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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2007
COMMISSION FILE NUMBER: 0-12227
SUTRON CORPORATION
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(Name of small business issuer as specified in its charter)
VIRGINIA 54-1006352
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
21300 RIDGETOP CIRCLE, STERLING, VIRGINIA 20166
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(Address of principal executive offices)
703-406-2800
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(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
There were 4,512,884 outstanding shares of the issuer's only class of common
equity, Common Stock, $0.01 par value, on March 31, 2007.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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SUTRON CORPORATION
FORM 10-QSB QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2007
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheet as of March 31, 2007
and December 31, 2006 2
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2007 and 2006 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006 4
Financial Footnotes 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Controls and Procedures 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits 12
Signatures 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------------------------------
SUTRON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,981,220 $ 1,539,032
Restricted cash and cash equivalents 930,529 138,233
Accounts receivable 4,103,451 6,835,751
Inventory 4,048,686 3,402,017
Prepaid items and other assets 709,597 530,720
Deferred income taxes 313,000 333,000
------------ ------------
Total current assets 12,086,483 12,778,753
PROPERTY AND EQUIPMENT, AT COST 3,372,039 3,361,159
Less: Accumulated depreciation and amortization (2,797,191) (2,740,941)
------------ ------------
Property and equipment, net 574,848 620,218
OTHER ASSETS 42,597 50,576
------------ ------------
TOTAL ASSETS $ 12,703,928 $ 13,449,547
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 822,104 $ 1,398,285
Accrued payroll 171,064 317,974
Other accrued expenses 1,368,848 1,506,950
Notes payable - current 50,722 50,722
------------ ------------
Total current liabilities 2,412,738 3,273,931
LONG-TERM LIABILITIES
Notes payable, net of current maturities 22,108 37,678
Deferred income taxes 120,000 129,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 142,108 166,678
------------ ------------
TOTAL LIABILITIES 2,554,846 3,440,609
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 45,129 44,946
Additional paid-in capital 2,654,064 2,559,281
Retained earnings 7,456,850 7,417,878
Accumulated other comprehensive (loss) income (6,961) (13,167)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,149,082 10,008,938
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,703,928 $ 13,449,547
============ ============
See accompanying notes.
2
SUTRON CORPORTION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2007 2006
------------ ------------
Net sales and revenues $ 3,146,744 $ 4,076,108
Cost of sales and revenues 2,006,703 2,269,935
------------ ------------
Gross profit 1,140,041 1,806,173
------------ ------------
Operating expenses:
Selling, general and administrative expenses 841,113 848,820
Research and development expenses 293,353 406,269
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Total operating expenses 1,134,466 1,255,089
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Operating income 5,575 551,084
Interest income (expense), net 22,397 12,355
------------ ------------
Income before income taxes 27,972 563,439
Income tax expense (benefit) (11,000) 204,000
------------ ------------
Net income $ 38,972 $ 359,439
============ ============
Net income per share:
Basic income per share $ .01 $ .08
============ ============
Diluted income per share $ .01 $ .07
============ ============
See accompanying notes.
3
SUTRON CORPORTION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,972 $ 359,439
Noncash items included in net income:
Depreciation and amortization 56,250 60,000
Deferred income taxes 11,000 --
Stock option compensation 18,385 --
Changes in current assets and liabilities:
Accounts receivable 2,732,300 (761,581)
Inventory (646,669) (562,311)
Prepaid items and other assets (170,898) (61,444)
Accounts payable (576,181) 647,306
Accrued expenses (285,012) 532,465
------------ ------------
Net Cash Provided (Used) by Operating Activities 1,178,147 213,874
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash and cash equivalents (792,296) (13,532)
Purchase of property and equipment (10,881) (45,000)
------------ ------------
Net Cash Provided (Used) by Investing Activities (803,177) (58,532)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (15,570) (12,693)
Proceeds from stock options exercised 76,582 400
------------ ------------
Net Cash Provided (Used) by Financing Activities 61,012 (12,293)
------------ ------------
Effect of exchange rate changes on cash 6,206 3,264
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 442,188 146,313
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,539,032 1,861,627
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,981,220 $ 2,007,940
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 19 $ 762
============ ============
Income taxes paid (received) $ 0 $ 0
============ ============
See accompanying notes.
4
SUTRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2007
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Sutron Corporation (the "Company") was incorporated on December 30, 1975, under
the General Laws of the Commonwealth of Virginia. The Company operates from its
headquarters located in Sterling, Virginia. The Company has several branch
offices located throughout the United States, a branch office in India and a
wholly owned subsidiary in India. The Company is a leading provider of real-time
data collection and control products, systems software and professional services
in the hydrological, meteorological and oceanic monitoring markets. The
Company's principal products include data loggers, satellite
transmitters/loggers, water level and meteorological sensors, tides systems and
system and application software. Customers consist of a diversified base of
Federal, state, local and foreign government agencies, universities and
engineering and hydropower companies.
The financial statements included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report filed on Form 10-KSB for the year ended December 31, 2006. The condensed
consolidated balance sheet as of December 31, 2006 was derived from the audited
financial statements for the year then ended.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and its cash
flows have been included in the accompanying financial statements. The results
of operations for interim periods are not necessarily indicative of the expected
results for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
These judgments are difficult as matters that are inherently uncertain directly
impact their valuation and accounting. Actual results may vary from management's
estimates and assumptions.
The Company's significant accounting policies are disclosed in the Company's
Annual report on Form 10-KSB for the year ended December 31, 2006 filed with the
Securities and Exchange Commission.
STOCK COMPENSATION
The Company's Amended and Restated 1996, 1997 and 2002 Stock Option Plans (the
"Stock Option Plans") provide for the issuance of non-qualified stock options to
employees, officers and directors. The plans are administered by the
compensation committee of the Board of Directors, which selects persons to
receive awards and determines the number of shares subject to each award and the
terms, conditions,
5
performance measures and other provisions of the award. See Note 13 of the
Company's financial statements in its Annual Report on Form 10-KSB for the year
ended December 31, 2005 for additional information related to the stock option
plans.
Effective January 1, 2006, the Company adopted SFAS No. 123R ACCOUNTING FOR
STOCK BASED COMPENSATION (SFAS 123R), which requires companies to measure and
recognize compensation expense for all stock-based payments at fair value. SFAS
123R is being applied on the modified prospective transition method and
therefore the Company has not restated results for prior periods. The financial
statements for the three months ended March 31, 2007 recognize compensation cost
for the portion of outstanding awards which have vested during the period. The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term. For the three months ended March 31, 2007, total stock-based compensation
expense of $18,385 was included in operating expenses as compared to stock-based
compensation of $0 for the three months ended March 31, 2006. The weighted
average fair value of options granted during the three months ended March 31,
2007 was calculated using the Black-Scholes option pricing model with the
following valuation assumptions and weighted average fair value as follows:
Three Months
----------------------
Ended March 31, 2007
----------------------
Weighted average fair value of grants $6.90
Expected volatility 30%
Dividend yield 0
Risk-free interest rate 4.50%
Expected term in years 10.00
The volatility factor is based on the Company's historical stock price
fluctuations. The Company has not, and does not intend to, issue dividends;
therefore, the dividend yield assumption is 0. The Company applied the risk-free
interest rate based on the U.S. Treasury yield in effect at the time of the
grant. The expected term of the option is based on the contractual period of the
options granted.
3. STOCK OPTIONS
The Company has granted stock options under the Stock Option Plans to key
employees and directors for valuable services provided to the Company. Under the
1996 Plan, the Company authorized 260,000 shares, 259,000 of which have been
granted. As of December 31, 2004, the Company authorized 60,000 shares and
400,000 shares under the 1997 and 2002 Stock Option Plans, respectively, all of
which have been granted. During 2005, the 2002 Stock Option Plan was amended to
authorize 650,000 shares, 493,333 of which have been granted. In addition, all
three plans were amended in 2005 to allow Directors to participate in the plan,
and to provide that vesting schedules will be determined by the Board at the
time each individual option is granted.
Shares under all of the plans may be granted at not less than 100 percent of the
fair market value at the grant date. All options have a ten-year term from the
date of grant. Prior to the 2005 amendments, options vested ratably over five
years on each anniversary date the option was granted. The Company elected to
accelerate vesting of all outstanding options as of December 31, 2005, as
permitted under the plans. Cancelled or expired options are able to be reissued.
The following table summarizes stock option activity under the Stock Option
Plans for the three months ended March 31, 2007:
6
Number of Weighted Avg. Number of Options
Shares Exercise Price Exercisable
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Balance - December 31, 2006 554,333 $ 1.13 554,333
=============
Granted 50,000 6.90
Exercised 18,333 4.62
Canceled -- --
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Balance - March 31, 2007 586,000 $ 1.53 586,000
=================================================
4. EARNINGS PER SHARE
The following table shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number of shares
of potential dilutive common stock.
Three Months Ended March 31,
2007 2006
-------------------------------
Net income $ 38,972 $ 359,439
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Shares used in calculation of
income per share:
Basic 4,500,792 4,295,207
Effect of dilutive options 535,722 657,679
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Diluted 5,036,514 4,952,886
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Net income per share:
Basic $ .01 $ .08
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Diluted $ .01 $ .07
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
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STATEMENTS MADE IN THIS REPORT ON FORM 10-QSB, INCLUDING WITHOUT LIMITATION THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS,
OTHER THAN STATEMENTS OF HISTORICAL INFORMATION, ARE FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS MAY SOMETIMES BE IDENTIFIED BY SUCH WORDS AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR
WORDS. WE BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO
INVESTORS. HOWEVER, THESE FORWARD-LOOKING STATEMENTS INVOLVE MANY RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED
IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS. WE ARE UNDER
NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS
REPORT ON FORM 10-QSB TO CONFORM THESE STATEMENTS TO ACTUAL RESULTS.
OVERVIEW
Our primary focus is to provide real-time systems solutions, including equipment
and software, and services to our customers in the areas of hydrological
monitoring and control, meteorological monitoring including airport weather
systems, oceanic monitoring and hydrological services. We design, manufacture
and market these products and services to a diversified customer base consisting
of federal, state, local and foreign governments, universities and engineering
and hydropower companies. Our products and services enable these entities to
monitor and collect hydrological, meteorological and oceanic data for the
management of critical water resources, for early warning of potentially
disastrous floods, storms or tsunamis, for the optimization of hydropower plants
and for providing real-time weather conditions at airports.
Our key products are the SatLink2 Transmitter/Logger, Xpert/XLite datalogger,
Accububble Self-Contained Bubbler, Accubar Pressure Sensor, Tides Systems and
XConnect Systems Software. These are
7
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 significantlymore logging capability and communications
options than the SatLink2. Our Tides Systems are the only National Ocean Survey
approved tides monitoring system in the United States.
We anticipate that we will continue to experience significant quarterly
fluctuations in our sales and revenues in fiscal year 2007. Operating results
will depend upon the product mix and upon the timing of project awards.
International sales constitute a significant portion of our revenues but are
difficult to project. We are aware of many significant international
opportunities and we expect international revenues to grow as a percentage of
our total business. We expect our sales and marketing, research and development
and general and administrative expenses to increase moderately in 2007 as
compared to 2006.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of financial condition and results of
operations are based upon the condensed financial statements, which have been
prepared in accordance with generally accepted accounting principles as
recognized in the United States of America. The preparation of these financial
statements requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and disclosure of
contingent assets and liabilities. Our estimates include those related to
revenue recognition, the valuation of inventory, and valuation of deferred tax
assets and liabilities, useful lives of intangible assets, warranty obligations
and accruals. We base our estimates on historical experience and on various
other assumptions that management believes to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. For a complete description of accounting policies,
see Note 1 to our financial statements included in the Company's Form 10-KSB for
the year ended December 31, 2006. There were no significant changes in critical
accounting estimates
RESULTS OF OPERATIONS
---------------------
The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:
Three Months Ended March 31,
2007 2006
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Net sales and revenues 100.0% 100.0%
Cost of sales and revenues 63.8 55.7
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Gross profit 36.2 44.3
Selling, general and administrative expenses 26.7 20.8
Research and Development expenses 9.3 10.0
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Operating income .2 13.5
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Interest (income) expense .7 .3
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Income before income taxes .9 13.8
Income taxes (benefit) 5.0 (.3)
------------ ------------
Net income 1.2% 8.8%
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8
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
NET SALES AND REVENUES
The Company's revenues for the three months ended March 31, 2007 decreased 23%
to $3,146,744 from $4,076,108 in 2006 primarily due to decreased international
revenues. Net sales and revenues are broken down between the Company's operating
divisions or profit centers which include the HydroMet Products Division, the
Integrated Services Division which includes Special Projects, the Hydrological
Services Division, Airport Weather Systems Division and Sutron India Operations.
The HydroMet Products Division, which is responsible for sales of standard
products, had a net sales and revenue increase of 7% to $2,050,248 from
$1,910,073 in 2006. Integrated Systems net sales and revenues decreased 47% to
$674,897 from $1,576,043 in 2006 due to the absence of new projects to replace
2006 project revenues of approximately $1,196,000 from contracts with the India
Meteorological Department (IMD) and Central Water Commission (CWC) of India. Our
business is significantly influenced by large projects such as IMD and CWC. We
had anticipated receiving several international contracts early in 2007 that
would have impacted the first quarter results however the contracts were
delayed. The timing of international contracts is difficult to project. Net
sales and revenues from Hydrological Services decreased 13% to $411,760 from
$475,007 in 2006 due a decrease in project deliveries to South Florida Water
Management District. Airport Weather Systems had a net sales and revenue
decrease of 100% to $0 from $114,985 in 2006. Sutron India Operations had a net
sales and revenue decrease of 97% to $9,839 from $313,932 in 2006 due to
increased CWC contract estimated costs during the two year warranty period after
system acceptance. The increase in the cost estimate resulted in a significant
lowering of contract revenue for the quarter.
Overall domestic revenues increased 24% to $2,371,013 in the first quarter of
2007 versus $1,909,698 in 2006 while international revenues decreased 36% to
$775,731 in 2007 versus $2,166,410 in 2006. Customer orders or bookings for the
first quarter of 2007 were $3,061,907 as compared to $3,845,774 in 2006.
COST OF SALES AND REVENUES
Cost of sales as a percentage of revenues was 63.8% for the quarter ended March
31, 2007 as compared to 56.4% for the quarter ended March 31, 2006. The increase
in cost of sales was primarily due to costs exceeding revenue for the
Hydrological Services Division during the first quarter and due to increased CWC
contract estimated costs during the two year warranty period after system
acceptance that resulted in a lowering of contract revenue for the quarter.
Hydrological Services was reorganized in December 2006 due to the resignation of
the Vice President who had managed this division since its inception in 2001.
Staff was reduced during the quarter to reduce personnel expenses. Management
focus will be on winning new projects that carry higher margins and executing
projects in backlog profitably. The revision in the CWC cost estimate resulted
in contract costs in excess of contract revenue for the quarter. Contract
estimated costs were increased due to delays in the civil works installation as
approximately 30 sites were damaged by monsoons. Also, the CWC contract is the
first significant project that has been executed by our India Operations. Due to
a lack of experience on projects of this size, warranty costs (the costs to
maintain the 168 stations for a period of two years from systems acceptance)
were underestimated. Although the contract estimated costs increased due to the
reasons discussed above, the CWC contract is profitable. After expiration of the
two year warranty period, we will maintain the 168 sites under a four-year
maintenance contract.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $841,113 in 2007 from
$848,820 in 2006. Selling, general and administrative expenses as a percentage
of revenues increased to 26.7% in 2007 from 20.8% in 2006 due to the revenue
decrease.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $293,353 in 2007 from $406,269 in
2006, a decrease of $92,194 or 7.5%. We incurred significant subcontractor
expenses in 2006 relating to the development of our next generation Xpert/XLite.
The contractor tasks have been completed and we anticipate that the next
generation Xpert/XLite will be released to production in the second quarter of
2007. Our satellite transmitter, dataloggers, water level sensors and tides
systems are the primary components of hydrometeorological systems and we are
continuously improving these products as well as developing new products in
order to maintain and improve our competitive position.
INTEREST INCOME AND EXPENSE, NET
Due to the Company's cash position, the Company did not use its line of credit
during the first quarter of 2007 except on one occasion. The Company had
interest income in 2007 of $22,397 as compared to interest income of $12,355 in
2006.
INCOME TAXES
Due to lower first quarter income before taxes, we received an income tax
benefit in 2007 of $11,000 as compared to income taxes of $204,000 in 2006. The
provisions for income taxes represent an effective tax benefit rate of 39.3% in
2007 and an income tax rate of 36.2% in 2006, respectively.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents were $1,981,220 at March 31, 2007 compared to
$1,539,032 at December 31, 2006. Working capital increased to $9,673,745 at
March 31, 2007 compared with $9,504,822 at December 31, 2006.
Net cash provided by operating activities was $1,178,147 for the three months
ended March 31, 2007 as compared to cash provided by operating activities of
$213,874 for the three months ended March 31, 2006. The increase is primarily
due to a decrease in accounts receivable.
Net cash used by investing activities was $803,177 for the three months ended
March 31, 2007 as compared to cash used by investing activities of $58,532 for
the three months ended March 31, 2006, and was primarily due to an increase in
restricted cash that secured a bank guarantee to the Central Water Commission of
India for the delivery of contract equipment. We anticipate that the bank
guarantee will be released in October 2007.
Net cash provided by financing activities was $61,012 for the three months ended
March 31, 2007 as compared to net cash used by financing activities of $12,293
for the three months ended March 31, 2006 due to the exercise of employee stock
options.
We have a revolving credit facility of $2,500,000 with BB&T Bank. We are
permitted to borrow based on accounts receivable and inventory according to
pre-established criteria. The credit facility expires on
10
August 5, 2007 and is secured by substantially all assets of the Company.
Borrowings bear interest at the bank's prime rate. During the first quarter of
2007, there was one borrowing on the line of credit.
We frequently bid on and enter into international contracts that require bid and
performance bonds. At March 31, 2007 and December 31, 2006, a commercial bank
had issued standby letters of credit in the amount of $532,300 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 2007. Although there can be no
assurance that our revolving credit facility will be renewed, management
believes that, if needed, it would be able to find alternative sources of funds
on commercially acceptable terms.
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management (with the participation of our Chief Executive Officer and Chief
Financial Officer) evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), as of March 31, 2007,
the end of the fiscal period covered by this report on Form 10-QSB. The Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934
reports are recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure. Based on this evaluation, the chief executive officer and
chief financial officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
(b) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that
occurred during the quarter ended March 31, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Various legal claims can arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect on
our financial statements. We have been named in a compensation claim under the
Indian Anti-Trust Law that is pending before The Monopolies and Restrictive
Trade Practices Commission in New Delhi, India. Management believes that the
case is unsubstantiated and intends to vigorously defend itself.
11
ITEM 6. EXHIBITS
31.1 Certification of the President and Chief Executive Officer pursuant to
ss.302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer and Treasurer pursuant to
ss.302 of the Sarbanes-Oxley Act of 2002.
32 Certification of the President and Chief Executive Officer and Chief
Financial Officer and Treasurer pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Sutron Corporation
(Registrant)
May 14, 2007 /s/ Raul S. McQuivey
------------ -----------------------------------
Date Raul S. McQuivey
President and Chief Executive Officer
(Principal Executive Officer)
May 14, 2007 /s/ Sidney C. Hooper
------------ -----------------------------------
Date Sidney C. Hooper
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
12