================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

     |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

                For the quarterly period ended September 30, 2006

                         COMMISSION FILE NUMBER: 0-12227

                               SUTRON CORPORATION
--------------------------------------------------------------------------------
           (Name of small business issuer as specified in its charter)

             VIRGINIA                                      54-1006352
--------------------------------------------------------------------------------
   (State or other jurisdiction                        (I.R.S. Employer
 of incorporation or organization)                  Identification Number)

                 21300 RIDGETOP CIRCLE, STERLING, VIRGINIA 20166
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                  703-406-2800
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR
VALUE

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

There were 4,319,551 outstanding shares of the issuer's only class of common
equity, Common Stock, $0.01 par value, on November 13, 2006.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
================================================================================
<PAGE>


                               SUTRON CORPORATION
                          FORM 10-QSB QUARTERLY REPORT
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2006

                                TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements                                                 2

         Condensed Consolidated Balance Sheet as of September 30,
         2006 and December 31, 2005                                           2

         Condensed Consolidated Statements of Operations for the
         Three Months Ended September 30, 2006 and 2005                       3


         Condensed Consolidated Statements of Operations for the
         Nine Months Ended September 30, 2006 and 2005                        4


         Condensed Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 2006 and 2005                        5


         Financial Footnotes                                                  6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                  9

Item 3.  Controls and Procedures                                             14

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                   14

Item 4.  Submission of Matters to a Vote of Security Holders                 15

Item 6.  Exhibits                                                            15

Signatures                                                                   15


                                        1
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
----------------------------

                               SUTRON CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
                                                       (UNAUDITED)      AUDITED
                                                      SEPTEMBER 30,   DECEMBER 31,
                                                          2006            2005
                                                      ------------    ------------
<S>                                                   <C>             <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                        $  1,273,617    $  1,861,627
     Restricted cash and cash equivalents                  126,558         233,375
     Accounts receivable                                 5,967,455       3,711,426
     Inventory                                           3,411,965       2,532,524
     Prepaid items and other assets                        274,017         493,947
     Deferred income taxes                                 275,000         278,000
                                                      ------------    ------------
          Total current assets                          11,328,612       9,110,899

PROPERTY AND EQUIPMENT, AT COST                          3,339,929       3,222,086
Less: Accumulated depreciation and amortization         (2,714,854)     (2,534,854)
                                                      ------------    ------------
     Property and equipment, net                           625,075         687,232
OTHER ASSETS                                                44,115          48,623
                                                      ------------    ------------
         TOTAL ASSETS                                 $ 11,997,802    $  9,846,754
                                                      ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                 $  1,296,164    $    844,511
     Accrued payroll                                       296,574         195,153
     Other accrued expenses                              1,565,065       1,179,925
     Notes payable - current                                47,663          47,663
                                                      ------------    ------------
          Total current liabilities                      3,205,466       2,267,252

LONG-TERM LIABILITIES
     Notes payable, net of current maturities               50,691          88,773
     Deferred income taxes                                 140,000         169,000
                                                      ------------    ------------
         TOTAL LIABILITIES                               3,396,157       2,525,025
                                                      ------------    ------------

STOCKHOLDERS' EQUITY
     Common stock                                           43,196          42,946
     Additional paid-in capital                          2,349,866       2,312,230
     Retained earnings                                   6,207,086       4,968,224
     Accumulated other comprehensive (loss) income           1,497          (1,671)
                                                      ------------    ------------
         TOTAL STOCKHOLDERS' EQUITY                      8,601,645       7,321,729
                                                      ------------    ------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 11,997,802    $  9,846,754
                                                      ============    ============
</TABLE>

See accompanying notes.

                                        2
<PAGE>

                                SUTRON CORPORTION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                          THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                           2006         2005
                                                        ----------   ----------

Net sales and revenues                                  $4,783,365   $3,512,443

Cost of sales and revenues                               3,271,071    2,159,093
                                                        ----------   ----------
               Gross profit                              1,512,294    1,353,350
                                                        ----------   ----------

Operating expenses:
     Selling, general and administrative expenses          668,572      630,132
     Research and development expenses                     286,497      316,016
                                                        ----------   ----------
               Total operating expenses                    955,069      946,148
                                                        ----------   ----------

               Operating income                            557,225      407,202

Interest income (expense), net                              26,466        6,040
                                                        ----------   ----------

                Income before income taxes                 583,691      413,242

Income taxes                                               213,000      143,000

                                                        ----------   ----------
Net income                                              $  370,691   $  270,242
                                                        ==========   ==========
Net income per share:

               Basic income per share                   $      .09   $      .06
                                                        ==========   ==========

               Diluted income per share                 $      .07   $      .05
                                                        ==========   ==========

See accompanying notes.

                                        3
<PAGE>

                                SUTRON CORPORTION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                          NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                          2006          2005
                                                      -----------   -----------

Net sales and revenues                                $13,280,647   $10,564,260

Cost of sales and revenues                              8,287,681     6,242,311
                                                      -----------   -----------
               Gross profit                             4,992,966     4,321,949
                                                      -----------   -----------

Operating expenses:
     Selling, general and administrative expenses       2,168,943     2,102,452
     Research and development expenses                  1,018,226       996,684
                                                      -----------   -----------
               Total operating expenses                 3,187,169     3,099,136
                                                      -----------   -----------

               Operating income                         1,805,797     1,222,813

Interest income (expense), net                             52,065        14,700
                                                      -----------   -----------

                Income before income taxes              1,857,862     1,237,513

Income taxes                                              619,000       443,000
                                                      -----------   -----------
Net income                                            $ 1,238,862   $   794,513
                                                      ===========   ===========

Net income per share:

               Basic income per share                 $       .29   $       .18
                                                      ===========   ===========

               Diluted income per share               $       .25   $       .16
                                                      ===========   ===========

See accompanying notes.

                                        4
<PAGE>

                                SUTRON CORPORTION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE><CAPTION>
                                                            NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                           2006           2005
                                                       -----------    -----------
<S>                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                        $ 1,238,862    $   794,513
     Noncash items included in net income:
        Depreciation and amortization                      180,000        179,502
         Stock option compensation                          21,316           --
     Changes in current assets and liabilities:
            Accounts receivable                         (2,256,029)      (116,057)
            Inventory                                     (879,441)      (811,784)
            Prepaid items and other assets                 227,438       (123,399)
            Accounts payable                               451,653        (53,994)
            Accrued expenses                               486,561       (203,741)
            Deferred income taxes                          (29,000)          --
                                                       -----------    -----------
Net Cash Provided (Used) by Operating Activities          (558,640)      (334,960)
                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Restricted cash and cash equivalents                  106,817       (132,996)
     Purchase of property and equipment                   (117,843)      (134,006)
                                                       -----------    -----------
Net Cash Provided (Used) by Investing Activities           (11,026)      (267,002)
                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on notes payable                             (38,082)       (20,574)
     Proceeds from stock options exercised                  16,570           --
                                                       -----------    -----------
Net Cash Provided (Used) by Financing Activities           (21,512)       (20,574)
                                                       -----------    -----------

Effect of exchange rate changes on cash                      3,168         (1,159)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (588,010)      (623,695)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         1,861,627      1,310,603
                                                       -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD             $ 1,273,617    $   686,908
                                                       ===========    ===========

CASH PAID DURING THE PERIOD FOR:
     Interest                                          $     2,210    $     2,406
                                                       ===========    ===========
     Income taxes paid (received)                      $   474,566    $   831,054
                                                       ===========    ===========
</TABLE>

See accompanying notes.

                                        5
<PAGE>

                              SUTRON CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                               SEPTEMBER 30, 2006

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Sutron Corporation (the "Company") was incorporated on December 30, 1975, under
the General Laws of the Commonwealth of Virginia. The Company operates from its
headquarters located in Sterling, Virginia. The Company has several branch
offices located throughout the United States, a branch office in India and a
wholly owned subsidiary in India. The Company is a leading provider of real-time
data collection and control products, systems software and professional services
in the hydrological, meteorological and oceanic monitoring markets. The
Company's products include data loggers, satellite transmitters/loggers, water
level and meteorological sensors, tides systems and systems and applications
software. Customers consist of a diversified base of federal, state, local and
foreign government agencies, engineering companies, universities and hydropower
companies.

The financial statements included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report filed on Form 10-KSB for the year ended December 31, 2005. The condensed
consolidated balance sheet as of December 31, 2005 was derived from the audited
financial statements for the year then ended.

In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and its cash
flows have been included in the accompanying financial statements. The results
of operations for interim periods are not necessarily indicative of the expected
results for the full year.

2. SIGNIFICANT ACCOUNTING POLICIES

The preparation of condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
These judgments are difficult as matters that are inherently uncertain directly
impact their valuation and accounting. Actual results may vary from management's
estimates and assumptions.

The Company's significant accounting policies are disclosed in the Company's
Annual report on Form 10-KSB for the year ended December 31, 2005 filed with the
Securities and Exchange Commission.

STOCK COMPENSATION

The Company's Amended and Restated 1996, 1997 and 2002 Stock Option Plans (the
"Stock Option Plans") provide for the issuance of non-qualified stock options to
employees, officers and directors. The plans are administered by the
compensation committee of the Board of Directors, which selects persons to
receive awards and determines the number of shares subject to each award and the
terms, conditions, performance measures and other provisions of the award. See
Note 13 of the Company's financial

                                        6
<PAGE>

statements in its Annual Report on Form 10-KSB for the year ended December 31,
2005 for additional information related to the stock option plans.

Effective January 1, 2006, the Company adopted SFAS No. 123R ACCOUNTING FOR
STOCK BASED COMPENSATION (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 transition method and
therefore the Company has not restated results for prior periods. The financial
statements for the three and nine month periods ended September 30, 2006
recognize compensation cost for the portion of outstanding awards which have
vested during the period. The Company recognizes stock-based compensation costs
on a straight-line basis over the requisite service period of the award, which
is generally the option vesting term. For the three and nine month periods ended
September 30, 2006, total stock-based compensation expense of $11,006 and
$21,316, respectively, was included in operating expenses. The weighted average
fair value of options granted during the three months and nine months ended
September 30, 2006 was calculated using the Black-Scholes option pricing model
with the following valuation assumptions and weighted average fair value as
follows:

                                              Periods Ended September 30, 2006
                                              --------------------------------
                                                Three Months    Nine Months
                                                ------------    -----------

     Weighted average fair value of grants          $7.80          $7.80
     Expected volatility                              30%            30%
     Dividend yield                                     0              0
     Risk-free interest rate                        5.16%          5.16%
     Expected term in years                         10.00          10.00

The volatility factor is based on the Company's historical stock price
fluctuations. The Company has not, and does not intend to, issue dividends;
therefore, the dividend yield assumption is 0. The Company applied the risk-free
interest rate based on the U.S. Treasury yield in effect at the time of the
grant. The expected term of the option is based on the contractual period of the
options granted. The following table illustrates the effect on net income and
net income per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to its
stock-based employee compensation for the three and nine month periods ended
September 30, 2005.

                                           Periods Ended September 30, 2005
                                           --------------------------------
                                            Three Months      Nine Months
                                            -----------------------------

Net income, as reported                     $   270,242       $   794,513
Less: Pro forma impact of expensing stock
options, under fair value method                   --              37,488
                                            -----------------------------
Pro forma net income                        $   270,242       $   757,025
                                            =============================

Earnings per share
-Basic income per share, as reported        $       .06       $       .18
                                            =============================
-Basic income per share, pro forma          $       .06       $       .18
                                            =============================

-Diluted income per share, as reported      $       .05       $       .16
                                            =============================
-Diluted income per share, pro forma        $       .05       $       .15
                                            =============================

3. STOCK OPTIONS

The Company has granted stock options under the Stock Option Plans to key
employees and directors for valuable services provided to the Company. Under the
1996 Plan, the Company authorized 260,000

                                        7
<PAGE>

shares, 259,000 of which have been granted. As of December 31, 2004, the Company
authorized 60,000 shares and 400,000 shares under the 1997 and 2002 Stock Option
Plans, respectively, all of which have been granted. During 2005, the 2002 Stock
Option Plan was amended to authorize 650,000 shares, 435,333 of which have been
granted. In addition, all three plans were amended in 2005 to allow Directors to
participate in the plan, and to provide that vesting schedules will be
determined by the Board at the time each individual option is granted.

Shares under all of the plans may be granted at not less than 100 percent of the
fair market value at the grant date. All options have a ten-year term from the
date of grant. Prior to the 2005 amendments, options vested ratably over five
years on each anniversary date the option was granted. The Company elected to
accelerate vesting of all outstanding options as of December 31, 2005, as
permitted under the plans. Cancelled or expired options are able to be reissued.
The following table summarizes stock option activity under the Stock Option
Plans for the nine months ended September 30, 2006:

                                    Number of  Weighted Avg.   Number of Options
                                     Shares    Exercise Price     Exercisable
                                    --------------------------------------------
Balance - December 31, 2005          739,333        $.98            739,333
                                                                 =============
     Granted                          15,000        7.80
     Exercised                        25,000         .66
     Canceled                            --          --
                                    --------------------------------------------
Balance - September 30, 2006         729,333        $.97            729,333
                                    ============================================

At September 30, 2006, a total of 210,667 shares were available for future
grants under the Company's Stock Options Plans.

4. EARNINGS PER SHARE

The following table shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number of shares
of potential dilutive common stock.

                                                Three Months Ended September 30,
                                                    2006               2005
                                                --------------------------------
Net income                                        $ 370,691          $ 270,242
                                                ================================
Shares used in calculation of income
 per share:
     Basic                                        4,319,551          4,289,551
          Effect of dilutive options                654,925            636,797
                                                ================================
     Diluted                                      4,974,476          4,926,348
                                                ================================
Net income per share:
     Basic                                             $.09               $.06
                                                ================================
     Diluted                                           $.07               $.05
                                                ================================

                                                 Nine Months Ended September 30,
                                                    2006               2005
                                                --------------------------------
Net income                                       $1,238,862          $ 794,513
                                                ================================
Shares used in calculation of income
 per share:
     Basic                                        4,309,002          4,289,551
          Effect of dilutive options                654,925            641,280
                                                ================================

     Diluted                                      4,963,927          4,930,831
                                                ================================
Net income per share:
     Basic                                             $.29               $.18
                                                ================================
     Diluted                                           $.25               $.16
                                                ================================

                                        8
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------

STATEMENTS MADE IN THIS REPORT ON FORM 10-QSB, INCLUDING WITHOUT LIMITATION THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS,
OTHER THAN STATEMENTS OF HISTORICAL INFORMATION, ARE FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS MAY SOMETIMES BE IDENTIFIED BY SUCH WORDS AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR
WORDS. WE BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO
INVESTORS. HOWEVER, THESE FORWARD-LOOKING STATEMENTS INVOLVE MANY RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED
IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS. WE ARE UNDER
NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS
REPORT ON FORM 10-QSB TO CONFORM THESE STATEMENTS TO ACTUAL RESULTS.

OVERVIEW

Our primary focus is to provide real-time systems solutions, including
equipment, software and services to our customers in the areas of hydrological,
meteorological, and oceanic monitoring. We design, manufacture and market our
products and services to a diversified customer base consisting of federal,
state, local and foreign governments, engineering companies, universities and
hydropower companies. Our products and services enable these entities to monitor
and collect hydrological, meteorological and oceanic data for the management of
critical water resources, for early warning of potentially disastrous floods,
storms or tsunamis, for the optimization of hydropower plants and for providing
real-time weather conditions at airports.

Our key products are our SatLink2 Transmitter/Logger, our Xpert and XLite
dataloggers, our water level sensors, our tides systems and our XConnect systems
software. These are the essential components of most systems and are provided to
customers as off-the-shelf equipment or as part of a custom system. The SatLink2
is a key product because it functions both as a transmitter and also as a
datalogger. It is a cost-effective solution for small systems that do not
require a significant number of sensors or communications options as compared to
the purchase of a separate datalogger and transmitter. The Xpert and XLite are
more powerful dataloggers that have significantly more logging capability and
communications options than the SatLink2. Our water level sensors consist of
shaft encoders, submersible pressure sensors, bubbler systems and a new radar
level sensor. The radar level sensor is a precision water level measuring
instrument using radar pulses that allow measurements to be made without direct
contact with the water surface and can be located on a bridge, pier or any
structure over the water's surface.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of financial condition and results of
operations are based upon the condensed financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and disclosure of contingent assets and
liabilities. Our estimates include those related to revenue recognition, the
valuation of inventory, and valuation of deferred tax assets and liabilities,
useful lives of intangible assets, warranty obligations and accruals. We base
our estimates on historical experience and on various other assumptions that
management believes to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. For a
complete description of accounting policies and estimates, see Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Form 10-KSB for the year ended December 31, 2005.
There were no significant changes in our critical accounting policies and
estimates during the quarter ended September 30, 2006.

                                        9
<PAGE>

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2005

The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:

                                            Three Months Ended September 30,
                                          2006       2006       2005       2005
                                       ----------   -----    ----------   -----

Net sales and revenues                 $4,783,365   100.0%   $3,512,443   100.0%
Cost of sales and revenues              3,271,071    68.4     2,159,093    61.5
                                       ----------   -----    ----------   -----
Gross profit                            1,512,294    31.6     1,353,350    38.5

Selling, general and administrative
 expenses                                 668,572    14.0       630,132    17.9
Research and Development expenses         286,497     6.0       316,016     9.0
                                       ----------   -----    ----------   -----
Operating income                          557,225    11.6       407,202    11.6
                                       ----------   -----    ----------   -----
Interest (income) expense                  26,466      .6         6,040      .2
                                       ----------   -----    ----------   -----
Income before  income taxes               583,691    12.2       413,242    11.8
Income taxes (benefit)                    213,000     4.4       143,000     4.1
                                       ----------   -----    ----------   -----
Net income                             $  370,691     7.8%   $  270,242     7.7%
                                       ==========   =====    ==========   =====


NET SALES AND REVENUES

The Company's net sales and revenues for the three months ended September 30,
2006 increased 36% to $4,783,365 from $3,512,443 in 2005 reflecting increases in
both domestic and international revenues. Net sales and revenues are broken down
between the Company's operating divisions or profit centers which include the
HydroMet Products Division, the Integrated Services Division which includes
Special Projects and the Company's India Branch Office, the Hydrological
Services Division and the Airport Weather Systems Division.

The HydroMet Products Division, which is responsible for sales of standard
products, had a net sales and revenue increase of 11% to $2,281,695 from
$2,057,765 in 2005 primarily due to an increase in sales of SatLink2
transmitters/loggers and accessory items. Integrated Systems Division's net
sales and revenues increased 27% to $2,038,416 from $476,611 in 2005 due to
third quarter revenues of approximately $378,000 from a contract with the
Central Water Commission of India and revenues of approximately $733,000 from
two contracts with the US Army Corps of Engineers and a subcontract with Prime
Controls to instrument three canals and eight locks in New Orleans. Net sales
and revenues from Hydrological Services Division decreased 40% to $463,254 from
$768,436 in 2005 due a decrease in project deliveries as personnel were diverted
to assist with the New Orleans contracts. Airport Weather Systems Division did
not have any revenues in the third quarter of 2006 as compared to revenue of
$209,631 in 2005. The Company continues to pursue airport weather projects
internationally but can not pursue projects in the United States as our system
is not FAA approved.

The Company has benefited in both 2006 and 2005 from revenues related to natural
disasters. In 2006, the Company has derived significant revenues from providing
and installing replacement instrumentation in canals and on locks in New Orleans
due to Hurricane Katrina. In 2005, the Company derived significant revenues from
sales of oceanic tide monitoring systems in response to the tsunami in the
Pacific Ocean. Although it is likely that the Company will continue to provide
original and replacement equipment after natural disasters, the impact of such
on the Company's future revenues is uncertain.

                                       10
<PAGE>

Overall domestic revenues increased 19% to $3,598,055 in the third quarter of
2006 versus $3,013,226 in 2005 due primarily to revenues from the US Army Corps
of Engineers and Prime Controls contracts while international revenues increased
137% to $1,185,310 in 2006 versus $499,217 in 2005, due primarily to the Central
Water Commission of India contract. Customer orders for the third quarter of
2006 increased 8% to approximately $6,187,000 as compared to $5,747,000 in 2005.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues was 68.4% for the quarter ended
September 30, 2006 as compared to 61.5% for the quarter ended September 30,
2005. In 2006, the US Army Corps of Engineers and Prime Controls projects in New
Orleans were highly labor intensive and our profit margins were not as expected.
Also, our Hydrological Services Division experienced difficulties with two
projects in Florida that resulted in cost overruns. We anticipate that our
profit margins will return to historical levels in the fourth quarter of 2006
although we make no assurances in this regard. Cost of sales for both 2006 and
2005 include provisions for inventory obsolescence, physical inventory
adjustments and inventory valuation adjustments. The Company continually pursues
product cost reductions through continual review of procurement sourcing,
product value engineering and improvements in manufacturing processes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $668,572 in 2006 from
$630,132 in 2005, an increase of $38,439 or 6%. The Company experienced
increases in selling and marketing expenses and attorney fees in the third
quarter of 2006.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses decreased to $286,497 in 2006 from $316,016 in
2005, a decrease of $29,519 or 9%. Product development expenses decreased
primarily due to higher direct billings to customers for product development
work which costs are included in cost of sales. Dataloggers and water level
sensors are the primary components of hydro-meteorological systems and we are
continuously improving these products as well as developing new products in
order to maintain and improve our competitive position.

INTEREST INCOME AND EXPENSE, NET

Due to the Company's cash position, the Company did not use its line of credit
during the third quarter of 2006. The Company had net interest income in 2006 of
$26,466 as compared to net interest income of $6,040 in 2005.

INCOME TAXES

Income taxes increased 49% in 2006 to $213,000 from $143,000 in 2005 due to the
increase in operating income. Taxes as a percentage of revenue were 4.5% in 2006
as compared to 4.1% in 2005. The provisions for income taxes represent effective
tax rates of approximately 36.5% in 2006 and 34.6% in 2005, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2005

The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:

                                       11
<PAGE>

                                             Nine Months Ended September 30,
                                         2006       2006        2005       2005
                                     -----------   -----    -----------   -----

Net sales and revenues               $13,280,647   100.0%   $10,564,260   100.0%
Cost of sales and revenues             8,287,681    62.4      6,242,311    59.6
                                     -----------   -----    -----------   -----
Gross profit                           4,992,996    37.6      4,321,949    40.4

Selling, general and administrative
 expenses                              2,168,943    16.3      2,102,452    19.3
Research and Development expenses      1,018,226     7.7        996,684     9.5
                                     -----------   -----    -----------   -----
Operating income                       1,805,797    13.6      1,222,813    11.6

                                     -----------   -----    -----------   -----
Interest (income) expense                 52,065      .4         14,700      .1
                                     -----------   -----    -----------   -----
Income before  income taxes            1,857,862    14.0      1,237,513    11.7
Income taxes (benefit)                   619,000     4.7        443,000     4.2
                                     -----------   -----    -----------   -----
Net income                           $ 1,238,862     9.3%   $   794,513     7.5%
                                     ===========   =====    ===========   =====

NET SALES AND REVENUES

The Company's net sales and revenues for the nine months ended September 30,
2006 increased 26% to $13,280,647 from $10,564,260 in 2005 reflecting increased
international revenues from contracts in India. Net sales and revenues are
broken down between the Company's operating divisions or profit centers which
include the HydroMet Products Division, the Integrated Services Division which
includes Special Projects and the Company's India Branch Office, the
Hydrological Services Division and the Airport Weather Systems Division.

The HydroMet Products Division had a revenue decrease of 4% to $5,647,001 from
$5,862,766 in 2005 due to a decrease in NOAA tides systems shipments. Integrated
Systems Division revenues increased 165% to $5,654,121 from $2,131,409 in 2005
due primarily to revenues of approximately $1,768,000 from the Central Water
Commission of India contract, revenues of approximately $1,132,000 from the
India Meteorological Department contract and revenues of approximately
$1,313,000 from contracts in New Orleans. Revenues from the Hydrological
Services Division decreased 7% to $1,864,540 from $2,005,766 in 2005 due to
personnel being diverted to assist with the New Orleans contracts. Airport
Weather Systems Division revenues decreased to $114,985 in 2006 as compared to
$564,319 in 2005 due to a decline in project deliveries.

Overall domestic revenues increased 9% to $8,396,937 in 2006 versus $7,703,901
in 2005 while international revenues increased 71% to $4,883,710 in 2006 versus
$2,860,359 in 2005 due primarily to revenues from contracts with the Central
Water Commission of India and India Meteorological Department. Customer orders
or bookings for 2006 were up 21% to approximately $14,389,000 as compared to
approximately $11,916,000 in 2005. The Company's backlog of orders at September
30, 2006 was approximately $11,948,000 as compared with approximately $6,972,000
as of September 30, 2005. The Company anticipates that approximately 44% of its
backlog as of September 30, 2006 will be shipped in 2006 although we make no
assurances in this regard.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues was 62.4% in 2006 as compared to 59.6%
in 2005. The increase in cost of sales reflects changes in the product mix. In
2006, substantial costs were associated with projects such as Central Water
Commission of India, India Meteorological Department, Prime Controls and the US
Army Corps of Engineers in New Orleans. Projects do not normally carry as high
margins as

                                       12
<PAGE>

stand-alone products which benefited the margins in 2005 and the Company
incurred higher labor costs and lower margins than expected in New Orleans. The
Company continually pursues product cost reductions through continual review of
procurement sourcing, product value engineering and improvements in
manufacturing processes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $2,168,943 in 2006
from $2,102,452 in 2005, an increase of $66,491 or 3%. The Company experienced
increases in selling and marketing activities and in general and administrative
expenses.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased to $1,018,226 in 2006 from $996,684
in 2005, an increase of $21,542 or 2%. Product development expenses increased
primarily due to efforts to improve and incorporate state-of-the-art technology
into the Xpert datalogger and to develop a new radar level sensor. The radar
level sensor is a precision water level measuring instrument using radar pulses
that allow measurements to be made without direct contact with the water surface
and can be located on a bridge, pier or any structure over the water's surface
and unlike other radar level sensors, Sutron's radar sensor operates under new
FCC UWB rules and does not require an FCC license. The operating frequency is
5.8GHz for unrestricted, unlicensed operation. Dataloggers and water level
sensors are the primary components of hydro-meteorological systems and we are
continuously improving these products as well as developing new products in
order to maintain and improve our competitive position.

INTEREST INCOME AND EXPENSE, NET

Due to the Company's cash position, the Company did not use its line of credit
during the nine months ended September 30, 2006. The Company had net interest
income in 2006 of $52,065 as compared to net interest income of $14,700 in 2005.

INCOME TAXES

Income taxes increased 40% in 2006 to $619,000 from $443,000 in 2005 due to the
increase in operating income. Taxes as a percentage of revenue were 4.7% in 2006
as compared to 4.2% in 2005. The provisions for income taxes represent effective
tax rates of approximately 33.3% in 2006 and 35.7% in 2005, respectively. The
effective tax rate in 2006 decreased due to the exercise of non-qualified stock
options that generated a significant tax deduction reflecting stock option
compensation.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash and cash equivalents was $1,273,617 at September 30, 2006 compared to
$1,861,627 at December 31, 2005. Working capital increased to $8,123,146 at
September 30, 2006 compared with $6,843,647 at December 31, 2005. The increase
was primarily due to 2006 earnings.

Net cash used by operating activities was $558,640 for the nine months ended
September 30, 2006 as compared to cash used by operating activities of $334,960
for the nine months ended September 30, 2005. The increase is primarily due to
increases in accounts receivable as a result of higher sales revenues.

Net cash used by investing activities was $11,026 for the nine months ended
September 30, 2006 as compared to cash used by investing activities of $267,002
for the nine months ended September 30, 2005.

                                       13
<PAGE>

The decrease was primarily due to reductions in restricted cash and in the
purchases of property and equipment.

Net cash used by financing activities was $21,512 for the nine months ended
September 30, 2006 as compared to net cash used by financing activities of
$20,574 for the nine months ended September 30, 2005 due to proceeds from stock
options which offset increased payments on notes payable.

We have a revolving credit facility of $2,500,000 with BB&T Bank. We are
permitted to borrow based on accounts receivable and inventory according to
pre-established criteria. The credit facility expires on August 5, 2007 and is
secured by substantially all assets of the Company. Borrowings bear interest at
the bank's prime rate. During the third quarter of 2006, there were no
borrowings on the line of credit. We frequently bid on and enter into
international contracts that require bid and performance bonds. At September 30,
2006 and December 31, 2005, a commercial bank had issued standby letters of
credit in the amount of $524,300 and $751,725 that served as either bid or
performance bonds. The amount available to borrow under the line of credit was
reduced by these amounts.

Management believes that its existing cash resources, cash flow from operations
and short-term borrowings on the existing credit line will provide adequate
resources for supporting operations during fiscal 2006. Although there can be no
assurance that our revolving credit facility will be renewed, management
believes that, if needed, it would be able to find alternative sources of funds
on commercially acceptable terms.

ITEM 3. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of September 30, 2006. Based upon the foregoing evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of that date.

There have been no changes in the Company's internal control over financial
reporting during the quarter ended September 30, 2006 that have materially
affected, or are reasonably likely to materially affect the Company's internal
control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Various legal claims have arisen from time to time in the normal course of
business which, in the opinion of management, have had no material effect on our
financial statements. As previously reported, we have

                                       14
<PAGE>

been named in a compensation claim under the Indian Anti-Trust Law that is
pending before The Monopolies and Restrictive Trade Practices Commission in New
Delhi, India. Management believes that the case is unsubstantiated and intends
to vigorously defend itself.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 6. EXHIBITS

31.1 Certification of the President and Chief Executive Officer pursuant to
ss.302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer and Treasurer pursuant to
ss.302 of the Sarbanes-Oxley Act of 2002.

32 Certification of the President and Chief Executive Officer and Chief
Financial Officer and Treasurer pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002.




                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                          Sutron Corporation
                                             (Registrant)

November 13, 2006                         /s/ Raul S. McQuivey
-----------------                         --------------------
Date                                      Raul S. McQuivey
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)

November 13, 2006                         /s/ Sidney C. Hooper
-----------------                         --------------------
Date                                      Sidney C. Hooper
                                          Chief Financial Officer and Treasurer
                                          (Principal Accounting Officer)


                                       15