Mail Stop 0306
April 18, 2005
Via U.S Mail and FAX (703) 406-2801
Mr. Sidney C. Hooper
Chief Financial Officer
Sutron Corporation
21300 Ridgetop Circle
Sterling, Virginia 20166
Re: Sutron Corporation
Form 10-KSB for Year Ended December 31, 2004
Filed March 30, 2005
File No. 000-12227
Dear Mr. Hooper:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
documents or future filings in response to these comments. If you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspects
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-KSB for the year ended December 31, 2004
Item 6. Management`s Discussion and Analysis or Plan of Operations
- -
Page 9
1. In future filings, please revise MD&A to include a discussion
of
your critical accounting estimates as required by Release 34-
48960.
In that discussion, describe the methodology you use to establish
the
valuation allowance for inventory obsolescence or explain why you
do
not record one.
Results of Operations - Page 9
2. MD&A does not include a discussion of the changes in cost of
sales
or income taxes. In 2004, cost of sales accounted for
approximately
61% of revenue while income taxes increased significantly from
prior
years and approximated 6% of revenue in that year. Please
revise
future filings to include discussions of these items that identify
the factors responsible for the changes, describe why those
factors
occurred, and quantify the impact of the factors described. This
general guidance also applies to all sections of your MD&A.
Item 8A. Controls and Procedures - Page 12
3. We note the disclosure that your principal executive officer
and
principal financial officer have evaluated your disclosure
controls
and procedures as of a date within 90 days before the filing date
of
your annual report. Please amend your filing to disclose
management`s conclusion regarding the effectiveness of your
disclosure controls and procedures as of the end of the period
covered by the annual report. Refer to Item 307 of Regulation S-K
and Part III.F of Management`s Reports on Internal Control Over
Financial Reporting and Certification of Disclosure in Exchange
Act
Periodic Reports, Release No. 33-8238, available on our website at
www.sec.gov/rules/final/33-8238.htm.
4. We note your disclosure that your "management, including [your]
Chief Executive Officer and Chief Financial Officer, concluded
that
the company`s disclosure controls and procedures are designed, and
are effective, to give reasonable assurance that the information
required to be disclosed by the company in reports that it files
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms
of
the SEC." Revise to clarify, if true, that your officers
concluded
that your disclosure controls and procedures are also effective to
ensure that information required to be disclosed in the reports
that
you file or submit under the Exchange Act is accumulated and
communicated to your management, including your chief executive
officer and chief financial officer, to allow timely decisions
regarding required disclosure. See Rule 13a-15(e) of the Exchange
Act.
5. We note your statement that your chief executive officer and
your
chief financial officer "have concluded that the company`s
disclosure
controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it
files
or submits under the Exchange Act is recorded, processed,
summarized
and reported within the time periods specified in the SEC`s rules
and
forms and are operating in an effective manner." It does not
appear
that your certifying officers have reached a conclusion that your
disclosure controls and procedures are effective. Please revise
your
wording to address more directly your officers` conclusions
regarding
the effectiveness of your disclosure controls and procedures.
6. Please revise the language used in your disclosure concerning
changes in your internal control over financial reporting to
indicate
whether there was any change to your internal control over
financial
reporting that has materially affected, or that is reasonably
likely
to materially affect, your internal control over financial
reporting,
consistent with the language used in amended Item 308(c) of
Regulation S-B.
Financial Statements
Note 1. Summary of Significant Accounting Policies - Page F-7
Revenue Recognition
7. Your current disclosure regarding revenue recognition is overly
general. Please tell us and revise future filings to disclose how
you recognize revenue from each type of product or service you
provide to customers, identifying in each instance those events
that
would indicate that each criterion outlined in SAB Topic 13A has
been
met.
8. Tell us and revise future filings to explain how any
significant
terms of your arrangements with customers, such as, post delivery
obligations, refund rights, customer acceptance, discounts, bill
and
hold, etc., would impact the amount and timing of revenue
recognized.
If you provide customers with a product warranty, disclose how you
account for that obligation and, if material, provide the roll-
forward required by FIN 45.
9. We note that you provide customer specific solutions which
include
hardware, software, installation, maintenance, training and other
services. Tell us and revise your policy in future periods to
address recognition of revenue from these multiple-deliverable
arrangements. Specifically address:
a) Whether deliverables are separable into units of accounting
pursuant to EITF 00-21.
b) How you allocate total consideration for multi-element
transactions.
c) How you determine fair value, particularly when there are
undelivered elements such as installation and training.
d) The consideration you gave to EITF 03-05 and SOP 97-2 in
accounting for software.
10. We also note that you recognize revenues from long-term
contracts. Please tell us and expand in your future filings to
explain how you apply the provisions of SOP 81-1, with focus on
performance based fees/incentives, acceptance provisions and other
price adjustments.
11. We note the discussion in the Legal Proceedings section
relating
to acceptance pending on two systems that were provided to the
Government of Andhra Pradesh in 2002, where all contractual items
on
the systems have been accepted with the exception of four water
level
monitoring sites.
a) Tell us how you have recognized revenue from the sale of these
products and explain how pending customer acceptance has impacted
recognition of revenue.
b) Tell us the amount of any revenues that have been deferred
pending
acceptance.
c) In addition, tell us and revise the disclosures on page 8 in
future filings to indicate whether you have accrued any of the
additional costs you could incur if you lose at arbitration or
explain why no loss has been accrued.
Capital
12. You disclose that you have repurchased 13,800 shares of your
common stock as of the 2004 year-end. However, these transactions
are not reflected in your statements of stockholders` equity.
Tell
us and revise future filings to disclose how you accounted for the
repurchased shares, including whether you currently hold treasury
stock. Explain why the transactions are not reflected in your
primary financial statements.
Stock Compensation Plans
13. Please confirm that the Black Scholes pricing model
assumptions
relate to all periods presented and revise future filings to
disclose
the assumptions you use in each period presented. See paragraph
2.e
of SFAS 148.
Accrued Expenses
14. We note that Other Accrued Expenses amount to 16% of total
liabilities and equity at December 31, 2004 and 54% of total
current
liabilities at that same date. Tell us and revise your future
filings to separately present the material components of the item
on
the face of the balance sheet or in a note thereto.
Note 12. Stock Option Plans - Page F12
15. Please revise the note in future filings to provide all the
disclosure required by FAS 123, including a discussion of the
types
of options, the parties to whom options may be granted, the
weighted
average exercise prices for options granted, exercised and
cancelled
in each year, the weighted average exercise prices of options
outstanding and exercisable, and the weighted average remaining
contractual life of options that are outstanding.
Note 15. Segment Information - Page F13
16. Please confirm that your chief decision maker uses segment
gross
margin to evaluate segment performance and revise the note in
future
filings to say so. In addition, revise your future filings to
provide all the disclosures required by paragraphs 26 through 39
of
SFAS 131, including any required reconciliations and segment
assets.
Exhibit 31.1 and 31.2
17. We noted that the certifications filed were not in the proper
form. The required certifications must be in the exact form
prescribed; the wording of the required certifications may not be
changed in any respect, except for the modifications temporarily
permitted to be made to the fourth paragraph of the certification
required to be filed as Exhibit 31 pursuant to Part III.E of
Release
No. 33-8238. Accordingly, please file an amendment to your Form
10-
KSB that includes the entire filing together with the
certifications
of each of your current CEO and CFO in the form currently set
forth
in Item 601(b)(31) of regulation S-B.
* * * * * * * *
As appropriate, please amend your Form 10-K for year ended
December 31, 2004 and respond to these comments within 10 business
days or tell us when you will provide us with a response. You may
wish to provide us with marked copies of the amendment to expedite
our review. Please furnish a cover letter with your amendment
that
keys your responses to our comments and provides any requested
supplemental information. Detailed cover letters greatly
facilitate
our review. Please file your cover letter on EDGAR. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* The company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* Staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* The company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Praveen Kartholy, Staff Accountant, at (202)
824-5465 or me at (202) 942-1984 if you have questions regarding
these comments.
Sincerely,
Martin F. James
Senior Assistant Chief Accountant
Mr. Sidney C. Hooper
Sutron Corporation
April 18, 2005
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