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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2004
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) (Zip Code)
(703) 406-2800
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(Registrants telephone number, including area code)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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-KSB or any amendments to
this Form 10-KSB. [ ]
Issuers' revenues for its most recent fiscal year were $16,678,889.
The aggregate market value of the voting stock held by non-affiliates as of
March 25, 2005 was approximately $12,142,000 based on the fair market value of
such stock.
The number of shares outstanding of the issuers Common Stock, $.01 par value, as
of March 25, 2005 was 4,289,551.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants' definitive proxy statement dated April 12, 2005 are
incorporated in Part III as set forth herein.
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Page 1
SUTRON CORPORATION
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
PART I PAGE
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ITEM 1. DESCRIPTION OF BUSINESS 2
ITEM 2. DESCRIPTION OF PROPERTY 7
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 9
SECURITY HOLDERS
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED 9
STOCKHOLDER MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS 9
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7. FINANCIAL STATEMENTS 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH 13
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 8A. CONTROLS AND PROCEDURES 13
PART III
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ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF 14
THE REGISTRANT
ITEM 10. EXECUTIVE COMPENSATION 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN 14
BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 14
TRANSACTIONS
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND 15
REPORTS ON FORM 8-K
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 17
SIGNATURES 18
Page 2
PART I
ITEM 1 - BUSINESS
DESCRIPTION OF BUSINESS
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Sutron Corporation (the Company) was incorporated on December 30, 1975 under the
General Laws of the Commonwealth of Virginia. The Company designs, manufactures
and markets products and solutions that enable government and commercial
entities to monitor and collect hydrological and meteorological data for the
management of critical water resources, for early warning of potentially
disastrous floods or storms and for the optimization of hydropower plants.
The Company's headquarters is located at 21300 Ridgetop Circle, Sterling,
Virginia 20166, and the Company's telephone number at that location is (703)
406-2800. The Company maintains a worldwide web address at www.sutron.com. The
Company makes available free of charge through the Investors section of the
Company's website at www.sutron.com the annual, quarterly and current reports,
and amendments thereto, which the Company files with, or furnishes to, the SEC.
Such reports and amendments are available on the Company's website as soon as
reasonably practical after the Company has filed such reports with, or furnished
such reports to, the SEC.
Sutron is focused on providing real-time solutions and services to our customers
in three areas of the hydrological and meteorological markets. First, we provide
real-time data collection and control products consisting primarily of
dataloggers, satellite transmitters and sensors. Second, we provide turnkey
integrated systems for hydrological and meteorological networks and airport
weather systems. Third, we provide services consisting of installation,
maintenance of hydrological and meteorological systems, and other related
engineering services. The Company's customers include a diversified base of
federal, state, local and foreign governments, engineering companies,
universities, and hydropower companies.
The Company's ongoing, strategic business units consist of the Company's
Hydromet Products Divison, the Integrated Systems Division, the Hydrological
Services Division, the Airport Weather Systems Division, the Special Projects
Division and a Branch Office in India. Each unit includes a range of products
and services designed to meet the specific needs of a particular customer
segment.
HYDROMET PRODUCTS DIVISION
--------------------------
The Hydromet Products Division manufactures data loggers, satellite transmitters
and sensors. Sutron's data loggers collect sensor data and transmit the data to
central facilities primarily by satellite radio but also by telephone, fiber
optics or microwave. Sutron's sensors support the collection of hydrological and
meteorological data and include a tipping bucket rain gauge, a barometric
pressure sensor, a temperature sensor, and several water level sensors. The
Company's equipment is compatible with sensors from other companies. Sutron has
long-standing relationships with suppliers for wind speed and wind direction,
water quality, humidity and solar radiation sensors. The Company received an ISO
9001 certification on March 12, 1999 and an ISO 9001:2000 certification on
August 13, 2003. The principal products that are manufactured by the Hydromet
Products Division are described below.
8210 DATA LOGGER
The 8210 Data Logger/Transmitter is a simple-to-operate, low-cost data
collection platform which supports a wide variety of telemetry applications. The
8210 is environmentally hardened, capable of operating from -40 C to 60 C,
making it ideal for remote locations. As a data recorder, the 8210 will store
over 65,000 readings in battery-backed memory. The 8210 supports a wide variety
of communications, including radio, satellite, and telephone. The
Telephone/Voice Synthesis option allows communications over standard telephone
circuits using either a synthesized voice message or a modem connected to a
computer terminal.
Page 3
XPERT AND XLITE DATALOGGERS
The Xpert Datalogger/controller is the Company's next generation datalogger. It
is built upon a Microsoft CE operating system, has a 486 processor, C++
programming and standard 2 MB memory that is expandable to over 1 gigabyte. It
has enabled the Company to enter closely related environmental markets such as
tides and weather monitoring. 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.
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 improve our margins and to provide
the latest features. 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 original SatLink unit 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 satellite systems in Europe and Asia and
relays data from even the most remote sensors and loggers to everywhere around
the globe and works with virtually all dataloggers. SatLink is programmable from
any PC using software provided with the unit.
ACCUBAR GAUGE PRESSURE SENSOR
The Accubar Gauge Pressure sensor 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 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 loggers 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. In
2004 and 2003, the Hydromet Products Division provided state-of-the-art tide
stations to the National Ocean Survey valued at $900,000 and $676,000. Tide
stations are based on the Xpert data logger and 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, the Company enhanced the capabilities of
tides systems by adding Storm Surge/Tsumani software. This software provides
added capability to tides stations to detect and provide tsunami warnings.
Page 4
INTEGRATED SYSTEMS DIVISION
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The Integrated Systems Division provides system integration services consisting
of the design and development of customer-specific hardware configurations and
software applications for hydrological and meteorological monitoring and control
systems, the sale of Sutron's real-time database software XConnect), and
long-term software support for XConnect users. This capability allows the
Company to provide turnkey hydrological and meteorological systems to a variety
of users. Projects range in size from one station to hundreds of stations.
Projects usually require design, equipment integration, software application
development and installation and training on both hardware and software.
Projects can range in duration from a few days to twelve months depending on the
scope and complexity of the system.
HYDROLOGICAL SERVICES DIVISION
------------------------------
The Company provides hydrological services, which include provides data
interpretation and analysis services, 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, regression analysis, basin inventory studies)
and environmental permitting and legal or expert witness.
AIRPORT WEATHER SYSTEMS
The Airport Weather Systems Division was started in July 2003 with the hiring of
a division manager with over 20 years experience in the Automatic Weather
Observation System (AWOS) market. Monitoring of real-time weather data is
crucial to flight safety. 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/RVR.
Sensors are connected to a Sutron 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. Sutron is leveraging its experience with sensors and data
collection to enter this market. Distribution Methods of Products and Services
The Company's products and services are currently sold in the United States by
the Company's direct sales force. As of December 31, 2004, the Company employed
seven salaried sales and marketing personnel, including four engaged directly in
field sales activities, and three in various other marketing and sales support
functions. Internationally, the Company utilizes agents to sell its products and
services.
CUSTOMERS
During 2004, approximately 44% of the Company's products and services were sold
to the Federal Government. Revenues in 2004 among the various agencies were as
follows: Department of Defense, 16%; Department of the Interior, 20%; Department
of Commerce, 6% and various other agencies of the federal government, 2%. The
revenues from the Corps of Engineers were spread among some ten (10) separate
Districts, and the revenues from the Department of the Interior among two (2)
agencies, the U.S. Geological Survey and the Bureau of Reclamation.
The Company also performed on various contracts of foreign origin. Total
revenues from foreign customers amounted to approximately 32% of total revenues
in 2004, 28% of total revenues in 2003 and 29% in 2002. Sutron actively markets
its products and services internationally.
Contracts for products or services with federal, state and local government
agencies typically allow for termination at the convenience of the government
and for audit and annual negotiation of overhead rates. Upon termination, the
Company would be entitled to reimbursement for allowable costs incurred and to a
proportionate share of profits or fees earned to the date of termination. Such
contracts are also typically dependent upon compliance by the contractor with
applicable civil rights, equal employment opportunity, and contract procurement
requirements.
Page 5
The Company at this time has no reason to believe that any material changes will
occur in the foreseeable future with respect to federal, state, or local
government programs or services with respect to which the Company has been
granted its contracts or provides its services. However, due to changes in
administration, national goals and budgetary restrictions, funding of such
programs or services could be altered or abolished. If a substantial cutback in
the level of funding by the applicable government agency were to occur, it could
have a material adverse effect on the Company.
COMPETITION
The Company is aware of both domestic and foreign competitors offering complete
real-time networks of their own and companies, which fabricate real-time
networks from components manufactured by themselves and others. The Company is
also aware of numerous additional firms, ranging in size from large to small,
from general to highly specialized, and from new to well established, offering
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 those of the
Company. The Company may also be at a competitive disadvantage because it
purchases 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 the Company's products.
The Company, with respect to its professional engineering and technical
services, is 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 than the Company. As
to its hydrological services, the Company is 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 than
the Company.
Price, performance and experience are believed by the Company to be the primary
competitive factors with respect to all of its products and services.
RESEARCH AND DEVELOPMENT
During the three years ended December 31, 2004, 2003, and 2002, Sutron's
internally funded research and development costs were $1,018,874, $1,065,558,
and $1,480,706, respectively.
In 2004, the Company's product development focus was on continual improvement of
the SatLink2 and other core products. The Company certified the SatLink2 to
operate on the European/African geostationary satellite system, METEOSAT, and on
Chinas environmental satellite, FY-2C. The Company expects China to be a
significant market. The Company also worked towards certification of a 40 Watt
SatLink2 Satellite Transmitter/Logger that can be installed on existing and new
ocean system buoys to send ocean and weather parameters including tsunami
warnings through the global geostationary satellite systems in near real-time.
Certification of the 40 Watt SatLink2 Satellite Transmitter/Logger was received
from NESDIS in March 2005.
The Company invested heavily in the redesign of the SatLink transmitter
beginning in 2002 and continuing in 2003. In January 2004, the SL2-G312-1
Satellite Transmitter (SatLink2) was certified by the National Environmental
Satellite, Data and Information Service (NESDIS). The SatLink2 is a redesign of
the original SatLink transmitter in order to improve our margins and to provide
the latest features. It is not only a satellite transmitter but also has logging
capability which is attractive to customers who have limited logging
requirements and therefore avoids the purchase of a separate datalogger.
In 2002, the company released the logger version of the SatLink and developed
tidal monitoring SatLink that were instrumental in winning orders from the
National Ocean Survey for tides systems. The Company also released XConnect, a
base station software application that is compatible with leading database
Page 6
software including Oracle and Microsoft SQL Server. The Company added
enhancements to XConnect's reporting features in 2003 incorporating Crystal
reports.
PATENTS, TRADEMARKS, COPYRIGHTS AND AGREEMENTS
Although the Company does not deem patent protection to be of significant
importance to its industry, it has and may in the future seek patents for
certain of its products, real-time networks, and technology as well as Company
software products, real-time networks, and technology. Company software products
and innovations may not be patentable but may be subject to automatic but
limited copyright protection. The Company has treated its products, real-time
networks, technology and software as proprietary and relies on trade secret laws
and internal non-disclosure safeguards rather than making their designs and
processes generally available to the public by applying for patents. Further,
the Company believes 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 Company personnel and their ability to design and develop
enhanced and new products, real-time networks and their components.
RAW MATERIALS
The raw materials used by the Company, such as electronic components and
fabricated parts, are generally available from a wide variety of sources at
competitive prices. The Company does not anticipate that its present or proposed
business activities would be substantially adversely affected by the scarcity of
any raw materials.
BACKLOG
The Company's backlog at December 31, 2004 was $5,620,968 as compared with
$4,350,688 at December 31, 2003. The Company anticipates that 76% of its 2004
year-end backlog will be shipped in 2005.
EMPLOYEES
The Company had a total of 72 employees as of December 31, 2004 of which 71 were
full time.
FOREIGN OPERATIONS
The Company opened a branch office in New Delhi, India in December 2004. The
purpose of the branch office is to perform sales and marketing and installation
and maintenance activities. The branch office is restricted from bidding on
domestic Indian tenders. The Company 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 is expected in April 2005. Additional
financial information regarding foreign operations appears in Note 17 of the
Notes to Financial Statements, Item 7 of Part II of this report.
ITEM 2 - PROPERTIES
On July 30, 1992, the Company entered into a five and one-half year lease, for
approximately 17,000 square feet of manufacturing and office space in Sterling,
Virginia. The lease commenced on October 23, 1992. This facility allowed the
Company to consolidate its manufacturing, systems integration, research and
development, and sales and administration departments into one building. An
option for an additional five years was exercised in 1997. An option for an
additional three years was exercised in November 2002. The lease will expire in
March 2006.
In July, 1999, the Company leased additional space of approximately 7,000 square
feet in Sterling, Virginia. Two departments, integrated systems and research and
development were relocated to the new space during fiscal year 2000 in order to
provide increased production and warehouse space at the corporate headquarters.
The lease expires in March 2003 and has been renewed for three more years and
will expire in March 2006.
Page 7
The Company entered into a lease agreement in October 2004 for approximately
5300 square feet of office and warehouse space in West Palm Beach, Florida. The
four-year lease expires in August 2008. The Hydrological Services division will
use this space which consists of both office and warehouse space.
The Company entered into a lease agreement for approximately 1500 square feet of
office space in Brandon, Florida. The five-year lease, expires in December 2008.
The Hydrological Services division will use this space for offices.
The Company entered into a lease agreement for approximately 1800 square feet of
office space in New Delhi, India in September 2004. The lease is month to month.
The India branch office will use this space for offices.
The Company believes that its facilities are adequate for its present needs and
that its properties are in good condition, well maintained and adequately
insured.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation with customers,
vendors, suppliers and others in the ordinary course of business, and a number
of such claims may exist at any given time. All such existing proceedings are
not expected to have a material adverse impact on the Company's results of
operations or financial condition. In addition, the Company or its subsidiaries
are a party to the proceedings discussed below.
In 2003, the Company filed a claim with the Advance Tax Court of India seeking a
ruling on a decision by the Government of Andhra Pradesh (GoAP) of India to
assess a 48% income tax on the Company's contract of approximately $1,606,000.
The GoAP believed that the Company had established a branch office in India and
was therefore subject to Indian income tax. Although the Company did file an
application for branch office status and received approval to open a branch
office, the Company did not complete the registration and approval process with
the Government of India and had not opened a branch office in India. The income
tax amount that is at issue was approximately $770,000.
The Advance Tax Court of India heard the case in September 2004 and ruled that
Sutron Corporation has a Permanent Establishment in India by virtue of its
Country Manager who maintains an office in New Delhi. The Country Manager has
the authority to sign contracts and perform other duties on behalf of the
Company that fulfills the requirements of Indian tax law and as defined in
Double Taxation Avoidance Agreement with the United States of America.
As a result of this ruling, Sutron Corporation entered into an agreement with
Ernst & Young, New Delhi, India to file tax returns for the tax periods April 1,
2002 to March 31, 2003 and April 1, 2003 to March 31, 2004. The returns for both
tax periods were filed on October 29, 2004. A refund in the amount of
approximately $137,000 will be issued to Sutron for the tax period ending March
31, 2003 resulting from excess withholdings by the Government of Andhra Pradesh
in excess of the tax amount of approximately $5,250. A tax payment of
approximately $5,600 was made for the tax period ending March 31, 2004. All
taxes paid in India will be applied as income tax credits on the Company's U.S.
tax returns in accordance with the Double Taxation Avoidance Agreement with the
United States of America and will therefore offset federal taxes.
The Company is currently awaiting acceptance on two systems that were provided
to the Government of Andhra Pradesh in 2002. All contractual items on the
systems have been accepted with the exception of four water level monitoring
sites that are located at reservoirs. The Government of Andhra Pradesh believes
that the sites should go down approximately 100 meters at the sites. The Company
does not believe that it is obligated to provide monitoring at 100 meters due to
lack of specification. The Company only proposed 10 meters at each site. This
matter will most likely be referred to an arbitrator as per provisions of the
contract. In the event that the Company loses the arbitration hearing,
additional costs of approximately $120,000 would be incurred to install the
sites down to 100 meters.
Page 8
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter of
2004.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The common stock of Sutron Corporation is quoted over the counter through the
NASD Bulletin Board supplied by the National Association of Securities Dealers,
Inc. under the symbol STRN, and through the Pink Sheet Service of the National
Quotation Bureau, Inc. The table below sets forth the high and low sales prices
for the past two years.
MARKET INFORMATION
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2004 2003
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HIGH LOW HIGH LOW
--------- -------- --------- --------
First Quarter $1.70 $ .65 $1.28 $ .67
Second Quarter 3.75 1.25 1.40 .61
Third Quarter 4.50 2.80 1.35 .60
Fourth Quarter 12.00 3.90 1.45 .70
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(b) Approximate Number of Equity Shareholders:
Title of Class: Common Stock, $.01 par value Approximate Number of Record
Holders At March 25, 2005: 190
(c) Dividends:
The Company has never paid a dividend on its common stock and the Board of
Directors intends for the foreseeable future to retain all earnings for use in
the Company's business.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements, which reflect the
current views of the Company with respect to future events that could have an
effect on its future financial performance. These statements may include such
words as "expects," "believes," "estimates," and similar expressions. These
forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from historical results or those
currently anticipated. Readers are cautioned not to place undue reliance on
these forward-looking statements.
Page 9
The following table sets forth, for the periods presented, certain income
statement data of the Company expressed as a percentage of revenues:
PERCENTAGE OF REVENUES
2004 2003 2002
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of sales 61.5 69.5 66.2
---- ---- ----
Gross profit 38.5 30.5 33.8
---- ---- ----
Selling, general and
administrative expenses 14.4 20.1 21.8
Research and
Development expenses 6.1 9.7 14.5
---- ---- ----
Operating income 18.0 .7 (2.5)
Interest expense .1 .3 .5
---- ---- ----
Income before income taxes 17.9 .4 (3.0)
Income taxes (benefit) 6.5 (.5) (1.9)
---- ---- ----
Net income 11.4% .9% (1.1)%
===== ===== =====
FISCAL 2004 COMPARED TO FISCAL 2003
RESULTS OF OPERATIONS
The Company's revenues for 2004 increased 51% to $16.7 million from $11 million
in 2003. The Company derives its revenues from the sale of products consisting
primarily of dataloggers, satellite transmitters/loggers and sensors, integrated
systems, hydrological services consisting primarily of equipment installation
and maintenance and engineering services and airport weather systems.
Revenues from sales to domestic customers increased in 2004 to $11.3 million
from $7.9 million in 2003, an increase of 42%. Standard products sales increased
to $6.96 million in 2004 from $5.65 million in 2003. Revenues from integrated
systems, which includes special projects and the Company's branch office in
India, increased significantly to $1.95 million compared to $1.3 million in 2003
primarily due to increased software services projects and engineering services
provided to Hanscom Air Force Base to develop the AN-FMQ-13(V)2 wind sensor
system. Revenues for hydrological services increased to $2.36 million from $1
million in 2003 due to the expansion of operations in Florida.
Revenues from international sales increased 74% to $5.4 million in 2004 from
$3.1 million in 2003. Sales of products increased to $3.73 million from $944
thousand in 2003 due to the Company providing dataloggers, sensors and other
equipment totaling $2.4 million to a Canadian consortium for a flow monitoring
and flood warning system in Poland. Revenues from integrated systems, which
includes special projects and the Company's branch office in India, decreased to
$1.7 million from $2.0 million due to fewer international systems projects.
Revenue from airport weather systems, a division started in 2003, declined to $8
thousand in 2004 from $70 thousand in 2003.
The Company's largest customer in each of years 2004 and 2003 was the Department
of the Interior, the principal agencies being the US Geological Survey and the
Bureau of Reclamation, which accounted for 20% and 28% of revenues,
respectively. Non-federal government, commercial and international revenues
represented 56% of revenues in 2003 versus 55% in 2002.
Page 10
GROSS PROFIT
Gross profit for 2004 increased 90% to $6.43 million from $3.36 million in 2003.
Gross profit as a percentage of revenues for 2003 increased to 38.5% as compared
to 30.5% in 2003.
Gross profit improved in 2004 due to the increase in revenues and due to
improvements in the design and manufacturability of the SatLink 2 Satellite
Transmitter/Logger. The Company certified the Satlink2 in January 2004 and began
shipping units in May 2004. The SatLink2 was designed to have fewer parts,
improved manufacturability and improved features compared to the SatLink. The
Company also benefited from large project awards with Hanscom Air Force Base and
a Canadian consortium for a flow monitoring and flood warning system in Poland.
Both contracts required significant quantities that allowed the Company to
obtain supplier pricing discounts that greatly improved margins. The Company's
gross margin is dependent on product volumes, product mix, overhead expenses and
projects that vary in terms of size, complexity and pricing competitiveness. All
of these factors fluctuate from year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.4 million in 2004 as
compared with $2.2 million in 2003. Selling, general and administrative expenses
as a percentage of revenues decreased to 14.4 in 2004 from 20.1% in 2003 due to
the increase in revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 4% to $1.02 million in 2004 from
$1.06 million in 2003. Research and development expenses as a percentage of
revenues decreased to 6.1% in 2004 from 9.7% in 2003. In 2004, engineers worked
directly on certain contracts including the Hanscom Air Force Base AN-FMQ-13(V)2
Wind Sensor System resulting in engineering costs being included in cost of
sales.
In 2004, the Company's product development focus was on continual improvement of
the SatLink2 and other core products. The Company certified the SatLink2 to
operate on Chinas environmental satellite, FY-2C. The Company expects China to
be a significant market. The Company also worked towards certification of a 40
Watt SatLink2 Satellite Transmitter/Logger that can be installed on existing and
new ocean system buoys to send ocean and weather parameters including tsunami
warnings through the global geostationary satellite systems in near real-time.
Certification of the 40-Watt SatLink2 Satellite Transmitter/Logger was received
from NESDIS in March 2005.
The Company continued its development efforts in 2004 relating to tides
monitoring systems by adding Storm Surge/Tsunami software. Tides systems are
based on the Xpert datalogger and the SatLink2 transmitter. The Company received
orders for tides systems totaling $900 thousand in 2004 and $676 thousand in
2003. The Company expects a significant increase in revenue from tides systems
in 2005 due to increased funding by the federal government for tide monitoring
and tsunami warning systems.
OTHER INCOME (EXPENSE)
Other income and expenses consisted of interest expenses of $30 thousand in 2004
and 2003.
FISCAL 2003 COMPARED TO FISCAL 2002
RESULTS OF OPERATIONS
The Company's Revenues for 2003 increased 8% to $11.0 million from $10.2 million
consisting primarily of dataloggers, SatLink transmitters and sensors,
integrated systems and software that are done on a project specific basis,
hydrological and engineering services and airport weather systems.
Page 11
Revenues from sales to domestic customers increased in 2003 to $7.9 million from
$7.25 million in 2002, an increase of 8.7%. Standard products sales increased
slightly to $5.65 million in 2003 from $5.6 million in 2002. Revenues from
integrated systems and software were down $256 thousand to $1.3 million from
$1.56 million. Revenues for hydrological services increased to $992 thousand
from $110 thousand in 2002 due to the expansion of operations in Florida and
winning five major multi-year contracts in 2002 and 2003 with the South Florida
Water Management District.
Revenues from international sales increased slightly to $3.1 million in 2003
from $2.95 million in 2002. Sales of standard products decreased to $944
thousand in 2003 from $1.3 million in 2002 due to decreased sales from China.
Revenues from integrated systems and software were up $400 thousand to $2.0
million from $1.6 million due to the award of several large projects including a
$499 thousand project to provide a rainfall measuring system to the government
of Morocco, a $730 thousand World Meteorological project to provide airport
meteorological systems to 13 small island states in the Caribbean and a $446
thousand standard product order from a hydropower company in Venezuela. The
Company sold its first airport weather system in 2003 and realized revenue of
$71,000.
The Company's largest customer in each of years 2003 and 2002 was the Department
of the Interior, the principal agencies being the US Geological Survey and the
Bureau of Reclamation, which accounted for 28% and 26% of revenues,
respectively. Commercial and international revenues represented 55% of revenues
in 2003 versus 48% in 2002.
GROSS PROFIT
Gross profit for 2003 decreased 2.7% to $3.36 million from $3.45 million in
2002. Gross margin as a percentage of revenues for 2002 decreased to 30.5% as
compared to 33.8% in 2002. Increased sales of SatLink transmitters caused a
decrease in the Company's margins. The Company certified a new SatLink
transmitter, the SL2-G312-1, in December 2003 that will significantly improve
future margins due to fewer parts and improved manufacturability. The Company's
margins were also impacted by three projects that were awarded in 2002. Two
projects were with the Government of Andhra Pradesh of India and one project was
with the Meteorological Service of Mexico. All three projects were bid very
competitively. The company completed the Mexico project in 2003. The Government
of Andhra Pradesh projects are near completion. The Company anticipates that
these projects will be completed in mid 2004. The Company's gross margin is
dependent on product and system costs, product mix and overhead expenses, all of
which fluctuate from year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were level at $2.2 million in 2003
and 2002. Selling, general and administrative expenses as a percentage of
revenues decreased to 20.8% in 2003 from 21.8% in 2002 due primarily to the
increase in sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 28% to $1.06 million in 2003 from
$1.48 million in 2002. Research and development expenses as a percentage of
revenues decreased to 9.7% in 2003 from 14.5% in 2002. The primary reason for
the decrease was the completion of XConnect systems software. Upon its
completion in late 2002, the Company transferred several software engineers into
direct departments in order to provide customers with systems and application
development services.
In 2003, the Company's product development focus was on the design and
certification of the SL2-G312-1 in order to enhance the product and improve
margins. The SL2-G312-1 is a high data rate satellite transmitter that transmits
at 100, 300 and 1200 baud, incorporates GPS and functions as a logger as well.
All GOES satellite customers are mandated by NESDIS to purchase high data rate
satellite transmitters and
Page 12
to replace all old 100 baud transmitters within a ten-year period effective July
2001. The Company believes that the SL2 will allow it to dominate the
replacement market.
In 2003, the Company continued its development efforts relating to tidal
monitoring applications by introducing enhancements to its tides monitoring
systems. The tides systems are based on the Xpert and XLite dataloggers and use
the SatLink transmitter. The Company won orders totaling $663 thousand in 2003
and $450 thousand in 2002 for tides systems. The Company also completed the
development of an analog expansion module in 2003.
OTHER INCOME (EXPENSE)
Other income and expenses consisted of interest expenses of $30 thousand in 2003
compared with $47 thousand in 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $5.35 million at December 31, 2004 compared
with $3.4 million at December 31, 2003. Cash on hand was $1,419,171 at December
31, 2004 compared to $388,612 at December 31, 2003. Of the cash balance on hand
at December 31, 2004, $277,454 was restricted and served as collateral for
international standby letters of credit and $108,568 was restricted and served
as bid bonds on international tenders.
Net cash provided by operating activities was $2,133,859 for the year ended
December 31, 2004 as compared to cash used by operating activities of $526,355
for the year ended December 31, 2003 and cash provided by operations of $853,560
for the year ended December 31, 2002.
Net cash used in investing activities was $213,709 for the year ended December
31, 2004, compared to $156,983 and $61,698 for the years ended December 31, 2003
and 2002, and was primarily due to purchases of property and equipment.
Net cash used by financing activities was $893,740 for the year ended December
31, 2004 due to payments on the line of credit and on shareholder and term
notes. Net cash provided by financing activities was $670,210 for the year ended
December 31, 2003 due to proceeds from the line of credit and shareholder notes.
Cash used by financing activities was 493,098 for the year ended December 31,
2002 due to payments on the line of credit and term notes.
The Company has a revolving credit facility of $1,625,000 with BB&T Bank. The
credit facility expires on August 5, 2005. 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 2005.
ITEM 7 - FINANCIAL STATEMENTS
The financial statements required by this Item 7 are listed in Item 13(a)(1) and
begin at page F-1 of this Report.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A - CONTROLS AND PROCEDURES
a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Page 13
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as of
December 31, 2004. Based on this evaluation, our principal executive officer and
our principal financial officer concluded that our disclosure controls and
procedures were not effective.
Specifically, we discovered that we failed to timely file a Current Report on
Form 8-K relating to our third quarter 2004 earnings press release. In addition,
we identified control weaknesses relating to our non-compliance with certain
disclosure requirements in the SEC's rules relating to periodic reports. After
discovering such weaknesses, and in an effort to address and remedy the
weaknesses, we have amended our annual report and filed a Report on Form 8-K to
ensure appropriate public disclosures.
Our control weaknesses relate to our failure to devote sufficient resources to
keep abreast of changing disclosure requirements, including those requirements
that were imposed after the passage of the Sarbanes-Oxley Act of 2002. We are in
the process of correcting the identified weaknesses by, among other things,
allocating additional personnel to the disclosure process, adopting written
disclosure controls and procedures, forming a disclosure controls committee that
will consider the materiality of information and determine disclosure
obligations on a timely basis, and engaging outside counsel to review our SEC
filings on a more frequent basis. These actions should be completed during the
second quarter of 2005.
b) Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART III
Certain information required by Part III is omitted from this report because we
intend to file a definitive Proxy Statement pursuant to Regulation 14A no later
than 120 days after the end of the fiscal year covered by this report, and
certain information to be included therein is incorporated herein by reference.
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information required by this Item is incorporated by reference to the Proxy
Statement under the sections captioned "Election of Directors," "Executive
Officers," "Executive Compensation" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934."
ITEM 10 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Proxy
Statement under the sections captioned "Election of Directors," "Executive
Officers," "Executive Compensation" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934."
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders," and "Management
Ownership of Common Stock" appearing in the Proxy Statement, is incorporated
herein by reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Certain Transactions," appearing in the Proxy
Statement, is incorporated herein by reference.
Page 14
ITEM 13 - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of the Company are filed as part of this
Annual Report on Form 10-KSB as follows:
Index to Financial Statements F-1
Report of Independent Auditors F-2
Balance Sheets at December 31, 2004 and 2003 F-3
Statements of Operations for the years ended December 31, 2004,
2003 and 2002 F-4
Statements of Changes in Stockholders Equity for the years ended
December 31, 2004, 2003 and 2002 F-5
Statements of Cash Flows for the years ended December 31, 2004,
2003 and 2002 F-6
Notes to Financial Statements F-7
(a)(2) Financial Statement Schedules
Not applicable.
(a)(3) Exhibits
Exhibit No. Description
3(a) Copy of Articles of Incorporation of Sutron Corporation, received and
approved December 30, 1975 (1)
3(b) Copy of Articles of Amendment to the Articles of Incorporation and Articles
of Reduction of Stated Capital of Sutron Corporation received and approved
September 7, 1983 (1)
3(c) By-laws of the Registrant (1)
3(d) Copy of Articles of Amendment to the Articles of Incorporation received and
approved June 8, 1995 (10)
4(a) Specimen Shares of Common Stock Certificate (2)
4(b) Form of Warrant to be issued as part of Unit (2)
4(c) Amended Form of Warrant issued as part of Unit (3)
4(d) Incentive Stock Option Plan dated August 31, 1983 (1)
4(e) Stock Bonus Plan dated August 31, 1983 (1)
4(f) Loan and Security Agreement, dated December 11, 1992 between the Company
and Crestar Bank (8)
4(g) 1996 Stock Option Plan (11)
4(h) 2002 Stock Option Plan (12)
10(a) Employment Agreement dated as of July 1, 1983 with Kenneth W. Whitt (1)
10(b) Employment Agreement dated as of July 1, 1983 with Dr. Raul S. McQuivey
(1)
10(c) Employment Agreement dated as of July 1, 1983 with Dr. Thomas N. Keefer
(1)
10(d) Employment Agreement dated as of July 1, 1983 with Duane M. Preble (1)
10(e) Purchase Agreement dated as of July 1, 1983 with Eric S. Clyde (1)
10(f) Stock Option Agreement between Registrant and Gerald Calhoun dated July 1,
1983 (1)
10(g) Certified Copy of Resolution of Commissioners of Fairfax County Economic
Development Authority, adopted October 12, 1982, approving $425,000
Industrial revenue bond loan to registrant (1)
10(h) Certified Copy of Resolution of Commissioners of Fairfax County Economic
Development Authority, adopted March 8, 1983, approving $400,000
industrial revenue bond loan to registrant (1)
10(i) Certified Copy of Resolution of Board of Supervisors of Fairfax County,
adopted March 21, 1983, approving issuance of industrial revenue bonds for
purpose of $400,000 loan to Registrant (1)
Page 15
10(j) License agreement dated January 29, 1987, with TSUKASA SOKKEN Co., Ltd.
of Japan, to use U.S. Patent No. 3,677,085 (4)
10(k) License agreement dated November 10, 1986, with S.A. Des Caliberies et
Trefileries de Cossonay of Switzerland, to use U.S. Patent No. 4,279,147
and Canada Patent No. 1,120,286 (4)
10(l) Lease agreement dated September 18, 1987, with Squire Court Limited
Partnership to lease building space (9,000 sq. ft.) (4)
10(m) Copy of termination agreement with Duane Preble dated April 1, 1988 (5)
10(n) Sale agreement with National Hospital Health System Corporation, dated
November 29, 1989, and subsequent amendments dated December 29, 1989,
February 28, 1990, and March 27, 1990, to sell land and building in
Herndon, Virginia (6)
10(o) Lease agreement dated May 9, 1990 with National Hospital Health System
Corporation to lease building space (5545 sq .ft.) (7)
10(p) Stock Option Agreement between Sutron Corporation and Glenn A. Conover
dated October 15, 1990 (7)
10(q) Stock Option Agreement between Sutron Corporation and Daniel W. Farrell
dated October 15, 1990 (7)
10(r) Lease agreement dated July 30, 1992 with Loudoun Holding Inc. to lease
building space (16,794 s q. ft.) (8)
10(s) Stock Option Agreement between Sutron Corporation and Ronald C. Dodson
dated December 6, 1993 (9)
10(t) Stock Option Agreement between Sutron Corporation and Raul S. McQuivey
dated November 1, 1996 (11)
10(u) Stock Option Agreement between Sutron Corporation and Glenn A. Conover
dated November 1, 1996 (11)
10(v) Stock Option Agreement between Sutron Corporation and Daniel W. Farrell
dated November 1, 1996 (11)
10(w) Stock Option Agreement between Sutron Corporation and Sidney C. Hooper
November 1, 1996 (11)
10(x) Stock Option Agreement between Sutron Corporation and Raul S. McQuivey
dated October 18, 2002 (12)
10(y) Stock Option Agreement between Sutron Corporation and Daniel W. Farrell
dated October 18, 2002 (12)
10(z) Stock Option Agreement between Sutron Corporation and Sidney C. Hooper
October 18, 2002 (12)
10.1 Stock Option Agreement between Sutron Corporation and Thomas N. Keefer
dated October 18, 2002 (12)
10.2 Stock Option Agreement between Sutron Corporation and Robert F. Roberts,
Jr. dated December 18, 2003 (13)
10.3 Stock Option Agreement between Sutron Corporation and Robert F. Roberts,
Jr. dated May 13, 2004 (14)
(1) Filed as Exhibits to registrants Registration Statement on Form S-18 (File
No. 2-86573-W) dated September 16, 1983, and incorporated herein by
reference.
(2) Filed as Exhibits to Amendment No. 1 to registrants Registration Statement
on Form S-18 (File No. 2-86573-W) dated October 26, 2983, and incorporated
herein by reference.
(3) Filed as Exhibits to Amendment No. 2 to registrants Registration Statement
on form S-18 (File No. 2-896573-W) dated November 4, 1983 and incorporated
herein by reference.
(4) Filed as Exhibits to registrants Annual Report on Form 10-K for the year
ended December 31, 1987, and incorporated herein by reference.
(5) Filed as Exhibit on Form 8-K dated April 1, 1990, and incorporated herein
by reference.
Page 16
(6) Filed as Exhibits to registrants Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference.
(7) Filed as Exhibits to registrants Annual Report on Form 10-K for the year
ended December 31, 1990 and incorporated herein by reference.
(8) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 1992 and incorporated herein by reference.
(9) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 1993 and incorporated herein by reference.
(10) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 1995 and incorporated herein by reference.
(11) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 1996 and incorporated herein by reference.
(12) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 2002 and incorporated herein by reference.
(13) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 2003 and incorporated herein by reference.
(14) Filed as Exhibits to Registrants Annual Report on Form 10-KSB for the year
ended December 31, 2004 and incorporated herein by reference.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the fourth quarter of
the fiscal year ended December 31, 2004.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item relating to principal accountant fees and
services is incorporated by reference to the Proxy Statement under the section
"Ratification of the Appointment of Independent Accountants".
Page 17
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)
Date: March 30, 2005
By /s/ Raul S. McQuivey 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.
Date: March 30, 2005
By /s/ Raul S. McQuivey Raul S. McQuivey,
--------------------------------------------------------------------------------
Chairman of
the Board of Directors,
President and Chief
Executive Officer
Date: March 30, 2005
By /s/ Thomas N. Keefer Thomas N. Keefer,
--------------------------------------------------------------------------------
Director and
Vice President
Date: March 30, 2005
By /s/ Daniel W. Farrell Daniel W. Farrell,
--------------------------------------------------------------------------------
Director and
Vice President
Date: March 30, 2005
By /s/ Sidney C. Hooper Sidney C. Hooper,
--------------------------------------------------------------------------------
Director and
Chief Financial
Officer
Date: March 30, 2005
By /s/ Robert F. Roberts, Jr. Robert F. Roberts, Jr.,
--------------------------------------------------------------------------------
Director
Page 18
F-1
SUTRON CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Balance Sheets at December 31, 2004 and 2003 F-3
Statements of Operations for the years ended
December 31, 2004, 2003 and 2002 F-4
Statements of Changes in Stockholders' Equity for
the Years ended December 31, 2004, 2003 and 2002 F-5
Statements of Cash Flows for the years ended
December 31, 2004 and 2003 F-6
Notes to Financial Statements F-7
Page 19
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Sutron Corporation
Sterling, Virginia
We have audited the accompanying balance sheets of Sutron Corporation as of
December 31, 2004 and 2003, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2004. 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 as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.
/S/ THOMPSON, GREENSPON & CO.
FAIRFAX, VIRGINIA
FEBRUARY 18, 2005
Page 20
F-3
SUTRON CORPORATION
BALANCE SHEETS
December 31,
2004 2003
--------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $1,419,171 $ 388,612
Accounts receivable 3,755,439 3,062,205
Inventory 2,371,476 2,438,275
Prepaid items and other 270,014 122,150
Deferred income taxes 179,000 120,000
TOTAL CURRENT ASSETS 7,995,100 6,131,242
Property and equipment, at cost 3,038,168 2,723,107
Less - Accumulated depreciation and
amortization (2,328,496) (2,125,624)
Net property, plant and equipment 709,672 597,483
Other assets 51,133 22,986
Deferred income taxes -- 133,000
TOTAL ASSETS $8,755,905 $6,884,711
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 943,616 $1,047,805
Accrued payroll 272,601 50,142
Other accrued expenses 1,400,779 850,726
Line of credit -- 399,454
Note payable - stockholder -- 330,000
Notes payable - current 25,613 49,936
TOTAL CURRENT LIABILITIES 2,642,609 2,728,063
Long-Term Liabilities
Notes payable, net of current maturities 89,666 100,129
Deferred income taxes 172,000 111,000
TOTAL LIABILITIES 2,904,275 2,939,192
Stockholders' Equity
Common stock 42,896 42,896
Additional paid-in capital 2,306,655 2,306,655
Retained earnings 3,497,930 1,595,968
Accumulated other comprehensive income 4,149 --
TOTAL STOCKHOLDERS' EQUITY 5,851,630 3,945,519
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,755,905 $6,884,711
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 21
F-4
SUTRON CORPORTION
STATEMENTS OF OPERATIONS
Years Ended
2004 2003 2002
--------------------------------------------------------------------------------
Revenues $16,678,889 $11,015,689 $10,202,658
Cost of sales 10,252,952 7,658,887 6,753,599
Gross profit 6,425,937 3,356,802 3,449,059
Operating expenses
Selling, general and
administrative expenses 2,396,690 2,218,450 2,225,120
Research and development
expenses 1,018,874 1,065,559 1,480,706
Total operating expenses 3,415,564 3,284,009 3,705,826
Operating income (loss) 3,010,373 72,793 (256,767)
Interest expense, net (30,411) (29,778) (47,314)
Income (loss) before income
taxes 2,979,962 43,015 (304,081)
Income tax expense (benefit) 1,078,000 (52,000) (194,000)
Net income (loss) $ 1,901,962 $ 95,015 $ (110,081)
Net income (loss) per share:
Basic income (loss) per share $.44 $.02 $(.03)
Diluted income (loss) per share $.38 $.02 $(.03)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 22
F-5
SUTRON CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Shares Par Value Capital Earnings Income Total
-----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2001 4,289,551 $42,896 $2,306,655 $1,611,034 $ $3,960,585
Net loss for 2002 (110,081) (110,081)
-----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2002 4,289,551 42,896 2,306,655 1,500,953 3,850,504
Net income for 2003 95,015 95,015
-----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2003 4,289,551 42,896 2,306,655 1,595,968 3,945,519
Comprehensive income:
Net income for 2004 1,901,962
Cumulative translation adjustment 4,149
Total comprehensive income 1,906,111
-----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2004 4,289,551 $42,896 $2,306,655 $3,497,930 $ 4,149 $5,851,630
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
Page 23
F-6
SUTRON CORPORTION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2004 2003 2002
--------------------------------------------------------------------------------------
OPERATIONS
Net income (loss) $1,901,962 $ 95,015 $ (110,081)
Non-cash items included in net income (loss):
Depreciation and amortization 202,873 196,205 207,567
Deferred income taxes 135,000 62,000 (51,000)
Changes in current assets and liabilities:
Accounts receivable (693,234) (1,247,530) 101,708
Inventory 66,799 (409,290) 530,823
Prepaid items and other assets (147,864) 60,218 (120,319)
Income taxes receivable -- -- 67,890
Accounts payable (104,189) 564,153 27,228
Accrued expenses 772,512 152,874 199,744
---------- ---------- ----------
Cash flow from operating activities 2,133,859 (526,355) 853,560
---------- ---------- ----------
INVESTMENTS
Purchase of property and equipment (185,562) (155,686) (53,566)
Other assets (28,147) (1,297) (8,132)
---------- ---------- ----------
Cash flow from investing activities (213,709) (156,983) (61,698)
---------- ---------- ----------
FINANCING
(Payments on) proceeds from
line of credit, net (399,454) 399,454 (374,894)
Proceeds from term notes payable -- 165,572 --
(Payments on) proceeds from
stockholder loan (330,000) 330,000 --
Payments on term notes payable (164,286) (224,816) (118,204)
---------- ---------- ----------
Cash flow from financing activities (893,740) 670,210 (493,098)
---------- ---------- ----------
CURRENCY ADJUSTMENTS
Effect of exchange rate changes on cash 4,149 0 0
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
Net change in cash and cash equivalents 1,030,559 (13,128) 298,764
Beginning balance 388,612 401,740 102,976
---------- ---------- ----------
Ending balance $1,419,171 $ 388,612 $ 401,740
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of property and equipment
by notes payable $ 129,500 $ -- $ --
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Page 24
F-7
SUTRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sutron Corporation (the Company) was incorporated on December 30, 1975, under
the General Laws of the Commonwealth of Virginia. The Company operates from its
headquarters located in Sterling, Virginia. The Company has several branch
offices located throughout the United States and a branch office in India. The
Company 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 Company'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.
REVENUE RECOGNITION
The Company utilizes the accrual method of accounting for both financial
statement and tax return reporting purposes. The Company recognizes revenue from
product sales upon shipment. Selling, general and administrative expenses are
charged against periodic income as incurred. Revenue from cost-plus-fee
contracts is recognized to the extent of costs incurred, plus a proportionate
amount of fees earned. Revenue from fixed-price contracts is recognized on the
percentage-of-completion method based on costs incurred in relation to total
estimated costs. Revenue from time-and-materials contracts is recognized to the
extent of billable rates, times hours delivered, plus direct materials costs
incurred. Contract costs include allocated indirect costs and general and
administrative expenses. Anticipated losses are recognized as soon as they
become known.
CASH AND CASH EQUIVALENTS
For purposes of the 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 amounted to $32,489, $27,859 and $48,936 in
2004, 2003 and 2002, respectively. Income taxes paid was $600,000 in 2004. No
income taxes were paid in 2003 and 2002. During the year, the Company entered
into international contracts that required standby letters of credit. The
standby irrevocable letters of credit shall expire in March 2005. At December
31, 2004, $277,454 of the cash and cash equivalents balance is restricted for
these standby letters of credit. During the year, the Company submitted contract
proposals that required bid bonds or bank guarantees. At December 31, 2004,
$108,568 of the cash and cash equivalents balance is restricted for these bid
bonds.
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.
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. The
allowance for doubtful accounts as of December 31, 2004 and 2003 approximate
$32,100 and $10,000, respectively. At December 31, 2004 and 2003, the Company's
investment in accounts 90 days or more past due is $434,818 and $175,950,
respectively, net of contract retainages.
Page 25
PROPERTY, PLANT AND EQUIPMENT
Equipment is recorded at cost and depreciated over their estimated useful lives,
ranging from 3 to 7 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, plant, 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.
INCOME TAXES
The Company 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 Company'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 Company'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 bases of assets and liabilities. The
resulting deferred tax liabilities or assets are classified as current or
non-current 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.
FOREIGN CURRENCY TRANSLATION
Results of operations for the Company's foreign branch office 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 other comprehensive income, net of any related tax
effect.
FINANCIAL INSTRUMENTS
The estimated fair value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and short term notes payable approximate
their carrying amounts in the financial statements. Based on the borrowing rates
currently available to the Company for debt with similar maturity dates and
collateral, the estimated fair value of long-term debt is $90,000 and $100,000
at December 31, 2004 and 2003, respectively.
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.
CAPITAL
The Company has 12,000,000, $.01 par value, shares authorized. There were
4,289,551 shares issued and outstanding at December 31, 2004, 2003 and 2002. The
Company's Board of Directors has authorized the repurchase of up to 100,000
shares of its common stock in open market transactions. As of December 31, 2004,
13,800 shares have been repurchased.
Page 26
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, which 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 Company.
STOCK COMPENSATION PLANS
At December 31, 2004, the Company had three stock-based employee compensation
plans, which are described more fully in Note 12. The Company accounts for its
stock-based employee compensation plans under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. APB No. 25 provides
that compensation expense relative to a company's employee stock options is
measured based on the intrinsic value of the stock options at the measurement
date.
In December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payment".
SFAS No. 123R eliminates the intrinsic value method under APB 25 as an
alternative method of accounting for stock-based awards. SFAS NO. 123R also
revises the fair value-based method of accounting for share- based payment
liabilities, forfeitures and modifications of stock-based awards and clarifies
the guidance of SFAS No. 123, "Accounting for Stock- based Compensation," in
several areas, including measuring fair value, classifying an award as equity or
as a liability and attributing compensation cost to reporting periods. In
addition, SFAS No. 123R amends SFAS No. 95, "Statement of Cash Flows," to
require that excess tax benefits be reported as a financing cash inflow rather
than as a reduction of taxes paid, which is included within operating cash
flows.
The Company is required to adopt SFAS No. 123R for the interim period beginning
December 15, 2005, using one of three implementation alternatives specified
under SFAS No. 123R. The Company is currently in the process of determining
which implementation alternative to use and what the expected financial impact
of SFAS No. 123R may be.
If compensation expense had been recorded based on the fair value of awards
under the stock option and purchased plans set forth in SFAS No. 123, as
amended, the Company's net income (loss) attributable to common stockholders
would have been adjusted to the pro forma amounts presented below, for the years
ended December 31:
2004 2003 2002
--------------------------------------------------------------------------------
Net income (loss) as reported $1,901,962 $ 95,015 $(110,081)
Stock based compensation expense determined 44,004 26,005 43,519
under the fair value based method, net of tax
--------------------------------------------------------------------------------
Pro forma net income (loss) $1,857,958 $ 69,010 $(153,600)
================================================================================
Net income (loss) per share:
As reported $.44 $.02 $(.03)
Pro forma $.43 $.02 $(.04)
Net income (loss) per diluted share:
As reported $.38 $.02 $(.03)
Pro forma $.38 $.02 $(.03)
Page 27
The fair value of Sutron Corporation stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black Scholes pricing model and with the following
assumptions: a risk free interest rate of 5.0 percent, no estimated dividend
yield, an expected volatility of 30 percent and an expected holding period of
five years.
2. Accounts Receivable
Accounts receivable at December 31 consists of the following:
2004 2003
---------- ----------
Current $2,617,094 $1,650,736
Costs in excess of billings and estimated earnings 730,120 1,349,621
Contract retainage 408,225 61,848
---------- ----------
Totals $3,755,439 $3,062,205
========== ==========
3. Inventory
Inventory consists of the following at December 31:
2004 2003
---------- ----------
Electronic components $ 786,296 $ 992,292
Work in process 1,077,091 924,301
Finished goods 508,089 521,682
---------- ----------
Totals $2,371,476 $2,438,275
========== ==========
4. Property and Equipment
A summary of property and equipment at December
31 is as follows:
2004 2003
---------- ----------
Furniture, fixtures and equipment $2,649,294 $2,526,526
Vehicles 301,056 119,667
Leasehold improvements 87,818 76,914
---------- ----------
Totals $3,038,168 $2,723,107
========== ==========
Accumulated depreciation and amortization at
December 31 is as follows:
2004 2003
---------- ----------
Furniture, fixtures and equipment $2,190,992 $2,028,053
Vehicles 101,714 66,197
Leasehold improvements 35,790 31,374
---------- ----------
Totals $2,328,496 $2,125,624
========== ==========
Depreciation and amortization expense totaled $202,873, $196,205, and $207,567
for the years ended December 31, 2004, 2003 and 2002, respectively.
Page 28
5. Line of Credit
The Company has a $1,625,000 line of credit with a commercial bank. The line of
credit is collateralized by substantially all of the assets of the Company and
guaranteed by the primary stockholders of the Company and expires August 2005.
Under the terms of the line of credit, the Company is required to maintain
certain financial covenants. Interest is charged at the banks prime rate plus
one-half percent and is payable monthly. There was no balance outstanding at
December 31, 2004 and $399,454 was outstanding at December 31, 2003.
The Company frequently bids on and enters into international contracts that
require bid and performance bonds. At December 31, 2004, the bank had issued
standby letters of credit in the amount of $186,354 that served as either bid or
performance bonds. The amount available under the letter of credit was reduced
by this amount.
6. Notes Payable - Stockholders
Notes payable of $330,000 to stockholders was paid off during the year ended
December 31, 2004. The notes accrued interest at 7.25 percent per annum.
Interest paid on the note was $18,210 and $7,395 for the years ended December
31, 2004 and 2003, respectively.
7. Notes Payable
Notes payable consists of the following as of December 31:
2004 2003
---------- ----------
Vehicle note payable is secured by the underlying
vehicle. The noteis payable in monthly
installmentsof $675, including interest at
14.25%, and matures December 27, 2009. $ 28,405 $ --
Two vehicle notes payable are secured by the
underlying vehicles. The notes are payable in
monthly installments of $494, including
interest of 5.49%, and both mature September 4,
2008. 38,442 --
Vehicle note payable is secured by the underlying
vehicle is non-interest bearing and is payable in
monthly installments of $692. The note matures
January 27, 2009. 33,920 --
Bank note payable dated July 25, 2003 is secured
by substantially all the assets of the Company and
guaranteed by the directors of the Company. The
note is payable in monthly installments of $4,528,
including interest at 6.75%. The note was paid
in 2004. -- 132,459
Vehicle note payable is secured by the
underlying vehicle, is non-interest bearing
and is payable in monthly installments
of $259. The note matures September 9, 2009. 14,512 17,606
---------- ----------
Total notes payable outstanding 115,279 150,065
Current maturities 25,613 49,936
---------- ----------
Long-term maturities $ 89,666 $ 100,129
========== ==========
Page 29
Principal maturities for notes payable are as follows:
Year ending December 31:
2005 $ 25,613
2006 27,744
2007 28,259
2008 23,982
2009 9,681
----------
Total $ 115,279
==========
8. Lease Obligations
The Company leases space for its headquarters and production facilities, which
expires in March 2006. The operating lease calls for monthly rent of $11,892, an
estimated $4,810 as the Company's pro rata share of operating expenses, an
estimated $4,750 of common area maintenance fees and annual rent increases of 3
percent. The Company has an option to extend the lease through March 2009. The
Company leases additional office and warehouse space in Sterling, Virginia. The
lease expires March 2006 and requires monthly rent payments of $5,275. The
Company has an option to extend the lease through March 2009.
The Company leases office and warehouse space in West Palm Beach, Florida. The
four-year lease, expiring in August 2008, requires monthly payments of $5,827.
The Company entered into a lease agreement for office space in Brandon, Florida.
The five-year lease, expiring on December 31, 2008, requires monthly payments of
$1,984 and annual increases of four percent.
The following is a schedule of future minimum lease payments by year:
Year ending December 31:
2005 $ 302,938
2006 146,292
2007 93,720
2008 70,416
Total $ 613,366
Rent expense amounted to $287,000, $274,000 and $268,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
9. Income Taxes
The income tax expense (benefit) charged to operations for the years ended
December 31 were as follows:
2004 2003 2002
---------- ---------- ----------
Current income tax expense(benefit) $ 943,000 $ 37,000 $ (143,000)
Deferred tax expense (benefit) 135,000 (89,000) (51,000)
---------- ---------- ----------
Total income tax expense (benefit) $1,078,000 $ (52,000) $ (194,000)
========== ========== ==========
Deferred tax assets are comprised of the following at December 31:
2004 2003 2002
---------- ---------- ----------
Accrued vacation and warranty $ 179,000 $ 120,000 $ 75,000
Net operating loss carryforward -- -- 120,000
Business tax credits -- 133,000 --
---------- ---------- ----------
Gross deferred tax assets 179,000 253,000 195,000
Gross deferred tax liability -
depreciation (172,000) (111,000) (142,000)
---------- ---------- ----------
Net deferred tax asset $ 7,000 $ 142,000 $ 53,000
========== ========== ==========
Page 30
The realization of the deferred tax assets is dependent on future taxable
earnings. The Company has not provided for a deferred tax asset valuation
allowance due to their current and anticipated future earnings. A reconciliation
between the amount of reported income tax expense and the amount computed by
multiplying the applicable statutory
Federal income tax rate is as follows:
2004 2003 2002
---------- ---------- ----------
Income (loss) before income taxes $2,979,962 $ 43,015 $ (304,081)
Applicable statutory tax rate 34% 34% 34%
---------- ---------- ----------
Computed "expected" Federal
income tax expense (benefit) 1,013,000 15,000 (104,000)
Adjustments to Federal income tax
resulting from:
State income tax expense (benefit) 115,000 2,000 (18,000)
Tax credits (50,000) (69,000) (72,000)
---------- ---------- ----------
Income tax expense (benefit) $1,078,000 $ (52,000) $ (194,000)
========== ========== ==========
10. Major Customers
Set forth below are customers, including agencies of the U.S. Government, from
which the Company received more than 10 percent of total revenue for the years
ended December 31:
2004 2003 2002
---------- ---------- ----------
Department of Interior 20% 27% 26%
International 32% 28% 29%
Commercial 24% 27% 19%
Department of Defense 16% 10% 17%
Set forth below are customers, including agencies of the U.S. Government, from
which the Company had more than 10 percent of total accounts receivable
outstanding for the year ended December 31, 2004:
National Oceanic and Atmospheric Administration $ 879,791
South Florida Water Management 479,060
11. Concentrations of Credit Risk
At times throughout the year, cash and cash equivalents exceeded FDIC insurance
limits. As of December 31, 2004 and 2003, the Company's cash deposits exceeded
the FDIC insured amount by approximately $1,189,000 and $580,000, respectively.
12. Stock Option Plans
STOCK OPTIONS The Company 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 Company. Under the 1996 Plan
Page 31
the Company authorized 260,000 shares, 259,000 of which have been granted. Under
the 1997 and 2002 Stock Option Plans, the Company authorized 60,000 shares and
400,000 shares, respectively, all of which have been granted. Shares under all
of the plans may be granted at not less than 100 percent of the fair market
value at the grant date. All options have a ten-year term from the date of
grant. Cancelled or expired options are able to be reissued. The following
summarizes the option activity under these plans for the last three years:
Number of Option Price
Shares Per Share
---------- ------------
Outstanding, December 31, 2001 270,000 $.62 - 1.125
Grants 347,000 .55
Exercised -- --
Cancelled or expired (88,000) .62 - 1.125
---------- ------------
Outstanding, December 31, 2002 529,000 .40 - 1.125
Grants 180,000 .68 - .75
Exercised -- --
Cancelled or expired -- --
---------- ------------
Outstanding, December 31, 2003 709,000 .40 - 1.125
Grants 10,000 2.80
Exercised -- --
Cancelled or expired -- --
---------- ------------
Outstanding, December 31, 2004 719,000 $.40 - 2.80
========== ============
The vesting period of the remaining options is as follows:
Vested and exercisable 374,800
January 1, 2005 103,400
January 1, 2006 103,400
January 1, 2007 103,400
January 1, 2008 34,000
-------
719,000
=======
13. 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.
Years Ended December 31,
2004 2003 2002
---------- ---------- ----------
Net income (loss) $1,901,962 $ 95,015 (110,081)
Shares used in calculation of income
(loss) per share:
Basic 4,289,551 4,289,551 4,289,551
Effect of dilutive options 661,558 35,743 --
---------- ---------- ----------
Diluted 4,951,109 4,325,294 4,289.551
========== ========== ==========
Net income (loss) per share:
Basic $.44 $.02 $(.03)
Diluted $.38 $.02 $(.03)
Page 32
Contracts to issue common stock that are anti-dilutive in nature are not
included in the earnings per share calculations. Stock options outstanding at
December 31, 2002 were considered anti-dilutive.
14. Profit Sharing Plan
The 401 (k) Profit Sharing Plan covers substantially all full time employees.
Contributions to the plan are determined each year by the Board of Directors
based on profits. The Company made a profit sharing contribution for the year
ended December 31, 2004, of $175,000. No contributions were made for the years
ended December 31, 2003 and 2002.
15. Segment Information
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information. The Company currently reports its results in four
divisions: Hydromet Products, Integrated Systems, Hydrological Services and
Airport Weather Systems. Hydromet Products is responsible for the manufacture
and sale of the Company's products including dataloggers, satellite
transmitters/loggers and sensors. Integrated Systems is responsible for systems
design, integration and installation of hydro-meteorological systems. Results of
the Company's Special Projects group and India Branch Office are included in
Integrated Systems results for segment reporting purposes. Hydrological Services
provides hydrological and engineering services including installation,
maintenance, modeling, and hydrologic studies. Airport Weather Systems provides
systems design, integration and installation of meteorological monitoring
systems at airports.
The results of these segments are shown below:
2004 2003 2002
Revenue ----------- ----------- -----------
Hydromet Products $10,688,677 $ 6,591,890 $ 6,897,932
Integrated Systems 3,622,510 3,361,324 3,195,203
Hydrological Services 2,359,302 992,018 119,523
Airport Weather Systems 8,400 70,458 --
----------- ----------- -----------
Totals $16,678,889 $11,015,689 10,202,658
=========== =========== ===========
Cost of Goods Sold
Hydromet Products $ 6,030,074 $ 4,413,424 $ 4,499,752
Integrated Systems 2,055,769 2,359,824 2,144,298
Hydrological Services 2,159,557 804,496 109,548
Airport Weather Systems 7,553 81,143 --
----------- ----------- -----------
Totals $10,252,952 $ 7,658,887 $ 6,753,599
=========== =========== ===========
Gross Margin
Hydromet Products $ 4,658,603 $ 2,178,466 $ 2,398,179
Integrated Systems 1,566,742 1,001,499 1,050,905
Hydrological Services 199,745 187,522 (25)
Airport Weather Systems 847 (10,686) --
----------- ----------- -----------
Totals $ 6,425,937 $ 3,356,802 $ 3,449,059
=========== =========== ===========
Page 33
16. Export Sales
Export sales from the Company's operations were as follows:
Year ended December 31
2004 2003 2002
----------- ----------- -----------
Central and South America $ 695,376 $ 1,597,196 $ 247,419
Canada 246,189 175,295 548,228
Asia 1,265,532 850,159 1,954,862
Australia/New Zealand 62,795 34,400 35,147
Europe and other 3,141,371 414,466 61,848
----------- ----------- -----------
$ 5,411,263 $ 3,071,516 $ 2,947,504
=========== =========== ===========
Page 34