Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2010

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from _____to _____

Commission file number 0-7441

SIERRA MONITOR CORPORATION

(Exact name of registrant as specified in its charter)

California		95-2481914

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

1991 Tarob Court

Milpitas, California 95035

(Address and zip code of principal executive offices)

(408) 262-6611

(Registrant's 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨

Non-accelerated filer ¨	(Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares outstanding of the issuer's common stock, as of August 12, 2010 was 11,446,076.

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIERRA MONITOR CORPORATION

Condensed Balance Sheets

	June 30, 2010 (unaudited)		December 31, 2009

Assets

Current assets:
Cash	$	1,794,787	$	2,203,018
Trade receivables, less allowance for doubtful accounts of approximately $85,000 and $70,000, respectively		2,073,465		1,354,775
Inventories, net		1,906,242		1,892,313
Prepaid expenses		168,986		240,204
Income tax deposits		5,848		-
Deferred income taxes – current		259,855		259,855
Total current assets		6,209,183		5,950,165

Property and equipment, net		291,596		238,377
Other assets		135,346		167,615
Total assets	$	6,636,125	$	6,356,157

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	538,090	$	523,763
Accrued compensation expenses		468,879		372,035
Other current liabilities		99,949		73,351
Income taxes payable		45,598		34,251
Total current liabilities		1,152,516		1,003,400

Deferred tax liability		14,575		14,575
Total liabilities		1,167,091		1,017,975

Commitments and contingencies
Shareholders' equity:
Common stock, $0.001 par value; 20,000,000 shares authorized; 11,446,076 and 11,438,212 shares issued and outstanding, respectively		11,446		11,438
Additional paid-in capital		3,648,340		3,595,202
Retained earnings		1,809,248		1,731,542
Total shareholders' equity		5,469,034		5,338,182
Total liabilities and shareholders’ equity	$	6,636,125	$	6,356,157

See accompanying notes to the unaudited interim condensed financial statements.

Page 2 of 17

SIERRA MONITOR CORPORATION

Condensed Statements of Operations

(Unaudited)

	Three months ended June 30,					Six months ended June 30,
	2010		2009			2010		2009

Net sales	$	3,517,732	$	2,936,722		$	6,420,812	$	6,206,778

Cost of goods sold		1,432,443		1,186,272			2,656,485		2,605,741

Gross profit		2,085,289		1,750,450			3,764,327		3,601,037

Operating expenses
Research and development		503,908		503,175			986,930		983,677
Selling and marketing		842,514		840,505			1,674,490		1,701,526
General and administrative		489,104		485,225			975,343		987,517
		1,835,526		1,828,905			3,636,763		3,672,720
Income (loss) from operations		249,763		(78,455	)		127,564		(71,683	)
Interest income		900		-			1,947		-
Income (loss) before income taxes		250,663		(78,455	)		129,511		(71,683	)
Income tax provision (benefit)		99,851		(31,382	)		51,805		(28,673	)

Net income (loss)	$	150,812	$	(47,073	)	$	77,706	$	(43,010	)
Net income (loss) available to common shareholders per common share
Basic:	$	0.01	$	0.00		$	0.01	$	0.00

Diluted:	$	0.01	$	0.00		$	0.01	$	0.00
Weighted average number of common shares used in per share computations
Basic:		11,448,045		11,431,545			11,443,129		11,429,879

Diluted:		11,602,565		11,431,545			11,606,530		11,429,879

See accompanying notes to the unaudited interim condensed financial statements.

Page 3 of 17

SIERRA MONITOR CORPORATION

Condensed Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	77,706		$	(43,010	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		126,162			147,365
Provision for bad debt expense		15,000			13,350
Provision for inventory loss		5,000			(8,000	)
Stock based compensation expense		53,146			51,111
Changes in operating assets and liabilities:
Trade receivables		(733,690	)		(315,736	)
Inventories		(18,929	)		108,709
Prepaid expenses and other current assets		71,218			24,922
Income tax deposit		(5,848	)		(14,400	)
Income tax payable		11,347			(22,393	)
Accounts payable		14,327			1,643
Accrued compensation expenses		96,844			40,897
Other current liabilities		26,598			(31,668	)
Net cash used in operating activities		(261,119	)		(47,210	)
Cash flows from investing activities:
Purchase of property and equipment		(147,112	)		(52,489	)

Net cash used in investing activities		(147,112	)		(52,489	)
Cash flows from financing activities:
Proceeds from exercise of stock options		-			6,000
Net cash provided by financing activities		-			6,000
Net decrease in cash		(408,231	)		(93,699	)
Cash at beginning of period		2,203,018			1,338,647
Cash at end of period	$	1,794,787		$	1,244,948
Supplemental cash flow information
Cash paid for income taxes	$	41,258		$	14,393

See accompanying notes to the unaudited interim condensed financial statements.

Page 4 of 17

SIERRA MONITOR CORPORATION

Notes to the Interim Condensed Financial Statements

(Unaudited)

June 30, 2010

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared by Sierra Monitor Corporation (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. Amounts related to disclosure of December 31, 2009 balances within these interim condensed financial statements were derived from the audited 2009 financial statements and notes thereto. These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 25, 2010. In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim period have been included. The results of operations for the interim period are not necessarily indicative of the results for any subsequent interim period or for the full year.

Summary of Business

The Company was formed in 1978 and delivers information technology for environment measurement and control by developing specialized embedded software that is deployed on proprietary hardware platforms. Embedded software enables data transfer between subsystems using protocol and physical medium translation. Proprietary hardware platforms allow the Company to increase the value proposition while protecting its intellectual property.

The Company’s hardware platforms include original equipment modules for installation in customer devices and controllers, gateway boxes generally used by integrators for machine to machine (“M2M”) protocol translation, and multi-component safety systems generally focused on gas and fire detection. Each of the hardware platforms utilize the Company’s proprietary data handling software allowing communication from lower level sensor systems through to the highest levels of Internet Protocol (“IP”) networks.

By providing an intelligent interface, the Company’s products enable various machines, devices, systems and people to reliably communicate useful information for the measurement and control of various environments including buildings, plants, factories and over the Internet. By delivering the data on various communications levels, including Ethernet, Internet, LONworks, Profibus, and others, the Company’s products make it possible for data to be accessed at more appropriate levels, such as control rooms or remote locations.

The Company’s products, including gas detection systems, environment controls for remote telephone company structures and protocol gateways, are based on complex proprietary software developed by the Company. The software, embedded in each of the Company’s product groups, provides key functions including sensor management, utilization of data for alarm and control purposes and delivery of data across various networks including the Internet.

Gas monitoring products manufactured by the Company are sold for a variety of safety applications including oil, gas and chemical processing plants, wastewater treatment facilities, alternate fuel vehicle maintenance garages and other users or producers of hazardous gases. Environment controllers, which provide management of environmental conditions in small structures such as local DSL distribution nodes and buildings at cell tower sites, are sold to telecommunications companies and their suppliers. The Company’s FieldServer products are sold generally to integration companies that implement building and plant automation projects and to manufacturers of equipment for the same industry.

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The Company’s common stock is quoted on the OTC Bulletin Board under the symbol “SRMC.OB”.

Accounting Policies

Revenue Recognition

The Company recognizes revenues when all of the following conditions exist: a) persuasive evidence of an arrangement exists in the form of an accepted purchase order; b) delivery has occurred, based on shipping terms, or services have been rendered; c) the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order; and d) collectability is reasonably assured. By product and service type, revenues are recognized when the following specific conditions are met:

Gas Detection and Environment Control Products

Gas detection and environment control products are sold as off-the-shelf products with prices fixed at the time of order. Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between us and our customer as to the specific nature and terms of the agreed-upon sale transaction. Products are shipped and are considered delivered when (a) for FOB factory orders they leave our shipping dock or (b) for FOB customer dock orders upon confirmation of delivery. The creditworthiness of customers is generally assessed prior to the Company accepting a customer’s first order. The Company purchases credit insurance through the Export-Import Bank of the United States to insure payment of small international orders that are released on open credit. Larger international orders and customers who have developed a history of payment problems are generally required to prepay or pay through a letter-of-credit.

Gas Detection and Environment Control Services

Gas detection and environment control services consist of field service orders (technical support) and training, which are provided separate from product orders. Orders are accepted in the same forms as discussed under Gas Detection and Environment Control Products above with hourly prices fixed at the time of order. Revenue recognition occurs only when the service activity is completed. Such services are provided to current and prior customers, and, as noted above, creditworthiness has generally already been assessed. In cases where the probability of receiving payment is low, a credit card number is collected for immediate processing.

FieldServer Products

FieldServer products are sold in the same manner as Gas Detection and Environment Control Products (as discussed above) except that the products contain embedded software, which is integral to the operation of the device. The software embedded in FieldServer products includes two items: (a) a compiled program containing (i) the basic operating system for FieldServer products, which is common to every unit, and (ii) the correct set of protocol drivers based on the customer order (see FieldServer Services below for more information); and (b) a configuration file that identifies and links each data point as identified by the customer. The Company does not deem the hardware, operating systems with protocol drivers and configuration files to be separate units of accounting because the Company does not believe that they have value on a stand-alone basis. The hardware is useless without the software, and the software is only intended to be used in FieldServer hardware. Additionally, the software included in each sale is deemed to not require significant production, modification or customization, and therefore the Company recognizes revenues upon the shipment or delivery of products (depending on shipping terms), as described in Gas Detection and Environment Control Products above.

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FieldServer Services

FieldServer services consist of orders for custom development of protocol drivers. Generally customers place orders for FieldServer products concurrently with their order for protocol drivers. However, if custom development of the protocol driver is required, the product order is not processed until development of the protocol driver is complete. Orders are received in the same manner as described in FieldServer Products above, but due to the non-recurring engineering aspect of the customized driver development the Company is more likely to have a written evidence trail of a quotation and a hard copy order. The driver development involves further research after receipt of order, preparation of a scope document to be approved by the customer and then engineering time to write, test and release the driver program. When development of the driver is complete the customer is notified and can proceed with a FieldServer product (see FieldServer Products above). Revenues for driver development are billed and recognized upon shipment or delivery of the related product that includes the developed protocol drivers (as noted in FieldServer Products above). Collectability is reasonably assured as described in FieldServer Products above.

Discounts and Allowances

Discounts are applied at time of order entry and sales are processed at net pricing. No allowances are offered to customers.

Recent Accounting Pronouncements

Recent accounting pronouncements discussed in the notes to the December 31, 2009 audited financial statements, filed previously with the SEC in our Annual Report on Form 10-K on March 25, 2010, that are required to be adopted during the year ended December 31, 2009, did not have or are not expected to have a significant impact on the Company’s 2010 financial statements .

Employee Stock-Based Compensation

As of June 30, 2010, the Company had one approved stock-based employee compensation plan for issuing stock options, the 2006 Stock Plan. The Company’s 1996 Stock Plan expired by its terms in March 2006, but the 1996 Stock Plan will continue to govern awards previously granted thereunder that have not expired or otherwise terminated.

Under the 2006 Stock Plan, the Company initially reserved 500,000 shares of common stock for issuance. Stock options are granted under the 2006 Stock Plan at the fair market value of the Company's common stock at the grant date, vest ratably over 4 years, and expire 10 years from the grant date. Prior to January 1, 2006, stock-based compensation cost related to stock options was not recognized in net income since the stock options underlying those plans had exercise prices greater than or equal to the market value of the underlying stock on the date of the grant.

All share-based payments to employees (incentive stock options) are recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the requisite service period, net of estimated forfeitures, using the straight-line method. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The modified prospective method of application requires compensation expense to be recognized in the financial statements for all unvested stock options beginning in the quarter of award. The cost is based on the grant date fair value of the stock option. Compensation expense recognized in future periods for share-based compensation will be adjusted for the effects of estimated forfeitures.

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For the six-month periods ended June 30, 2010 and 2009, general and administrative expenses included $53,146 and $51,111, respectively, resulting from the recognition of compensation expense associated with employee stock options. There was no material impact on the Company's basic and diluted net income per share as a result of recognizing the employee stock-based compensation expense. The Company did not modify the terms of any previously granted stock options during the six-month periods ended June 30, 2010 and 2009.

Inventories

A summary of inventories follows:

	June 30, 2010			December 31, 2009

Raw materials	$	840,134		$	823,789
Work-in-process		726,452			655,205
Material at vendor		263,803			271,635
Finished goods		190,026			250,857
Less: Allowance for obsolescence reserve		(114,173	)		(109,173	)
	$	1,906,242		$	1,892,313

Net Income (Loss) Per Share

Basic earnings per share (“EPS”) is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of common stock issuable upon exercise of stock options using the treasury stock method. No adjustments to earnings were made for purposes of per share calculations.

At June 30, 2010 and 2009, outstanding options to acquire 233,500 and 17,000, shares of common stock, respectively, were not considered potentially dilutive common shares due to the exercise price of such options being higher than the stock price used in the EPS calculation.

The Company has reported a net loss for the three and six-month periods ended June 30, 2009. As a result, 349,480 and 352,731 shares of common stock issuable upon exercise of stock options have been excluded from the calculation of diluted loss per share for both the three and six-month periods ended June 30, 2009, respectively, because their inclusion would be anti-dilutive.

The following is a reconciliation of the shares used in the computation of basic and diluted EPS for the three and six-month periods ended June 30, 2010 and 2009, respectively:

	Three months ended				Six months ended
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009
Basic EPS – weighted-average number of common shares outstanding		11,448,045		11,431,545		11,443,129		11,429,879
Effect of dilutive potential common shares – stock options outstanding		154,520		-		163,401		-
Diluted EPS – weighted-average number of common shares and potential common shares outstanding		11,602,565		11,431,545		11,606,530		11,429,879

Concentrations

One customer accounted for more than 10% of accounts receivable at June 30, 2010 and at December 31, 2009. No customer individually made up more than 10% of net sales for the three and six-month periods ended June 30, 2010 and June 30, 2009.

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The Company currently maintains substantially all of its day to day operating cash with a major financial institution. At times, cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation. Cash balances of approximately $1,545,000 and $1,953,000 were in excess of such insured amounts at June 30, 2010 and December 31, 2009, respectively.

Segment Information

The Company operates in one segment, industrial instrumentation. The Company’s chief operating decision maker, the Chief Executive Officer (“CEO”), evaluates the performance of the Company and makes operating decisions based on financial data consistent with the presentation in the accompanying unaudited condensed financial statements.

In addition, the CEO reviewed the following information on revenues by product category for the following periods:

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Gas detection devices	$	1,498,549	$	1,432,823	$	2,775,988	$	3,270,460
Environment controllers		226,429		135,298		484,616		337,807
FieldServers		1,792,754		1,368,601		3,160,208		2,598,511
	$	3,517,732	$	2,936,722	$	6,420,812	$	6,206,778

Line of Credit

The Company maintains a line of credit with its commercial bank in the maximum amount of $1,000,000. No borrowings have been made under the Company’s line of credit during the first six months of fiscal year 2010 and there were no outstanding balances at June 30, 2010 and December 31, 2009. As of June 30, 2010, the Company was in compliance with covenants required by the line of credit.

Stock Option Grants

No stock options were granted during the six-month periods ended June 30, 2010 and 2009.

Stock Option Exercise and Expiration

In the six-month period ended June 30, 2010, a total of 7,864 shares of common stock were issued as a result of employee net exercises of stock options. During the same period, 15,500 options expired.

In the six-month period ended June 30, 2009, a total of 10,000 stock options were exercised by an employee to purchase shares of the Company’s common stock resulting in cash proceeds of $6,000. During the same period 1,000 stock options expired.

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ITEM 2:MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q contains 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. Statements that are not statements of historical fact may be deemed to be forward-looking statements. The words “believe,” “expect,” “intend,” “plan,” “project,” “will,” and similar words and phrases as they relate to us also identify forward-looking statements. Such forward-looking statements include any expectations of operating and non-operating expense, including research and development expense, sufficiency of resources, including cash and accounts receivable, estimates of allowances for doubtful accounts, credit lines or other financial items; any statements of the plans, strategies and objectives of management for future operations and identified opportunities; any statements concerning proposed new products, services, developments and related research and development activities; any statements related to the Company’s positioning to support current and near term levels of business; any statements of belief; and any statement of assumptions underlying any of the foregoing. Such statements reflect our current views and assumptions and are not guarantees of future performance. These statements are subject to various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, without limitation, those issues described under the heading “Critical Accounting Policies,” and those risk factors indentified in Item1A, Risk Factors, of our Annual Report on Form 10-K for our fiscal year ended December 31, 2009, as such section may be updated in our subsequent Forms 10-K, 10-Q and 8-K filed with, or furnished to, the SEC and elsewhere. We urge you to review and consider the various disclosures made by us from time to time in our filings with the SEC that attempt to advise you of the risks and factors that may affect our future results. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any changes in expectations, or any change in events or circumstances on which those statements are based, unless otherwise required by law.

Results of Operations

For the three-month period ended June 30, 2010, Sierra Monitor Corporation (“we” or the “Company”) reported net sales of $3,517,732 compared to $2,936,722 for the three-month period ended June 30, 2009. For the six-month period ended June 30, 2010, net sales were $6,420,812 compared with $6,206,778 for the six-month period ended June 30, 2009. The sales results for the three and six-month periods ended June 30, 2010 represent increases of 20% and 3%, respectively, compared to the same periods in 2009. Our backlog, which grew by approximately $900,000 during the first quarter of 2010, remained unchanged at the end of the second quarter of 2010. The backlog includes released orders, unreleased project orders and long term blanket orders.

For the three-month period ended June 30, 2010, sales of our gas detection products, including industrial accounts and military sales, were approximately $1,499,000 compared to $1,433,000 in the three-month period ended June 30, 2009. For the six-month period ended June 30, 2010, sales of our gas detection products, including industrial accounts and military sales, were approximately $2,776,000 compared to $3,270,000 in the same period in 2009. These results represent a 5% year-over-year increase in the second quarter and a 15% year-over-year decrease in the year-to-date period. Although our second quarter sales to industrial accounts increased by 12% compared to the prior year, our six month year to date industrial account sales remain 12% lower than the prior year due to our weak sales in the first quarter of 2010. Military sales decreased 48% in the second quarter and 35% year-to-date compared to the prior year. Military sales cycles are unpredictable because they are dependent upon US Navy purchases of gas detection systems for new ships and spare part purchase cycles.

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Sales of Environment Controllers to the telecommunications industry in the three-month period ended June 30, 2010 were approximately $226,000 compared to approximately $135,000 in the three-month period ended June 30, 2009. In the six-month period ended June 30, 2010 sales of Environment Controllers were approximately $485,000 compared to $338,000 in the same period in 2009. The improvement in sales in both periods is due to a small increase in the number of environment controllers sold for new underground telecommunications vaults combined with improved demands for retro-fit controllers for older telecommunications vaults.

In the three-month period ended June 30, 2010, sales of FieldServer products were approximately $1,793,000, representing a 31% increase, compared to $1,369,000 in the same period in 2009. In the six-month period ended June 30, 2010, sales of our FieldServer products were approximately $3,160,000, representing a 22% increase, compared to $2,599,000 in the same period in 2009. FieldServer products include box products and original equipment manufacturer (“OEM”) modules. Box products provide a platform for delivery and operation of our software for building automation integration and are generally sold to integrators. Box product sales increased approximately 29% in the three-month period ended June 30, 2010 on a year-over-year basis. The increase in sales of box products is due, primarily, to strong demand in international accounts including a single order for over $150,000 for a major fire panel integration project in Saudi Arabia. OEM module sales increased approximately 34% in the three-month period ended June 30, 2010 as compared to the same period in 2009, and 17% on a year-to-date basis in 2010 compared to the prior year period. The higher level of sales in each of the three and six-month periods ended June 30, 2010 reflect sustained deliveries to mature accounts, continued improvements in run rates for recent adopter customers and incremental sales to new customers.

Gross profit for the three-month period ended June 30, 2010 was $2,085,289 or 59% of sales compared to $1,750,450, or 60% of sales, in the same period in the previous year. Gross profit for the six-month period ended June 30, 2010 was $3,764,327, or 59% of sales, compared to $3,601,037, or 58% of sales, in the same period in the previous year. Although gross profit varies by product group and by the channel of distribution, the range of gross profit between 58% and 60% is consistent with our historical experience. There have been no major changes in selling prices and no significant changes in materials or labor costs during calendar year 2009 and year to date 2010.

Expenses for research and development, which include new product development and engineering to sustain existing products, were $503,908, or 14% of sales, for the three-month period ended June 30, 2010 compared to $503,175, or 17% of sales, in the comparable period in 2009. In the six-month periods ended June 30, 2010 and June 30, 2009, research and development expenses were $986,930, or 15% of sales, and $983,677, or 16% of sales, respectively. We have maintained our investments in developing new products and writing new protocol drivers and there have been no significant changes in engineering expenses in the three and six-month reporting periods ended June 30, 2010.

Selling and marketing expenses, which consist primarily of salaries, commissions and promotional expenses, were $842,514, or 24% of sales for the three-month period ended June 30, 2010, compared to $840,505, or 29% of sales, in the comparable period in the prior year. For the six-month periods ended June 30, 2010 and June 30, 2009, selling and marketing expenses were $1,674,490, or 26% of sales, and $1,701,526, or 27% of sales, respectively. Lower salary and benefit expenses, due to a temporarily lower number of field sales personnel were generally offset by increases in other sales and marketing expenses including representative commissions, travel, communications and depreciation.

General and administrative expenses, which consist primarily of salaries, building rent, insurance expenses and fees for professional services, were $489,104 or 14% of sales, for the three-month period ended June 30, 2010 compared to $485,225 or 17% of sales, in the three-month period ended June 30, 2009. For the six-month periods ended June 30, 2010 and June 30, 2009, general and administrative expenses were $975,343, or 15% of sales, and $987,517, or 16% of sales, respectively. Higher variable compensation expenses due to higher sales levels were generally offset by lower external service fees including Sarbanes Oxley auditing and information technology support.

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In the three-month period ended June 30, 2010, our income from operations was $249,763, representing an increase of $328,218 compared to our loss from operations of $78,455 in the three-month period ended June 30, 2009. In the six-month period ended June 30, 2010, our income from operations was $127,564, representing an increase of $199,247 compared to our loss from operations of $71,683 in the six-month period ended June 30, 2009. The increased income in the three and six-month periods ended June 30, 2010 is due to higher sales levels without compromise to gross margins or fixed expenses.

After interest and tax provisions, our net income for the three-month period ended June 30, 2010 was $150,812 compared to a net loss of $47,073 in the same period of 2009. For the six-month period ended June 30, 2010, our net income was $77,706 compared to a net loss of $43,010 in the same period of 2009.

Liquidity and Capital Resources

During the six months ended June 30, 2010, net cash consumed by operating activities was approximately $261,000 compared to approximately $47,000 for the same period in 2009. Working capital was approximately $5,056,000 at June 30, 2010, an increase of approximately $110,000 from December 31, 2009. At June 30, 2010, our balance sheet reflected approximately $1,795,000 of cash and $2,073,000 of net trade receivables. At December 31, 2009, our total cash on hand was approximately $2,203,000 and our net trade receivables were $1,355,000.

At June 30, 2010, we had no long term liabilities.

We maintain a $1,000,000 line of credit, secured by certain assets of the Company, with our commercial bank which matures on July 10, 2010. The line of credit requires annual renewal and compliance with certain restrictive covenants, including the requirement to maintain a quick ratio of 1.3:1.0 and a profitability test. At June 30, 2010, the Company was in compliance with the financial covenants and there were no borrowings on this line of credit.

We believe that our present resources, including cash and accounts receivable, are sufficient to fund the Company’s anticipated level of operations through at least January 1, 2011. There are no current plans for significant capital equipment expenditures and no other known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity increasing or decreasing in any material way.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Company’s consolidated financial statements and the accompanying notes. The amounts of assets and liabilities reported on our balance sheets and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, accounts receivable, doubtful accounts and inventories. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the consolidated financial statements:

Revenue Recognition

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Gas Detection and Environment Control Products

Gas detection and environment control products are sold as off-the-shelf products with prices fixed at the time of order. Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between us and our customer as to the specific nature and terms of the agreed-upon sale transaction. Products are shipped and are considered delivered when (a) for FOB factory orders they leave our shipping dock or (b) for FOB customer dock orders upon confirmation of delivery. The creditworthiness of customers is generally assessed prior to the Company accepting a customer’s first order. Additionally, international customers and customers who have developed a history of payment problems are generally required to prepay or pay through a letter-of-credit.

Gas Detection and Environment Control Services

Gas detection and environment control services consist of field service orders (technical support) and training, which are provided separate from product orders. Orders are accepted in the same forms as discussed for Gas Detection and Environment Control Products above with hourly prices fixed at the time of order. Revenue recognition occurs only when the service activity is completed. Such services are provided to current and prior customers, and, as noted above, creditworthiness has generally already been assessed. In cases where the probability of receiving payment is low, a credit card number is collected for immediate processing.

FieldServer Products

FieldServer Services

FieldServer services consist of orders for custom development of protocol drivers. Generally customers place orders for FieldServer products concurrently with their order for protocol drivers. However if custom development of the protocol driver is required, the product order is not processed until development of the protocol driver is complete. Orders are received in the same manner as described in FieldServer Products above, but due to the non-recurring engineering aspect of the customized driver development the Company is more likely to have a written evidence trail of a quotation and a hard copy order. The driver development involves further research after receipt of order, preparation of a scope document to be approved by the customer and then engineering time to write, test and release the driver program. When development of the driver is complete the customer is notified and can proceed with a FieldServer product (see FieldServer Products above). Revenues for driver development are billed and recognized upon shipment or delivery of the related product that includes the developed protocol drivers (as noted in FieldServer Products above). Collectability is reasonably assured as described in FieldServer Products above.

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Discounts and Allowances

Discounts are applied at time of order entry and sales are processed at net pricing. No allowances are offered to customers.

Accounts Receivable and Related Allowances

Our domestic sales are generally made on an open account basis unless specific experience or knowledge of the customer’s potential inability or unwillingness to meet the payment terms dictate secured payments. Our international sales are generally made based on secure payments, including cash wire advance payments and letters of credit. International sales are made on open account terms where sufficient historical experience justifies the credit risks involved. In many of our larger sales, the customers are frequently construction contractors who are in need of our field services to complete their work and obtain payment. Management’s ability to manage the credit terms and take advantage of the leverage provided by the clients’ need for our services is critical to the effective application of credit terms and minimization of accounts receivable losses.

We maintain an allowance for doubtful accounts which is analyzed on a periodic basis to ensure that it is adequate. We believe that we have demonstrated the ability to make reasonable and reliable estimates of allowances for doubtful accounts based on significant historical experience.

Inventories

Inventories are stated at the lower of cost or estimated market, cost being determined on the first-in, first-out method. The Company uses an Enterprise Requirements Planning (“ERP”) software system which provides data upon which management relies to determine inventory trends and identify excesses. The carrying value of inventory is reduced to market for slow moving and obsolete items based on historical experience and current product demand. We evaluate the carrying value of inventory quarterly. The adequacy of these carrying amounts is dependent upon management’s ability to forecast demands accurately, manage product changes efficiently, and interpret the data provided by the ERP system.

ITEM 4T: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of Gordon R. Arnold, our principal executive and principal financial officer, 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) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, Mr. Arnold has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitations of Internal Controls. Our management, including our principal executive and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II: OTHER INFORMATION

ITEM 5 .

OTHER INFORMATION

Submission of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders of the Company was held on May 13, 2010.

At the Annual Meeting, the following directors were elected to serve for the ensuing year and until their successors are elected:

	For	Against	Abstain
Gordon R. Arnold	8,597,638	0	1,388
C. Richard Kramlich	8,599,026	0	0
Jay T. Last	8,599,026	0	0
Robert C. Marshall	8,599,026	0	0

At the Annual Meeting, the appointment of Squar, Milner, Peterson, Miranda & Williamson, LLP as the Company's independent public accountants for the fiscal year ended December 31, 2010 was ratified by the following votes:

		For		Against		Abstain
		9,869,402		0		0

ITEM 6.

EXHIBITS

Exhibit
Number			Description
3.1 (1)			Articles of Incorporation of the Registrant.
3.2 (2)			Bylaws of the Registrant.
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(1)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
	(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB (File No. 000-07441) for the fiscal quarter ended June 30, 1998 filed with the SEC on August 14, 1998.

SIGNATURES

Pursuant to the requirements 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.

		SIERRA MONITOR CORPORATION
		Registrant

Date: August 12, 2010	By:	/s/ Gordon R. Arnold
		Gordon R. Arnold
		President
		Chief Executive Officer
		Chief Financial Officer

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Index to Exhibits

Exhibit
Number		Description
3.1 (1)		Articles of Incorporation of the Registrant.
3.2 (2)		Bylaws of the Registrant.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(1)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1989.

	(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB (File No. 000-07441) filed with the SEC on August 14, 1998.

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

I, Gordon R. Arnold, certify that:

I have reviewed this quarterly report on Form 10-Q of Sierra Monitor Corporation (the “registrant”);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant ’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2010	By:	/s/ Gordon R. Arnold
			Gordon R. Arnold
			Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

I, Gordon R. Arnold, certify that:

I have reviewed this quarterly report on Form 10-Q of Sierra Monitor Corporation;

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2010	By:	/s/ Gordon R. Arnold
			Gordon R. Arnold
			Chief Financial Officer

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes Oxley Act of 2002

I, Gordon R. Arnold, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:

i. The Quarterly Report on Form 10-Q of Sierra Monitor Corporation for the quarterly period ended June 30, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

ii. The information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Sierra Monitor Corporation and will be retained by Sierra Monitor Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Date:	August 12, 2010	By:	/s/ Gordon R. Arnold
			Gordon R. Arnold
			Chief Executive Officer
			Chief Financial Officer