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

                                    FORM 10-K

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
              OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2008

                         COMMISSION FILE NUMBER: 0-12227

                               SUTRON CORPORATION
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             (Exact name of registrant as specified in its charter)

           VIRGINIA                                             54-1006352
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(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                            Identification No.)


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

                                 (703) 406-2800
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               (Registrants telephone number, including area code)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) for the Exchange Act. Yes |_| No |X|

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

Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. |_|

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 |_|                 Accelerated filer         |_|
Non-accelerated filer   |_|                 Smaller reporting company |X|

<PAGE>

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of $4.21 as reported by the NASDAQ Stock
Market, Inc. for the Registrant's Common Stock as of March 27, 2009, was
$15,227,098.

The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of March 27, 2009 was 4,570,632.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrants' Definitive Proxy Statement for the 2009
Annual Meeting of Shareholders, which will be filed within 120 days after the
end of the year covered by this Form 10-K, are incorporated in Part III as set
forth herein.
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                               SUTRON CORPORATION

                                TABLE OF CONTENTS

PART I
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Item 1.   Business                                                             4
Item 1A   Risk Factors                                                         9
Item 1B   Unresolved Staff Comments                                           12
Item 2.   Properties                                                          12
Item 3.   Legal Proceedings                                                   12
Item 4.   Submission of Matters to a Vote of Security Holders                 12


PART II
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Item 5.   Market for Registrant's Common Equity, Related
            Stockholder Matters and Issuer Purchases of Equity Securities     12
Item 6.   Selected Financial Data                                             14
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                           15
Item 7A   Quantitative and Qualitative Disclosures about Market Risk          22
Item 8.   Financial Statements and Supplementary Data                         23
Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosures                                         40
Item 9A   Controls and Procedures                                             40
Item 9B   Other Information                                                   41


PART III
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Item 10.  Directors, Executive Officers and Corporate Governance              41
Item 11.  Executive Compensation                                              41
Item 12.  Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters                        41
Item 13.  Certain Relationships, Related Transactions and
            Directors Independence                                            41
Item 14.  Principal Accountant Fees and Services                              41


PART IV
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Item 15.  Exhibits and Financial Statement Schedules                          42


SIGNATURES                                                                    43

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                                     PART I

                   NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Form 10-K includes forward-looking statements regarding our expected future
financial position, results of operations, cash flows, financing plans, business
strategy, products and services, competitive positions, growth opportunities,
plans and objectives of management for future operations. Statements that
include words such as "anticipate," "if," "believe," "plan," "estimate,"
"expect," "intend," may," "should" and other similar expressions are
forward-looking statements. All forward-looking statements involve risks,
uncertainties and contingencies which may cause actual results, performance, or
achievements to differ materially from anticipated results, performance, or
achievements. Factors that may cause actual results to differ materially from
those in the forward-looking statements include those discussed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this report. All forward-looking
statements speak only to events as of the date on which the statements are made.
All subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are qualified by the cautionary statements in
this section. We undertake no obligation to update or publicly release any
revisions to forward-looking statements to reflect events, circumstances or
changes in expectations after the date on which the statement is made.

ITEM 1 - BUSINESS

Sutron Corporation was incorporated on December 30, 1975 under the General Laws
of the Commonwealth of Virginia. Our headquarters is located at 21300 Ridgetop
Circle, Sterling, Virginia 20166, and the telephone number at that location is
(703) 406-2800. We maintain a worldwide web address at www.sutron.com. The
information contained on our website is not incorporated by reference into this
Form 10-K and shall not be considered a part of this Form 10-K.

We design, manufacture and market products and solutions that enable government
and commercial 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 and for the optimization of
hydropower plants. We provide real-time solutions and services to our customers
in three areas of the hydrological, meteorological and oceanic markets. First,
we provide real-time data collection and control products consisting primarily
of dataloggers, satellite transmitters/loggers, water level and meteorological
sensors and tides monitoring systems. Second, we provide turnkey integrated
systems for hydrological and meteorological networks including airport weather
systems. Third, we provide services consisting of installation, training and
maintenance of hydrological and meteorological networks and other related
engineering services. Our customers include a diversified base of federal,
state, local and foreign governments, engineering companies, universities and
hydropower companies.

Our ongoing, principal strategic business units consist of the Hydromet Products
Division, the Integrated Systems Division, the Hydrological Services Division
and our India operations that consist of a branch office and a wholly owned
subsidiary, Sutron Hydromet Systems Private Limited. The Integrated Services
Division includes the results of providing airport weather systems and special
projects due to similarity of services and due to these units not being
significant in terms of size and volume. Each unit includes a range of products
and services designed to meet the specific needs of a particular customer
segment. Our India branch office was established in 2004 to comply with India
tax laws and the India wholly owned subsidiary was established in 2005 in order
to gain access to the local market. On December 31, 2008, we purchased the
assets of Ilex Engineering located in Columbia, Maryland, a provider of DOMSAT
systems, custom software and engineering services.

The Hydromet Products Division manufactures dataloggers, satellite
transmitters/loggers, water level and meteorological sensors and tides
monitoring systems. Dataloggers collect sensor data and transmit the data to
central facilities primarily by satellite radio but also by cell phone, fiber
optics or microwave. Our sensors collect hydrological and meteorological data
and include a tipping bucket rain gauge, a barometric pressure sensor, a
temperature sensor and differing types of water level sensors including shaft
encoders, bubbler systems, submersible sensors and radar sensors. Our
dataloggers can interface to sensors from other companies. We have long-standing
relationships with suppliers for wind speed and wind direction, water quality,
humidity and solar radiation sensors. The principal products that are
manufactured by the Hydromet Products Division are described below.

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XPERT AND XLITE DATALOGGERS

The Xpert Datalogger/controller is our fourth generation datalogger. The Xpert
is environmentally hardened and capable of operating from -40 C to 60 C. It runs
on a Microsoft CE operating system, has a 486 microprocessor, C++ programming
and standard 2 MB memory that is expandable to over 1 gigabyte. The XLite, a
derived product based on the Xpert, does not have a display but is similarly
capable. The XLite was released at the end of 2001.

The Xpert and XLite dataloggers are the core of a wide-range of remote
monitoring and control systems, The rugged Xpert is highly modular and can be
leveraged to handle multiple applications, from the simplest to the most
complex. Its Sensor Library programs are for widely used brand name sensors and
all Sutron sensors. Generic measurement objects make adding support for new
sensors very easy. It is designed specifically to support a variety of portable
and permanent monitoring and control applications and systems including
automatic weather stations, agrimet stations, synoptic weather stations, AWOS
stations, tide stations, hydromet stations, water level and water quality
stations, rainfall stations, gate control stations, irrigation and water
distribution control stations, stream gaging stations, dam safety stations and
flood forecasting, monitoring, control and warning systems

SATLINK2

In January 2004, the SatLink2 was certified by the National Environmental
Satellite, Data and Information Services (NESDIS). The SatLink2 is a redesign of
the original SatLink transmitter in order to provide the latest features, to
improve functionality and to lower manufacturing costs. The SatLink2 is a high
data rate satellite transmitter/logger that transmits at 100, 300 and 1200 baud,
incorporates GPS and functions as a logger. The SatLink transmitter was
certified by the NESDIS in July 2001 for operation on the Geostationary
Operational Environment Satellite (GOES) system. NESDIS operates two U.S.
Government environmental satellites on this system. All GOES customers are
mandated by NESDIS to purchase high data rate satellite transmitters and to
replace all old 100 baud transmitters within a ten-year period beginning in July
2001. NESDIS made this a requirement in order to increase the amount of data
that the two GOES satellites can handle.

SatLink2 is certified on all major satellite systems around the world and works
with virtually all dataloggers. SatLink2 is programmable from any PC or PDA
using software provided with the unit. SatLink2's innovative design includes
everything needed to collect high quality data, without costly options. Our
standard unit includes a built-in logger, SDI-12 interface, dedicated tipping
bucket input, 4 analog inputs and a powerful mathematical equation editor.

STAGE DISCHARGE RECORDER

The Stage Discharge Recorder is an ultra-reliable SDI-12 optical encoder fused
with logger technology from our Satlink2 Transmitter/Logger to create an encoder
that never forgets. Using proven float-tape-counterweight technology, the Stage
Discharge Recorder is a "plug compatible" replacement for strip chart recorders
or punched-tape recorder. The Stage Discharge Recorder saves data in
ultra-reliable flash memory. This means that there are no backup batteries for
the memory. The Stage Discharge Recorder incorporates standard flume and weir
equations and can compute and log discharge totals and display discharge as well
as flume/weir stage. A built-in event log keeps track of when anyone views or
downloads data or makes changes to the setup. The Stage Discharge Recorder will
run up to one year on an industrial alkaline battery.

ACCUBAR GAUGE PRESSURE SENSOR

The Accubar Gauge Pressure sensor is used in water level monitoring systems and
is a highly accurate solid state pressure transducer capable of measuring
air/dry gas pressures from 0 to 22 psi with a maximum pressure of 35 psi. It is
housed in an aluminum case and with its low power consumption and low
maintenance requirements, it is ideal for remote monitoring applications.

ACCUBUBBLE SELF-CONTAINED BUBBLER SYSTEM

The AccuBubble Self-Contained Bubbler is a mercury-free and nitrogen-free
bubbler apparatus designed for low maintenance water level measuring. Using the
Sutron Accubar Pressure Sensor as the control and sensing element

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makes the AccuBubble a very stable and highly accurate water level measuring
device. The AccuBubble uses power conservation techniques to minimize current
consumption. The bubbler purges the orifice line prior to each measurement. This
eliminates the need for a constant bubble rate, which has been known to consume
excessive power. In addition, the purging sequence prevents debris build up in
the orifice line. The AccuBubble uses an oil-less, non-lubricated piston and
cylinder compressor. This type of compressor is designed to give consistent air
delivery without the use of a diaphragm which can rupture over time. The
AccuBubble uses the SDI-12 communications protocol as the control interface.
This allows the unit to be configured by any data logger supporting the SDI-12
standard.

TIDES AND PORTS SYSTEMS

The National Ocean Survey (NOS), part of the National Oceanic and Atmospheric
Administration (NOAA), has the responsibility to accurately measure tide levels
around the perimeter of the United States. NOS ensures that measurements are the
most accurate possible by using the best water level instruments available. Tide
stations are based on the Xpert data logger and the SatLink2. Xperts run the
powerful Windows CE multi-tasking operating system. Sutron has taken advantage
of Windows CE to equip each tide station with software that meets and exceeds
all of the NOS requirements. In 2004, we enhanced the capabilities of tides
systems by adding Storm Surge/Tsunami software. This software provides added
capability to tides stations to detect and provide tsunami warnings.

The Main Tide Station is designed to detect a vast array of events. Sutron's
Xpert Logger is a Windows device programmable to monitor multiple parameters
including traditional NOS methods such as sudden water level drops and seismic
sensors, or both at one time. It supports a wide variety of water level
monitoring and weather instruments. The Main Tide Station provides
pre-programmed support for all NOS-required tidal data processing. The Main Tide
Station also supports GOES satellite and a wide variety of other telemetry
methods including cell and marine phones. The tides station provides built-in
surge protection for all inputs. Although designed for the tidal market, the
Main Tide Station is an ideal starting point for a wide variety of highly
reliable and accurate weather stations.

The Integrated Systems Division provides system integration services consisting
of the design, integration, and installation and commissioning of
customer-specific configurations and software applications for hydrological and
meteorological monitoring and control systems. The division is also responsible
for the sale of our XConnect database systems software and long-term software
support for XConnect users. This software capability allows us to provide
turnkey hydrological and meteorological systems to a variety of users. Projects
may range in size from one station to hundreds of stations. Projects usually
require design, equipment integration, software application development,
installation, training and commissioning. Projects can range in duration from
several days to twelve months depending on the scope and complexity of the
system.

Airport weather systems are integrated and installed by the Integrated Services
Division. We have contracted with a seasoned manager with over 20 years
experience in the Automatic Weather Observation System (AWOS) market to lead our
airport weather efforts. Typically, an AWOS includes a sensor suite to measure
wind direction and speed, temperature, relative humidity, precipitation, and
barometric pressure as well as cloud height and horizontal visibility/runway
visibility. Sensors are connected to an Xpert datalogger, which processes the
data, stores it in a relational database and transmits real-time weather
parameters to all designated users, regardless of location. The system produces
weather reports for aviation and meteorological use, virtually automatically and
without need of human intervention.

Special projects are customer funded projects for the development of specific
products or systems. Special projects vary in size, complexity and duration. We
received one Small Business Innovation Research (SBIR) contract in 2007. The
SBIR was to continue to develop and test a prototype (preliminary design and
specifications) for a "DCPI Low Power and Low Cost Command Receiver". The new
DCPI (Data Collection Platform with Interrogate Capability) employing DS-CDMA RF
transmission techniques will allow two-way communication through the GOES
Satellite System and other geostationary satellite systems. We anticipate
completing this project in 2009.

The Hydrological Services Division provides hydrologic services including data
interpretation and analysis, flow modeling (low flow, rainfall runoff, unsteady
flow routing, water surface profiles), field studies (time of travel, diffusion,
dispersion, calibration of flow control structures, site location), hydrologic
studies (water budget,

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regression analysis, basin inventory studies), environmental permitting, legal
or expert witness and equipment integration, installation, commissioning and
maintenance.

Our India Operations consist of a Branch Office that was established early in
2004 in order to comply with India tax law and to perform work on an annual
maintenance contract that was received from the Central Water Commission of
India (CWC) in July 2004. In February 2005, we established Sutron HydroMet
Systems Private Limited, a wholly owned subsidiary, in order to bid on National
tenders. Our India Operations procures local goods for projects and performs
systems integration, civil works construction, installation, commissioning and
maintenance. Our India Operations maintains over 260 remote automatic real-time
hydromet monitoring stations in India under contracts with the CWC and with the
Government of Andhra Pradesh.

On December 31, 2008, we purchased the assets of Ilex Engineering, Inc., a
provider of DOMSAT systems, custom software and engineering services, located in
Columbia, Maryland. Ilex's customers are primarily the same government agencies
as ours including the U.S. Army Corps of Engineers, U.S. Geological Survey,
National Oceanic and Atmospheric Administration (NOAA), National Weather Service
and U.S. Bureau of Reclamation. The acquisition is expected to strengthen our
position in the GOES data collection services market and global satellite
market. The purchase price was approximately $575,000. The excess of the
purchase price over the fair value of assets purchased in the amount of
approximately $570,000 was recorded as goodwill. Goodwill represents the excess
of cost of the acquired net assets over the net amounts assigned to assets
acquired and liabilities assumed. Goodwill is not amortized, but rather
evaluated for impairment each year. Impairment exists when the carrying amount
of goodwill exceeds its implied fair value.

SALES AND MARKETING

We market our products and services domestically and internationally. Domestic
sales are conducted by our internal sales staff that consists of five salaried
sales personnel who are directly engaged in direct sales activities. The sales
staff is assisted by two other employees in marketing and sales support
functions. Internationally, we have two employees who cover the world and who
work closely with our international sales network that consists of 35 resellers
and agents in Canada, Latin and South America, Europe, Africa, Asia and
Australia.

COMPETITION

We compete in the hydrological, meteorological and oceanic monitoring markets
and are aware of both domestic and foreign competitors who offer products,
systems, and services of their own as well as companies that are systems
integrators who primarily offer real-time networks from components manufactured
by others. We are aware of numerous firms, ranging in size, that offer
competitive dataloggers, high data rate satellite transmitters, sensors and
other instruments and software.

Several of these companies have financial, research and development, marketing,
management and technical resources substantially greater than ours. We may also
be at a competitive disadvantage because we purchase certain sensors and other
equipment components, as well as computer hardware and peripheral equipment,
from manufacturers who are or may become competitors with respect to one or more
of our products.

With respect to our professional engineering and technical services, we are in
competition with numerous diverse engineering and consulting firms, many of
which have larger staffs and facilities, and are better known, have greater
financial resources, and have more experience. As to hydrological services, we
are aware that many firms offer maintenance services; some of these companies
have larger staffs, are better equipped, and have greater financial, marketing
and management resources. Price, features, product quality, promptness of
delivery, customer service and performance are believed to be the primary
competitive factors with respect to all of our products and services.

CUSTOMERS

During 2008, approximately 33% of our products and services were sold to the
Federal Government. Net sales and revenues in 2008 among the various agencies
were as follows: Department of the Interior, 19%; Department of Commerce, 6% and
Department of Defense, 8%. The revenues from the Department of the Interior were
among the U.S. Geological Survey and the Bureau of Reclamation. The revenue from
the Department of Defense was

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primarily from the U.S. Army Corps of Engineers. The revenue from the Department
of Commerce was from sales of tides systems and spares to NOS and SatLink2
Transmitters to the National Data Buoy Center. The loss of any significant
portion of our sales to any major customer, the loss of a single major customer
or budgetary constraints of any one of our major customers could have a material
adverse effect on our business and financial results.

We also performed on various contracts of foreign origin. Revenues from foreign
customers amounted to approximately 42% of revenues in 2008, 40% of revenues in
2007 and 36% of revenues in 2006.

RESEARCH AND DEVELOPMENT

During the three years ended December 31, 2008, 2007, and 2006, we incurred
expenses of $1,228,661, $1,293,207 and $1,358,624, respectively, on activities
relating to the development of new products and enhancements and improvements of
existing products.

In 2008, we focused on enhancements to the Xpert datalogger and to the SatLink2
Transmitter/Logger. We developed a total precipitation gage upgrade kit for the
National Weather Service that resulted in a contract award of approximately
$765,000 in September 2008. We also performed work on a Small Business
Innovation Research (SBIR) contract in the amount of approximately $400,000 that
was received in 2007. The SBIR was to continue to develop and test a prototype
(preliminary design and specifications) for a "DCPI Low Power and Low Cost
Command Receiver". The new DCPI (Data Collection Platform with Interrogate
Capability) employing DS-CDMA RF transmission techniques will allow two-way
communication through the GOES Satellite System and other geostationary
satellite systems. We anticipate that the prototype will be delivered in May
2009.

PATENTS, TRADEMARKS, COPYRIGHTS AND AGREEMENTS

We may in the future seek patents for certain products, real-time networks, and
technology as well as software products, real-time networks, and technology. We
treat our products, real-time networks, technology and software as proprietary
and rely on trade secret laws and internal non-disclosure safeguards rather than
making our designs and processes generally available to the public by applying
for patents. We believe that, because of the rapid pace of technological change
in the computer, electronics and telecommunications industries, patent and
copyright protection is of less significance than factors such as the knowledge
and experience of our personnel and their ability to design and develop enhanced
and new products, real-time networks and their components.

MANUFACTURING

Our manufacturing operations consist of materials planning and procurement,
final assembly, product assurance testing, quality control, and packaging and
shipping. We currently use several independent manufacturers to provide certain
printed circuit boards, chassis and subassemblies. We believe that the
efficiency of our manufacturing process to date is largely due to our product
architecture and our commitment to manufacturing process design. We have spent
significant engineering resources producing customized software to assure
consistent high product quality. Products are tested after the assembly process
using internally developed automated product assurance testing procedures.

Our products use certain components, such as microprocessors, memory chips and
pre-formed enclosures that are acquired or available from one or a limited
number of sources. We have generally been able to procure adequate supplies of
these components in a timely manner from existing sources. While most components
are standard items, certain application-specific integrated circuit chips used
in many of our products are customized to our specifications. None of the
suppliers of components operate under contract. Additionally, availability of
some standard components may be affected by market shortages and allocations.
Our inability to obtain a sufficient quantity of components when required or to
develop alternative sources at acceptable prices and within a reasonable time
could result in delays or reductions in product shipments which could materially
affect our operating results in any given period. In addition, as referenced
above, we rely heavily on outsourcing subcontractors for production. The
inability of such subcontractors to deliver products in a timely fashion or in
accordance with our quality standards could materially affect our operating
results and business.

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We received an ISO 9001 certification on March 12, 1999 and an ISO 9001:2000
certification on August 13, 2003. We continued to be certified during fiscal
year 2008.

GOVERNMENT REGULATION

We manufacture some of our products and provide some of our services under
contracts with the United States government. We manufacture other products under
contracts with private third parties who utilize our products to satisfy United
States government contracts to which they are a party. Federal acquisition
regulations and other federal regulations govern these relationships. Some of
these regulations relate specifically to the seller-purchaser relationship with
the government (which may exist on our own account, or that of one or more of
our clients), such as the bidding and pricing rules. Under regulations of this
type, we must observe pricing restrictions, produce and maintain detailed
accounting data, and meet various other requirements.

Other regulations relate to the conduct of our business generally, such as
regulations and standards established by the Occupational Safety and Health Act
or similar state laws and relating to employee health and safety. In particular,
regulations governing these contracts require that we comply with federal laws
and regulations, in general, or face civil liability, cancellation or suspension
of existing contracts, or ineligibility for future contracts or subcontracts
funded in whole or in part with federal funds. In addition, loss of governmental
certification (affirming that we are eligible to participate on government
contracted work) could cause some of our customers to reduce or cease making
purchases from us, which would adversely impact our business.

FOREIGN OPERATIONS

We opened a branch office in New Delhi, India in December 2004. The branch
office was established in order to comply with India tax law after the Advance
Tax Court of India determined that we had a Permanent Establishment in India as
a result of the employment of a full-time Country Manager. The branch office can
perform sales and marketing and installation and maintenance activities but is
restricted from bidding on domestic Indian tenders. We began the process of
forming a wholly owned subsidiary in India in 2004 in order to bid on domestic
India tenders. Formal approval of the wholly owned subsidiary was given in
February 2005. Our India Operations procures local goods for projects and
performs systems integration, civil works construction, installation,
commissioning and maintenance services including maintaining over 260 remote
automatic real-time hydromet monitoring stations under contracts with the CWC
and with the Government of Andhra Pradesh.

EMPLOYEES

As of December 31, 2008, we and our wholly owned subsidiary had a total of 85
employees, of which 80 were full time. We also from time to time employ
part-time employees and hires independent contractors. Our employees are not
represented by any collective bargaining agreement and we have never experienced
a work stoppage. We believe that our employee relations are good.

BACKLOG

At December 31, 2008, our backlog was approximately $7,239,000 as compared with
approximately $11,099,000 at December 31, 2007. We anticipate that 70% of our
2008 year-end backlog will be shipped in 2009. An economic downturn may result
in increased cancellation of orders, which could have a material adverse effect
on our ability to convert our backlog into revenues.

ITEM 1A - RISK FACTORS

The following are certain risk factors that could impact our business, financial
results and results of operations. Investing in our Common Stock involves risks,
including those described below. The risk factors below, among others, should be
considered by prospective and current investors in our Common Stock before
making or evaluating an investment in our securities. These risk factors could
cause actual results and conditions to differ materially from those projected
herein.

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OUR DEPENDENCE ON GOVERNMENT BUSINESS COULD ADVERSELY AFFECT OUR OPERATING
RESULTS

Contracts and purchase orders with agencies of the United States government and
various state and local governments represented approximately 46% of our
revenues in fiscal year 2008. The success of our business is therefore
materially dependent on governmental agencies. Companies engaged in government
business are subject to certain unique risks not shared by the general
commercial sector. Among these risks are:

     o    a competitive procurement process with no guaranty of being awarded
          contracts;


     o    dependence on congressional appropriations and administrative
          allotment of funds;

     o    policies and regulations that can be changed at any time by Congress
          or a presidential administration;

     o    changes in and delays or cancellations of government programs or
          requirements; and

     o    some contracts with Federal, state and local government agencies
          require annual funding and may be terminated at the agency's
          discretion.

A reduction or shift in spending priorities by government agencies could limit
or eliminate the continued funding of our existing government contracts. These
reductions or shifts in spending, if significant, could have a material adverse
effect on our business.

OUR DEPENDENCE ON INTERNATIONAL SALES INVOLVES SIGNIFICANT RISK

Sales and services to customers outside the United States accounted for
approximately 42%, 40% and 36% of our sales for fiscal 2008, 2007 and 2006,
respectively. We expect that our non-U.S. sales and services will continue to
grow and account for a higher percentage of overall future revenues.
International business operations may be adversely affected by many factors,
including fluctuations in exchange rates, imposition of government controls,
trade restrictions, political, economic and business events and social and
cultural differences. 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 December 31, 2008 was approximately $1,884,000.

INTENSE COMPETITION CAN ADVERSELY AFFECT OUR OPERATING RESULTS

The hydro-meteorological monitoring equipment and systems market is intensely
competitive. Significant competitive factors include price, technical
capabilities, quality, automation, reliability, product availability and
customer service. We face competition from established and potential new
competitors, many of whom have greater financial, engineering, manufacturing and
marketing resources than us. New products offered by our competitors could cause
a decline in our revenue or a loss of market acceptance of our existing products
and services. Increased competitive pressure could also lead to intensified
price-based competition. Price-based competition may result in lower prices,
adversely affecting our operating results.

THE VARIABILITY OF OUR QUARTERLY OPERATING RESULTS CAN BE SIGNIFICANT


Our future revenues and operating results may vary significantly from
quarter-to-quarter as a result of a number of factors, many of which are outside
our control. These factors include the relatively large size of project or
tender business, unpredictability in the number and timing of international
sales, length of the sales cycle, delays in installations and changes in
customer's financial condition or budgets.

                                       10
<PAGE>

MANAGING COSTS WHILE PLANNING FOR GROWTH WILL BE CRITICAL We believe that we
must expand our technical workforce to develop new products, enhance existing
products and serve the needs of our existing and anticipated customer base. Our
ability to successfully expand our operations will depend, in large part, upon
our ability to attract and retain highly qualified employees. Our ability to
manage our planned growth effectively also will require that we continue to (1)
improve our operational, management, and financial systems and controls, (2)
train, motivate, and manage our employees and (3) increase our operating
expenses in anticipation that our new products will increase future revenues.

TECHNOLOGICAL CHANGES MAY MAKE OUR PRODUCTS OBSOLETE OR RESULT IN DECREASED
PRICES OR INCREASED EXPENSES

Technological changes may make our services or products obsolete. Advances in
technology may lead to significant price erosion for products. Our success will
depend in part on our ability to develop and offer more advanced products in the
future, to anticipate both future demand and the technology to supply that
demand, to enhance our current products and services, to provide those products
and services at competitive prices on a timely and cost-effective basis and to
achieve market acceptance of those products and services. To accomplish these
goals, we may be required to incur significant engineering expenses. As new
products or services are introduced, we may experience warranty claims or
product returns. We may not be able to accomplish these goals correctly or
timely enough. If we fail in our efforts, our products and services may become
less competitive or obsolete.

WE DO NOT RELY ON PATENTS TO PROTECT OUR PRODUCTS OR TECHNOLOGY

We do not rely on patent or trade secret protection for our products or
technology. Competitors may develop technologies similar to or more advanced
than ours. We treat our products, real-time networks, technology and software as
proprietary and rely on trade secret laws and internal non-disclosure safeguards
rather than making our designs and processes generally available to the public
by applying for patents. We cannot assure that our current or future products
will not be copied or will not infringe on the patents of others. Moreover, the
cost of litigation of any claim or damages resulting from infringement of
patents or other intellectual property could adversely affect our business,
financial condition and results of operations.

WE MAY INCUR LOSSES DUE TO FOREIGN CURRENCY FLUCTUATIONS

Portions of our revenue are denominated in India rupees. Consequently, a portion
of our costs, revenue and operating margins may be affected by fluctuations in
exchange rates, primarily between the U.S. dollar and the India rupee. We
recognized a foreign currency loss of approximately $180,000 in 2008, a foreign
currency gain of approximately $179,000 in 2007 and a foreign currency loss of
approximately $23,000 in 2006 due to intercompany payable balances owed to us by
our India entities. Fluctuations between the U.S. dollar and the India rupee may
have a material adverse effect on our financial results.

ACQUISITION AND INTEGRATION OF NEW BUSINESSES COULD DISRUPT OUR ONGOING
BUSINESS, DISTRACT MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES OR ADVERSELY
AFFECT OUR BUSINESS

A portion of our future growth may be accomplished through the acquisition of
other businesses. The success of those acquisitions will depend, in part, on our
ability to integrate the acquired personnel, operations, products, services and
technologies into our organization, to retain and motivate key personnel of the
acquired entities and to retain the customers of those entities. We may not be
able to identify suitable acquisition opportunities, obtain financing on
acceptable terms to bring the acquisition to fruition or to integrate such
personnel, operations, products or services. The process of identifying and
closing acquisition opportunities and integrating acquisitions into our
operations may distract our management and employees, disrupt our ongoing
business, increase our expenses and materially and adversely affect our
operations. We may also be subject to certain other risks if we acquire other
entities, such as the assumption of additional liabilities. We may issue
additional equity securities or incur debt to pay for future acquisitions.

WE DO NOT HAVE CONTRACTS WITH KEY SUPPLIERS

We have no written contracts with any of our suppliers. Our suppliers may
terminate their relationships with us at any time without notice. There can be
no assurance that we will be able to find satisfactory replacement suppliers or

                                       11
<PAGE>

that new suppliers will not be more expensive than the current suppliers if any
of our suppliers were to terminate their relationship with us.

WE ARE HIGHLY DEPENDENT ON KEY PERSONNEL

Our success has depended, and to a large extent will depend, on the continued
services our key senior executives, and engineering, marketing, sales,
production and other personnel. We do not have an employment agreement with any
of our key personnel with one exception. The loss of these key personnel, who
would be difficult to replace, could harm our business and operating results.
Competition for management in our industry is intense and we may be unsuccessful
in attracting and retaining the executive management and other key personnel
that we require.

ITEM 1B - UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2 - PROPERTIES

Our corporate headquarters are located at 21300 Ridgetop Circle, Sterling,
Virginia. We lease this 17,000 square foot facility and it contains our
administrative offices, sales and marketing offices and manufacturing
facilities. The lease expires in March 2009. We lease an additional 7,000 square
feet of space in Sterling, Virginia for our Research and Development group and
Integrated Services Division. The lease for this facility expires in March 2009
as well. We will lease both facilities after March 31, 2008 and until May 31,
2009 after which we will move into our new headquarters and manufacturing
facility in Sterling, Virginia.

We lease 2,850 square feet of office and warehouse space in West Palm Beach,
Florida. The three-year lease expires in August 2011. The Hydrological Services
division uses this space which consists of both office and warehouse space. The
Hydrological Services Division also occupies 800 square feet of leased office
space in Lakeland, Florida. The lease expires in November 2009. This space is
used for sales and marketing and engineering offices.

We entered into lease agreements for office space and furniture in New Delhi,
India in September 2006. The three-year leases expire in August 2009. The India
branch office and wholly owned subsidiary use this space for offices.

We entered into a ten year lease for a new headquarters and manufacturing
facility on November 13, 2008, that commences on June 1, 2009. We will lease
approximately 27,800 square feet at our new building. The new space will allow
us to combine all our Virginia operations into one facility. We anticipate
moving into the new space in May 2009. We believe that our facilities are
adequate for our present needs and that our properties are in good condition,
well maintained and adequately insured.

ITEM 3 - 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 has pending before The Monopolies and Restrictive
Trade Practices Commission in New Delhi, India since 2005. Management believes
that the case is unsubstantiated and intends to vigorously defend itself.

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

Not applicable

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

                                       12
<PAGE>

MARKET INFORMATION

Our common stock trades on the Nasdaq Capital Market (formerly the Nasdaq
SmallCap Market) under the symbol "STRN". The table below sets forth the high
and low sales prices for the periods shown.

     FISCAL YEAR ENDED DECEMBER 31, 2007                     HIGH         LOW
     --------------------------------------------------------------------------
     First Quarter                                         $   9.85     $  6.28
     Second Quarter                                        $  10.51     $  6.20
     Third Quarter                                         $   9.60     $  8.05
     Fourth Quarter                                        $  12.94     $  8.14

     FISCAL YEAR ENDED DECEMBER 31, 2008
     --------------------------------------------------------------------------
     First Quarter                                         $  10.81     $  5.75
     Second Quarter                                        $   8.31     $  6.18
     Third Quarter                                         $   7.95     $  3.33
     Fourth Quarter                                        $  10.30     $  2.83


STOCKHOLDERS

On March 27, 2009, there were approximately 815 stockholders of record.


DIVIDEND POLICY
We have never declared or paid a dividend on our common stock. We intend to
retain future earnings to fund development and growth of our business.

STOCK PERFORMANCE GRAPH

The graph below compares our cumulative total shareholder return of the Common
Stock of the Company with the cumulative total return on the NASDAQ Composite
Index and the NASDAQ Computer Index for the five year period ending December 31,
2008. The graph assumes an investment of $100 on December 31, 2003 when the
closing price was $.65 per share and reinvestment of any dividends. The
comparison in the graph is not intended to forecast future performance of Common
Stock.

<TABLE><CAPTION>

                            12/03      12/04       12/05       12/06       12/07      12/08
                            -----      -----       -----       -----       -----      -----
<S>                        <C>       <C>         <C>         <C>         <C>         <C>
Sutron Corporation         $100.00   $1,464.62   $1,130.77   $1,047.69   $1,633.85   $684.62

NASDAQ Composite Index     $100.00     $109.16     $111.47     $123.05     $140.12   $ 84.12

NASDAQ Computer Index      $100.00     $103.54     $106.96     $114.24     $139.21   $ 74.21
</TABLE>

                                       13
<PAGE>

ITEM 6 - SELECTED FINANCIAL DATA

The following table sets forth consolidated financial data with respect to
Sutron Corporation for each of the five years in the period ended December 31,
2008. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes included
elsewhere in this Form 10-K.
<TABLE><CAPTION>

                                                        (In thousands, except earnings per share data)
                                                                  Years Ended December 31,
                                                     2008      2007          2006        2005        2004
-----------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
<S>                                                 <C>         <C>         <C>         <C>         <C>
Revenues                                            $15,941     $18,868     $19,407     $15,434     $16,679
Operating income                                        635       3,043       3,055       2,203       3,010
Net Income                                              524       2,067       2,450       1,470       1,902
Basic earnings per share                                .12         .46         .56         .34         .44
Diluted earnings per share                              .10         .41         .51         .30         .38
Shares used in computing basic per share data         4,550       4,513       4,342       4,292       4,290
Shares used in computing diluted per share data       5,052       4,982       4,811       4,933       4,951
-----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash                                                 $4,490      $5,434      $1,677      $2,095      $1,419
Working capital                                      11,745      11,564       9,505       6,844       5,352
Total assets                                         15,049      14,631      13,450       9,847       8,756
Long-term debt, including current portion                 3          40          88         137         115
Stockholders' equity                                 12,724      12,156      10,009       7,322       5,852
Cash dividends declared                                 --          --          --          --          --
</TABLE>
















                                       14
<PAGE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
DISCLAIMER ON "FORWARD-LOOKING STATEMENTS," "ITEM 1 - BUSINESS," "ITEM 1A - RISK
FACTORS," "ITEM 6 - SELECTED FINANCIAL DATA" AND CONSOLIDATED FINANCIAL
STATEMENTS, THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
CONTAINED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

BACKGROUND AND 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, 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 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. It is an excellent 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 significant more logging
capability and communications options than the SatLink2.

We expanded our services capabilities when we started our Hydrological Services
Division in 2001. The principal customer of this division has been the South
Florida Water Management District (SFWMD) which is a regional agency of the
state of Florida that is charged with managing and protecting water resources in
a 16 county area. We provide a variety of services to SFWMD as well as other
entities including hydrologic modeling, flood and stormwater management, river
and stream analysis, and equipment integration, installation, commissioning and
maintenance.

We are beginning fiscal year 2009 with a backlog of approximately $7,239,000 as
compared to beginning fiscal year 2008 with a backlog of approximately
$11,099,000. We estimate that approximately 70% of our December 31, 2008 backlog
will convert to revenue in 2009. We anticipate that we will continue to
experience significant quarterly fluctuations in our sales and revenues in 2009.
Operating results will depend upon the product mix and upon the timing of
project awards.

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 December 31, 2008 was approximately $1,884,000. 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
in 2008, we believe that competition was more price-based and that some projects
were delayed due to

                                       15
<PAGE>

funding issues. 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 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of financial condition and results of operations is
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
evaluate, on an on-going basis, our estimates and judgments, including those
related to bad debts, excess and obsolete inventories, warranty obligations,
income taxes, contingencies and litigation. Our estimates are based on
historical experience and assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies, among others, affect our
more significant judgments and estimates used in the preparation of the
consolidated financial statements.

     o    Revenue recognition;
     o    Allowance for doubtful accounts;
     o    Allowances for excess and obsolete inventories;
     o    Accounting for warranty obligations;
     o    Accounting for income taxes;
     o    Accounting and valuation of stock option compensation.

REVENUE RECOGNITION - Our revenue recognition policy is consistent with the
requirements of Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements," Statement of Position No. 97-2 (SOP 97-2),
"Software Revenue Recognition," and other applicable revenue recognition
guidance and interpretations. In general, we record revenue when it is realized,
or realizable, and earned. We consider these requirements met when persuasive
evidence of an arrangement exists, the products or services have been provided
to the customer, the sales price is fixed or determinable and collectability is
reasonably assured. Our revenue reflects reductions attributable to discounts
and customer returns.

For our products, consisting of both equipment and software, revenue is
recognized upon shipment, delivery, installation or customer acceptance of the
product, as agreed in the customer order or contract. We do sell our software
products without the related equipment although software products are integral
to systems. Our typical system requires no significant production, modification
or customization of the software or hardware. For complex systems, revenue is
deferred until customer acceptance. We do provide customer discounts and do
allow for product returns. We do not do consignment sales or bill and hold.
Revenue reflects reductions due to discounts and product returns. Product
returns have historically been insignificant in amount.

Our sales arrangements for systems often include services in addition to
equipment and software. These services could include equipment integration,
software customization, installation, maintenance, training, and customer

                                       16
<PAGE>

support. For sales arrangements that include bundled hardware, software and
services, we account for any undelivered service offering as a separate element
of a multiple-element arrangement. Amounts allocated to each element are based
on its objectively determined fair value, such as the sales price for the
product or service when it is sold separately. Revenue for these services is
typically recognized ratably over the period benefited or when the services are
complete.

We use the percentage of completion method for recognizing revenue and profits
when we perform on fixed price contracts that extend over a number of years.
Under the percentage of completion method, revenue and profits are recorded as
costs are incurred based on estimates of total sales value and costs at
completion where total profit can be estimated with reasonable accuracy and
ultimate realization is reasonably assured. Profit estimates are revised
periodically based upon changes and facts, and any losses on contracts are
recognized immediately. Contracts may contain provisions to earn incentive and
award fees if targets are achieved. Incentive and award fees that can be
reasonably estimated are recorded over the performance period of the contract.
Incentive and award fees that cannot be reasonably estimated are recorded when
awarded. We recognize revenue from time-and-materials contracts to the extent of
billable rates, times hours delivered, plus direct materials costs incurred.
Some of the contracts include provisions to withhold a portion of the contract
value as retainage. Our policy is to take into revenue the full value of the
contract, including any retainage, as we perform against the contract.

ALLOWANCE FOR DOUBTFUL ACCOUNTS - Accounts receivable arise from the normal
course of selling products on credit to customers. An allowance for doubtful
accounts has been provided for estimated uncollectable accounts. Accounts
receivable balances, historical bad debts, customer concentrations, customer
creditworthiness, current economic trends and changes in customer payment terms
and practices are analyzed when evaluating the adequacy of the allowance for
doubtful accounts. Individual accounts are charged against the allowance when
collection efforts have been exhausted.

INVENTORY VALUATION - Our inventories are stated at the lower of cost or market.
We provide allowances on inventories for any material that has become obsolete
or may become unsaleable based on estimates of future demand and sale price in
the market. Judgments with respect to saleability and usage of inventories,
estimated market value, and recoverability upon sale are complex and subjective.
Such assumptions are reviewed periodically and adjustments are made, as
necessary, to reflect changed conditions.

WARRANTY OBLIGATIONS - We warranty our products for up to two years and
estimated warranty costs are based upon management's best estimate of the
amounts necessary to settle future and existing claims on equipment sold as of
the balance sheet date. Factors considered include actual past experience of
product returns and the related estimated cost of labor and material to make the
necessary repairs as well as technological advances and enhanced design and
manufacturing processes. If actual future product return rates or the actual
costs of material and labor differ from the estimates, adjustments to the
accrued warranty liability are made.

INCOME TAXES - We are taxed as a domestic U.S. corporation under the Internal
Revenue Code. Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred income tax assets and
liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
Deferred tax assets are evaluated and a valuation allowance is established if it
is more likely than not that all or a portion of the tax asset will not be
utilized. STOCK OPTION COMPENSATION - We adopted the provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), SHARED-BASED PAYMENT,
(SFAS 123(R)), on January 1, 2006, which requires the measurement and
recognition of compensation expense for all share-based payment awards to
employees and directors based on estimated fair values. Additionally, the
Corporation follows the Securities and Exchange Commission's Staff Accounting
Bulletin No. 107, SHARE-BASED PAYMENT (SAB 107), issued in March 2005, which
provides supplemental SFAS 123(R) application guidance based on the views of the
SEC.

The Corporation adopted SFAS 123(R) using the modified prospective transition
method. Under this transition method, share-based compensation expense
recognized during the year ended December 31, 2006 included: (a) compensation
expense for all share-based awards granted prior to, but not yet vested, as of
January 1, 2006, based

                                       17
<PAGE>

on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, and (b) compensation expense for all share-based awards
granted beginning January 1, 2006, based on the grant date fair value estimated
in accordance with the provisions of SFAS 123(R). In accordance with the
modified prospective transition method, the Corporation's consolidated financial
statements for prior periods have not been restated to reflect the impact of
SFAS 123(R).


RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, certain income
statement data of the Company expressed as a percentage of revenues:

                                                       Year Ended December 31,
                                                      2008      2007      2006
                                                     ------    ------    ------

     Net sales and revenues                           100.0%    100.0%    100.0%
     Cost of sales and revenues                        66.3      59.5      62.1
                                                     ------    ------    ------
     Gross profit                                      33.7      40.5      37.9
     Selling, general and administrative expenses      22.0      17.6      15.1
     Research and Development expenses                  7.7       6.8       7.1
                                                     ------    ------    ------
     Operating income                                   4.0      16.1      15.7
     Interest income (expense)                           .7        .6       .4
                                                     ------    ------    ------
     Income before  income taxes                        4.7      16.7      16.1
     Income taxes (benefit)                             1.4       5.8       3.5
                                                     ------    ------    ------
     Net income                                         3.3%     10.9%     12.6%
                                                     ======    ======    ======

FISCAL 2008 COMPARED TO FISCAL 2007

NET SALES AND REVENUES

Net sales and revenues for 2008 decreased 16% to $15.9 million from $18.9
million in 2007. The decrease was due to decreased revenues from sales of
standard products and to decreased project activity. Revenues are reported
internally by principal operating division or profit center consisting of the
Hydromet Products Division, the Integrated Services Division, which includes
airport weather systems and special projects that are funded R&D activities, the
Hydrological Services Division and Sutron's India Operations. The Hydromet
Products Division, which is responsible for sales of standard products,
experienced a revenue decrease of 14% to $8.6 million from $10 million in 2007.
Integrated Systems revenue decreased 8% to $5.8 million from $6.3 million in
2007. Revenues from the Hydrological Services Division decreased 31% to $1.36
million from $2.0 million in 2007. Revenues from our India Operations decreased
69% to $176 thousand as compared to $572 thousand in 2007.

Domestic net sales and revenues for 2008 decreased 19% to $9.2 million from
$11.3 million in 2007. Net sales and revenues from standard products decreased
to $6.8 million in 2008 from $7.7 million in 2007 due primarily to decreased
orders from our federal customers. Net sales and revenues from Integrated
Systems decreased to $1.2 million compared to $1.6 million in 2007, due to two
projects awarded to us totaling approximately $400 thousand with the State of
New Mexico being put on hold until land rights issues are resolved. Our
Integrated Systems experienced a decrease in project awards in 2008 as well. Net
sales and revenues from Hydrological Services decreased to $1.4 million from
$2.0 million in 2007. As a result of investigations of our former Hydrological
Services Vice President in both 2007 and 2008 by SFWMD, our largest customer in
Florida, several large contracts were delayed resulting in decreased work
orders. One of these contracts was awarded in December 2007 however the number
of approved contractors was expanded from four in the previous contract to nine
in the current contract. The other contract was not awarded until October 2008.
Due to the resolution of SFWMD's investigations and the contract awards, we
anticipate that our revenues will increase significantly in 2009 over 2008.

International net sales and revenues decreased 11% to $6.7 million in 2008 from
$7.5 million in 2007. Net sales and revenues from standard products decreased to
$1.8 million from $2.3 million in 2007. We shipped approximately $900 thousand
of standard products to customers in China in 2007 for water-level stations
relating to the Three

                                       18
<PAGE>

Gorges Dam. We did not receive any similar orders in 2008 but anticipate
significant orders in 2009 for water-level stations for the Three Gorges Dam.
Net sales and revenues from Integrated Systems were flat at $4.7 million. In
2008, Integrated Systems recognized revenues that totaled $3.0 million from a
contract with the Ministry of Energy and Water in Afghanistan to provide and
install 174 stream monitoring stations. We anticipate that this contract will be
completed in 2009 however security concerns may result in some installations
being cancelled. Net sales and revenues from our India Operations decreased 69%
to $176 thousand as compared to $572 thousand in 2007. Our India Operations bid
on some substantial projects in 2008, totaling over $30 million, but was
underbid by more than 40% on each. To date, our competitors have not delivered
their systems to the customers. 2008 revenues were primarily from annual
maintenance contracts. The renewal of several annual maintenance contracts was
also delayed in 2008 resulting in decrease maintenance revenues.

The Department of the Interior, the principal agencies being the US Geological
Survey and the Bureau of Reclamation, was our largest customer accounting for
19% and 21% of total revenues in years 2008 and 2007, respectively. Federal
government revenues were 33% in both 2008 and 2007. State and local government,
commercial and international revenues represented 67% of revenues in 2008 and
2007.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues increased to 66.3% for 2008 compared
to 59.5% for 2007. The increase reflects changes in sales volume, product mix
and standard product content in projects. In 2008, our Hydromet Products
Division had decreased standard product revenues that caused our manufacturing
group to be less efficient and to incur lower fixed costs recovery. In 2008, our
Integrated Systems Division's projects had less standard product content than in
2007 resulting in higher project costs as a percentage of revenue. In 2007,
Integrated Services benefited from a $2.2 million order from Washington
International Group for water level monitoring stations to be delivered to the
Iraq Ministry of Water Resources. Although the Washington International Group
order was a project award, most items were standard products. Standard products
carry substantially higher margins than projects. Our Hydrological Services
Division experienced a revenue decrease that resulted in higher cost absorption.
We downsized personnel, leased space and vehicles but not sufficiently to offset
the decrease in revenues. We do not anticipate additional reductions in 2009.

Cost of sales for both 2008 and 2007 include provisions for inventory
obsolescence, physical inventory adjustments, inventory valuation adjustments
and warranty provision adjustments. We continually pursue product cost
reductions through continual review of procurement sourcing based on quality and
cost goals, product value engineering and improvements in manufacturing
processes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $3.5 million in 2008 as
compared to $3.3 million in 2007. Selling, general and administrative expenses
as a percentage of revenues increased to 22% in 2008 from 17.6% in 2007. We
experienced higher general and administrative costs in 2008 due to increases in
Board of Director annual retainers and fees, legal costs relating to our Ilex
acquisition, audit fees and project management costs relating to the build-out
of our new corporate headquarters and production facility. We experienced higher
selling expenses in 2008 relating to our India operations and our Hydrological
Services Division.

PRODUCT RESEARCH AND DEVELOPMENT EXPENSES

Product research and development expenses decreased to $1.23 million in 2008
from $1.29 million in 2007. Research and development expenses as a percentage of
revenues increased to 7.7% in 2008 from 6.8% in 2007 which is attributable to
the decrease in revenues. In 2008, we focused our product development on
enhancements to the Xpert datalogger and to the SatLink2 Transmitter/Logger. We
developed a total precipitation gage upgrade kit for the National Weather
Service that resulted in a contract award of approximately $765,000 in September
2008. We also performed work on a Small Business Innovation Research (SBIR)
contract in the amount of approximately $400,000 that was received in 2007. The
SBIR was to continue to develop and test a prototype (preliminary design and
specifications) for a "DCPI Low Power and Low Cost Command Receiver". The new
DCPI (Data Collection Platform with Interrogate Capability) employing DS-CDMA RF
transmission techniques will allow

                                       19
<PAGE>

two-way communication through the GOES Satellite System and other geostationary
satellite systems. We anticipate that the prototype will be delivered in May
2009.

INTEREST INCOME AND EXPENSE, NET

We earned net interest income of $108,391 in 2008 as compared with net interest
income of $121,448 in 2007. Although our cash and cash equivalent balances were
higher throughout 2008 as compared to 2007, the decrease in interest rates
caused a decrease in net interest income.

INCOME TAXES

Income tax expense for 2008 was $219,000 compared to $1,098,000 for 2007. The
provision for income taxes for 2008 represents an effective tax rate of
approximately 29% compared with 34% for 2007.

FISCAL 2007 COMPARED TO FISCAL 2006

NET SALES AND REVENUES

Net sales and revenues for 2007 decreased 3% to $18.9 million from $19.4 million
in 2006. The decrease was primarily due to decreased domestic project revenues.
Revenues are reported internally by principal operating division or profit
center consisting of the Hydromet Products Division, the Integrated Services
Division, which includes airport weather systems and special projects that are
funded R&D activities, the Hydrological Services Division and Sutron's India
Operations. The Hydromet Products Division, which is responsible for sales of
standard products, experienced a revenue increase of 9% to $10 million from $9.2
million in 2006. Integrated Systems revenue increased 2% to $6.3 million from
$6.2 million in 2006. Revenues from the Hydrological Services Division decreased
to $2.0 million from $2.2 million in 2006. Sutron's India Operations had
decreased revenues of $572 thousand as compared to $1.8 million in 2006 due
primarily to significant costs on a contract with the Central Water Commission
to deliver, install, and provide training and commissioning on 168 rainfall
monitoring stations being incurred in 2006 and therefore higher revenues being
recognized in 2006 as compared to 2007.

Domestic net sales and revenues for 2007 decreased 10% to $11.3 million from
$12.5 million in 2006. Net sales and revenues from standard products increased
to $7.7 million in 2007 from $7.0 million in 2006 due primarily to increased
sales of the SatLink 2 Transmitter/Logger. Net sales and revenues from
Integrated Systems decreased to $1.6 million compared to $3.3 million in 2006,
primarily due to decreased project activity. In 2006, the Company performed on
various contracts totaling approximately $2.0 million with the Army Corps of
Engineers in New Orleans to replace equipment that was destroyed by Hurricane
Katrina. Net sales and revenues from Hydrological Services decreased to $2.0
million from $2.2 million in 2006 due to decreased project activity.

International net sales and revenues increased 9% to $7.5 million in 2007 from
$6.9 million in 2006. Net sales and revenues from standard products increased to
$2.3 million from $2.2 million in 2006. Net sales and revenues from Integrated
Systems increased to $4.7 million from $2.9 million due primarily to revenues of
$2.2 million from an order from Washington Group International to provide water
level, snow, rainfall and water quality monitoring equipment to the Iraq
Ministry of Water Resources. Sutron India Operations had net sales and revenues
of $572 thousand as compared to $1.8 million in 2006 due to decreased project
activity as the Central Water Commission project to provide 168 rainfall
monitoring stations was near completion and acceptance at the end of 2007.

The Department of the Interior, the principal agencies being the US Geological
Survey and the Bureau of Reclamation, was our largest customer accounting for
21% and 17% of total revenues in years 2007 and 2006, respectively. State and
local government, commercial and international revenues represented 67% of
revenues in 2007 and 59% in 2006.

COST OF SALES AND REVENUES

Cost of sales as a percentage of revenues decreased to 59.5% for 2007 compared
to 62.1% for 2006. The decrease reflects changes in product mix. In 2007, our
Hydromet Products Division had increased standard product revenues which enabled
us to be more efficient and to recover fixed costs. Our Integrated Systems
Division also helped to

                                       20
<PAGE>

reduce cost of sales as they benefited from the Washington International Group
order which consisted primarily of standard products. Standard products carry
substantially higher margins than projects. In 2006, we had substantial project
work with the Army Corps of Engineers in New Orleans that was labor intensive
resulting in higher cost of sales. Our Hydrological Services Division
experienced a revenue decrease that resulted in higher cost absorption and had
one contract that was underbid by the former vice president of the division that
resulted in substantial losses.

Cost of sales for both 2007 and 2006 include provisions for inventory
obsolescence, physical inventory adjustments and inventory valuation
adjustments. We continually pursue product cost reductions through continual
review of procurement sourcing based on quality and cost goals, product value
engineering and improvements in manufacturing processes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $3.3 million in 2007 as
compared to $2.9 million in 2006. Selling, general and administrative expenses
as a percentage of revenues increased to 17.6% in 2007 from 15.1% in 2006. The
increased expenses were primarily due to the addition of two domestic salesmen
in 2007, higher legal costs relating to a lawsuit against a former employee to
recover monetary damages, SOX 404 compliance costs and higher standby letter of
credit fees relating to performance bonds for various international projects.

PRODUCT RESEARCH AND DEVELOPMENT EXPENSES

Product research and development expenses decreased to $1.29 million in 2007
from $1.36 million in 2006. Research and development expenses as a percentage of
revenues decreased to 6.8% in 2007 from 7.1% in 2006. In 2007, product
development focused on two water level sensors. The first was a radar water
level sensor which is a precision water level measuring instrument that uses
radar pulses without direct contact with the water surface. The second was a
continuous flow bubbler system which operates in severe cold conditions. We also
continued to focus on enhancements to the Xpert and XLite dataloggers that were
upgraded in 2006 and released in 2007.

INTEREST INCOME AND EXPENSE, NET

We earned net interest income of $121,448 in 2007 as compared with net interest
income of $68,394 in 2006. Higher cash and cash equivalent balances were
responsible for the increase in net interest income.

INCOME TAXES

Income tax expense for 2007 was $1,098,000 compared to $674,000 for 2006. The
provision for income taxes for 2007 represents an effective tax rate of
approximately 34% compared with 22% for 2006. In 2006, tax deductible
compensation expense from the exercise of non-qualified stock options reduced
income taxes by approximately $440,000 as compared to a reduction of $56,000 in
2007.

OFF-BALANCE SHEET ARRANGEMENTS

The Company is not a party to any off-balance sheet transactions, arrangements
or obligations that have, or are reasonably likely to have, a material effect on
the Company's financial condition, changes in the financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital
resources.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents was $3,705,475 at December 31, 2008 compared to
$5,299,904 at December 31, 2007. Working capital increased to $11.7 million at
December 31, 2008 compared with $11.6 million at December 31, 2007.

Net cash used by operating activities was $278,754 for the year ended December
31, 2008, compared to net cash provided by operating activities was $3,983,274
for the year ended December 31, 2007, and net cash used by

                                       21
<PAGE>

operating activities of $430,148 for the year ended December 31, 2006. The
decrease in net cash provided was due to a significant increase in income taxes
receivable in 2008. Net cash provided by operating activities increased in 2007
as compared to 2006 due to a significant decrease in accounts receivable in 2007
as compared to an increase in accounts receivable in 2006. Net cash used by
investing activities was $1,265,584 for the year ended December 31, 2008,
compared to cash used by investing activities of $204,456 for the year ended
December 31, 2007 and compared to cash used by investing activities of $45,885
for the year ended December 31, 2006. The decreases in 2008 resulted primarily
from the purchases of Ilex Engineering and in restricted cash that was used to
secure a performance bond given to the Ministry of Energy and Water in
Afghanistan. Net cash used in 2007 and 2006 was primarily due to purchases of
property and equipment.

Net cash used by financing activities was $9,041 for the year ended December 31,
2008. Net cash provided by financing activities was $37,306 for the year ended
December 31, 2007 due to the proceeds from the exercise of employee stock
options. Net cash provided by financing activities was $164,934 for the year
ended December 31, 2006 due to the proceeds from the exercise of employee stock
options.

We have a revolving credit facility of $3,000,000 with Branch Banking and Trust
(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 2008, there was no borrowing on the
line of credit. We frequently bid on and enter into international contracts that
require bid and performance bonds. At December 31, 2008 and 2007, BB&T had
issued standby letters of credit in the amount of $1,010,238 and $1,652,818 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 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 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATE RISK

Although the majority or our sales, costs of sales and selling costs are
transacted in U.S. dollars, a portion of our revenue is denominated in India
rupees. Consequently, a portion of our revenues, costs and operating margins may
be affected by fluctuations in exchange rates between the U.S. dollar and the
India rupee. We recognized a foreign currency loss of approximately $180,000 in
2008, a foreign currency gain of approximately $179,000 in 2007 and a foreign
currency loss of approximately $23,000 in 2006 due to intercompany payable
balances owed to us by our Sutron India entities. Fluctuations between the U.S.
dollar and the India rupee may have a material adverse effect on our financial
results.

INTEREST RATE RISK

We currently invest our cash balances, in excess of our current needs, in an
interest bearing savings account and in a certificate of deposit. We do not
invest for the purposes of trading in securities. We do not use derivative
financial instruments in our investments.

                                       22
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                SUTRON CORPORTION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm                       24

Consolidated Balance Sheets at December 31, 2008 and 2007                     25

Consolidated Statements of Operations for the Years ended
December 31, 2008, 2007 and 2006                                              26

Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 2008, 2007 and 2006                                        27

Consolidated Statements of Cash Flows for the Years ended
December 31, 2008, 2007 and 2006                                              28

Notes to Consolidated Financial Statements                                    29



                                       23
<PAGE>


                         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
Sutron Corporation and Subsidiary
Sterling, Virginia

We have audited the accompanying consolidated balance sheets of Sutron
Corporation and Subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2008. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sutron Corporation and
Subsidiary as of December 31, 2008 and 2007, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2008, in conformity with U.S. generally accepted accounting principles.


                                          /s/ Thompson, Greenspon & Co., P.C.


Fairfax, Virginia
March 24, 2009



                                       24
<PAGE>

                        SUTRON CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE><CAPTION>
                                                          DECEMBER 31,    DECEMBER 31,
                                                              2008            2007
                                                          ------------    ------------
<S>                                                       <C>             <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                            $  3,705,475    $  5,299,904
     Restricted cash and cash equivalents                      784,920         134,241
     Accounts receivable, net                                3,872,527       3,614,532
     Inventory                                               4,053,788       4,114,014
     Prepaid items and other assets                            302,633         477,754
     Income taxes receivable                                   983,875            --
     Deferred income taxes                                     308,000         312,000
                                                          ------------    ------------
         TOTAL CURRENT ASSETS                               14,011,218      13,952,445

PROPERTY AND EQUIPMENT, NET                                    372,745         579,282
                                                          ------------    ------------
OTHER ASSETS
     GOODWILL                                                  570,150            --
      OTHER ASSETS                                              95,057          99,308
                                                          ------------    ------------
         TOTAL ASSETS                                     $ 15,049,170    $ 14,631,035
                                                          ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                     $  1,200,721    $    823,114
     Accrued payroll                                           129,142         285,829
     Other accrued expenses                                    794,307         995,123
     Notes payable - current                                     2,765          38,381
     Billings in excess of costs and estimated earnings        139,117         246,448
                                                          ------------    ------------
         TOTAL CURRENT LIABILITIES                           2,266,052       2,388,895

LONG-TERM LIABILITIES
     Notes payable, net of current maturities                     --             2,075
     Deferred income taxes                                      59,000          84,000
                                                          ------------    ------------
         TOTAL LONG-TERM LIABILITIES                            59,000          86,075
                                                          ------------    ------------
         TOTAL LIABILITIES                                   2,325,052       2,474,970
                                                          ------------    ------------

STOCKHOLDERS' EQUITY
     Common stock                                               45,707          45,257
     Additional paid-in capital                              2,778,775       2,694,416
     Retained earnings                                      10,009,105       9,484,811
     Accumulated other comprehensive loss                     (109,469)        (68,419)
                                                          ------------    ------------
         TOTAL STOCKHOLDERS' EQUITY                         12,724,118      12,156,065
                                                          ------------    ------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 15,049,170    $ 14,631,035
                                                          ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

                        SUTRON CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                    --------------------------------------------
                                                        2008            2007            2006
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
NET SALES AND REVENUES                              $ 15,941,328    $ 18,868,101    $ 19,406,638

COST OF SALES AND REVENUES                            10,566,685      11,219,321      12,055,829
                                                    ------------    ------------    ------------
               Gross profit                            5,374,643       7,648,780       7,350,809
                                                    ------------    ------------    ------------

OPERATING EXPENSES:
     Selling, general and administrative expenses      3,511,079       3,312,088       2,936,925
     Research and development expenses                 1,228,661       1,293,207       1,358,624
                                                    ------------    ------------    ------------
               Total operating expenses                4,739,740       4,605,295       4,295,549
                                                    ------------    ------------    ------------

               Operating income                          634,903       3,043,485       3,055,260

FINANCING INCOME, NET                                    108,391         121,448          68,394
                                                    ------------    ------------    ------------

               Income before income taxes                743,294       3,164,933       3,123,654

INCOME TAX EXPENSE                                      (219,000)     (1,098,000)       (674,000)
                                                    ------------    ------------    ------------
NET INCOME                                          $    524,294    $  2,066,933    $  2,449,654
                                                    ============    ============    ============

NET INCOME PER SHARE:

               Basic income per share               $        .12    $        .46    $        .56
                                                    ============    ============    ============

               Diluted income per share             $        .10    $        .41    $        .51
                                                    ============    ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

                        SUTRON CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006

<TABLE><CAPTION>
                                                                                       Accumulated
                                                          Additional                      Other
                              Common        Stock          Paid-In        Retained     Comprehensive
                              Shares       Par Value       Capital        Earnings     Income (Loss)      Total
                           ------------   ------------   ------------   ------------   ------------    ------------
<S>                          <C>         <C>            <C>            <C>            <C>             <C>
BALANCES, DECEMBER 31,
2005                          4,294,551   $     42,946   $  2,312,230   $  4,968,224   $     (1,671)   $  7,321,729

Net income                         --             --             --        2,449,654           --         2,449,654

Cumulative translation
adjustment                         --             --             --             --          (11,496)        (11,496)
                                                                                                       ------------
Total comprehensive
income                                                                                                    2,438,158
                                                                                                       ------------
Stock based compensation           --             --           36,081           --             --            36,081
                                                                                                       ------------
Stock options exercised         200,000          2,000        210,970           --             --           212,970
                           ------------   ------------   ------------   ------------   ------------    ------------
BALANCES, DECEMBER 31,
2006                          4,494,551         44,946      2,559,281      7,417,878        (13,167)     10,008,938
                                                                                                       ------------
Net income                         --             --             --        2,066,933           --         2,066,933

Cumulative translation
adjustment                         --             --             --             --          (55,252)        (55,252)
                                                                                                       ------------
Total comprehensive
income                                                                                                    2,011,681
                                                                                                       ------------
Stock based
compensation                       --             --           50,196           --             --            50,196
                                                                                                       ------------
Stock options exercised          31,081            311         84,939           --             --            85,250
                           ------------   ------------   ------------   ------------   ------------    ------------
BALANCES, DECEMBER 31,
2007                          4,525,632         45,257      2,694,416      9,484,811        (68,419)     12,156,065
                                                                                                       ------------
Net income                         --             --             --          524,294           --           524,294

Cumulative translation
adjustment                         --             --             --             --          (41,050)        (41,050)
                                                                                                       ------------
Total comprehensive
income                                                                                                      483,244
                                                                                                       ------------
Stock based
compensation                       --             --           56,159           --             --            56,159

Stock options exercised          45,000            450         28,200           --             --            28,650
                           ------------   ------------   ------------   ------------   ------------    ------------
BALANCES, DECEMBER 31,
2008                          4,570,632   $     45,707   $  2,778,775   $ 10,009,105   $   (109,469)   $ 12,724,118
                           ============   ============   ============   ============   ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

                        SUTRON CORPORTION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>

                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                        -----------------------------------------
                                                            2008           2007           2006
                                                        -----------    -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                     <C>            <C>            <C>
     Net income                                         $   524,294    $ 2,066,933    $ 2,449,654
     Noncash items included in net income:
        Depreciation and amortization                       254,443        208,135        206,088
        Deferred income taxes                               (21,000)       (24,000)       (95,000)
        Stock based compensation                             56,159         50,196         36,081
        (Gain) loss on disposal of property                   1,100         (7,483)          --
        Changes in current assets and liabilities:
            Accounts receivable                            (257,995)     3,221,219     (3,124,325)
            Inventory                                        60,226       (711,997)      (869,493)
            Prepaid items and other assets                  175,121         52,966        (36,773)
            Income taxes receivable                        (983,875)          --             --
            Increase (Decrease) in Accounts payable         377,607       (575,171)       553,774
            Accrued expenses                               (357,503)      (543,972)       449,846
            Billings in excess of costs and estimated
               earnings                                    (107,331)       246,448           --
                                                        -----------    -----------    -----------
Net Cash Provided (Used) by Operating Activities           (278,754)     3,983,274       (430,148)
                                                        -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Restricted cash and cash equivalents                  (650,679)         3,992         95,142
     Purchase of property and equipment                     (54,006)      (176,719)      (139,074)
     Other assets                                             4,251        (48,732)        (1,953)
     Acquisition and goodwill                              (570,150)          --             --
     Proceeds from the sale of property and equipment         5,000         17,003           --
                                                        -----------    -----------    -----------
Net Cash Provided (Used) by Investing Activities         (1,265,584)      (204,456)       (45,885)
                                                        -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on notes payable                              (37,691)       (47,944)       (48,036)
     Proceeds from stock options exercised                   28,650         85,250        212,970
                                                        -----------    -----------    -----------
Net Cash Provided (Used) by Financing Activities             (9,041)        37,306        164,934
                                                        -----------    -----------    -----------

Effect of exchange rate changes on cash
     and cash equivalents                                   (41,050)       (55,252)       (11,496)
                                                        -----------    -----------    -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (1,594,429)     3,760,872       (322,595)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR              5,299,904      1,539,032      1,861,627
                                                        -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                  $ 3,705,475    $ 5,299,904    $ 1,539,032
                                                        ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
     Ilex Engineering, Inc.  Asset Acquisition:
       Property and equipment                           $     5,000    $      --      $      --
       Goodwill and contracts                               570,000           --             --
                                                        -----------    -----------    -----------
                    Total Assets Acquired               $   575,000    $      --      $      --
                                                        ===========    ===========    ===========
Acquired by:
Cash                                                    $   575,000    $      --      $      --
                                                        ===========    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       28
<PAGE>

                       SUTRON CORPORATION AND SUBISIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Sutron Corporation (Corporation) was incorporated on December 30, 1975, under
the General Laws of the Commonwealth of Virginia. The Corporation is a leading
provider of real-time data collection and control products, systems software and
professional services in the hydrological and meteorological monitoring markets.
The Corporation's products include data loggers, satellite transmitters/loggers,
sensors and system and application software. Customers consist of a diversified
base of Federal, state local and foreign government agencies, universities and
hydropower companies.

The Corporation operates from its headquarters located in Sterling, Virginia.
The Corporation has several branch offices located throughout the United States
and a branch office in India. The Corporation has established a wholly-owned
subsidiary, Sutron HydroMet Systems, Private Limited, which is located in India.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Sutron Corporation
and its wholly-owned subsidiary, Sutron HydroMet Systems, Private Limited. All
intercompany balances and transactions have been eliminated.

REVENUE RECOGNITION

The Company's revenue recognition policy is consistent with the requirements of
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," Statement of Position No. 97-2 (SOP 97-2), "Software Revenue
Recognition," and other applicable revenue recognition guidance and
interpretations. In general, the Company records revenue when it is realized, or
realizable, and earned. The Company considers these requirements met when
persuasive evidence of an arrangement exists, the products or services have been
provided to the customer, the sales price is fixed or determinable and
collectability is reasonably assured. The Company's revenue reflects reductions
attributable to discounts and customer returns.

For the Company's products, consisting of both equipment and software, revenue
is recognized upon shipment, delivery, installation or customer acceptance of
the product, as agreed in the customer order or contract. Sutron does sell its
software products without the related equipment although software products are
integral to systems. The Company's typical system requires no significant
production, modification or customization of the software or hardware. For
complex systems, revenue is deferred until customer acceptance. The Company does
provide customer discounts and does allow for product returns. The Company does
not do consignment sales or bill and hold. Revenue reflects reductions due to
discounts and product returns. Product returns have historically been
insignificant in amount.

The Company's sales arrangements for systems often include services in addition
to equipment and software. These services could include equipment integration,
software customization, installation, maintenance, training, and customer
support. For sales arrangements that include bundled hardware, software and
services, Sutron accounts for any undelivered service offering as a separate
element of a multiple-element arrangement. Amounts allocated to each element are
based on its objectively determined fair value, such as the sales price for the
product or service when it is sold separately. Revenue for these services is
typically recognized ratably over the period benefited or when the services are
complete.

The Company uses the percentage of completion method for recognizing revenue and
profits when it performs on fixed price contracts that extend over a number of
years. Under the percentage of completion method, revenue and profits are
recorded as costs are incurred based on estimates of total sales value and costs
at completion where total profit can be estimated with reasonable accuracy and
ultimate realization is reasonably assured. Profit estimates are revised
periodically based upon changes and facts, and any losses on contracts are
recognized immediately. Contracts may contain provisions to earn incentive and
award fees if targets are achieved. Incentive and award fees that can be
reasonably estimated are recorded over the performance period of the contract.
Incentive and award fees that cannot be reasonably estimated are recorded when
awarded. The Company recognizes revenue from time-and-

                                       29
<PAGE>

materials contracts to the extent of billable rates, times hours delivered, plus
direct materials costs incurred. Some of the contracts include provisions to
withhold a portion of the contract value as retainage. The Company's policy is
to take into revenue the full value of the contract, including any retainage, as
it performs against the contract. Contract costs include allocated indirect
costs. Anticipated losses on all contracts are recognized as soon as they become
known. Costs rendered on contracts in excess of related billings are reflected
as costs in excess of billings.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash equivalents
include time deposits and all highly liquid debt instruments with original
maturities of three months or less.

Interest paid approximated $200 for the years ended December 31, 2007, and 2006.
No interest was paid for the year ended December 31, 2008. Income taxes paid
approximated $901,000, $683,000 and $663,000 for the years ended December 31,
2008, 2007 and 2006, respectively. Foreign income tax paid approximated
$123,000, $40,000 and $74,000 for the years ended December 31, 2008, 2007 and
2006, respectively.

RESTRICTED CASH

For the years ended December 31, 2008 and 2007, the Corporation submitted
contract proposals that require bid bonds or bank guarantees. At December 31,
2008 and 2007, $784,920 and $134,241, respectively, of the cash and cash
equivalents balance is restricted for these bid bonds or serves as a performance
bond. At December 31, 2006, $89,480 is restricted for protest bonds.

ACCOUNTS RECEIVABLE

Based on management's evaluation of uncollected accounts receivable at the end
of each year, bad debts are provided for utilizing the allowance method. At
December 31, 2008 and 2007, the Corporation's investment in accounts 90 days or
more past due is $1,277,231 and $1,070,808, respectively, net of contract
retainages.

INVENTORY

Inventory is stated at the lower of cost or market. Electronic components costs,
work in process and finished goods costs consist of materials, labor and
overhead and are recorded at a standard cost that approximates the average cost
method. The Corporation provides allowances on inventories for any material that
has become obsolete or may become unsellable based on estimates of future demand
and sale price in the market.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated over their estimated
useful lives, ranging from three to seven years, using the straight-line method
for financial statement purposes, and the straight-line and accelerated methods
for income tax purposes.

Expenditures for maintenance, repairs, and improvements that do not materially
extend the useful lives of the assets are charged to earnings as incurred. When
items of property and equipment are disposed of, the cost of the asset and the
related accumulated depreciation are removed from the accounts. Any gain or loss
resulting from the removal from service is taken into the current period
earnings.

ACQUISITION AND GOODWILL

On December 31, 2008, the Corporation purchased the assets of Ilex Engineering,
Inc., a provider of DOMSAT systems, custom software and engineering services,
located in Columbia, Maryland. The acquisition is expected to strengthen the
Corporation's position in the GOES data collection services market and global
satellite market. The purchase price of approximately $575,000 was allocated
among tangible assets based on the relative fair market value of assets. The
excess of the purchase price over the fair value of assets in the amount of
approximately $570,000 was recorded as goodwill and the entire amount is
expected to be deductible for tax purposes.

                                       30
<PAGE>

Goodwill represents the excess of cost of the acquired net assets over the net
amounts assigned to assets acquired and liabilities assumed. Goodwill is not
amortized, but rather evaluated for impairment each year. Impairment exists when
the carrying amount of goodwill exceeds its implied fair value. No impairment of
goodwill was deemed to exist as of the balance sheet date.

INCOME TAXES

The Corporation utilizes an asset and liability approach to accounting for
income taxes. The objective is to recognize the amount of income taxes payable
or refundable in the current year based on the Corporation's income tax return
and the deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the Corporation's financial
statements or tax returns.

The asset and liability method accounts for deferred income taxes by applying
enacted statutory rates to temporary differences, the difference between
financial statement amounts and tax basis of assets and liabilities. The
resulting deferred tax liabilities or assets are classified as current or
noncurrent based on the classification of the related asset or liability.
Deferred income tax liabilities or assets are adjusted to reflect changes in tax
laws or rates in the year of enactment.

The Corporation adopted the provisions of FASB Interpretation No. 48 (FIN No.
48), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, on January 1, 2007. This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. FIN No. 48 prescribes a recognition threshold and
measurement principles for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. FIN No. 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. As of December 31, 2008 and 2007, the
Corporation had no unrecognized tax benefits. The Corporation also had no
interest expense and/or tax penalties during the year ended December 31, 2008.
If the Corporation had such expenses, they would be classified in the
consolidated statements of operations as part of the provisions for income tax
expense.

CAPITAL

The Company has 12,000,000, $.01 par value, shares authorized. There were
4,570,632 shares issued and outstanding at December 31, 2008, 4,525,632 shares
issued and outstanding at December 31, 2007 and 4,494,551 shares issued and
outstanding at December 31, 2006.

FOREIGN CURRENCY TRANSLATION

Results of operations for the Corporation's foreign branch office and foreign
wholly-owned subsidiary are translated from the designated functional currency
to the U.S. dollar using average exchange rates during the period, while assets
and liabilities of the foreign branch office are translated at the exchange rate
in effect at the reporting date. Resulting gains or losses from translating
foreign currency financial statements are included in accumulated other
comprehensive loss, net of any related tax effect.

FINANCIAL INSTRUMENTS

The estimated fair value of cash and cash equivalents, accounts receivable,
accounts payable, other accrued expenses, and short term notes payable
approximate their carrying amounts in the financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could vary from the estimates that were
used.

                                       31
<PAGE>

EARNINGS PER SHARE

The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128 that establishes standards for computing and presenting earnings per share
(EPS) for entities with publicly held common stock. The standard requires
presentation of two categories of earnings per share, basic EPS and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the year. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Corporation.

STOCK COMPENSATION PLANS

Effective January 1, 2006, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 123 (revised 2004), SHARED-BASED PAYMENT,
(SFAS 123(R)), which requires the measurement and recognition of compensation
expense for all share-based payment awards to employees and directors based on
estimated fair values. Additionally, the Corporation follows the Securities and
Exchange Commission's Staff Accounting Bulletin No. 107, SHARE-BASED PAYMENT
(SAB 107), issued in March 2005, which provides supplemental SFAS 123(R)
application guidance based on the views of the SEC. The Corporation adopted SFAS
123(R) using the modified prospective transition method. Under this transition
method, share-based compensation expense recognized during the year ended
December 31, 2005 included: (a) compensation expense for all share-based awards
granted prior to, but not yet vested, as of January 1, 2006, based on the grant
date fair value estimated in accordance with the original provisions of SFAS
123, and (b) compensation expense for all share-based awards granted beginning
January 1, 2006, based on the grant date fair value estimated in accordance with
the provisions of SFAS 123(R).

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2008, the Financial Account Standards Board (FASB) issued Staff
Position (FSP) 157-2, EFFECTIVE DATE OF FASB STATEMENT NO. 157. This FSP delays
the effective date of FAS 157 for all nonfinancial assets and nonfinancial
liabilities recognized or disclosed at fair value on a nonrecurring basis to
fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years. The adoption of this new standard is not expected to have a
material impact on the Corporation's results of operations or financial
position. The Corporation does not have financial assets and liabilities and
nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).

In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 108, CONSIDERING THE EFFECTS OF PRIOR YEAR
MISSTATEMENTS WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR FINANCIAL
STATEMENTS, which eliminates the diversity in practice surrounding the
quantification and evaluation of financial statement errors. The guidance
outlined in SAB 108 is effective for the Corporation in 2008 and is consistent
with our historical practices for assessing such matters when circumstances have
required such an evaluation. Accordingly, the Corporation does not believe that
adoption of SAB 108 will have any impact on the Corporation.

2. ACCOUNTS RECEIVABLE

Accounts receivable at December 31, consists of the following:

                                                      2008            2007
                                                  ------------    ------------
Current                                           $  3,398,285    $  2,703,063
Costs in excess of billings and
   estimated earnings                                  109,948         761,207
Contract retainage                                     493,835         206,262
Allowance for doubtful accounts                       (129,541)        (59,000)
                                                  ------------    ------------
       Totals                                     $  3,872,527    $  3,614,532
                                                  ============    ============

                                       32
<PAGE>

3. INVENTORY

Inventory consists of the following at December 31:

                                                      2008            2007
                                                  ------------    ------------
Electronic components                             $  1,890,438    $  1,868,590
Work in process                                      1,945,616       1,665,652
Finished goods                                         658,317       1,215,249
Allowance for obsolete inventory                      (440,583)       (635,477)
                                                  -------------   ------------
       Totals                                     $  4,053,788    $  4,114,014
                                                  =============   ============

4. PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31 is as follows:

                                                      2008            2007
                                                  ------------    ------------
Furniture, fixtures and equipment                 $  1,955,526    $  1,949,776
Vehicles                                               355,660         364,134
Leasehold improvements                                 127,439         110,858
                                                  -------------   ------------
       Totals                                     $  2,438,625    $  2,424,768
                                                  =============   ============

Accumulated depreciation and amortization at December 31, is as follows:

                                                      2008            2007
                                                  ------------    ------------
Furniture, fixtures and equipment                 $  1,651,011    $  1,543,053
Vehicles                                               305,080         256,136
Leasehold improvements                                 109,789          46,297
                                                  ------------    ------------
       Totals                                     $  2,065,880    $  1,845,486
                                                  ============    ============

Depreciation and amortization expense totaled $254,443, $208,135and $206,088 for
the years ended December 31, 2008, 2007 and 2006, respectively.

5. LINE OF CREDIT

The Corporation has a $3,000,000 line of credit with a commercial bank. The line
of credit is collateralized by substantially all of the assets of the
Corporation and expires August 2009. Under the terms of the line of credit, the
Corporation is required to maintain certain financial covenants. Interest is
charged at the bank's prime rate and is payable monthly. There was no balance
outstanding at December 31, 2008 or 2007.

The Corporation frequently bids on and enters into international contracts that
require bid and performance bonds. At December 31, 2008 and 2007, a commercial
bank had issued standby letters of credit in the amount of $1,010,238 and
$1,652,818, respectively that served as either bid or performance bonds. The
amount available under the line of credit is reduced by this amount.

6. OTHER ACCRUED EXPENSES

Components of other accrued expenses consist of the following at December 31:

                                                      2008            2007
                                                  ------------    ------------
Accrued vacation pay                              $    192,858    $    218,278
Accrued warranty costs                                 245,000         226,000
Customer advance payments                              318,407         224,972
Federal income taxes payable                               --          303,015
Other accruals                                          38,042          22,858
                                                  ------------    ------------
       Totals                                     $    794,307    $    995,123
                                                  ============    ============

                                       33
<PAGE>

7. ACCRUED WARRANTY COSTS

The Corporation warranties its products for up to two years and estimated
warranty costs are based upon management's best estimate of the amounts
necessary to settle future and existing claims on equipment sold as of the
balance sheet date. Factors considered include actual past experience of product
returns and the related estimated cost of labor and material to make the
necessary repairs as well as technological advances and enhanced design and
manufacturing processes. If actual future product return rates or the actual
costs of material and labor differ from the estimates, adjustments to the
accrued warranty liability are made.

Changes to the product warranty reserve are identified below and represent
adjustments to the reserve based on management estimates and other factors as
noted above:

Balance as of December 31, 2006                                   $    288,000
   Reserve adjustment                                                  (62,000)
                                                                  ------------
Balance as of December 31, 2007
                                                                       226,000
   Reserve adjustment                                                   19,000
                                                                  ------------
Balance as of December 31, 2008                                   $    245,000
                                                                  ============

8. NOTES PAYABLE

Notes payable consist of notes from various finance companies for vehicle
acquisitions and are secured by the underlying vehicles. Monthly installments
range from $259 to $700 and include zero percent interest. The balances
outstanding at December 31 are as follows:

                                                      2008            2007
                                                  ------------    ------------
Long-term maturities                              $        --     $      2,075
Current maturities                                       2,765          38,381
                                                  ------------    ------------
          Totals                                  $      2,765    $     40,456
                                                  ============    ============

9. LEASE OBLIGATIONS

The Corporation leases space for its headquarters and production facilities,
which expire in March 2009. The operating lease calls for monthly rent of
$12,616 and increases three percent per annum, thereafter. The lease agreement
includes additional rent payments based on a pro rata portion of maintenance
fees and operating expenses on the land and building.

The Corporation leases additional office and warehouse space in Sterling,
Virginia. The lease was renewed in 2005 and expires in March 2009 and requires
monthly rent payments of $5,500.

The Corporation leased office and warehouse space in West Palm Beach, Florida.
The four-year lease, expired in August 2008, required monthly payments of
$5,827. The Corporation entered into a lease agreement for different office
space in West Palm Beach commencing September 2008. The three-year lease,
expiring on August 31, 2011, requires monthly payments of $3,695 and increases
annually at $.75 per square foot at 2,850 square feet, thereafter.

The Corporation entered into a lease agreement for office space in Brandon,
Florida. The five-year lease, expired in December 31, 2008 and required monthly
payments of $1,984. The Corporation entered into a lease agreement for office
space in Lakeland, Florida. The one-year lease, expiring October 31, 2009,
requires monthly payment of $482.

The Corporation entered into lease agreements for office space and furniture in
New Delhi, India in September 2006. The three-year leases, expiring in August
2009, require monthly payments of $1,518. Both leases include an option to renew
for another period of three years with a twenty percent increase in rent.

The Corporation entered into a ten year lease for its headquarters and
production facilities on November 13, 2008, which commences on June 1, 2009. The
lease calls for monthly rent of $30,135, and increases 3 percent per annum,
thereafter. The lease agreement includes additional rent payments based on a pro
rata portion of operating expenses

                                       34
<PAGE>

and real estate taxes. The Corporation has
the right to extend the term of the lease for two additional terms of five years
beyond the initial term. The Corporation will receive a tenant improvement
allowance up to approximately $1,390,000 based on certain conditions described
in the lease.

The following is a schedule of future minimum lease payments by year:

Years ending December 31:
     2009                                                         $    329,617
     2010                                                              453,138
     2011                                                              449,067
     2012                                                              383,920
     2013                                                              393,496
     2014 and thereafter                                             2,309,177
                                                                  ------------
           Total                                                  $  4,318,415
                                                                  ============

Rent expense amounted to $362,182, $332,999 and $315,903 for the years ended
December 31, 2008, 2007 and 2006, respectively.

10. INCOME TAXES

The income tax expense charged to operations for the years ended December 31,
were as follows:
<TABLE><CAPTION>
                                                      2008            2007            2006
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Current income tax expense                        $   (240,000)   $ (1,122,000)   $   (769,000)
Deferred tax benefit                                    21,000          24,000          95,000
                                                  ------------    ------------    ------------
Total income tax expense                          $   (219,000)   $ (1,098,000)   $   (674,000)
                                                  ============    ============    ============

Deferred tax assets, are comprised of the following at December 31:

                                                      2008            2007            2006
                                                  ------------    ------------    ------------
Accrued vacation and warranty                     $    171,000    $    173,000    $    184,000
Accounts receivable and inventory allowances
                                                       137,000         139,000         149,000
                                                  ------------    ------------    ------------
    Gross deferred tax assets                          308,000         312,000         333,000

Gross deferred tax liability - depreciation
                                                       (59,000)        (84,000)       (129,000)
                                                  ------------    ------------    ------------
     Net deferred tax assets                      $    249,000    $    228,000    $    204,000
                                                  ============    ============    ============
</TABLE>

The realization of the deferred tax assets is dependent on future taxable
earnings. The Corporation has not provided for a deferred tax asset valuation
allowance due to their current and anticipated future earnings.

Reconciliation of the amount of reported income tax expense and the amount
computed by multiplying the applicable statutory Federal income tax rate is as
follows:
<TABLE><CAPTION>
                                                      2008            2007            2006
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Income before income taxes                        $    743,294    $  3,164,933    $  3,123,654
Applicable statutory tax rate                               34%             34%             34%
                                                  ------------    ------------    ------------
Computed "expected" Federal income tax Expense        (253,000)     (1,076,000)     (1,062,000)

Adjustments to Federal income tax resulting from:
     State income tax expense                          (39,000)       (184,000)       (120,000)
     Tax credits                                        36,000         106,000          68,000
     Stock compensation                                 37,000          56,000         440,000
                                                  ------------    ------------    ------------
Income tax (expense) benefit                      $   (219,000)   $ (1,098,000)   $   (674,000)
                                                  ============    ============    ============
</TABLE>
                                       35
<PAGE>

11. MAJOR CUSTOMERS

Set forth below are customers, including agencies of the U.S. Government, from
which the Corporation received more than ten percent of total revenue, reported
in the Hydromet Products and Integrated Systems segments, for the years ended
December 31:

                               2008            2007            2006
                           ------------    ------------    ------------
Department of Interior          19%             21%             17%
International                   42%             40%             36%
Commercial                      24%             27%             23%
Department of Defense           --              --              16%

Set forth below are customers from which the Corporation had more than ten
percent of total accounts receivable outstanding for the years ended December
31:

                                                2008           2007
                                            -----------    -----------
Islamic Republic of Afghanistan             $ 1,713,673    $   798,656


At December 31, 2008 and 2007, unbilled accounts receivable of approximately
$506,000 and $695,000, respectively, is from the Government of India Central
Water Commission.

12. CONCENTRATIONS

The Corporation's bank participates in the FDIC's Transaction Account Guarantee
Program. Under that program, through December 31, 2009, all non-interest bearing
transaction accounts are fully guaranteed by the FDIC for the entire amount in
the account. Coverage is in addition to, and separate from, the coverage
available under the FDIC's general deposit insurance rules.

The Corporation also maintains accounts that are not covered by the guarantee
program. At times throughout the year, cash and equivalents exceeded the FDIC
insurance limits in these accounts. As of December 31, 2008, the Corporation's
cash deposits exceeded the FDIC insured amount by approximately $3,954,000.

The Corporation's products use certain standard and application specific
components that are acquired from one or a limited number of sources. The
Corporation has generally been able to procure adequate supplies of these
components in a timely manner from existing sources. The Corporation's inability
to obtain a sufficient quantity of components when required or to develop
alternative sources at acceptable prices and within a reasonable time, could
result in delays or reductions in product shipments which could materially
affect the Corporation's operating results in any given period.

13. STOCK OPTION PLANS

The Corporation has granted stock options under the 2002, 1997 and the 1996
Stock Option Plans to key employees and directors for valuable services provided
to the Corporation. The authorized and granted options under each of these plans
are as follows:

                                                     Authorized     Granted
                                                     ----------     -------
1996 Plan                                              260,000      259,000
1997 Plan                                               60,000       60,000
2002 Plan                                              650,000      516,333

Shares under all the plans may be granted at not less that 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.

As discussed in Note 1, STOCK COMPENSATION PLANS, effective January 1, 2006, the
Corporation adopted the fair value recognition provision of SFAS 123(R), using
the modified prospective transition method. The adoption of SFAS

                                       36
<PAGE>

123(R) resulted
in share-based compensation expense associated with options for the years ended
December 31, 2008, 2007 and 2006 of $56,159, $50,196 and $36,081, respectively
which was recorded to general and administrative expenses. This expense
decreased basic and diluted earnings per share by $0.01 for the years ended
December 31, 2008, 2007 and 2006.

The vesting period of the remaining options is as follows:

Vested and exercisable                                              506,960
2009                                                                 15,625
2010                                                                 10,000
2011                                                                 10,000
2012                                                                  1,667
                                                                  ---------
   Total                                                            544,252
                                                                  =========


The fair value of Sutron Corporation stock options used to recognize
compensation expense in 2008, 2007 and 2006 is the estimated present value at
grant date using the Black-Scholes pricing model, with the following
assumptions:

                                2008              2007              2006
                           (Compensation)    (Compensation)    (Compensation)
                           --------------    --------------    --------------
Risk free rate                 3.62-3.92%       4.5 - 5.16%             5.16%
Expected volatility                   30%               30%               30%
Dividend yield                         0%                0%                0%
Holding period                   10 years          10 years          10 years


The risk free rate is based on the United States Treasury yield curve at the
time of grant. The expected volatility is based on the historical volatility of
the Company's stock. The dividend yield is based on the historical yield rate.
The holding period is based on the life of the options.

The following summarizes the option activity under these plans for the last
three years:

                                                                       Weighted
                                       Option                          Average
                                       Price          Number of        Exercise
                                     Per Share         Shares           Price
                                    ------------    ------------    ------------
Outstanding, December 31, 2005      $.40 - 7.45          739,333      $     .98
     Grants                                7.80           15,000      $    7.80
     Exercised                       .40 - 1.125         200,000      $    1.06
     Cancelled or expired                 --                 --       $     --
                                    ------------    ------------    ------------
Outstanding, December 31, 2006       .55 - 7.80          554,333      $    1.13
     Grants                         6.90 - 7.60           65,000      $    6.48
     Exercised                       .65 - 5.50           31,081      $    2.74
     Cancelled or expired                  7.60            5,000      $    7.60
                                    ------------    ------------    ------------
Outstanding, December 31, 2007       .55 - 7.80          583,252      $    1.65
     Grants                         6.00 - 7.50           16,000      $    7.41
     Exercised                       .55 - .68            45,000      $    0.64
     Cancelled or expired           7.45 - 7.80           10,000      $    3.91
                                    ------------    ------------    ------------
Outstanding, December 31, 2008      $.55 - 7.80          544,252      $    1.80
                                    ============    ============    ============

The weighted average fair value of options granted during the three years is as
follows:

December 31, 2006                                                 $    4.12
December 31, 2007                                                 $    3.55
December 31, 2008                                                 $    3.63

                                       37
<PAGE>

The weighted average remaining contractual life of options outstanding at
December 31, 2008 is 3.9 years.

14. 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.

<TABLE><CAPTION>
                                                             Years Ended December 31,
                                                     --------------------------------------
                                                         2008          2007          2006
                                                     ----------    ----------    ----------
<S>                                                  <C>           <C>           <C>
Net income                                           $  524,924    $2,066,933    $2,449,654
Shares used in calculation of income per share:
     Basic                                            4,549,810     4,512,578     4,341,534
          Effect of dilutive options                    501,816       469,652       469,109
                                                     ----------    ----------    ----------
     Diluted                                          5,051,626     4,982,230     4,810,643
Net income per share:
     Basic                                                 $.12          $.46          $.56
     Diluted                                               $.10          $.41          $.51
</TABLE>

Stock options that could potentially dilute basic EPS in the future were not
included in the computation of diluted EPS, because to do so would have been
anti-dilutive, were 95,000 for the year ended December 31, 2008 and 0 for 2007,
and 2006, respectively.

15. PROFIT SHARING PLAN

The Corporation has a profit-sharing retirement plan that covers substantially
all employees of the Corporation. The Plan includes a 401(k) provision under
which employees may elect to defer a portion of their compensation. The Plan was
amended in May 2006 to allow for employer matching of up to 4 percent as
determined in the Plan. The profit-sharing contribution is determined each year
by the Board of Directors based on profits. The Corporation made a profit
sharing contribution for the years ended December 31, 2006 of $100,000. The
Corporation did not make a profit sharing contribution for the year ended
December 31, 2008 and 2007. The employer matching contribution was approximately
$148,000, $156, 000 and $73,000 for the years ended December 31, 2008, 2007 and
2006, respectively.

16. SEGMENT INFORMATION

Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes standards for the
manner in which public companies report information about operating segments in
annual and interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way management organizes the operating segments within the Corporation for
making operating decisions and assessing financial performance.

The Corporation's chief operating decision-maker is considered to be the
Corporation's Chief Executive Officer (CEO). The CEO reviews financial
information presented based on divisions, comprised of products and/or services.
Nearly all of the Corporation's operations and assets are located at its
headquarters location. Therefore, indirect costs are not allocated among
segments.

The Corporation currently reports its results in four divisions: Hydromet
Products, Integrated Systems, Hydrological Services and Sutron India Operations.
Hydromet Products division is responsible for the manufacture and sale of the
Corporation's products including data loggers, satellite transmitters, sensors
and tides systems. The Integrated Systems and Sutron India Operations are
responsible for systems design, integration, installation, training and
commissioning of turnkey hydro-meteorological systems. The Corporation's
Hydrological Services provides hydrological services including modeling, flood
forecasting, hydrologic studies and equipment installation and maintenance.
Corporate assets consisted mainly of cash, deferred taxes, income tax
receivables and goodwill.

                                       38
<PAGE>


 The results of these segments are shown below (in
thousands):

                                   Years
                                   Ended       Net       Gross       Total
                                  Dec. 31    Revenues    Margin      Assets
                                  -------    --------    -------    -------
Hydromet Products                   2008      $ 8,581    $ 4,384    $ 4,651
                                    2007       10,019      5,784      5,049
                                    2006        9,234      4,726      5,127

Integrated Systems                  2008        5,824      1,416      2,511
                                    2007        6,303      2,200      2,079
                                    2006        6,153      2,335      1,732

Hydrological Services               2008        1,360      (174)        749
                                    2007        1,974      (402)        967
                                    2006        2,214       (90)      1,820

Sutron India Operations             2008          176      (251)      1,047
                                    2007          572         67      1,187
                                    2006        1,806        380      3,022

Corporate and Unallocated           2008          --         --       6,091
                                    2007          --         --       5,349
                                    2006          --         --       1,749

Total Company                       2008      $15,941    $ 5,375    $15,049
                                    2007      $18,868    $ 7,649    $14,631
                                    2006      $19,407    $ 7,351    $13,450

17. EXPORT SALES

Export sales from the Company's operations at December 31, were as follow (in
thousands):

                                     2008         2007         2006
                                  ---------    ---------    ---------
Central and South America         $     755    $     580    $   1,269
Canada                                1,160          717          645
Asia                                  1,209        3,187        4,527
Europe and other                        539          800          441
Middle East                           3,056        2,248            -
                                  ---------    ---------    ---------
                                  $   6,719    $   7,532    $   6,882
                                  =========    =========    =========

Sales were based on countries where the customers were located. Central and
South America includes all countries south of the United States. Asia includes
customers in Australia, China, India, Korea and New Zealand. Europe and other
consists of Europe and Africa. The Middle East was primarily sales to
Afghanistan and Iraq.

18. LEGAL CONTINGENCIES

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
the Corporation's financial statements. The Corporation has 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 does not anticipate
that any material losses will occur.

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<PAGE>

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A - CONTROLS AND PROCEDURES

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 December 31, 2008,
the end of the fiscal period covered by this report on Form 10-K. 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.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Sutron Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Sutron's internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control
over financial reporting includes those written policies and procedures that:

     o    pertain to the maintenance of records that, in reasonable detail,
          accurately and fairly reflect the transactions and dispositions of
          Sutron's assets;

     o    provide reasonable assurance that transactions are recorded as
          necessary to permit preparation of financial statements in accordance
          with accounting principles generally accepted in the United States of
          America;

     o    provide reasonable assurance that receipts and expenditures of Sutron
          are being made only in accordance with authorization of management and
          directors of Sutron; and

     o    provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of assets that could
          have a material effect on the consolidated financial statements.

Internal control over financial reporting includes the controls themselves,
monitoring and internal auditing practices and actions taken to correct
deficiencies as identified. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

Management assessed the effectiveness of Sutron's internal control over
financial reporting as of December 31, 2008. Management based this assessment on
criteria for effective internal control over financial reporting described in
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management's assessment included an
evaluation of the design of Sutron's internal control over financial reporting
and testing of the operational effectiveness of its internal control over
financial reporting. Management reviewed the results of its assessment with the
Audit Committee of our Board of Directors.

                                       40
<PAGE>

Based on this assessment, management determined that, as of December 31, 2008,
Sutron maintained effective internal control over financial reporting.

ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this annual report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting that
occurred during the last fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B - OTHER INFORMATION

None

                                    PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Board has adopted a Code of Conduct and Ethics that applies to Sutron's
principal executive officer, principal financial officer and all other employees
of the Company. This Code of Conduct and Ethics is posted on the Company's
website at http://www.sutron.com on the investors' page. Any amendments to the
Code of Ethics and waivers of the Code of Ethics for our principal executive,
accounting or financial officers will be published on our website.

The remainder of information required for this Item is incorporated by reference
to the Proxy Statement to be filed in connection with our 2009 Annual Meeting of
Shareholders.

ITEM 11 - EXECUTIVE COMPENSATION

The information required for this Item is incorporated by reference to the Proxy
Statement to be filed in connection with our 2009 Annual Meeting of
Shareholders.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The information required for this Item is incorporated by reference to the Proxy
Statement to be filed in connection with our 2009 Annual Meeting of
Shareholders.

ITEM 13 - CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTORS INDEPENDENCE

The information required for this Item is incorporated by reference to the Proxy
Statement to be filed in connection with our 2009 Annual Meeting of
Shareholders.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required for this Item is incorporated by reference to the Proxy
Statement to be filed in connection with our 2009 Annual Meeting of
Shareholders.

                                       41
<PAGE>

                                     PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

(a)(1 and 2)  FINANCIAL STATEMENTS AND SCHEDULES

The financial statements listed in Item 8 in the Index to Consolidated Financial
Statements on page __ are filed as part of this report.

(b) EXHIBITS

10.17     Loan Modification Agreement dated August 4, 2008 between Sutron
          Corporation and Branch Banking and Trust Company of Virginia, a North
          Carolina Banking Corporation

10.18     Lease Agreement dated November 17, 2008 between Sutron Corporation and
          FP Sterling Park II, LLC

31.1      Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
          Chairman of the Board of Directors, President and Chief Executive
          Officer

31.2      Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
          Chief Financial Officer and Treasurer

32        Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002

















                                       42
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SUTRON CORPORATION

(REGISTRANT)


/s/ Raul S. McQuivey                                        Date: March 31, 2009
---------------------------
By: Raul S. McQuivey,
    Chairman of the Board of Directors, President
    and Chief Executive Officer

In accordance with the Securities Exchange Act, this report has been signed by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.


/s/ Raul S. McQuivey                                        Date: March 31, 2009
---------------------------
By: Raul S. McQuivey,
    Chairman of the Board of Directors, President
    and Chief Executive Officer


/s/ Daniel W. Farrell                                       Date: March 31, 2009
---------------------------
By: Daniel W. Farrell, Director and Vice President


/s/ Andrew D. Lipman                                        Date: March 31, 2009
---------------------------
By: Andrew D. Lipman, Director


/s/ Leland R. Phipps                                        Date: March 31, 2009
---------------------------
By: Leland R. Phipps, Director


/s/ Robert F. Roberts, Jr.                                  Date: March 31, 2009
---------------------------
By: Robert F. Roberts, Jr., Director


/s/ Sidney C. Hooper                                        Date: March 31, 2009
---------------------------
By: Sidney C. Hooper, Chief Financial Officer
    (Principal Financial and Accounting Officer)


                                       43