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, 2009


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)






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  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).    Yes
o    
 No o




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 4,570,632 outstanding shares of the issuer’s only class of common equity,
Common Stock, $0.01 par value, on May 13, 2009.







SUTRON
CORPORATION


FORM
10-Q QUARTERLY REPORT


FOR
THE QUARTER ENDED MARCH 31, 2009





TABLE
OF CONTENTS







Part
      I
                      Financial
      InformationItem
      1.
                      Financial
      Statements
                      3Condensed
      Consolidated Balance Sheet as of March 31, 2009 and December 31,
      2008
                      3Condensed
      Consolidated Statements of Operations for the Three Months Ended March 31,
      2009 and 2008
                      4Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2009 and 2008
                      5Financial
      Footnotes
                      6Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      9Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      13Item
      4T.
                      Controls
      and Procedures
                      13Part
      II
                      Other
      InformationItem
      1.
                      Legal
      Proceedings
                      14Item
      6.
                      Exhibits
                      14Signatures
                      
                      14
































2


PART
I.     FINANCIAL INFORMATION





ITEM 1.  
FINANCIAL STATEMENTS





SUTRON
CORPORATION


CONSOLIDATED
BALANCE SHEETS





(Unaudited)
                  March
      31,
                  2009
                
                
                (Audited)
                  December
      31,
                  2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                3,703,079
                
                
                $
                3,705,475Restricted
      cash and cash equivalents
                
                
                930,048
                
                
                
                784,920Accounts
      receivable, net
                
                
                3,492,664
                
                
                
                3,872,527Inventory
                
                
                3,826,779
                
                
                
                4,053,788Prepaid
      items and other assets
                
                
                197,492
                
                
                
                302,633Income
      taxes receivable
                
                
                988,541
                
                
                
                983,875Deferred
      income taxes
                
                
                321,000
                
                
                
                308,000Total Current
      Assets
                
                
                13,459,603
                
                
                
                14,011,218Property
      and Equipment, Net
                
                
                442,118
                
                
                
                372,745Other
      AssetsGoodwill
                
                
                570,150
                
                
                
                570,150Other
      Assets
                
                
                159,277
                
                
                
                95,057Total
      Assets
                
                $
                14,631,148
                
                
                $
                15,049,170LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                735,755
                
                
                $
                1,200,721Accrued
      payroll
                
                
                204,039
                
                
                
                129,142Other
      accrued expenses
                
                
                656,205
                
                
                
                794,307Notes
      payable – current
                
                
                —
                
                
                
                2,765Billings
      in excess of costs and estimated earnings
                
                
                111,335
                
                
                
                139,117Total Current
      Liabilities
                
                
                1,707,334
                
                
                
                2,266,052Long-Term
      LiabilitiesDeferred
      income taxes
                
                
                59,000
                
                
                
                59,000Total Long-term
      Liabilities
                
                
                59,000
                
                
                
                59,000Total
      Liabilities
                
                
                1,766,334
                
                
                
                2,325,052Stockholders’
      EquityCommon
      stock
                
                
                45,707
                
                
                
                45,707Additional
      paid-in capital
                
                
                2,827,685
                
                
                
                2,778,775Retained
      earnings
                
                
                10,115,763
                
                
                
                10,009,105Accumulated
      other comprehensive loss
                
                
                (124,341
                )
                
                
                (109,469
                )Total
      Stockholders’ Equity
                
                
                12,864,814
                
                
                
                12,724,118Total
      Liabilities and Stockholders’ Equity
                
                $
                14,631,148
                
                
                $
                15,049,170











See
accompanying notes.




3


SUTRON
CORPORTION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)








Three
      Months Ended March 31,2009
                      
                      
                      2008Net
      sales and revenues
                      
                      $
                      3,575,031
                      
                      
                      $
                      3,819,048Cost
      of sales and revenues
                      
                      
                      2,188,742
                      
                      
                      
                      2,324,396Gross
      profit
                      
                      
                      1,386,289
                      
                      
                      
                      1,494,652Operating
      expenses:Selling,
      general and administrative expenses
                      
                      
                      1,010,035
                      
                      
                      
                      881,301Research
      and development expenses
                      
                      
                      359,089
                      
                      
                      
                      290,755Total
      operating expenses
                      
                      
                      1,369,124
                      
                      
                      
                      1,172,056Operating
      income
                      
                      
                      17,165
                      
                      
                      
                      322,596Interest
      and other income, net
                      
                      
                      172,493
                      
                      
                      
                      40,321Income
      before income taxes
                      
                      
                      189,658
                      
                      
                      
                      362,917Income
      tax expense
                      
                      
                      83,000
                      
                      
                      
                      116,000Net
      income
                      
                      $
                      106,658
                      
                      
                      $
                      246,917Net
      income per share:Basic
      income per share
                      
                      $
                      .02
                      
                      
                      $
                      .05Diluted
      income per share
                      
                      $
                      .02
                      
                      
                      $
                      .05











See
accompanying notes.




4


SUTRON
CORPORTION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)








Three
      Months Ended March 31,2009
                      
                      
                      2008Cash
      Flows from Operating Activities:Net
      income
                      
                      $
                      106,658
                      
                      
                      $
                      246,917Noncash
      items included in net income:Depreciation
      and amortization
                      
                      
                      45,000
                      
                      
                      
                      53,460Deferred
      income taxes
                      
                      
                      (13,000
                      )
                      
                      
                      (14,000
                      )Stock
      option compensation
                      
                      
                      48,910
                      
                      
                      
                      12,228Gain
      of disposal of property
                      
                      
                      (3,210
                      )
                      
                      
                      —Changes
      in current assets and liabilities:Accounts
      receivable
                      
                      
                      379,863
                      
                      
                      
                      266,006Inventory
                      
                      
                      227,009
                      
                      
                      
                      (489,962
                      )Prepaid
      items and other assets
                      
                      
                      40,921
                      
                      
                      
                      (22,916
                      )Income
      taxes receivable
                      
                      
                      (4,666
                      )
                      
                      
                      —Accounts
      payable
                      
                      
                      (464,966
                      )
                      
                      
                      83,564Accrued
      expenses
                      
                      
                      (63,205
                      )
                      
                      
                      (163,080
                      )Billings
      in excess of costs and estimated earnings
                      
                      
                      (27,782
                      )
                      
                      
                      (246,448
                      )Net
      Cash Provided by Operating Activities
                      
                      
                      271,532
                      
                      
                      
                      274,231Cash
      Flows from Investing Activities:Restricted
      cash and cash equivalents
                      
                      
                      (145,128
                      )
                      
                      
                      (38,110
                      )Purchase
      of property and equipment
                      
                      
                      (114,373
                      )
                      
                      
                      4,978Proceeds
      from sales of property and equipment
                      
                      
                      3,210
                      
                      
                      
                      —Net
      Cash Used by Investing Activities
                      
                      
                      (256,291
                      )
                      
                      
                      (33,132
                      )Cash
      Flows from Financing Activities:Payments
      on notes payable
                      
                      
                      (2,765
                      )
                      
                      
                      (15,435
                      )Proceeds
      from stock options exercised
                      
                      
                      —
                      
                      
                      
                      3,400Net
      Cash Used by Financing Activities
                      
                      
                      (2,765
                      )
                      
                      
                      (12,035
                      )Effect
      of exchange rate changes on cash
                      
                      
                      (14,872
                      )
                      
                      
                      2,316Net
      decrease in cash and cash equivalents
                      
                      
                      (2,396
                      )
                      
                      
                      (317,082
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      3,705,475
                      
                      
                      
                      5,299,904Cash
      and cash equivalents at end of period
                      
                      $
                      3,703,079
                      
                      
                      $
                      4,982,822











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 and engineering 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-K for the year ended December 31, 2008. The condensed
consolidated balance sheet as of December 31, 2008 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-K for the year ended December 31, 2008 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 statements in its Annual Report on Form 10-K
for the year ended December 31, 2008 for additional information related to
the stock option plans.




6


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 months ended March 31, 2009 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 months ended March 31, 2009, total stock-based compensation
expense of $48,910 was included in operating expenses as compared to stock-based
compensation of $12,228 for the three months ended March 31, 2008. The weighted
average fair value of options granted during the three months ended
March 31, 2009 was calculated using the Black-Scholes option pricing model
with the following valuation assumptions and weighted average fair value as
follows:




Three
      MonthsEnded
      March 31, 2009Weighted
      average fair value of grants
                  $4.45Expected
      volatility
                  25%Dividend
      yield
                  0Risk-free
      interest rate
                  2.46%Expected
      term in years
                  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.





New
Accounting Standards





The
following new accounting standards and amendments to standards first became
effective for the fiscal year beginning January 1, 2009:





•
            
            Statement
      of Financial Accounting Standard (“FAS”) No. 141 (revised 2007),
      Business Combinations(“FAS 141(R)”) and FAS No. 160, Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of Accounting
      Research Bulletin No. 51 (“FAS 160”). The adoption of FAS 141(R) and
      FAS 160 did not have a material impact on the Company’s condensed
      consolidated financial statements as of January 1, 2009. FAS 141(R)
      will require the expensing of acquisition costs incurred in future
      acquisitions and contingent consideration will be recorded at the
      acquisition date for future acquisitions.•
            
            Financial
      Accounting Standards Board (“FASB”) Staff Position No. FAS 142-3,
      Determination of the
      Useful Life of Intangible Assets(“FSP FAS 142-3”). The adoption of
      FSP FAS 142-3 did not have an impact on the Company’s condensed
      consolidated financial statements.





The
following new standards, amendments to standards and interpretations first
became effective for the fiscal year beginning January 1, 2009 but are not
currently relevant to the Company:





•
            
            FAS
      No. 161, Disclosures about Derivative
      Instruments and Hedging Activities, an amendment of FAS
      No. 133•
            
            FASB
      Staff Position No. FAS 157-2, Effective Date of FASB
      Statement No. 157(“FSP FAS 157-2”), to partially defer FAS
      No. 157, Fair Value
      Measurements(“FAS 157”)  7
 •
            
            FASB
      Staff Position No. FAS 157-4, Determining Fair Value When
      the Volume and Level of Activity for the Asset or Liability Have
      Significantly Decreased and Identifying Transactions That Are Not Orderly.This FASB Staff Position provides additional guidance for
      estimating fair value in accordance with FAS 157, Fair Value
      Measurements, when the volume and level of activity for the asset
      or liability have significantly decreased.•
            
            FASB
      Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation
      of Other-Than-Temporary Impairments.This FASB Staff Position
      amends the other-than-temporary impairment guidance for debt securities to
      make the guidance more operational and to improve the presentation and
      disclosure of other-than-temporary impairments on debt and equity
      securities in the financial
statements.





The
following new standard has been issued, but is not effective for the fiscal year
beginning January 1, 2009 and has not been early adopted:





•
            
            FAS
      No. 162, The
      Hierarchy of Generally Accepted Accounting Principles(“FAS 162”).
      FAS 162 identifies the sources of accounting principles and the framework
      for selecting the principles used in the preparation of financial
      statements for non-governmental entities that are presented in conformity
      with accounting principles generally accepted in the United States of
      America. FAS 162 will be effective 60 days after the SEC approves the
      Public Company Accounting Oversight Board’s amendments to AU
      Section 411. The Company does not anticipate the adoption of FAS 162
      will have an impact its consolidated financial
  statements.








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 shares, 259,000 of which have been
granted.   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, 546,333 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 three months ended March 31,
2009:





Number
                  of
      Shares
                Weighted
      Avg.
                  Exercise
      Price
                Number
      of
                  Options
      ExercisableBalance
      – December 31, 2008
                544,252
                $1.80
                544,252Granted
                30,000
                4.45Exercised
                —
                —Canceled
                —
                —Balance
      – March 31, 2009
                574,252
                $1.93
                574,252




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 31,2009
                        
                        
                        2008Net
      income
                        
                        $
                        106,658
                        
                        
                        $
                        246,917Shares
      used in calculation of income per share:Basic
                        
                        
                        4,570,632
                        
                        
                        
                        4,531,354Effect
      of dilutive options
                        
                        
                        388,805
                        
                        
                        
                        443,141Diluted
                        
                        
                        4,959,437
                        
                        
                        
                        4,974,495Net
      income per share:Basic
                        
                        $
                        .02
                        
                        
                        $
                        .05Diluted
                        
                        $
                        .02
                        
                        
                        $
                        .05







5.           Comprehensive
Income (Loss)





The
following table shows the computation of comprehensive loss income:





Three
      Months Ended March 31,2009
                        
                        
                        2008Net
      income
                        
                        $
                        106,658
                        
                        
                        $
                        246,917Other
      comprehensive income (loss):Foreign
      currency translation adjustments
                        
                        
                        (14,872
                        )
                        
                        
                        2,316Total
      comprehensive (loss) income
                        
                        $
                        91,786
                        
                        
                        $
                        249,233





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.







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, 2008.  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 Quarterly Form 10-Q
to conform these statements to actual results.





9


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 monitoring
and control, meteorological monitoring including airport weather systems,
oceanic monitoring and hydrological services.  We design, manufacture and
market these products and services to a diversified customer base consisting of
federal, state, local and foreign governments, universities and engineering 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, Xpert/XLite datalogger, Accububble
Self-Contained Bubbler, Accubar Pressure Sensor, Tides Systems 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.  Because of its logger/transmitter
functionality, it is a cost-effective solution for small systems that do not
require a significant number of sensors or communications
options.  The Xpert and XLite are more powerful dataloggers that have
more logging capability and more communications options than the
SatLink2.  Our Tides Systems are the only National Ocean Survey
approved tides monitoring system in the United States.





International
sales, which totaled 42% of revenues for 2008, continue to constitute a more
significant portion of our revenues.  We expect international revenues
to grow as a percentage of our total business. International sales are however
difficult to forecast and international awards are frequently delayed due to
governmental approvals.  Our contract with the Ministry of Energy and
Water in Afghanistan could be impacted by security issues.  If
stations cannot be installed in certain areas of the country due to security
issues, this could result in a reduction in the scope of work and in the
contract value.  Contract backlog on this project at March 31, 2009
was approximately $1,725,000. We are committed to our airport weather systems
business which only competes internationally although we compete against
established firms with more experience.





Our
domestic business is highly dependent upon government
business.  Contracts and purchase orders with Federal, state and local
government agencies represented approximately 46% of our 2008
revenues.  Due to economic conditions, we believe that competition in
2009 will continue to be more price-based.  We are closely following
the federal economic stimulus plan.  We believe that we will benefit
from increased future spending on water resources projects.  We
believe that this will result in major customer orders in 2009 and 2010 from our
federal and state customers. We are committed to growing our hydrological
services however our primary customer in Florida, South Florida Water Management
District (SFWMD), has expanded the pool of qualified contractors on all our
contracts.  We therefore must expand our business outside of
SFWMD.  We also hope to sell significantly more standard products
through our Hydrological Services which was a primary reason for setting up
operations in Florida.  We have added the Ilex Division through our
purchase of Ilex Engineering on December 31, 2008.  We believe that
Ilex will help us compete better in the GOES data collection services market and
global satellite market, both domestically and internationally.





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 2009 as
compared to 2008.







10


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 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 1 to our financial statements included in the Company’s Form 10-K for
the year ended December 31, 2008. There were no significant changes in critical
accounting estimates in the first quarter of 2009.





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
      31,2009
                                                  
                                                  2008Net
      sales and revenues
                                                  
                                                  
                                                  100.0
                                                  %
                                                  
                                                  
                                                  100.0
                                                  %Cost
      of sales and revenues
                                                  
                                                  
                                                  61.2
                                                  
                                                  
                                                  
                                                  60.9Gross
      profit
                                                  
                                                  
                                                  38.8
                                                  
                                                  
                                                  
                                                  39.1Selling,
      general and administrative expenses
                                                  
                                                  
                                                  28.3
                                                  
                                                  
                                                  
                                                  23.1Research
      and Development expenses
                                                  
                                                  
                                                  10.0
                                                  
                                                  
                                                  
                                                  7.6Operating
      income
                                                  
                                                  
                                                  .5
                                                  
                                                  
                                                  
                                                  8.4Interest
      and other income
                                                  
                                                  
                                                  4.8
                                                  
                                                  
                                                  
                                                  1.1Income
      before  income taxes
                                                  
                                                  
                                                  5.3
                                                  
                                                  
                                                  
                                                  9.5Income
      taxes (benefit)
                                                  
                                                  
                                                  2.3
                                                  
                                                  
                                                  
                                                  3.0Net
      income
                                                  
                                                  
                                                  3.0
                                                  %
                                                  
                                                  
                                                  6.5
                                                  %





Three
months ended March 31, 2009 Compared to Three Months Ended March 31,
2008





Net
Sales and Revenues




Revenues
for the first quarter ended March 31, 2009 decreased 6% to $3,575,031 from
$3,819,048 in 2008.  Net sales and revenues are broken down between
sales of standard products and sales of systems, software and
services.  Standard products had a net sales and revenue decrease of
..6% to $2,118,575 from $2,130,821 in 2008.  Net sales and revenues for
systems, software and services decreased 15% to $1,458,699 from $1,711,641 in
2008 primarily due to decreased contract revenue from the Company’s project with
the Afghanistan Ministry of Energy and Water (MEW) to provide 174 hydrological
monitoring stations.  MEW contract revenue decreased to approximately
$159,000 in the first quarter of 2009 as compared to approximately $513,000 in
the first quarter of 2008.  Intercompany sales reduced net sales and
revenues in the amount of $2,242 during the first quarter of 2009 as compared to
a reduction of $23,414 in the first quarter of 2008.




Overall
domestic revenues increased 1% to $2,149,397 in the first quarter of 2009 versus
$2,118,683 in 2008 while international revenues decreased 16% to $1,425,634 in
the first quarter of 2009 versus $1,700,365 in the same period in
2008.  Customer orders or bookings in the first quarter of 2009 were
$2,732,622 as compared to $2,507,580 in the first quarter of 2008.





11


Cost
of Sales and Revenues




Cost of
sales as a percentage of revenues was 61.2% for the first quarter of 2009 as
compared to 60.9% for the same period in 2008.   Standard product
cost of sales was approximately 48% in the first quarter of 2009 as compared to
42% in 2008.  The cost increase was primarily due to an increase
warranty costs.  Cost of sales for systems, software and services was
80.3% in the first quarter of 2009 as compared to 82.4% in the first quarter of
2008.




Selling,
General and Administrative Expenses





Selling,
general and administrative expenses increased to $1,010,035 for the first
quarter of 2009 from $881,301 for the same period in 2008. Selling, general and
administrative expenses as a percentage of revenues increased to 28.3% for the
first quarter of 2009 from 23.1% for the same period in 2008 due to the revenue
decrease.  The increase was primarily due to higher agent commissions
in the amount of approximately $77,000 relating to several international
projects and higher stock option expenses in the amount of approximately
$37,000.





Research
and Development Expenses





Research
and development expenses increased to $359,089 for the first quarter of 2009
from $290,755 for the same period in 2008.  The increase was due to
higher product development costs relating to improvements to our radar level
recorder and an increase in R&D personnel.  Our product
development continues to focus on enhancements to our current products including
our Satlink2 satellite transmitter/logger, our Xpert and XLite dataloggers, our
water level sensors and tides systems.  These are the primary
components of hydro-meteorological and oceanic monitoring systems.  We
continue to invest in new products that we believe will improve our competitive
position.





Interest
and Other Income, Net





Due to
our cash position, we did not use our line of credit during the first quarter of
2009.  We had interest income for the quarter ended March 31, 2009 of
$19,318 as compared to interest income of $40,321 for the quarter ended March
31, 2008.  In 2007, we brought a lawsuit against our former
Hydrological Services Vice President.   We settled the lawsuit in
January 2009 in the amount of $150,000. The settlement provided for the
immediate payment of $60,000.  The remaining balance of $90,000 was
secured by a promissory note that requires monthly payments over a five year
period including interest at 4%.





Income
Taxes





Income
tax expense for the quarter ended March 31, 2009 was $83,000 as compared
to income tax expense of $116,000 for the quarter ended March 31,
2008.  The provisions for income taxes represent an effective income
tax rate of 44% in 2009 and an effective income tax rate of 32% in
2008.  The increase is due to the exercise of stock options resulting
in tax deductible compensation in 2008 while there were no employee stock option
exercises in 2009.  The increase is also due to an increase in
stock-based compensation expense recognized in 2009 for stock options issued and
not completely vested.





12


Liquidity and Capital
Resources





Cash and
cash equivalents were $3,703,079 at March 31, 2009 compared to $3,705,475 at
December 31, 2008.  Working capital increased slightly to $11,752,269
at March 31, 2009 compared with $11,745,166 at December 31, 2008.





Net cash
provided by operating activities was $271,532 for the quarter ended March 31,
2009 as compared to net cash provided by operating activities of $274,231 for
the quarter ended March 31, 2008.





Net cash
used by investing activities was $256,291 for the quarter ended March 31, 2009
as compared to net cash used by investing activities of $33,132 for the quarter
ended March 31, 2008.  An increase of $145,128 in restricted cash in
the first quarter of 2009 was related to a bid bond issued to the India
Meteorological Department.  The increase in purchases of property and
equipment is due to leasehold improvements relating to our new corporate
headquarters that is expected to be completed in May 2009.





Net cash
used by financing activities was $2,765 for the quarter ended March 31, 2009 as
compared to net cash used by financing activities of $12,035 for the quarter
ended March 31, 2008.  The decrease was due to a reduction in the
amount of term notes payable.





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, 2009 and is
secured by substantially all assets of the Company.  Borrowings bear
interest at the bank’s prime rate.  During the first quarter of 2009,
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 March 31, 2009 and December 31, 2008, a
commercial bank had issued standby letters of credit in the amount of $1,010,238
that served as either a bid or performance bond.  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 2009.  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, 2008. The
Company exposures to market risk have not changed materially since
December 31, 2008.





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, 2009,
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.





13


(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, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.









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 have been named in a compensation claim under the
Indian Anti-Trust Law that was filed in 2005 and is still pending before The
Monopolies and Restrictive Trade Practices Commission in New Delhi,
India.  We believe that the case is unsubstantiated and do not
anticipate any material losses.





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.








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
      14, 2009
                              /s/ Raul
      S. McQuiveyDate
                              Raul
      S. McQuiveyPresident
      and Chief Executive Officer(Principal
      Executive Officer)




May
      14, 2009
                                    /s/ Sidney
      C. HooperDate
                                    Sidney
      C. HooperChief
      Financial Officer and Treasurer(Principal
      Accounting Officer)
   14