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 March 31, 2008



or



(   )

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 |  | (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

(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 past 12 months (or for such shorter period that the registrant was required to filed such reports),and (2) has been subject to such filing requirements for the last 90 days.  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 ____    No __ X __



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 14, 2008 was 11,215,192.



Page 1 of 17

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PART I:  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SIERRA MONITOR CORPORATION

Condensed Balance Sheet



|                                                                                                       |   |                            |  |   |                  
|------------------------------------------------------------------------------------------------------ | - | -------------------------- |  | - | -----------------
|Assets                                                                                                 |   | (unaudited)
March 31,
2008 |  |   | December 31,
2007
|Current assets                                                                                         |   |                            |  |   |                  
|Cash                                                                                                   | $ | 645,556                    |  | $ | 675,108          
|Trade receivables, less allowance for doubtful accounts                                                |   |                            |  |   |                  
|of approximately $89,000 and $86,000 respectively                                                      |   | 1,959,226                  |  |   | 2,036,050        
|Inventories, net                                                                                       |   | 1,985,306                  |  |   | 2,050,395        
|Prepaid expenses                                                                                       |   | 169,194                    |  |   | 132,872          
|Income taxes receivable                                                                                |   | 20,686                     |  |   | -                
|Deferred income taxes - current                                                                        |   | 286,743                    |  |   | 284,185          
|Total current assets                                                                                   |   | 5,066,711                  |  |   | 5,178,610        
|Property and equipment, net                                                                            |   | 304,106                    |  |   | 307,965          
|Deferred income taxes                                                                                  |   | 981                        |  |   | -                
|Other assets                                                                                           |   | 219,620                    |  |   | 232,799          
|Total assets                                                                                           | $ | 5,591,418                  |  | $ | 5,719,374        
|Liabilities and Shareholders' Equity                                                                   |   |                            |  |   |                  
|Current liabilities:                                                                                   |   |                            |  |   |                  
|Accounts payable                                                                                       | $ | 514,250                    |  | $ | 590,753          
|Accrued compensation expenses                                                                          |   | 396,795                    |  |   | 321,931          
|Other current liabilities                                                                              |   | 102,627                    |  |   | 90,628           
|Income taxes payable                                                                                   |   | 67,466                     |  |   | 297,428          
|Total current liabilities                                                                              |   | 1,081,138                  |  |   | 1,300,740        
|Commitments and contingencies Shareholders' equity:                                                    |   |                            |  |   |                  
|Common stock, $0.001 par value; 20,000,000 shares authorized; 11,215,192 shares issued and outstanding |   | 11,215                     |  |   | 11,155           
|Additional paid-in capital                                                                             |   | 3,400,970                  |  |   | 3,373,202        
|Retained earnings                                                                                      |   | 1,098,095                  |  |   | 1,034,277        
|Total shareholders' equity                                                                             |   | 4,510,280                  |  |   | 4,418,634        
|Total liabilities and shareholders equity                                                             | $ | 5,591,418                  |  | $ | 5,719,374        
|                                                                                                       |   |                            |  |   |                  
|                                                                                                       |   |                            |  |   |                  
|See accompanying notes to the condensed financial statements                                           |   |                            |  |   |                  





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SIERRA MONITOR CORPORATION

Condensed Statements of Operations

(Unaudited)



|                                                                                     |                            |                            |           |                            |            |           |                |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------ | -------------------------- | -------------------------- | --------- | -------------------------- | ---------- | --------- | -------------- |  |  |  |  |  |  | 
|                                                                                     |                            |                            |           | For the three months ended
|                                                                                     |                            |                            |           | March 31,
2008             |            |           | March 31,
2007
|                                                                                     | Net sales                  | $                          | 3,136,798 |                            | $          | 2,823,211
|Cost of goods sold                                                                   |                            | 1,209,091                  |           |                            | 1,218,698 
|                                                                                     |                            | Gross profit               |           | 1,927,707                  |            |           | 1,604,513     
|Operating expenses                                                                   |                            |                            |           |                            |           
|                                                                                     | Research and development   |                            | 525,805   |                            |            | 535,284  
|                                                                                     | Selling and marketing      |                            | 815,356   |                            |            | 640,557  
|                                                                                     | General and administrative |                            | 457,039   |                            |            | 354,669  
|                                                                                     |                            |                            |           | 1,798,200                  |            |           | 1,530,510     
|                                                                                     |                            | Income from operations     |           | 129,507                    |            |           | 74,003        
|Interest expense                                                                     |                            | -                          |           |                            | 438       
|                                                                                     |                            | Income before income taxes |           | 129,507                    |            |           | 73,565        
|Income tax provision                                                                 |                            | 65,689                     |           |                            | 29,426    
|                                                                                     |                            | Net  income                | $         | 63,818                     |            | $         | 44,139        
|Net income available to common shareholders per common share:
Basic                  | $                          | 0.01                       |           | $                          | 0.00      
|Diluted                                                                              | $                          | 0.01                       |           | $                          | 0.00      
|Weighted-average number of common shares
outstanding used in per share computations: |                            |                            |           |                            |           
|Basic                                                                                |                            | 11,115,192                 |           |                            | 11,058,525
|Diluted                                                                              |                            | 11,674,421                 |           |                            | 11,657,430
|See accompanying notes to the condensed financial statements.                       



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SIERRA MONITOR CORPORATION

Condensed Statements of Cash Flows

(Unaudited)



|                                                              |                                                                                             |                                                     |          |                            |           |          |                |  | 
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | -------------------------- | --------- | -------- | -------------- |  | 
|                                                              |                                                                                             |                                                     |          | For the three months ended
|                                                              |                                                                                             |                                                     |          | March 31,
2008             |           |          | March 31,
2007
|Cash flows from operating activities:                         |                                                                                             |                                                     |          |                            |          
|                                                              | Net income                                                                                  | $                                                   | 63,818   |                            | $         | 44,139  
|                                                              | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                     |          |                            |           |         
|                                                              |                                                                                             | Depreciation and amortization                       |          | 60,972                     |           |          | 30,805        
|                                                              |                                                                                             | Provision for bad debt expense                      |          | 3,000                      |           |          | (2,381)       
|                                                              |                                                                                             | Stock-based compensation expense                    |          | 27,828                     |           |          | 9,546         
|                                                              |                                                                                             | Change in operating assets and liabilities:         |          |                            |           |          |               
|                                                              |                                                                                             | Trade receivables                                   |          | 73,823                     |           |          | 101,636       
|                                                              |                                                                                             | Inventories                                         |          | 65,091                     |           |          | (145,216)     
|                                                              |                                                                                             | Prepaid expenses and other current assets           |          | (57,008)                   |           |          | (20,767)      
|                                                              |                                                                                             | Accounts payable                                    |          | (76,503)                   |           |          | (272,225)     
|                                                              |                                                                                             | Income taxes payable                                |          | (233,499)                  |           |          | 14,773        
|                                                              |                                                                                             | Accrued compensation expenses                       |          | 75,350                     |           |          | 67,459        
|                                                              |                                                                                             | Other current liabilities                           |          | 11,511                     |           |          | (11,613)      
|                                                              |                                                                                             | Net cash provided by (used in) operating activities |          | 14,383                     |           |          | (183,844)     
|Cash flows from investing activities:                         |                                                                                             |                                                     |          |                            |          
|                                                              | Capital expenditures                                                                        |                                                     | (44,160) |                            |           | (45,628)
|                                                              | Acquisition of other long-term assets                                                       |                                                     |         |                            |           | (12,036)
|                                                              | Other assets                                                                                |                                                     | 225      |                            |           |        
|                                                              |                                                                                             | Net cash used in investing activities               |          | (43,935)                   |           |          | (57,664)      
|Cash flows from financing activities:                         |                                                                                             |                                                     |          |                            |          
|                                                              | Proceeds from exercise of stock options                                                     |                                                     |         |                            |           | 6,800   
|                                                              |                                                                                             | Net cash provided by financing activities           |          |                           |           |          | 6,800         
|Net decrease in cash                                          |                                                                                             | (29,552)                                            |          |                            | (234,708)
|Cash at beginning of period                                   |                                                                                             | 675,108                                             |          |                            | 446,395  
|Cash at end of period                                         | $                                                                                           | 645,556                                             |          | $                          | 211,687  
|                                                              |                                                                                             |                                                     |          |                            |          
|Supplemental cash flow information:                           |                                                                                             |                                                     |          |                            |          
|Cash paid for income taxes                                    | $                                                                                           | 300,164                                             |          | $                          | 14,653   
|Cash paid for interest                                        | $                                                                                           |                                                    |          | $                          | (438)    
|                                                              |                                                                                             |                                                     |          |                            |          
|                                                              |                                                                                             |                                                     |          |                            |          
|See accompanying notes to the condensed financial statements.



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| |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  | 

SIERRA MONITOR CORPORATION

Notes to the Interim Condensed Financial Statements

(Unaudited)

March 31, 2008

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 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, 2007 balances within these interim consolidated financial statements were derived from the audited 2007 consolidated 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-KSB for the year ended December 31, 2007, which was filed with the SEC on March 26, 2008.  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 the full year.

Summary of Business

The Company
was formed in 1978 and delivers
i nformation
t echnology for
e nvironment
m easurement and
c ontrol 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 level
s, including
E thernet,
I nternet, 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.



Page 5 of 17

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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.



The Companys common stock is quoted on the OTC Bulletin Board under the symbol SRMC.OB.

Accounting Policies



a)

Revenue Recognition

The Company recognizes revenues in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, 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) collectibility 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. 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 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, as defined in Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with



Page 6 of 17

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Multiple Deliverables, 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, as described in Statement of Position (SOP) 97-02, Software Revenue Recognition, as amended, 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.



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 Productsabove).  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). Collectibility 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.

b)

Recent Accounting Standards

Recent accounting pronouncements discussed in the notes to the December 31, 2007 audited financial statements, filed previously with the Securities and Exchange Commission in Form 10-KSB, that are required to be adopted during the year ending December 31, 2008, did not have or are not expected to have a significant impact on the Companys 2008 financial statements.

c)

Employee Stock-Based Compensation

As of March 31, 2008, 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. 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, the Company accounted for grants for these plans under Accounting Principals Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and applied SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," for disclosure purposes only. Under APB No. 25, stock-based compensation cost related to stock options was not recognized in net income since the 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.



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Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share Based Payment," ("SFAS No. 123(R)") which revises SFAS No. 123 and supersedes APB No. 25. SFAS No. 123(R) requires that all share-based payments to employees be 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 under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The statement was adopted using the modified prospective method of application which requires compensation expense to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. No adjustments to prior periods have been made as a result of adopting SFAS No. 123(R). Under this transition method, compensation expense for share-based awards granted prior to January 1, 2006, but not yet vested as of January 1, 2006, is recognized in the Company's financial statements over their remaining service period. The cost is based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. As required by SFAS No. 123(R), compensation expense recognized in future periods for share-based compensation granted prior to adoption of the standard will be adjusted for the effects of estimated forfeitures.



For the three month periods ended March 31, 2008 and 2007, the impact of adopting SFAS No. 123(R) on the Company's condensed statements of operations was an increase in general and administrative expenses of $27,828 and $9,546, respectively, with a corresponding decrease in the Company's income from continuing operations, income before provision for income taxes and net income 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 the adoption of SFAS No. 123(R). The Company did not modify the terms of any previously granted stock options during the three-month periods ended March 31, 2008 and 2007.

Inventories

A summary of inventories follows:

|                                         |                |           |                   |   |          
|---------------------------------------- | -------------- | --------- | ----------------- | - | ---------
|                                         | March 31,
2008 |           | December 31,
2007
|Raw materials                            | $              | 695,553   |                   | $ | 687,947  
|Work-in-process                          |                | 1,109,445 |                   |   | 1,098,216
|Finished goods                           |                | 289,481   |                   |   | 373,405  
|Less: Allowance for obsolescence reserve |                | (109,173) |                   |   | (109,173)
|                                         | $              | 1,985,306 |                   | $ | 2,050,395

Net income 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 March 31, 2008 and 2007, there were no common shares that had an exercise price higher than the stock price used in the EPS calculation.



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The following is a reconciliation of the shares used in the computation of basic and diluted EPS for the periods ended March 31, 2008 and 2007, respectively:



|                                                                                               |                    |            |                |           
|---------------------------------------------------------------------------------------------- | ------------------ | ---------- | -------------- | ----------
|                                                                                               | Three months ended
|                                                                                               | March 31,
2008     |            | March 31,
2007
|Basic EPS  weighted-average number of common shares outstanding                               |                    | 11,115,192 |                | 11,058,525
|Effect of dilutive potential common shares  stock options outstanding                         |                    | 559,229    |                | 598,905   
|Diluted EPS  weighted-average number of common shares and
potential common shares outstanding |                    | 11,674,421 |                | 11,657,430



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.

Concentrations

No customer individually made up more than 10% of accounts receivable at March 31, 2008 and March 31, 2007.  Also, no customers individually made up more than 10% of net sales for the three month period ended March 31, 2008 and March 31, 2007.



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 condensed financial statements.

In addition, the CEO reviewed the following information on revenues by product category for the periods ended March 31:



|                        |  |                    |           |                |   |          
|----------------------- |  | ------------------ | --------- | -------------- | - | ---------
|                        |  | Three months ended
|                        |  | March 31,
2008     |           | March 31,
2007
|Gas detection devices   |  | $                  | 1,411,231 |                | $ | 1,215,531
|Environment controllers |  |                    | 210,418   |                |   | 257,233  
|FieldServers            |  |                    | 1,515,149 |                |   | 1,350,447
|                        |  | $                  | 3,136,798 |                | $ | 2,823,211





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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 three months of fiscal year 2008 and the balance was $0 at March 31, 2008 and December 31, 2007.  The Company is in compliance at March 31, 2008 with covenants required by the line of credit.



Stock Options

During the three month period ended March 31, 2008, a total of 14,000 options were granted under the Companys 2006 Stock Plan with an exercise price of $1.50.  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.  Such options had a per-share grant date fair value of $1.48, as calculated by the Black-Scholes option pricing model using the following assumptions: expected life of 8 years; estimated volatility of 177%; risk-free interest rate of 2.8%; and no expected dividends. Stock-based compensation expense related to these options was immaterial for the three months ended March 31, 2008.

During the three month period ended March 31, 2008, a total of 60,000 shares of common stock were issued as a result of an employees net exercise of a stock option for a value of $56,000.  During the same period, options covering 8,000 shares expired.



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This Form 10-Q and any accompanying letter to shareholders 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 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-Q, 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 March 31, 2008, Sierra Monitor Corporation reported net sales of $3,136,798 compared to $2,823,211 for the three months ended March 31, 2007.  The results for the first quarter of fiscal 2008 represent an 11% increase from the same period in the prior year.

Our sales of gas detection products, including industrial accounts and military sales, increased by approximately 16% in the first quarter of 2008 compared to the same period in 2007.  The increase in sales is due primarily to higher military sales, which are influenced by Navy purchasing cycles for both spare parts and new ship activity.  Our sales of industrial gas detection products were unchanged in the first quarter of 2008 compared to the same period in 2007.  Gas detection products currently represent approximately 48% of our net sales.

In the first quarter of 2008, our sales to the telecommunications industry were 18% lower compared to the first quarter of 2007.   The results reflect a continued low level of infrastructure spending by the larger land-line telephone companies.  Sales of environment controllers to the telecommunications industry currently represent approximately 7% of our total net sales.

Sales of our FieldServer communications bridge products increased approximately 12% in the first quarter of 2008 compared to the first quarter of 2007.  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 15% in the first quarter on a year-over-year basis reflecting continued strength in the market for energy efficiency in building automation.  OEM module sales increased approximately 8% in the first quarter of 2008 compared to the first quarter of 2007.  In the first quarter of 2007, a single customer accounted for 82% of OEM module revenue attributable to an initial inventory build.  In the first quarter of 2008, that same customer accounted for less that 40% of OEM module revenue indicating what we believe is a broadening of the OEM module customer base.



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Gross profit for the three-month period ended March 31, 2008 was $1,927,707, or 62% of net sales, compared to $1,604,513, or 57% of net sales, in the same period in the previous year.  Our normal margin target is approximately 60% of net sales.  The relatively high gross margin for the first quarter of 2008 is due, in part, to the increased percentage of military sales that carry higher margins than the remaining products.  The relatively low gross margin in the first quarter of 2007 was due, in part, to the mix of OEM modules that carry lower margins than the remaining products.

Expenses for research and development, which include new product development and engineering to sustain existing products, were $525,805 or 17% of net sales, for the three-month period ended March 31, 2008, compared with $535,284 or 19% of net sales, in the comparable period in 2007.  There was no significant change in spending for research and development as we continue existing programs to release various custom-designed OEM modules and a design upgrade program for gas detection products.

Selling and marketing expenses, which consist primarily of salaries, commissions and promotional expenses, for the three-month period ended March 31, 2008 were $815,356, or 26% of net sales, compared to $640,557, or 23% of net sales, in the same period in the prior year.  We have increased the number of field sales and customer service personnel. As a result of the staffing increases, selling expenses in the first quarter of 2008 were higher than the comparable period in 2007.  Sales expenses in the first quarter of 2008 also include extraordinary costs of hosting a sales conference.  Selling expenses in the first quarter of 2007 did not include similar costs and were generally consistent with historical levels.

General and administrative expenses for the first quarter of 2008 were $457,039, or 15% of net sales, compared to $354,669, or 13% of net sales, in the same period in the prior year.  We have increased the number of employees in our administration group, which resulted in higher salary expenses in the first quarter of 2008 compared to the same period in 2007.  In addition, our professional fees have increased, primarily due to Sarbanes Oxley compliance matters, and our stock option expensing has increased due to stock option grants during fiscal year 2007.

Our income from operations for the three-month period ended March 31, 2008 was $129,507, or 4% of net sales, compared to $74,003, or 3% of net sales, in the same period in the prior year.  The increased income is the result of higher gross profit offset by smaller increases in fixed expenses.

Net income for the three-month period ended March 31, 2008 was 63,818, or approximately 2% of net sales, compared to $44,139, or approximately 2% of net sales, for the same period in the prior year.  The primary difference between operating income and net income is the provision for income taxes.

Liquidity and Capital Resources

Working capital was approximately $3,986,000 at March 31, 2008, an increase of approximately $108,000 from December 31, 2007.  Current assets decreased by approximately $112,000 due to decreases in cash, accounts receivable and inventory.  Current liabilities decreased by approximately $220,000 due to lower accounts payable and lower income taxes payable offset by an increase in accrued compensation expenses.  Cash, accounts receivable, inventories, accounts payable and accrued liabilities are the primary components of our working capital.

Management believes that its present resources, including cash and accounts receivable, are sufficient to fund its anticipated level of operations through at least the next twelve months.



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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

The Company recognizes revenues in accordance with Staff Accounting Bulleting (SAB) No. 104, Revenue Recognition, 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) collectibility 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. 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 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, as defined in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, because



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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, as described in SOP 97-02, Software Revenue Recognition, as amended, 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.



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 Productsabove).  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). Collectibility 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.

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 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 insure 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.

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 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.



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d)

Off Balance Sheet Arrangements

As of March 31, 2008, the Company had no off balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commissions Regulation S-K.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



The Company, as a smaller reporting company, is not required to provide the information required by Item 305 of the Securities and Exchange Commissions Regulation S-K.

ITEM 4.  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 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 Quarterly 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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PART II:  OTHER INFORMATION

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 Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of 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.



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:

May 14, 2008

By:



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 Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of 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.



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