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

                                  FORM 10 - QSB

(Mark One)

(X)  Quarterly  report under section 13 or 15(d) of the Securities  Exchange Act
     of 1934.

           For the quarterly period ended June 30, 2004
                                          -------------


                                       or

( )  Transition report under 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 small business issuer as specified in its charter)


         California                                              95-2481914
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                                1991 Tarob Court
                           Milpitas, California 95035
              (Address and zip code of principal executive offices)


                                 (408) 262-6611
                (Issuer's telephone number, including area code)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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
                                                                ---    ---

The number of shares of the issuer's common stock outstanding,  as of August 11,
2004 was 10,981,546.

Transitional Small Business Disclosure Format:  Yes   ; No  X
                                                   ---     ---

                                                                    Page 1 of 16
<PAGE>

                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           SIERRA MONITOR CORPORATION

                                  Balance Sheet

                                  June 30, 2004

                                   (Unaudited)

                   Assets
                   ------

Current assets:
      Cash                                                            $  963,728
      Trade receivables, less allowance for doubtful accounts          1,276,586
          of approximately $35,000
      Inventories, net                                                 1,406,921
      Prepaid expenses                                                    82,494
      Income taxes receivable                                             80,670
      Deferred income taxes                                              244,962
                                                                      ----------
                    Total current assets                               4,055,361

Property and equipment, net                                              174,221
Deferred income taxes                                                     71,147
Other assets                                                              74,639
                                                                      ----------
                    Total assets                                      $4,375,368
                                                                      ==========

                    Liabilities and Shareholders' Equity
                    ------------------------------------

Current liabilities:
      Accounts payable                                                $  504,712
      Accrued compensation expenses                                      314,667
      Other current liabilities                                          109,076
                                                                      ----------
                    Total current liabilities                            928,455

Commitments and contingencies

Shareholders' equity:
      Common stock, $0.001 par value; 20,000,000 shares authorized;
      10,976,546 shares issued and outstanding                            10,977
      Additional paid-in capital                                       3,152,284
      Retained earnings                                                  283,652
                                                                      ----------
                    Total shareholders' equity                         3,446,913
                                                                      ----------
                    Total liabilities and shareholders' equity        $4,375,368
                                                                      ==========

See accompanying notes to the condensed financial statements.


                                                                    Page 2 of 16
<PAGE>
<TABLE>
                                                     SIERRA MONITOR CORPORATION

                                                      Statements of Operations

                                                             (Unaudited)

<CAPTION>
                                                                 Three months ended June 30,            Six months ended June 30,
                                                               ------------------------------       --------------------------------
                                                                   2004               2003               2004               2003
                                                               ------------      ------------       ------------       ------------
<S>                                                            <C>               <C>                <C>                <C>
Net sales                                                      $  2,291,350      $  2,248,724       $  4,207,875       $  3,997,538
Cost of goods sold                                                  808,429           986,233          1,553,054          1,678,961
                                                               ------------      ------------       ------------       ------------
        Gross profit                                              1,482,921         1,262,491          2,654,821          2,318,577
                                                               ------------      ------------       ------------       ------------
Operating expenses
    Research and development                                        424,714           345,616            916,561            712,316
    Selling and marketing                                           660,444           623,015          1,321,218          1,249,130
    General and administrative                                      326,688           306,990            612,722            607,348
                                                               ------------      ------------       ------------       ------------
                                                                  1,411,846         1,275,621          2,850,501          2,568,794
                                                               ------------      ------------       ------------       ------------
        Income (loss) from operations                                71,075           (13,130)          (195,680)          (250,217)
Interest income                                                        --               1,478               --                1,949
                                                               ------------      ------------       ------------       ------------
        Income (loss) before income taxes                            71,075           (11,652)          (195,680)          (248,268)
Income tax (benefit) provision                                       27,269            (4,661)           (78,240)           (99,308)
                                                               ------------      ------------       ------------       ------------
        Net income (loss)                                      $     43,806      $     (6,991)      $   (117,440)      $   (148,960)
                                                               ============      ============       ============       ============
Basic and diluted net income (loss) available
      to common shareholders per common share                  $       0.00      $      (0.00)      $      (0.01)      $      (0.01)
                                                               ============      ============       ============       ============

Weighted average number of shares used in per
      share computations
                                        Basic:                   10,973,213        10,971,546         10,972,319         10,971,546
                                                               ============      ============       ============       ============
                                      Diluted:                   11,313,398        10,971,546         10,972,319         10,971,546
                                                               ============      ============       ============       ============

<FN>
See accompanying notes to the condensed financial statements.
</FN>
</TABLE>


                                                                    Page 3 of 16
<PAGE>
<TABLE>
                                   SIERRA MONITOR CORPORATION

                                    Statements of Cash Flows

                                           (Unaudited)

<CAPTION>
                                                                      Six months ended June 30,
                                                                     --------------------------
                                                                         2004           2003
                                                                     -----------    -----------
<S>                                                                  <C>            <C>
Cash flows from operating activities:
        Net income (loss)                                            $  (117,440)   $  (148,960)
         Adjustments to reconcile net income (loss) to net
           cash used in operating activities:
           Depreciation and amortization                                  89,527        155,190
           Allowance for doubtful accounts                                (2,497)         3,187
           Deferred income taxes                                         (80,229)       (99,308)
           Changes in operating assets and liabilities:
             Trade receivables                                           (95,437)      (420,358)
             Inventories                                                (113,810)        59,154
             Prepaid expenses and other current assets                    35,019        (16,599)
             Accounts payable                                            159,634         47,760
             Accrued compensation expenses                               108,768        153,739
             Other current liabilities                                    (7,493)        (1,419)
                                                                     -----------    -----------
               Net cash used in operating activities                     (23,958)      (267,614)
                                                                     -----------    -----------
Cash flows from investing activities:
        Capital expenditures                                             (65,955)       (24,215)
        Other assets                                                      (2,500)        (1,169)
                                                                     -----------    -----------
               Net cash used in investing activities                     (68,495)       (25,384)
                                                                     -----------    -----------
Cash flows from financing activities:
        Repayment of notes receivable                                       --              767
        Proceeds from exercise of stock options                            1,100           --
                                                                     -----------    -----------
               Net cash provided by financing activities                   1,100            767
                                                                     -----------    -----------
Net decrease in cash and cash equivalents                                (91,353)      (292,231)
Cash and cash equivalents at beginning of period                       1,055,081        739,318
                                                                     -----------    -----------
Cash and cash equivalents at end of period                           $   963,728    $   447,087
Supplemental cash flow information
       Cash paid for income taxes                                    $     1,458    $     2,525
                                                                     ===========    ===========
<FN>
See accompanying notes to the condensed financial statements.
</FN>
</TABLE>

                                                                    Page 4 of 16
<PAGE>
                           SIERRA MONITOR CORPORATION

          Notes to the Unaudited Interim Condensed Financial Statements

                                  June 30, 2004

Basis of Presentation
---------------------

         The accompanying  unaudited interim condensed financial statements have
been  prepared  by 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
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. These financial statements and the notes hereto should
be read in conjunction with the financial  statements,  accounting  policies and
notes  thereto  included in the  Company's  Annual Report on Form 10-KSB for the
year ended December 31, 2003,  which was filed March 25, 2004. 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 Sierra Monitor  Corporation for the interim  periods have been included.  The
results of operations for the interim period are not  necessarily  indicative of
the results for the full year.

Summary of Business
-------------------

         Sierra  Monitor  Corporation  (the  "Company")  was  founded in 1978 to
design and develop hazardous gas monitoring  devices for protection of personnel
and facilities in industrial workplaces.  In addition to gas monitoring systems,
the Company also manufactures  microprocessor-based  systems used to monitor and
control  environmental  conditions in small, remote structures used for cellular
and hard wire  telephone  equipment.  The Company  also  manufactures  a line of
products known as  communications  bridges.  These products  provide a means for
many industrial  instruments to communicate  with each other even when they have
different  communication  protocols.  Communications  bridges are sold under the
name FieldServer by the FieldServer Technologies Division of the Company.

         Gas monitoring products  manufactured by the Company are sold primarily
to oil and gas drilling and refining  companies,  chemical  plants,  waste-water
treatment plants,  semiconductor  industry and other  applications which involve
the handling or generation 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 ("cell  sites"),  are
sold to  telecommunications  companies  and their  suppliers.  FieldServers  are
typically  sold  to  integration  companies  that  service  building  and  plant
automation projects.

         The  Company's  common stock is quoted on the OTC Bulletin  Board under
the symbol "SRMC.OB".

Accounting Policies
-------------------

         a) Revenue Recognition

         Revenue  related to gas detection and monitoring  devices is recognized
when all of the  following  criteria  have been met:  persuasive  evidence of an
arrangement  exists;  the fee for the  arrangement  is  fixed  or  determinable;
delivery has occurred or services  have been  rendered;  and  collectibility  is
probable.   Revenue  from  government  contracts  is  recognized  utilizing  the
percentage-of-completion  method.  Contract revenues are recorded as the related
costs (including certain general and administrative  costs), which contribute to
contract performance, are incurred.

                                                                    Page 5 of 16
<PAGE>

         The  Company  recognizes  revenue  from  the  sale of  FieldServers  in
accordance   with  Statement  of  Position   ("SOP")  97-2,   Software   Revenue
Recognition,  as  amended.  Revenue  is  recognized  when  all of the  following
criteria have been met: persuasive  evidence of an arrangement exists;  delivery
has occurred; the fee is fixed or determinable;  and collectibility is probable.
Additionally software related to the FieldServers should not require significant
production,   modification  or  customization;   otherwise  revenues  should  be
deferred. Deferred revenues at June 30, 2004 were not significant.

         b) Reclassifications

         Certain  amounts  presented in the  financial  statements  for the 2003
comparative  period have been  reclassified  to conform to the current  period's
presentation.

         c) Recent Accounting Standards

         Recent accounting pronouncements discussed in the notes to the December
31, 2003 and 2002 audited financial statements, filed previously with the SEC on
Form 10-KSB,  that were required to be adopted  during the year ending  December
31, 2004 did not have a significant impact on the Company's financial statements
for the three-month and six-month periods ended June 30, 2004.

         d) Employee Stock-Based Compensation

         At June 30, 2004, the Company has two stock-based employee compensation
plans.   The  Company  accounts  for  those  plans  under  the  recognition  and
measurement   principles  of  Accounting   Principles   Board  Opinion  No.  25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB  25"),   and  related
interpretations.

         No stock-based  employee  compensation  cost is reflected in net income
(loss),  as all options granted under those plans had an exercise price equal to
the  market  value of the  underlying  common  stock on the date of  grant.  The
following  table  illustrates the effect on net income and earnings per share if
the Company had applied the fair value  recognition  provisions  of Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation," as amended to stock-based employee compensation.

<TABLE>
<CAPTION>

                                                        For The Three Months                 For The Six Months
                                                           Ended June 30,                      Ended June 30,
                                                    ---------------------------         ---------------------------
                                                       2004              2003              2004              2003
                                                    ---------         ---------         ---------         ---------
<S>                                                 <C>               <C>               <C>               <C>
Net income (loss):
   As reported                                      $  43,806         $  (6,991)        $(117,440)        $(148,960)
   Deduct: Total stock-based employee
      compensation expense determined under
      fair value based method for all awards        $ (43,000)        $ (46,000)        $ (85,000)        $ (92,000)
                                                    ---------         ---------         ---------         ---------
         Pro forma                                  $     806         $ (52,991)        $(202,440)        $(240,960)
                                                    =========         =========         =========         =========
Basic and diluted net income (loss) per share:
         As reported                                $    0.00         $   (0.00)        $   (0.01)        $   (0.01)
         Pro forma                                  $    0.00         $   (0.00)        $   (0.02)        $   (0.02)

</TABLE>

                                                                    Page 6 of 16
<PAGE>
Inventories
-----------

A summary of inventories as of June 30, 2004 follows:

           Raw Materials                          $   669,395
           Work-in-process                            602,883
           Finished goods                             208,074
           Obsolescence reserve                       (73,431)
                                                  ------------
                                                  $ 1,406,921
                                                  ============

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.

         The Company reported a net loss for the six month period ended June 30,
2004.  As a result,  955,000  shares of common stock  issuable  upon exercise of
stock options have been excluded from the  calculation of diluted loss per share
for the six month period ended June 30, 2004 because  their  inclusion  would be
antidilutive.  The Company  reported a net loss for both the three and six month
periods  ended  June 30,  2003.  As a result,  400,000  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, 2003 because their  inclusion would be  antidilutive.  At June 30, 2004, and
2003,  outstanding  options to acquire  592,500  shares  and  1,052,500  shares,
respectively,  of common stock were not considered  potentially  dilutive common
shares due to the  exercise  price being higher than the stock price used in the
EPS calculation.

         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, 2004
and 2003, respectively:

<TABLE>
<CAPTION>

                                                  Three months       Six months     Three months       Six months
                                                      ended             ended           ended             ended
                                                    6/30/2004        6/30/2004        6/30/2003         6/30/2003
                                                 ----------------  --------------- ----------------  ---------------
<S>                                                 <C>              <C>              <C>              <C>
Basic EPS - weighted-average number of common       10,973,215       10,972,319       10,971,546       10,971,546
    shares outstanding
Effect of dilutive potential common shares -
    stock options outstanding                          340,185              --               --               --
                                                 ----------------  --------------- ----------------  ---------------
Diluted EPS - weighted-average number of
    common shares and potential common shares
    outstanding                                     11,313,398       10,972,319       10,971,546       10,971,546
                                                 ================  =============== ================  ===============
</TABLE>

Comprehensive Income
--------------------

         The Company has no significant components of other comprehensive income
and, accordingly, comprehensive income is the same as net income for all periods
presented.

Segment Information
-------------------

         The Company operates in one segment,  industrial  instrumentation.  The
Company's chief operating decision maker, the Chief Executive Officer, evaluates
the performance of the Company and makes operating  decisions based on financial
data consistent with the presentation in the accompanying financial statements.

                                                                    Page 7 of 16
<PAGE>
         In addition,  the CEO reviews the following  information on revenues by
product category:
<TABLE>
<CAPTION>
                                          Three months ended June 30,        Six months ended June 30,
                                          ----------------------------     ----------------------------
                                              2004           2003             2004             2003
                                          ------------    ------------     ------------    ------------
<S>                                       <C>             <C>              <C>             <C>
Gas detection devices                     $ 1,295,285     $ 1,613,386      $ 2,481,030     $ 2,724,082
Environmental controllers                     226,926         239,602          503,788         444,388
FieldServers                                  769,139         395,736        1,233,057         829,068
                                          ------------    ------------     ------------    ------------
                                          $ 2,291,350     $ 2,248,724      $ 4,207,875     $ 3,997,538
                                          ============    ============     ============    ============
</TABLE>

Line-of-Credit
--------------

         In June 2004, the Company  renewed its $500,000 line of credit with its
commercial  bank.  There are currently no borrowings  and there has been no loan
activity by the Company during 2004.

Stock Options
-------------

         On May 27, 2004, the Company  granted to a director  options to acquire
100,000  shares of the Company's  common stock at $0.63 per share.  Such options
were granted under the terms of the 1996 Stock Option Plan, have a 10-year life,
and vest as follows:  25% on June 1, 2005, with the balance vesting ratably over
the following 36 months. No stock option compensation expense was recorded under
APB 25 as the fair value of the Company's  common stock was determined to be not
more than the strike price on the date of grant.

Subsequent Events
-----------------

         On July 20,  2004 an  employee  exercised  an option to  acquire  5,000
shares of the Company's common stock.


                                                                    Page 8 of 16

<PAGE>
         This Form 10-QSB and the accompanying  letter to shareholders  contains
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934.  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 the  Company  also  identify
forward-looking  statements.  Such  statements  reflect  the  current  views and
assumptions of the Company and are not guarantees of future  performance.  These
statements are subject to various risks and uncertainties.  The Company's actual
results could differ materially from those anticipated in these  forward-looking
statements  as a result  of the risk  factors  described  in this  Form  10-QSB,
including  those  under the  heading  "Certain  Factors  That May Affect  Future
Results"  and those  issues  described  under the heading  "Critical  Accounting
Policies." The Company  expressly  disclaims 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.

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

Results of Operations
---------------------

         For the three months ended June 30, 2004,  Sierra  Monitor  Corporation
reported net sales of  $2,291,350  compared to  $2,248,724  for the three months
ended June 30, 2003.  For the  six-month  period ended June 30, 2004,  net sales
were $4,207,875 compared with $3,997,538 in the prior year six-month period. The
sales  results for the second  quarter of fiscal 2004  represent  an 2% increase
from the same period in the prior year.  The results for the first six months of
fiscal 2004 represent a 5% increase from the same period in the prior year.

         In the second  quarter of 2004 sales of our gas detection  systems were
$1,295,285  or 10% higher  than in the first  quarter of 2004 but 20% lower than
the same period in 2003. The increase in gas detection  revenue  compared to the
first  quarter  of 2004 was due,  in part,  to  increases  in  shipments  of our
multi-point  monitoring systems. The lower gas detection revenue compared to the
second quarter in 2003 is partially the result of internal delays in releasing a
new gas detection module for which orders were received during the first half of
the year.  The new module was released for  manufacture  and shipment  after the
close of the second quarter of 2004.

         Sales of Environment Controllers to the telecommunications  industry in
the second  quarter of 2004 were $226,926 or 18% lower than in the first quarter
of 2004 and were at approximately  the same level as the second quarter of 2003.
Environment  controller sales for the six month year to date period in 2004 were
approximately  13% higher than the same period in 2003.  Environment  Controller
sales have  increased in the current year as telephone and cable  companies have
slightly increased the number of installations of new structures.

         In  the  second   quarter   of  2004,   sales  of   FieldServers,   our
communications  bridge, were $769,139 or 65% higher than in the first quarter of
2004 and increased of 94% compared to the same period in 2003. FieldServer sales
for the six month year to date period in 2004 are  approximately 48% higher than
the same period in 2004.  Sales of  FieldServers  have increased  partially as a
result of increased  product  awareness and  utilization by building  automation
integrators  who use the  products  to increase  the number of devices  that can
communicate  with central  control  systems.  In addition,  second quarter sales
include  delivery of a large single order for integration of multiple  buildings
on a  university  campus.  FieldServer  Technologies  is  continuing  to  target
university and other campuses as significant opportunities for large integration
projects.

                                                                    Page 9 of 16
<PAGE>

         Gross profit of $1,482,921  for the  three-month  period ended June 30,
2004 was 65% of sales  compared  to  $1,262,491,  or 56% of  sales,  in the same
period in the previous  year.  The gross profit for the  six-month  period ended
June 30, 2004 was $2,654,821, or 63% of sales, compared to $2,318,577, or 58% of
sales,  in the same period in the previous year. The higher gross margin in both
periods is the result of higher sales levels and improved gross  margins.  Gross
margin can vary due to the mix of  products  shipped  in a given  period and the
discounts which may be applied to those  shipments.  The higher gross margins in
both the three and six month  periods ended June 30, 2004 are due in part to the
higher mix of FieldServer  sales.  FieldServer  sales include software  programs
known as protocol  drivers which have high  engineering  development  costs, but
very low cost of sales.

         Expenses  for  research  and  development,  which  include  new product
development and engineering to sustain existing products,  were $424,714, or 19%
of sales, for the three-month  period ending June 30, 2004 compared to $345,616,
or 15% of sales,  in the  comparable  period in 2003. In the  six-month  periods
ending June 30, 2004 and June 30, 2003,  research and development  expenses were
$916,561, or 22% of sales, and $712,316, or 18% of sales, respectively. Research
and  development  expenses  during the second quarter of 2004 included costs for
expedited  design  completion,  prototype  manufacture  and testing of a new gas
sensor  module  which was released  for  manufacture  and sale at the end of the
quarter.  In addition,  during the first quarter of 2004, we undertook a project
to  develop  and  install a complex  control  system  for  improving  the energy
efficiency of buildings  which contain base radio systems at cellular  telephone
tower  locations.  Two complete systems were installed in operational cell tower
sites owned by a major wireless carrier. Both test installations have been fully
functional and under  competitive  evaluation by the wireless  carrier since the
end of the first quarter of 2004. The increase in  engineering  expenses in both
the three-month and six-month  periods ending June 30, 2004 are, in part, due to
the  costs of these  two  projects.  We are also  continuing  other  engineering
programs including FieldServer software and new gas detection products.

         Selling and marketing  expenses,  which consist  primarily of salaries,
commissions  and  promotional  expenses were  $660,444,  or 29% of sales for the
three-month period ended June 30, 2004, compared to $623,015 or 28% of sales, in
the comparable  period in the prior year. For the six-month  periods ending June
30, 2004 and June 30, 2003, selling and marketing  expenses were $1,321,218,  or
31% of  sales,  and  $1,249,130,  also 31% of sales,  respectively.  There is no
significant  change in selling and marketing  expenses as a percentage of sales.
The increase in total selling and  marketing  expense is due to the higher sales
levels in the three and six month  periods  ended June 30, 2004  compared to the
same periods in the prior year.

         General and administrative  expenses, which consist primarily of salary
expenses,  building rent and insurance expenses, were $326,688, or 14% of sales,
for the three-month period ended June 30, 2004 compared to $306,990, also 14% of
sales, in the three-month  period ended June 30, 2003. For the six-month periods
ending June 30, 2004 and June 30, 2003, general and administrative expenses were
$612,722, or 15% of sales, and $607,348, also 15% of sales, respectively.  There
were no significant changes in general and administrative  expenses in the three
and six month  periods  ended June 30, 2004  compared to the same periods in the
prior year.

         Our net  income for the  three-month  period  ended  June 30,  2004 was
$43,806  compared  to a net loss of $6,991 in the same  period of 2003.  For the
six-month  period  ended June 30,  2004 our net loss was  $117,440  compared  to
$148,960 in the same period of 2003. The improvement in income in both the three
month and six month  periods ended June 30, 2004 compared to the same periods in
2003 is the result of the higher sales level and  increased  gross margin offset
by increased engineering expenses.

                                                                   Page 10 of 16
<PAGE>

Liquidity and Capital Resources
-------------------------------

         Working  capital,  which is  comprised,  primarily,  of cash,  accounts
receivable and inventories offset by current liabilities, was $3,126,906 at June
30, 2004.  Working  capital  decreased by $95,308 from December 31, 2003 to June
30, 2004.  The decrease in working  capital was  primarily the result of the net
loss of $117,440 and capital  investments of  approximately  $68,000  reduced by
approximately  $90,000 of depreciation and amortization of fixed assets. Cash on
hand, a component of working capital,  was $963,728 at June 30, 2004, a decrease
of $91,353 compared to December 31, 2003.

         In the current  fiscal year,  we have not utilized our $500,000 line of
credit  with  our  commercial  bank.  We  believe  that our  present  resources,
including cash and accounts  receivable,  are sufficient to fund our anticipated
level of operations through at least the next twelve months.

Certain Factors That May Affect Future Results

         The Company's future  operating  results may be affected by a number of
factors,  including  general  economic  conditions  in both foreign and domestic
markets,  cyclical  factors  affecting  our  industry,  lack  of  growth  in our
end-markets,  and our  ability to  develop,  manufacture,  and sell both new and
existing products at a profitable yet competitive price.

         The  industry in which we compete is highly  competitive  and we expect
such  competition to continue in the future.  Most of our competitors are larger
than our company and have substantially greater financial,  technical, marketing
and manufacturing  resources.  While we have invested in new products, there can
be no assurance that we can continue to introduce new products on a timely basis
or that certain of our products will not be rendered non-competitive or obsolete
by our competitors.

         Our  operations  are  concentrated  in a single  building in  Milpitas,
California. Our operations could be interrupted by fire, earthquake, power loss,
telecommunications failure and other events beyond our control. We do not have a
detailed  disaster  recovery  plan.  In  addition,  we do not  carry  sufficient
business  interruption  insurance to compensate us for losses that may occur and
any losses or damages incurred by us could have a material adverse effect on our
business.

         Our  short-term  liquidity  is  dependent  upon our  ability  to reduce
collection cycles, reduce inventories and manage expenses and cash distribution.
We must also  maintain our  compliance  with the  conditions of our bank line of
credit.

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:

         a) Revenue Recognition

         Our net sales  consist of revenue  from sales of products  net of trade
discounts  and  allowances.   We  generally  obtain  oral  or  written  purchase
authorizations  from our  customers  for a  specified  amount  of  product  at a


                                                                   Page 11 of 16
<PAGE>

specified price and consider  delivery to have occurred at the time of shipment.
We  recognize  revenue  when  evidence  of an  arrangement  exists,  contractual
obligations have been satisfied, title and risk of loss have been transferred to
the customer and collection of the resulting  receivable is reasonably  assured.
We recognize  revenue from the sale of FieldServers in accordance with SOP 97-2,
Software Revenue Recognition, as amended. Management's ability to determine that
such conditions have been met is based on market  experience and judgment of the
specific economic and contractual conditions that exist at the time of shipment.
The Company  does not enter into  multiple-element  arrangements  related to the
sales of FieldServers.

         b) 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 of the need for our services is critical to the
effective  application of credit terms and  minimization of accounts  receivable
losses.

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

         c) 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  can rely 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 3:  CONTROLS AND PROCEDURES

         Evaluation  of  disclosure  controls  and  procedures.  Our  management
evaluated,  with the participation of Gordon R. Arnold, our principal  executive
and  financial  officer,  the  effectiveness  of  our  disclosure  controls  and
procedures as of the end of the period covered by this Quarterly  Report on Form
10-QSB.  Based on this evaluation,  Mr. Arnold has concluded that our disclosure
controls and procedures are effective to ensure that information we are required
to disclose in reports that we file or submit under the Securities  Exchange Act
of 1934 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-QSB  that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

                                                                   Page 12 of 16
<PAGE>
                           PART II: OTHER INFORMATION

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

         The Annual Meeting of  Shareholders  of the Company was held on May 27,
2004.

         1.    At the Annual  Meeting,  the following  directors were elected to
               serve  for the  ensuing  year  and  until  there  successors  are
               elected:
<TABLE>
<CAPTION>

                                                         For          Against        Abstain
                                                         ---          -------        -------
<S>                                                   <C>                <C>            <C>
                      Gordon R. Arnold                7,409,276          0              0
                      C. Richard Kramlich             7,409,276          0              0
                      Jay T. Last                     7,409,276          0              0
                      Robert C. Marshall              7,409,276          0              0
</TABLE>

         2.    At the Annual Meeting, Squar, Milner, Reehl & Williamson, LLP was
               ratified as the Company's  independent public accountants for the
               fiscal year ended December 31, 2004 by the following votes:

<TABLE>
<CAPTION>
                                                         For          Against        Abstain
                                                         ---          -------        -------
<S>                                                   <C>                <C>            <C>
                                                      7,409,276          0              0
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits.

                  Exhibit
                  Number   Description
                  ------   -----------
                  3.1(1)   Articles of Incorporation of the Registrant.

                  3.2(2)   Bylaws of the Registrant.

                  4.1(3)   Specimen Common Stock certificate of the Registrant.

                  31       Certification  of Chief  Executive  Officer and Chief
                           Financial  Officer  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.

                  (3) Incorporated  by reference to the Company's  Annual Report
                      on Form 10-KSB (File No.  000-07441) filed with the SEC on
                      March 25, 2004.

         (b)      Reports on Form 8-K: None.


                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                                     SIERRA MONITOR CORPORATION
                                                     Registrant

Date:  August 11, 2004                      By:      /s/ Gordon R. Arnold
                                                     ---------------------------
                                                     Gordon R. Arnold
                                                     Chief Executive Officer
                                                     Chief Financial Officer


                                                                   Page 13 of 16
<PAGE>

                                Index to Exhibits

Exhibit
Number   Description
------   -----------
3.1(1)   Articles of Incorporation of the Registrant.

3.2(2)   Bylaws of the Registrant.

4.1(3)   Specimen Common Stock certificate of the Registrant.

31       Certification  of Chief Executive  Officer and Chief Financial  Officer
         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.

(3)  Incorporated  by reference to the  Company's  Annual  Report on Form 10-KSB
     (File No. 000-07441) filed with the SEC on March 25, 2004.


                                                                   Page 14 of 16