UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  FORM 10-Q
  |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended March 31, 2011
 Commission file number:0-12227
  
 SUTRON CORPORATION
 
 (Name of small business issuer as specified in its charter)
   VIRGINIA
54-1006352(State or other jurisdiction

of incorporation or organization)
(I.R.S. Employer

Identification Number)
  22400 Davis Drive, Sterling, Virginia 20164
 
 (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  o
  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o Yes  o No
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one).
  Large accelerated filer  o
Accelerated filer   oNon-accelerated filer    o
Smaller reporting company  x
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x
  There were 4,578,632 outstanding shares of the issuer's only class of common equity, Common Stock, $0.01 par value, on May 13, 2011.





SUTRON CORPORATION


FORM 10-Q QUARTERLY REPORT


FOR THE QUARTER ENDED MARCH 31, 2011





TABLE OF CONTENTS





Part I
Financial InformationItem 1.
Financial Statements
3Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010
3Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
4Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
5Notes to Consolidated Financial Statements
6Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 3.
Quantitative and Qualitative Disclosures About Market Risk
13Item 4T.
Controls and Procedures
13Part II
Other InformationItem 1.
Legal Proceedings
14Item 6.
Exhibits
14Signatures

15








2


PART I.    FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS





SUTRON CORPORATION


CONSOLIDATED BALANCE SHEETS





(Unaudited)


(Audited)March 31,


December 31,2011


2010ASSETSCurrent Assets:Cash and cash equivalents

$
9,048,976


$
9,627,961Restricted cash and cash equivalents


1,024,146



796,189Accounts receivable, net


5,668,126



5,380,975Inventory


3,415,878



3,758,702Prepaid items and other assets


455,638



560,460Deferred income taxes


508,000



477,000Total Current Assets


20,120,764



20,601,287Property and Equipment, Net


1,637,357



1,706,971Other AssetsGoodwill


570,150



570,150Other Assets


105,609



108,769Total Assets

$
22,433,880


$
22,987,177LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:Accounts payable

$
721,801


$
1,119,684Accrued payroll


93,180



490,197Other accrued expenses


1,575,937



1,543,086Billings in excess of costs and estimated earnings


247,814



361,699Total Current Liabilities


2,638,732



3,514,666Long-Term LiabilitiesDeferred rent


1,199,613



1,234,385Deferred income taxes


114,000



99,000Total Long-term Liabilities


1,313,613



1,333,385Total Liabilities


3,952,345



4,848,051Stockholders’ EquityCommon stock


45,787



45,757Additional paid-in capital


3,766,900



3,732,184Retained earnings


14,711,454



14,409,877Accumulated other comprehensive loss


(42,606
)


(48,692
)Total Stockholders’ Equity


18,481,535



18,139,126Total Liabilities and Stockholders’ Equity

$
22,433,880


$
22,987,177





See accompanying notes.





3
 SUTRON CORPORTION


CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended March 31,2011


2010Net sales and revenues

$
4,880,619


$
4,899,840Cost of sales and revenues


3,031,993



2,988,329Gross profit


1,848,626



1,911,511Operating expenses:Selling, general and administrative expenses


919,606



989,957Research and development expenses


474,568



415,796Total operating expenses


1,394,174



1,405,753Operating income


454,452



505,758Financing income, net


18,125



12,985Income before income taxes


472,577



518,743Income tax expense


171,000



185,000Net income

$
301,577


$
333,743Net income per share:Basic income per share

$
0.07


$
0.07Diluted income per share

$
0.06


$
0.07





See accompanying notes.




4


SUTRON CORPORTION


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months Ended March 31,2011


2010Cash Flows from Operating Activities:Net income

$
301,577


$
333,743Noncash items included in net income:Depreciation and amortization


71,131



74,801Deferred income taxes


(16,000
)


(39,000
)Stock based compensation


21,396



18,456Tax benefit from stock options exercised


(4,020
)


—Change in current assets and liabilities:Accounts receivable


(287,151
)


1,947,354Inventory


342,824



(147,458
)Prepaid items and other assets


104,822



(459,487
)Income taxes receivable


—



70,695Accounts payable


(397,883
)


170,258Accrued expenses


(364,166
)


(2,193
)Billings in excess of costs and estimated earnings


(113,885
)


392,591Deferred rent


(34,772
)


(34,771
)Net Cash (Used) Provided by Operating Activities


(376,127
)


2,324,989Cash Flows from Investing Activities:Restricted cash and cash equivalents


(227,957
)


(609,289
)Purchase of property and equipment


(1,517
)


(40,285
)Other assets


3,160



—Net Cash Used by Investing Activities


(226,314
)


(649,574
)Cash Flows from Financing Activities:Tax benefit from stock options exercised


4,020



—Proceeds from stock options exercised


13,350



—Net Cash Provided by Financing Activities


17,370



—Effect of exchange rate changes on cash and cash equivalents


6,086



39,210Net increase (decrease) in cash and cash equivalents


(578,985
)


1,714,625Cash and Cash Equivalents, beginning of year


9,627,961



4,666,983Cash and Cash Equivalents, end of year

$
9,048,976


$
6,381,608





See accompanying notes.




5


SUTRON CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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 principal products include data loggers, satellite transmitters/loggers, water level and meteorological sensors, tides systems and system and application software.  Customers consist of a diversified base of Federal, state, local and foreign government agencies, universities, engineering firms 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 (“GAAP”) have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report  on Form 10-K for the year ended December 31, 2010. The consolidated balance sheet as of December 31, 2010 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.





We recommend that you read the unaudited consolidated financial statements included herein in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 31, 2011.





2. Significant Accounting Policies





The preparation of 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 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-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission.





Certificates of Deposit




Certificates of deposit are carried at cost, which approximates fair value based upon observable market prices of similar instruments.  If observable market prices are not available, fair values are estimated by discounting expected future cash flows applying interest rates currently being offered.  All certificates of deposit are valued using Level 2 inputs.





6


Recent Accounting Standards





The FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force.This ASU addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit.  The ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.   The adoption of ASU No. 2009-13 did not have a material impact on the Company’s financial statements.




The FASB issued ASU No. 2009-14,Software (Topic 985) – Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force.The amendments in this ASU change the accounting model for revenue arrangements that include both tangible products and software elements.  The ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.The adoption of ASU No. 2009-14 did not have a material impact on the Company’s financial statements.





The FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.This ASU affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements under FASB ASC Topic 820, originally issued as FASB Statement No. 157,Fair Value Measurements.  The ASU requires certain new disclosures and clarifies two existing disclosure requirements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.The adoption of ASU No. 2010-06did not have a material impact on the Company’s financial statements.





In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.”  The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period.  If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period.  ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted.  The adoption of the new guidance did not have a material impact on the Bank’s financial statements.





In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.”  The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.  The adoption of the new guidance did not have a material impact on the Bank’s financial statements.





The Securities Exchange Commission (SEC) has issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting”, which requires companies to submit financial statements in XBRL (extensible business reporting language)format with their SEC filings on a phased-in schedule.  Large accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010.  All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011.





7


3.  Stock Options





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 Company’s 2010 Equity Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, unrestricted stock, dividend equivalent rights and cash awards.  All plans are administered by the compensation committee of the Board of Directors who select 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.





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 shares, 259,000 of which have been granted.   The Company authorized 60,000 shares under the 1997 Plan, all of which have been granted.  Under the 2002 Stock Option Plan, the Company authorized 650,000 shares, 611,333 of which have been granted.  The 1996, 1997 and 2002 Plans remain in effect until such time as no shares of Stock remain available for issuance under the Plans and the Company and Optionees have no further rights or obligations under the Plans.  Under the 2010 Equity Incentive Plan, the Company authorized 500,000 shares, none of which have been granted.  The ability to make awards under the 2010 Plan will terminate in May 2020.  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.  Cancelled or expired options are able to be reissued.





The Company measures and recognizes compensation expense for all stock-based payments at fair value. 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. Stock based compensation expense relating to stock option awards for the three months ended March 31, 2011 and 2010 was $21,396 and $18,456, respectively. These expenses were included in the selling, general and administrative lines of the Consolidated Statements of Operations. Unamortized stock compensation expense as of March 31, 2011 totaled approximately $63,061 and these costs will be expensed over a weighted average period of 2.3 years. There were no options granted during the three months ended March 31, 2011.   The following table summarizes stock option activity under the Stock Option Plans for the three months ended March 31, 2011:





Number

of Shares


Weighted

Average

Exercise

Price


Weighted

Average

Remaining

Contractual

Term (Years)


Aggregate

Intrinsic

ValueOutstanding at beginning of period


634,252


$
2.37



3.59


$
2,747,390Granted


—



—



—



—Exercised


3,000



4.45



—



10,050Forfeited or expired


—



—



—



—Outstanding at end of period


631,252


$
2.36



3.32


$
3,309,854Exercisable at end of period


584,278


$
2.02



2.91


$
3,261,073Nonvested at end of period


46,974


$
6.56



8.45


$
48,781





8


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 March 31,2011


2010Net income

$
301,577


$
333,743Shares used in calculation of income per share:Basic


4,576,432



4,570,632Effect of dilutive options


434,811



427,157Diluted


5,011,243



4,997,789Net income per share:Basic

$
0.07


$
0.07Diluted

$
0.06


$
0.07








5.           Comprehensive Income




The following table shows the computation of comprehensive income:





Three Months Ended March 31,2011


2010Net income

$
301,577


$
333,743Other comprehensive income:Foreign currency translation adjustments


6,086



39,210Total comprehensive income

$
307,663


$
372,953








Other comprehensive income (loss) is primarily comprised of gains and losses on the translation of foreign currency denominated financial statements. Adjustments resulting from these translations are accumulated and reported as a component of other comprehensive income (loss) in stockholders’ equity section of the balance sheet.





6.           Subsequent Events





Subsequent events have been considered through the date when this Form 10-Q was filed.  Based on the evaluation, the Company did not identify any subsequent events that would have required adjustment to or disclosure in the unaudited consolidated financial statements.


9


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





Statements made in this Quarterly Report on Form 10-Q, 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 including those identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  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 Quarterly Report on Form 10-Q to conform these statements to actual results.




Overview





Our primary focus is to provide real-time systems solutions, including equipment and software, and services to our customers in the areas of hydrological, meteorological and oceanic monitoring.  We design, manufacture and market these 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 the SatLink2 Transmitter/Logger, the Xpert/XLite dataloggers, the Accububble Self-Contained Bubbler, the Accubar Pressure Sensor, and Tempest and 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 logger.  The Xpert and XLite are more powerful dataloggers that have significantly more logging capability and communications options than the SatLink2.  Our Tempest and XConnect systems software allow us to provide turn-key systems solutions to our customers.





We began fiscal year 2011 with a backlog of approximately $11,748,000 as compared to beginning fiscal year 2010 with a backlog of approximately $11,908,000.  We anticipate that we will continue to experience quarterly fluctuations in our sales and revenues in 2011.  Operating results will depend upon the product mix and upon the timing of project awards.





International sales, which totaled 39% of revenues for 2010, are a significant portion of our revenues.  We believe that international revenues will grow as a percentage of our total business as we plan to develop stronger international partnerships and expand our international sales opportunities. International sales are however difficult to forecast because they are frequently delayed due to the different governmental procurement and approval processes. Our domestic business is highly dependent upon government business.  Contracts and purchase orders with Federal, state and local government agencies represented approximately 39% of our 2010 revenues.





We are committed in our ongoing sales, marketing and research and development activities to sustain and grow our sales and revenues from our products and services.  We expect our sales and marketing, research and development and general and administrative expenses to increase moderately in 2011 as compared to 2010 due to planned spending on sales and marketing activities and on new products and applications.





Critical Accounting Policies and Estimates





The Company's discussion and analysis of financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized 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, see Note 2 to our financial statements included in the Company's Form 10-K for the year ended December 31, 2010. There were no significant changes in critical accounting estimates in the first quarter of 2011.


10


Results of Operations





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 March 31,2011

2010Net sales and revenues
100.0
%
100.0
%Cost of sales and revenues
62.1

61.0Gross profit
37.9

39.0Selling, general and administrative expenses
18.9

20.2Research and Development expenses
9.7

8.5Operating income
9.3

10.3Interest and other income
0.4

0.3Income before income taxes
9.7

10.6Income taxes
3.5

3.8Net income
6.2
%
6.8
%







Three months ended March 31, 2011 Compared to Three Months Ended March 31, 2010





Net Sales and Revenues




Revenues for the first quarter ended March 31, 2011 were flat at $4,880,619 as compared to revenues of $4,899,840 in the first quarter of 2010.  Net sales and revenues are broken down between sales of standard products and sales of systems and services.  Standard products had a net sales and revenue decrease of 22% to $2,288,624 from $2,937,974 in 2010 due primarily to decreased shipments to federal agencies.  Net sales and revenues for systems and services increased 32% to $2,591,995 from $1,961,866 in 2010 due primarily to increased international project and systems sales.




Overall domestic revenues decreased 5% to $2,136,484 in the first quarter of 2011 versus $2,257,745 in 2010 while international revenues increased 4% to $2,744,333 in the first quarter of 2011 versus $2,642,095 in the same period in 2010.  Customer orders or bookings in the first quarter of 2011 decreased 19% to $3,479,122 as compared to $4,277,885 in the first quarter of 2010.





Cost of Sales and Revenues




Cost of sales as a percentage of revenues was 62% for the first quarter of 2011 as compared to 61% for the same period in 2010.   Standard product cost of sales was approximately 50% in the first quarter of 2011 as compared to 56% in 2010.  The decrease was primarily due to a change in the product mix.  Cost of sales for systems and services was 73% in the first quarter of 2011 as compared to 69% in the first quarter of 2010.  The increase was primarily due to higher project costs in the operation of our hydrological services division based in Florida.




11


Selling, General and Administrative Expenses





Selling, general and administrative expenses decreased to $919,606 for the first quarter of 2011 from $989,957 for the same period in 2010. Selling, general and administrative expenses as a percentage of revenues decreased to 19% for the first quarter of 2011 from 20% for the same period in 2010.  The decrease was primarily due to lower audit fees and lower selling costs due to the reduction of a contract employee who provided systems sales assistance.





Research and Development Expenses





Research and development expenses increased to $474,568 for the first quarter of 2011 from $415,796 for the same period in 2010.  The increase was due to increased systems software development costs and increased product development costs.  We released our new 8310 Data Logger early in 2011 which is a replacement for the 8210 Data Logger.  We continue to focus on enhancements to SutronWIN which is a webhosting service for the hosting of customer data. We are also investing in other new products that we believe will improve our competitive position and expand our growth.





Interest and Other Income, Net





Due to our cash position, we did not use our line of credit during the first quarter of 2011.  We had interest income for the quarter ended March 31, 2011 of $18,125 as compared to interest income of $12,985 for the quarter ended March 31, 2010.





Income Taxes





Income tax expense for the quarter ended March 31, 2011 was $171,000 as compared to an income tax expense of $185,000 for the quarter ended March 31, 2010.  The provisions for income taxes represent an effective income tax rate of 36% in 2011 and 2010.





Liquidity and Capital Resources





Cash and cash equivalents were $9,048,976 at March 31, 2011 compared to $9,627,961 at December 31, 2010.  Working capital increased to $17,482,032 at March 31, 2011 compared with $17,086,621 at December 31, 2010.





Net cash used by operating activities was $376,127 for the quarter ended March 31, 2011 as compared to net cash provided by operating activities of $2,324,990 for the quarter ended March 31, 2010. The decrease was due to significant reductions in accounts payable and accrued expenses as well as an increase in accounts receivable.





Net cash used by investing activities was $226,313 for the quarter ended March 31, 2011 as compared to net cash used by investing activities of $649,574 for the quarter ended March 31, 2010.  The decrease is primarily due to a decrease in restricted cash.  Restricted cash reflects bid and performance bonds that are secured by the Company’s cash.





Net cash provided by financing activities was $17,370 for the quarter ended March 31, 2011 as compared to net cash used by financing activities of $0 for the quarter ended March 31, 2010.  Cash provided in 2011 was primarily due to proceeds from the exercise of an employee stock option.





We have a revolving credit facility of $3,000,000 with BB&T.  We are permitted to borrow based on accounts receivable and inventory according to pre-established criteria. The credit facility expires on August 5, 2011 and is secured by substantially all assets of the Company.  Borrowings bear interest at the bank’s prime rate.  During the first quarter of 2011, there were no borrowings on the line of credit.





12


We frequently bid on and enter into international contracts that require bid and performance bonds.  At March 31, 2011 and December 31, 2010, a commercial bank had issued standby letters of credit in the amount of $1,505,000 and $1,583,000 that served as either a bid or performance bond.  The amount available to borrow under the line of credit was reduced by this amount.





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 2011.  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.         Quantitative and Qualitative Disclosures About Market Risk





For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The Company’s exposure to market risk has not changed materially since December 31, 2010.





Item 4T.       Controls and Procedures





(a) Evaluation of Disclosure Controls and Procedures





Our management (with the participation of our Chief Executive Officer and Chief Financial Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2011, the end of the fiscal period covered by this report on Form 10-Q.  The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports are 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 our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.





(b) Changes in Internal Controls over Financial Reporting




There have been no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.











13


PART II - OTHER INFORMATION








Item 1. Legal Proceedings




Various legal claims can arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on our financial statements.  We were named in a compensation claim under the Indian Anti-Trust Law that was filed in 2005 before The Monopolies and Restrictive Trade Practices Commission (the “Commission”) in New Delhi, India.  The claim was dismissed by the Commission in March 2011.





Item 6. Exhibits




31.1
Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a).




31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).




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




















14


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)May 13, 2011

Date
By:
/s/  Raul S. McQuiveyRaul S. McQuiveyPresident and Chief Executive Officer

(Principal Executive Officer)
  May 13, 2011

Date
By:
/s/ Sidney C. HooperSidney C. HooperChief Financial Officer and Treasurer

(Principal Accounting Officer)
      15