying amount of the debt and which will be amortized over the terms of the loan. In the years ending December 31, 2007 and 2006 $186,668 and $186,668 respectively was expensed as a general expense.
On June 30, 2006, the Company and the Whitebox affiliated parties entered into an agreement amending the notes and warrants issued in connection with Whitebox III by extending the commencement date of payments of principal due under the Whitebox III notes from April 30, 2007 until July 1, 2007 and by increasing the interest rate under this note to twelve percent (12%) as of September 7, 2007. The per share exercise price of the warrants was reduced to $0.45. The fair value of the change in the exercise price of the warrant is $92,520 using the Black Scholes method assuming a volatility of the stock of 95%, remaining term of 4.5 years and a discount rate of 4.1%. This amount has been expensed and charged to interest expenses.
On August 25, 2006, the Company and Whitebox entered into a further amendment by lowering the conversion rate of the note to $0.15 per share. If all of the Whitebox III notes are converted the company would currently issue to the Whitebox affiliates 46,666,667 shares. Before the amendment the Whitebox III notes were convertible into an aggregate of 7,595,606 shares based on a conversion rate of $0.8848.
On July 1, 2007, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox III by extending the maturity dates until July 1, 2009 in exchange for a 3% consent fee to be added to the note and a new conversion rate of $0.08 per share. The amount of the consent fee of $210,000 will be charged to interest expenses over the 2 year term of the note. In the year ended December 31, 2007 $55,200 was amortized and charged to interest. The fair value of the conversion rights of the consent fee using the Black Scholes method assuming a volatility of the stock of 184%, term of two years and a discount of 4.80% was determined to be $174,584 and will be charged to interest expenses over the term of the loan. In the year ended December 31, 2007 $43,646 was amortized and charged to interest. If all of the Whitebox III notes are converted the company will currently issue to the Whitebox affiliates 90,125,000 shares in the aggregate at a conversion rate of $0.08.

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest expense for the year ended December 31, 2007 and 2006 amounted to $711,425 and $560,000 respectively.
As part of the July 1, 2007 agreement the interest expenses payable at the end of each quarter may be converted in a new note at the same terms of the original note. The company elected to issue a new note (Whitebox IIIa) of $162,625 per September 30, 2007 with 12% interest and convertible at $0.08 per share. If all of the Whitebox IIIa notes are converted the company will currently issue to the Whitebox affiliates 2,032,813 shares in the aggregate at a conversion rate of $0.08.

Interest expense for Whitebox IIIa for the year ended December 2007 was $4,879.
IDYLWOOD

On April 27, 2006, the Company completed the private placement of $750,000 aggregate principal amount of Convertible Promissory Notes with Idylwood Partners L.P. (the “Idylwood Note”) The Idylwood Note bears interest at the rate of eight percent (8%) per annum. The Idylwood note had conversion rights of 15,151,515 shares at a conversion price of $0.0495. On December 30, 2007 the company paid back the note and all accrued interest.
Interest expense for the year ended December 31, 2007 and 2006 amounted to $60,000 and $40,500 respectively.
WHITEBOX V

On December 13, 2006, the Company arranged a debt financing of $1,500,000 from Whitebox and affiliated parties in exchange for the issuance of 18 month secured convertible promissory notes. (“Whitebox V”). The notes are secured by all of the assets of the Company, bear interest at an annual rate of 8% and require interest payments to be made on a quarterly basis.
The notes are convertible, at the option of Whitebox, into common stock, par value $0.001, at a conversion rate of $0.045 per share. If all of the Whitebox V notes are converted the company would currently issue to the Whitebox affiliates 33,333,333 shares.
The Agreement gives Sutura the right to pay all or any portion of future scheduled interest payments due under Whitebox V in shares of Sutura’s common stock, par value $0.001, at a conversion rate equal to the greater of (i) $0.045 per share; or (ii) the average of the daily closing bid prices for the Company’s Common Stock over a period of 30 consecutive trading days, with the last day of such 30 day period to be the trading day immediately prior to the day in which a 2007 Interest Payment is due.
The company and Whitebox further agreed that Whitebox has the right to invest a further $1,500,000 on or before March 31, 2007 (collectively, the “New Loan”) at the same terms as the current loan. The relative fair value of this option, using the Black Scholes method assuming a volatility of the stock of 226%, term of 3.5 months and a discount of 4.1% was $414,548. The Company allocated the investment proceeds to the debt and warrants based on their relative fair values. The fair value of the beneficial conversion feature of the notes was determined to be $247,882 using the Black Scholes method assuming a volatility of the stock of 226%, term of 18 months and a discount of 4.1%. The beneficial conversion feature and the value of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
option are recorded as a debt discount, a reduction of the carrying amount of the debt. Using the effective interest method this debt discount will be amortized over the 18 months term of the note and charged to interest expense. In the years ending December 31, 2007 and 2006 $401,468 and $12,660 respectively was expensed. The Company further incurred financial consulting fees of $90,000 which it also recorded as a debt discount, a reduction of the carrying amount of the debt and which will also be amortized over the term of the loan. In the years ending December 31, 2007 and 2006 $60,000 and $2,500 respectively was expensed as a general expense. Interest expense for the year ended December 31, 2007 and 2006 amounted to $120,000 and $5,667 respectively.
On July 1, 2007, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox V. As part of the July 1, 2007 agreement the interest expenses payable at the end of each quarter may be converted in a new note at the same terms of the original note. The company elected to issue a new note (Whitebox Va) of $30,000 per September 30, 2007 with 8% interest and convertible at $0.045 per share. If all of the Whitebox Va notes are converted the company will currently issue to the Whitebox affiliates 666,666 shares in the aggregate at a conversion rate of $0.045.
Interest expense for Whitebox IIIa for the year ended December 2007 was $900.
WHITEBOX VI
On March 5, 2007, Whitebox exercised the above mentioned option and the Company arranged a debt financing of $1,500,000 from Whitebox affiliated parties in exchange for the issuance of 18 month secured convertible promissory notes. (“Whitebox VI”). The notes are secured by all of the assets of the Company, bear interest at an annual rate of 8% and require interest payments to be made on a quarterly basis. The notes are convertible, at the option of Whitebox, into common stock, par value $0.001, at a conversion rate of $0.045 per share. If all of the Whitebox VI notes are converted the company would currently issue to the Whitebox affiliates 33,333,333 shares.
The Agreement gives Sutura the right to pay all or any portion of future scheduled interest payments due under Whitebox VI in shares of Sutura’s common stock, par value $0.001, at a conversion rate equal to the greater of (i) $0.045 per share; or (ii) the average of the daily closing bid prices for the Company’s Common Stock over a period of 30 consecutive trading days, with the last day of such 30 day period to be the trading day immediately prior to the day in which a 2007 Interest Payment is due.
The Company incurred financial consulting fees of $ 90,000 which it recorded as a debt discount, a reduction of the carrying amount of the debt and which will also be amortized over the term of the loan. In the year ending December 31, 2007 $47,500 was expensed as a general expense.
Interest expense for the year ended December 31, 2007 amounted to $98,333.
On July 1, 2007, the Company and the Whitebox affiliated parties entered into a further agreement amending the notes issued in connection with Whitebox VI. As part of the July 1, 2007 agreement the interest expenses payable at the end of each quarter may be converted in a new note at the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
same terms of the original note. The company elected to issue a new note of $30,000 (Whitebox VIa) per September 30, 2007 at 8% interest and convertible at $0.045 per share. If all of the Whitebox VIa notes are converted the company will currently issue to the Whitebox affiliates 666,666 shares in the aggregate at a conversion rate of $0.045. Interest expenses for Whitebox VIa for the year ended December 2007 were $900.
SYNAPSE SETTLEMENT NOTE
In connection with the settlement of certain shareholder litigation proceedings, effective as of June 1, 2007, the Company issued and delivered to Synapse Capital, LLC, for itself and as agent for the benefit of certain other parties to the settlement, a convertible secured promissory note in the principal amount of $400,000. The convertible secured promissory note bears interest at 8% per annum. The interest is payable quarterly in arrears, and may be paid in capital stock at an interest conversion rate of $0.08 per share. The principal amount of the note, together with any accrued but unpaid interest will be due and payable in eighteen (18) months or may be converted pursuant to the terms of the note at the rate of $0.15 per share, subject to certain adjustments. Lastly, in connection with the settlement, the Company, the plaintiff parties and the Whitebox parties have entered into a Fifth Amended and Restated Registration Rights Agreement which provides the Whitebox parties and the plaintiff parties with, among other things, certain rights to request a registration of shares for resale pursuant to the Securities Act of 1933 relating to:
  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; and
 
  4.   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.
Interest expense for the year ended December 31, 2007 was $18,667.
WHITEBOX VIII
On September 21, 2007, the Company arranged a debt financing of $1,000,000 from Whitebox affiliated parties in exchange for the issuance of 12-month secured convertible promissory notes. (“Whitebox VIII”). The notes are secured by all of the assets of the Company, bear interest at an annual rate of 8% and require interest payments to be made on a quarterly basis.
The notes are convertible, at the option of Whitebox, into common stock, par value $0.001, at a conversion rate of $0.07 per share. If all of the Whitebox VIII notes are converted the company would currently issue to the Whitebox affiliates 14,258,714 shares. Interest only is payable in cash or in the form of a newly issued convertible promissory note, at the same terms and conditions as the original note, quarterly in arrears on the last day of each calendar quarter, beginning December 31, 2007.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest expense for the year ended December 31, 2007 was $22,000.
A summary of the convertible notes is as follows at:
                 
    December 31     December 31  
    2007     2006  
Whitebox I
  $ 6,746,500     $ 6,550,000  
Whitebox Ia
    202,395        
Whitebox II
    3,090,000       3,000,000  
Whitebox IIa
    92,700        
Whitebox III
    7,210,000       7,000,000  
Whitebox IIIa
    162,625        
Idylwood Partners LLP
          750,000  
Whitebox V
    1,500,000       1,500,000  
Whitebox 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     $ 18,800,000  
Debt issue costs
    (193,664 )     (437,832 )
Loan commitment expenses
    (372,374 )      
Beneficial conversion feature
    (1,030,350 )     (2,414,491 )
 
           
 
  $ 20,367,832     $ 15,947,678  
 
           
Classified as current liability
  $ 3,811,698        
Classified as long term liability
  $ 16,556,134     $ 15,947,678  
Summary of convertible notes conversion rights:
                                                 
    Conversion shares     Conversion     Intrinsic value per     Conversion shares     Conversion     Intrinsic value per  
    per Dec 31 2006     price     December     per Dec 31 2007     price     December  
Whitebox 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 LLP
    15,151,515       0.0495       7,576             0.0495        
Whitebox V
    33,333,333       0.0450       166,667       33,333,333       0.0450       500,000  
Whitebox Va
                      666,667       0.0450       10,000  
Whitebox VI
                      33,333,333       0.0450       500,000  
Whitebox VIa
                      666,667       0.0450       10,000  
Synapse 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  
 
                                       

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SUTURA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. NOTES PAYABLES LONG TERM
WHITEBOX VII
On May 18, 2007, and on June 13, 2007, the Company borrowed an aggregate principal amount of $350,000 and $200,000, respectively, evidenced by unsecured promissory notes (“Whitebox VII”) issued to certain affiliates of Whitebox. On July 2, 2007, the Company borrowed an further aggregate principal amount of $1,150,000 evidenced by unsecured promissory notes (“Whitebox VIII”) delivered to certain affiliates of Whitebox Advisors, LLC bringing the total amount to $1,700,000.
The Whitebox VII notes bear interest from the date issued at the rate of twelve percent (12%) per annum. All accrued interest and principal is due and payable in a balloon payment upon the sixtieth (60th) anniversary of the applicable Whitebox VII notes. The Company may prepay the Whitebox VII notes, in whole or in part, upon five (5) days prior written notice to the payee at a cost equal to accrued interest plus the present value of the notes discounted at a rate equal to (x) the then U.S. Treasury rate for 5-year notes as reported by Bloomberg on the date of such prepayment notice, plus (y) 100 basis points.
If the Company or its controlling stockholders enter into a definitive agreement relating to the sale or transfer of all or substantially all of the Company’s business or assets, the Company must give the note payees at least fifteen (15) days prior written notice of the proposed date for consummation of the transaction and, the entire principal balance of the notes, and all accrued but unpaid interest, shall be due and payable immediately prior to (and as a condition of) the closing on the transaction. In addition to the payment of outstanding principal and any accrued but unpaid interest, the Company must also pay to the payees a prepayment penalty amount equal to the present value of the remaining unpaid coupons that would otherwise by paid through maturity but for the transaction, and discounted at a rate equal to (x) the then U.S. Treasury rate for 5-year Notes as reported by Bloomberg on the date of such prepayment notice, plus (y) 100 basis points.
A summary of the long term notes is as follows at:
         
    December 31
    2007
Whitebox VII
  $ 1,700,000
     Interest expense for the year ended December 31, 2007 was $107,267.
NOTE 15. NOTES PAYABLES OFFICERS
The Company borrowed an aggregate principal amount of $400,000 evidenced by Promissory Notes (the “Affiliate Notes”), dated July 16, 2007 and issued to certain officers and directors of the Company, or their affiliates. The Notes were issued to GrootKasteel, B.V. ($200,000 principal amount), the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lynne D. Teckman Trust ($100,000 principal amount), and The Bjorkman Family Trust, dated November 2, 2000 ($100,000 principal amount). The Affiliate Notes are unsecured and are in substantially the same form as the promissory notes issued to certain affiliates of Whitebox Advisors on July 2, 2007. Issuance of the Affiliate Notes was approved by a disinterested majority of the Company’s Board of Directors. The Affiliate Notes bear interest from the date issuance at the rate of twelve percent (12%) per annum. All accrued interest and principal is due and payable in a balloon payment upon the sixtieth (60th) month anniversary of the Affiliate Notes. The Company may prepay the Notes, in whole or in part, upon five (5) days prior written notice to the payee at a cost equal to accrued interest plus the present value of the Affiliate Notes discounted at a rate equal to (x) the then U.S. Treasury rate for 5-year Notes as reported by Bloomberg on the date of such prepayment notice, plus (y) 100 basis points.
A summary of the convertible notes is as follows at:
A summary of the long term notes to officers is as follows at:
         
    December 31
    2007
Officers
  $ 400,000  
Interest expense for the year ended December 31, 2007 amounted to $20,000.
NOTE 16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The majority of the Sales in the years ended December, 2007 and 2006 was made to a few customers. At December 31, 2007 the total sales to two major customers was $80,578 and the receivable balance from these major customers was $23,870. In fiscal year 2006, the two major customers comprised approximately $147,600 of the Company’s total sales and the receivable balance from these major customers was $29,304. Management believes that customer acceptance, billing, and collection policies are adequate to minimize potential risk on trade receivables.
NOTE 17. TAXES ON INCOME
Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At December 31, 2007 the Company had available federal and state net operating loss carryforwards amounting to approximately $32,020,000 that are available to offset future federal and state taxable income and that expire in various periods through 2027 for federal tax purposes and 2014 for state tax purposes. At December 31, 2007, the Company has foreign tax loss carry forwards of approximately $3,467,000 that do not expire. No

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
benefit has been recorded for any loss or credit carryforwards, and utilization in future years may be limited under Sections 382 and 383 of the Internal Revenue Code if significant ownership changes have occurred or from future tax legislation changes.
         
Net deferred tax asset
  $ (14,444,134 )
Inventory Reserve
    119,000  
Less valuation allowance
    (14,325,134 )
 
     
Net deferred tax asset
  $  
 
     
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
                 
    December 31   December 31
    2007   2006
Tax expense (credit) at statutory rate federal
    (32 )%     (32 )%
State tax expense net of federal tax
    (8 )     (8 )
Permanent differences
    1       1  
Valuation allowance
    39       39  
 
               
Tax expense at actual rate
           
 
               
NOTE 18. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
SFAS 130 requires unrealized gains and losses on the Company’s available for sale securities, currency translation adjustments, and minimum pension liability, which prior to adoption were reported separately in stockholders’ equity, to be included in other comprehensive income. Comprehensive loss included net translation losses of $76,801 for the year ended December 31, 2007 and $51,190 for the year ended December 31, 2006 respectively.
As of December 31, 2007, other comprehensive loss, as presented on the accompanying consolidated balance sheet in the stockholders’ equity section consists of accumulated foreign currency translation loss of $1,013,965 and unrealized loss on marketable securities of $44,271.
NOTE 19. COMMITMENTS
The company previously leased its facilities in Fountain Valley, California (Newhope Street Property), from its president Anthony Nobles. On August 2, 2004, Mr. Nobles sold the Newhope Street Property to NV Properties LLC, a Nevada limited liability company. At the same time, NV Properties entered into a new lease with the Company on substantially the same economic terms as the prior lease between the Company and Mr Nobles. The term is for a period of ten years, commencing on August 1, 2004. The base rent is $28,117 per month.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The future minimum monthly lease payments under the facility operating lease, whose terms are in excess of one year follows:
         
Year Ending        
December 31,        
2007
  $ 327,600  
2008
    337,409  
2009
    337,409  
2010
    337,409  
2011
    337,409  
 
     
Total
  $ 1,677,236  
The company arranged several debt financings from Whitebox Advisors and related parties in exchange for the issuance of convertible promissory notes and warrants. The performance of these notes is secured by all of the assets of the company.
NOTE 20. RELATED PARTY TRANSACTIONS
On November 21, 2007, the Company entered into a Common Stock Purchase Agreement with GrootKasteel, B.V., a Dutch company, pursuant to which GrootKasteel purchased 1,420,455 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $.0704 per share. Gauss N.V. holds 100% of the ownership interests of GrootKasteel. Anthony Nobles, PhD. and Egbert Ratering, each an officer and director of the Company, jointly own Gauss N.V.
The Company, as successor to Prior Sutura, currently owes Mr. Ratering, an officer and director of Registrant, the principal amounts of $516,091 and $410,317 pursuant to two promissory notes. In 2007, each of the notes bore simple interest at 8% and were to be due and payable on December 31, 2007. The accrued interest on such notes as of December 31, 2007 was $41,287 and $32,825 respectively. On January, 17, 2008 each of the notes were amended to extend the maturity date of each of the notes to July 1, 2009, to increase the interest rate to 10% (effective as of January 1, 2008), and to provide that each of the notes were to be convertible at the election of Mr. Ratering into 11,580,090 shares of the Company’s Common Stock at a conversion rate of $0.08 per share.
The company leased its facilities in Fountain Valley, California (Newhope Street Property) from Dr. A Nobles, an officer of the Company. On August 2, 2004, the officer sold a majority interest in the Newhope Street Property to NV Properties LLC, a Nevada limited liability company. At the same time, NV Properties entered into a new lease with the Company on substantially the same economic terms as the prior lease between the Company and the officer of the Company. During the fiscal year 2007, Mr. Nobles, CEO of the Company, was a member with a 20.1051% interest in NV Properties and served as one of its three managers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21. LEGAL PROCEEDINGS
On February 16, 2005, Millenium Holding Group, Inc. filed a complaint against Prior Sutura in the United States District Court, District of Nevada, Case No. CV-S 05-0356-JCM-LRL, alleging, among other things, that Prior Sutura conspired with Fusion Capital, to breach the implied covenant of good faith and fair dealing in connection with its termination of a merger agreement with Millenium. In March, 2007, the Company was successful in its motion for Summary Judgement in this action. All that remains is resolution of the Company’s counterclaims against Millenium for payment of $60,000 due under a Promissory Note in favor of the Company. The Company expects to resolve its counterclaims in this matter in the near term.
On June 30, 2005, certain stockholders of Prior Sutura filed two separate, but related, complaints in the Superior Court of the State of California, County of Orange-Central Justice Center. The Company and the primary plaintiffs in the two actions (Synapse Fund I, Synapse Fund II and Go Industries, Inc.) held settlement discussions to resolve the disputes raised in these two complaints, and reached an agreement in principal to settle the litigation between the parties. The settlement agreement was approved by the Superior Court on June 1, 2007. Among other terms, as part of the settlement agreement the Company delivered to Synapse Fund I, LLC, for the benefit of all plaintiffs, a convertible secured promissory note in the principal amount of $400,000. The settlement agreement also contained certain covenants of Messrs. Nobles and Ratering and mutual releases between the parties. The convertible secured promissory note bears interest at 8% per annum, payable quarterly in arrears, and may be paid in capital stock at a conversion rate of $0.08 per share. The principal amount of the note, together with any accrued but unpaid interest will be due and payable in eighteen (18) months or may be converted pursuant to the terms of the note at the rate of $0.15 per share. Lastly, in connection with the settlement agreement, the Company has agreed to provide the plaintiffs with rights to have the shares issuable upon conversion of principal or interest due under the note to be registered for resale pursuant to the Securities Act of 1933 if at any time any Whitebox affiliate exercises its rights to require shares of the Company to be registered.
On July 5, 2007, a shareholder filed a complaint against the Company and Mr. Nobles, an officer of the Company entitled Pham v. Nobles, et al. (Orange County (California) Superior Court Case No. 07CC07644). Plaintiff has asserted causes of action for breach of contract, fraud and negligent misrepresentation against both the Company and Mr. Nobles. The Company filed an answer to Plaintiff’s complaint on October 31, 2007. The Parties then agreed that Plaintiff’s claims against the Company are subject to a written arbitration agreement and have therefore agreed that the case be stayed and submitted to binding arbitration. On January 31, 2008, the court stayed this case pending binding arbitration and set an order to show cause hearing as to why the case should not be dismissed for July 9, 2008. Plaintiff has not yet filed an arbitration demand nor initiated the arbitration process. The Company intends to vigorously defend all claims brought against it in this matter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. STOCKHOLDER’S DEFICIT
COMMON STOCK

As part of the Side agreement of August 25, 2006 signed between the Company and Whitebox , the Company had the right to pay all or any portion of future scheduled interest payments due under Whitebox I,II and III in shares of Registrant’s common stock, par value $0.001, at a conversion rate equal to the greater of (i) $0.08 per share; or (ii) the average of the daily closing bid prices for the Company’s Common Stock over a period of 30 consecutive trading days, with the last day of such 30 day period to be the trading day immediately prior to the day in which a Interest Payment is due. A “trading day” is (x) a day on which the Common Stock is traded on the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board (all “Trading Markets”), or (y) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or agency succeeding to its function of reporting prices).
On March 31, 2007 the company elected to issue 5,331,250 shares at a price of $.08 to Whitebox in payment of $426,500 in interest expenses for the 1st Quarter of 2007.
On June 30, 2007 the company elected to issue 5,331,250 shares at a price of $.08 to Whitebox in payment of $426,500 in interest expenses for the 2nd Quarter of 2007.
The Agreement of December 13, 2006 for the financing of Whitebox V and Whitebox VI gave Sutura the right to pay all or any portion of future scheduled interest payments due under Whitebox V and VI in shares of Sutura’s common stock, par value $0.001, at a conversion rate equal to the greater of (i) $0.045 per share; or (ii) the average of the daily closing bid prices for the Company’s Common Stock over a period of 30 consecutive trading days, with the last day of such 30 day period to be the trading day immediately prior to the day in which a 2007 Interest Payment is due.
On March 31, 2007 the company elected to issue 614,242 shares at a price of $.07163 to Whitebox in payment of $ 44,000 in interest expenses for the 2nd Quarter of 2007.
On June 30, 2007 the company elected to issue 751,624 shares at a price of $.07983 to Whitebox in payment of $ 60,000 in interest expenses for the 2nd Quarter of 2007.
The terms of the Synapse settlement note stipulate that the Company has the right to pay all or any portion of future scheduled interest payments due under the note in shares of Registrant’s common stock, par value $0.001, at a conversion rate equal to the greater of (i) $0.08 per share; or (ii) the average of the daily closing bid prices for the Company’s Common Stock over a period of 30 consecutive trading days, with the last day of such 30 day period to be the trading day immediately prior to the day in which a Interest Payment is due.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 30, 2007 the company elected to issue 33,333 shares at a price of $.08 to Synapse in payment of $2,667 in interest expenses for the 2nd Quarter of 2007.
On November 21, 2007, the Company entered into a Common Stock Purchase Agreement with GrootKasteel, B.V., a Dutch company, pursuant to which GrootKasteel purchased 1,420,455_shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $.0704 per share. Gauss N.V. holds 100% of the ownership interests of GrootKasteel. Anthony Nobles, PhD. and Egbert Ratering, each an officer and director of the Company, jointly own Gauss N.V.
NOTE 23. STOCK BASED COMPENSATION
In February 1999, the Company adopted the 1999 Stock Option Plan (1999 Plan) and in 2001 the 2001 Stock Option Plan (2001 Plan). Under the terms of these plans, incentive stock and non-statutory stock Options to purchase 48,815,000 shares of the Company’s common stock are available for grant to directors, employees, consultants and advisors. Vesting of the options in both plans commences on the grant date and options generally vest at a rate of 25% per year and expire within 10 years of date of grant for the 1999 plan and within 5 years for the 2001 plan.
On January 6, 2006, the entire Board of Directors of the Company unanimously approved the Sutura, Inc. 2006 Stock Option Plan. The number of shares of the Company’s common stock subject to the plan may not exceed 20,000,000. The plan may be administered by the board of directors or by a committee thereof and permits the issuance of non-qualified stock options to employees, officers, directors and consultants of the Company and incentive stock options only to employees of the Company. The board or committee administering the plan has broad authority to determine the amount and vesting terms of any option grant.
On May 8, 2007 the entire Board of Directors also unanimously approved the issuance of non-qualified options to employees, directors and consultants of the Company to purchase 2,300,000 shares of the Company’s common stock pursuant to the plan. All of these options have an exercise price of $0.07 ,are subject to a four year vesting period whereby 25% of the granted options vest at the end of the first year following the grant date, and the remaining option amounts vest in equal quarterly installments over the next following three years.
On July 2, 2007 the entire Board of Directors unanimously approved a further issuance of non-qualified options to employees, directors and consultants of the Company to purchase 100,000 shares of the Company’s common stock pursuant to the 2006 Stock Option Plan. All of these options have an exercise price of $0.07, are subject to a four year vesting period whereby 25% of the granted options vest at the end of the first year following the grant date, and the remaining option amounts vest in equal quarterly installments over the next following three years.
Under the modified prospective approach, compensation cost recognized for the fiscal year 2007 includes compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006 that have vested subsequent to January 1, 2006, and compensation cost for all shared-

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based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.
The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based awards. The fair value of the options issued on May 8, 2007 and July 2, 2007 using the Black Scholes method assuming a volatility of the stock of 184%, life of 10 years and a discount rate of 4.8% is $176,898. This amount will be expensed over the 4 year vesting period of the options.
In the year ending December 31, 2007 an amount of $330,528 was expensed as employee option expenses and $167,273 as non employee option expense respectively.
A summary of the status of the plan is presented below:
                         
                    Aggregate
            Weighted   Intrinsic
    Total   price   Value
         
OUTSTANDING, DECEMBER 31, 2006
    42,617,899     $ 0.103     $ 493,159  
         
 
                       
Granted in 2007
    2,400,000     $ 0.0700          
Cancelled in 2007
                     
Exercised in 2007
                     
 
                       
         
OUTSTANDING, DECEMBER 31, 2007
    45,017,899     $ 0.101     $ 691,890  
         
NOTE 24. WARRANTS
During the year ended December 31, 2006, new warrants were granted to Whitebox IV while Warrants of Whitebox II and III were reduced to $ 0.45
                                 
                    Remaining     Aggregate  
                    Life in     Intrinsic  
    Total     Price     years     Value  
Warrants issued in 2004
    6,311,951     $ 0.6259       1.3     $    
Warrants Fusion
    1,220,565       0.4464       2.3          
Warrants Whitebox I
    14,423,512       0.4541       1.7          
Warrants Whitebox II
    1,666,667       0.4500       2.2          
Warrants Whitebox III
    1,609,197       0.4500       2.7          
Warrants Whitebox IV
    10,400,000       0.0913       4.0          
Cancelled in 2007
                         
Exercised in 2007
                         
 
                       
Outstanding December 2007
    35,631,891     $ 0.3780       2.4     $  
 
                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25. LITIGATION SETTLEMENT
On December 21, 2006, the Company filed a patent infringement lawsuit against Abbott Laboratories, Inc. and Perclose, Inc. in the United States District Court for the Eastern District of Texas. In its Complaint, the Company asserted that Abbott Laboratories and Perclose have been infringing on Sutura’s patents for vascular and cardiovascular suturing. Abbott Laboratories and Perclose responded to the complaint denying the allegations and asserting certain infringement claims against the Company. On December 3, 2007, the Company, Abbott Laboratories and Abbott Vascular Inc. entered into a Settlement, License and Release Agreement to settle and resolve that certain patent infringement lawsuit entitled Sutura, Inc. v. Abbott Laboratories and Perclose, Inc., Civil No. 2:06-CV-536 (TJW), brought in the United States District Court for the Eastern District of Texas. The Settlement License and Release Agreement provided, among other things, for a cross license of certain patents between the parties and a one-time payment by Abbott Laboratories to the Company in the amount of $23,000,000. This amount was received by the Company as of December 14, 2007. Also, in December of 2007, the Company wrote off $687,475 of old payables which the Company determined were no longer collectible by creditors. The write off resulted in a one time credit to other income of $687,475.
NOTE 26. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business.
The Company ended the year with a cash balance of $7,767,196. For the years ended December 31, 2007 and 2006, the company had a net profit of $10,972,948 and a net loss of $11,997,615, respectively. The profit of 2007 was the result of a legal settlement of $23,000,000 received in December of 2007. Corrected for this one time income the company would have incurred a loss of $12,027,052 in 2007. As of December 31, 2007, we had an accumulated deficit of $57,661,739. Also, all the assets of the company have been pledged against the Whitebox Notes.
Historically we have relied on the issuance of notes payables to provide a significant portion of funding for our operations. In 2007 the company arranged additional debt financing of $4,600,000. At December 31, 2007, we had cash, cash equivalents, restricted cash equivalents and marketable securities available for sale of $19,684,886. We believe that current cash and cash equivalents and marketable securities, together with cash receipts generated from sales of the SuperStitch products, will be sufficient to meet anticipated cash needs for operating and capital expenditures through at least December 31, 2008. Nevertheless, we expect to continue to incur substantial costs and cash outlays in 2008 and beyond to support SuperStitch research and development. In 2009 we will require additional funding to continue our operations and will attempt to raise the required capital through either debt or equity arrangements. We cannot provide any assurance that the required capital would be available on acceptable terms,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
if at all, or that any financing activity would not be dilutive to our current stockholders. If we are not able to raise additional funds, we may be required to significantly curtail our operations and this would have an adverse effect on our financial position, results of operations and cash flows.
NOTE 27. SUBSEQUENT EVENTS
Recent Conversions of Debt-to-Equity by Whitebox Affiliates
Effective April 2, 2008, the following affiliates of Whitebox Advisors, LLC converted portions of convertible debt held by each such entity into an aggregate of 65,165,775 shares of the Company’s Common Stock, par value $0.001 per share, as indicated below:
         
Whitebox Convertible Arbitrage Partners, L.P. —
    25,859,437  
Whitebox Hedged High yield Partners, L.P. —
    20,687,550  
Whitebox Intermarket Partners, L.P. —
    8,275,012  
Pandora Select Partners, L.P. —
    10,343,775  
Repricing of note to officer
The Company, as successor to Prior Sutura, currently owes Mr. Ratering, an officer and director of Registrant, the principal amounts of $516,091 and $410,317 pursuant to two promissory notes. In 2007, each of the notes bore simple interest at 8% and were to be due and payable on December 31, 2007. The accrued interest on such notes as of December 31, 2007 was $41,287 and $32,825 respectively. On January, 17, 2008 each of the notes were amended to extend the maturity date of each of the notes to July 1, 2009, to increase the interest rate to 10% (effective as of January 1, 2008), and to provide that each of the notes were to be convertible at the election of Mr. Ratering into 11,580,090 shares of the Company’s Common Stock at a conversion rate of $0.08 per share.
Past Officer Litigation
On March 18, 2007, David R. Teckman filed a lawsuit against The Company and Dr Anthony A. Nobles in the District Court, Fourth Judicial District, County of Hennepin, Minnesota, alleging breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment and similar allegations pertaining seeking damages and compensation relating to the recent termination of his employment relationship with the Company. On April 14, 2008, Mr. Teckman dismissed the lawsuit without prejudice.
Loan from Whitebox and Repayment
On December 12, 2007, the Registrant issued an unsecured Promissory Note in the principal amount of $100,000 to Pandora Select Partners, L.P., a British Virgin Islands limited partnership, an affiliate of Whitebox Advisors, LLC. The principal balance the note bore a one-time interest charge of Two Thousand Dollars ($2,000). The Company paid the outstanding amounts of principal and interest due under this note on January 15, 2008.

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Patent Infringement Litigation
On December 21, 2006, the Company filed a patent infringement lawsuit against Abbott Laboratories, Inc. and Perclose, Inc. in the United States District Court for the Eastern District of Texas. In its Complaint, the Company asserted that Abbott Laboratories and Perclose have been infringing on Sutura’s patents for vascular and cardiovascular suturing. Abbott Laboratories and Perclose responded to the complaint denying the allegations and asserting certain infringement claims against the Company. On December 3, 2007, the Company, Abbott Laboratories and Abbott Vascular Inc. entered into a Settlement, License and Release Agreement to settle and resolve that certain patent infringement lawsuit entitled Sutura, Inc. v. Abbott Laboratories and Perclose, Inc., Civil No. 2:06-CV-536 (TJW), brought in the United States District Court for the Eastern District of Texas. The Settlement License and Release Agreement provided, among other things, for a cross license of certain patents between the parties and a one-time payment by Abbott Laboratories to the Company in the amount of $23 million.

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