Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

#### **Washington, D.C. 20549**

#### ** **

##### **FORM 10-Q**

##### ** **

**(Mark One)**

 

**x****  Quarterly Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

** **

**For theQuarter Ended June 30, 2009**

** **

**or**

 

**o****  Transition Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

** **

**For thetransition period from                 to                 **

 

**Commission File Number 000-09273**

** **

**MOCON, INC.**

(Exactname of registrant as specified in its charter)

 

| **Minnesota**                                        | ** ** | **41-0903312**      |
|------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                      |       | (I.R.S. employer    |
| incorporation or organization)                       |       | identification no.) |
|                                                 |       |                |
| **7500 Boone Avenue North,  Minneapolis, Minnesota** |       | **55428**           |
| (Address of principal executive offices)             |       | (Zip code)          |

 

**(763) 493-6370**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  YES x  NO o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  YES  o NO  o

 

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

 

| Large accelerated filer o                                                   |   | Accelerated filer o    |
|-----------------------------------------------------------------------------|--------|-----------------------------|
|                                                                        |   |                        |
| Non-accelerated filer o  (do not check if a smaller reporting company) |   | Smaller reporting company x |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). YES o NO x

 

5,412,143 Common Shares were outstanding as of July 31, 2009.

 

 

 

----

Table of Contents

 

MOCON, INC. AND SUBSIDIARIES

 

INDEX TO FORM 10-Q

For the Quarter Ended June 30,2009

 
| ** **                         | **Page  Number**                                                                                             |
|------------------------------------|--------------------------------------------------------------------------------------------------------------|
| PART I. FINANCIAL INFORMATION |                                                                                                         |
|                               |                                                                                                         |
| Item  1.                           | Financial  Statements                                                                                        |   |
|                               | Consolidated  Balance Sheets (Unaudited) June 30, 2009 and December 31, 2008                       | 1 |
|                               |                                                                                                         |   |
|                               | Consolidated Statements of Income (Unaudited) Three  months and six months ended June 30, 2009 and 2008 | 2 |
|                               |                                                                                                         |   |
|                               | Consolidated Statements of Cash Flows (Unaudited) Six  months ended June 30, 2009 and 2008              | 3 |
|                               |                                                                                                         |   |
|                               | Notes to Consolidated Financial Statements (Unaudited)                                                       | 4-10 |
|                               |                                                                                                         |
| Item 2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                  | 10-19 |
|                               |                                                                                                         |   |
| Item 3.                            | Quantitative and  Qualitative Disclosures About Market Risk                                                  | 19-20 |
|                               |                                                                                                         |   |
| Item 4T.                           | Controls and Procedures                                                                                      | 20 |
|                               |                                                                                                         |   |
|                               |                                                                                                         |
| PART II. OTHER  INFORMATION   |                                                                                                         |
|                               |                                                                                                         |   |
| Item  1A.                          | Risk  Factors                                                                                                | 20 |
|                               |                                                                                                         |   |
| Item 2.                            | Unregistered  Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity  Securities         | 21 |
|                               |                                                                                                         |   |
| Item 4.                            | Submission of  Matters to a Vote of Security Holders                                                         | 21-22 |
|                               |                                                                                                         |   |
| Item 6.                            | Exhibits                                                                                                     | 22 |
|                               |                                                                                                         |
| Signatures                         | 23                                                                                                           |
|                               |                                                                                                         |
| Exhibit Index                 | 24                                                                                                           |

 

*In thisreport, references to “MOCON,” “the Company,” “we,” “our,” or “us,” unless thecontext otherwise requires, refer to MOCON, Inc. and its subsidiaries.*

* *

*Alltrademarks or trade names referred to in this report are the property of theirrespective owners.*

 

----

Table of Contents

 

PART I.  FINANCIALINFORMATION

 

Item 1.  Financial Statements

 

MOCON, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
| ** **                                                                                                                                        | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2009**          | ** ** | **2008**              | ** ** |
|                                                                                                                                              |       |              |       |                  |       |
| ASSETS                                                                                                                                            |       |              |       |                  |       |
| Current assets:                                                                                                                                   |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                         |       | $                 | 4,000,210  |                  | $          | 4,553,479 |   |
| Marketable securities, current                                                                                                                    |       | 7,658,566         |       | 7,087,373             |       |
| Trade accounts receivable, less allowance  for doubtful accounts of $179,835 in 2009 and $137,182 in 2008                                         |       | 4,252,614         |       | 4,514,359             |       |
| Other receivables                                                                                                                                 |       | 195,601           |       | 255,923               |       |
| Inventories                                                                                                                                       |       | 4,577,155         |       | 4,731,859             |       |
| Prepaid income taxes                                                                                                                              |       | 750,650           |       | 465,641               |       |
| Prepaid expenses                                                                                                                                  |       | 411,030           |       | 385,264               |       |
| Deferred income taxes                                                                                                                             |       | 362,773           |       | 362,773               |       |
| Total current assets                                                                                                                              |       | 22,208,599        |       | 22,356,671            |       |
|                                                                                                                                              |       |              |       |                  |       |
| Marketable securities, noncurrent                                                                                                                 |       | 2,277,545         |       | 4,468,064             |       |
| Property, plant and equipment, net of  accumulated depreciation of $4,516,689 in 2009 and $4,274,454 in 2008                                      |       | 1,768,720         |       | 1,826,269             |       |
|                                                                                                                                              |       |              |       |                  |       |
| Other assets:                                                                                                                                     |       |              |       |                  |       |
| Goodwill                                                                                                                                          |       | 3,261,248         |       | 3,267,926             |       |
| Technology rights and other intangibles,  net                                                                                                     |       | 701,625           |       | 659,298               |       |
| Deferred income taxes                                                                                                                             |       | 298,094           |       | 298,094               |       |
| Other                                                                                                                                             |       | 78,666            |       | 76,905                |       |
| Total other assets                                                                                                                                |       | 4,339,633         |       | 4,302,223             |       |
|                                                                                                                                              |       |              |       |                  |       |
| TOTAL ASSETS                                                                                                                                      |       | $                 | 30,594,497 |                  | $          | 32,953,227 |   |
|                                                                                                                                              |       |              |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                         |       |              |       |                  |       |
| Current liabilities:                                                                                                                              |       |              |       |                  |       |
| Accounts payable                                                                                                                                  |       | $                 | 1,051,634  |                  | $          | 1,676,448 |   |
| Note payable - bank                                                                                                                               |       | 400,000           |       | —                |       |
| Accrued compensation and vacation                                                                                                                 |       | 992,259           |       | 1,498,428             |       |
| Other accrued expenses                                                                                                                            |       | 232,979           |       | 310,828               |       |
| Accrued product warranties                                                                                                                        |       | 202,694           |       | 229,087               |       |
| Dividends payable                                                                                                                                 |       | 487,093           |       | 503,308               |       |
| Deferred revenue                                                                                                                                  |       | 293,485           |       | 245,793               |       |
| Total current liabilities                                                                                                                         |       | 3,660,144         |       | 4,463,892             |       |
|                                                                                                                                              |       |              |       |                  |       |
| Noncurrent liabilities:                                                                                                                           |       |              |       |                  |       |
| Obligations to former employees                                                                                                                   |       | 55,329            |       | 55,522                |       |
| Accrued income taxes                                                                                                                              |       | 215,696           |       | 215,820               |       |
| Total noncurrent liabilities                                                                                                                      |       | 271,025           |       | 271,342               |       |
|                                                                                                                                              |       |              |       |                  |       |
| Total liabilities                                                                                                                                 |       | 3,931,169         |       | 4,735,234             |       |
|                                                                                                                                              |       |              |       |                  |       |
| Stockholders’ equity:                                                                                                                        |       |              |       |                  |       |
| Capital stock – undesignated. Authorized  3,000,000 shares                                                                                   |       | —            |       | —                |       |
| Common stock – $0.10 par value. Authorized  22,000,000 shares; issued and outstanding 5,412,143 shares in 2009 and  5,592,314 shares in 2008 |       | 541,214           |       | 559,231               |       |
| Additional paid-in capital                                                                                                                        |       | 1,420,276         |       | 2,868,669             |       |
| Retained earnings                                                                                                                                 |       | 24,192,536        |       | 24,268,266            |       |
| Accumulated other comprehensive income                                                                                                            |       | 509,302           |       | 521,827               |       |
| Total stockholders’ equity                                                                                                                   |       | 26,663,328        |       | 28,217,993            |       |
|                                                                                                                                              |       |              |       |                  |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                   |       | $                 | 30,594,497 |                  | $          | 32,953,227 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

1

----

Table of Contents

 

MOCON, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OFINCOME

(Unaudited)

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
|                                          |       | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** |   |
| Sales:                                        |       |                   |       |                 |       |   |   |   |   |
| Products                                      |       | $                      | 5,914,436  |                 | $          | 6,923,120 |   | $ | 11,757,231 |   | $ | 14,025,573 |   |
| Consulting services                           |       | 506,900                |       | 455,602              |       | 835,864 |   | 815,583 |   |
| Total sales                                   |       | 6,421,336              |       | 7,378,722            |       | 12,593,095 |   | 14,841,156 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Cost of sales:                                |       |                   |       |                 |       |   |   |   |   |
| Products                                      |       | 2,532,935              |       | 2,734,813            |       | 4,888,399 |   | 5,654,425 |   |
| Consulting services                           |       | 261,712                |       | 244,157              |       | 486,745 |   | 478,460 |   |
| Total cost of sales                           |       | 2,794,647              |       | 2,978,970            |       | 5,375,144 |   | 6,132,885 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Gross profit                                  |       | 3,626,689              |       | 4,399,752            |       | 7,217,951 |   | 8,708,271 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 2,491,411              |       | 2,441,291            |       | 5,072,463 |   | 5,023,925 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Research and development expenses             |       | 462,031                |       | 483,013              |       | 969,631 |   | 1,026,964 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Operating income                              |       | 673,247                |       | 1,475,448            |       | 1,175,857 |   | 2,657,382 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Other income                                  |       | 119,272                |       | 156,921              |       | 228,579 |   | 288,614 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Income before income taxes                    |       | 792,519                |       | 1,632,369            |       | 1,404,436 |   | 2,945,996 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Income taxes                                  |       | 277,000                |       | 581,000              |       | 490,000 |   | 1,009,000 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Net income                                    |       | $                      | 515,519    |                 | $          | 1,051,369 |   | $ | 914,436 |   | $ | 1,936,996 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Net income per common share:                  |       |                   |       |                 |       |   |   |   |   |
| Basic                                         |       | $                      | 0.09       |                 | $          | 0.19 |   | $ | 0.16 |   | $ | 0.35 |   |
| Diluted                                       |       | $                      | 0.09       |                 | $          | 0.18 |   | $ | 0.16 |   | $ | 0.34 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Weighted average common shares outstanding:   |       |                   |       |                 |       |   |   |   |   |
| Basic                                         |       | 5,560,102              |       | 5,552,869            |       | 5,575,990 |   | 5,542,651 |   |
| Diluted                                       |       | 5,637,853              |       | 5,688,737            |       | 5,643,239 |   | 5,670,962 |   |

 

See accompanying notes to consolidated financial statements.

 

2

----

Table of Contents

 

MOCON, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OFCASH FLOWS

(Unaudited)

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 30,**    | ** ** |
| ** **                                                                         | ** ** | **2009**             | ** ** | **2008** | ** ** |
| Cash flows from operating activities:                                              |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 914,436    |   | $ | 1,936,996 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                 |       |   |   |
| Stock-based compensation expense                                                   |       | 115,731              |       | 154,068 |   |
| Loss on disposition of long-term assets                                            |       | 6,000                |       | 20,668 |   |
| Depreciation and amortization                                                      |       | 299,798              |       | 278,156 |   |
| Deferred income taxes                                                              |       | —               |       | (12,898 | ) |
| Excess tax benefit from employee stock  plans                                      |       | (25                  | )          | (23,978 | ) |
| Changes in operating assets and  liabilities:                                      |       |                 |       |   |   |
| Trade accounts receivable                                                          |       | 99,804               |       | 161,384 |   |
| Other receivables                                                                  |       | 60,544               |       | 8,998 |   |
| Inventories                                                                        |       | 155,500              |       | (176,574 | ) |
| Prepaid income taxes                                                               |       | (275,458             | )          | — |   |
| Prepaid expenses                                                                   |       | (27,545              | )          | (268,933 | ) |
| Accounts payable                                                                   |       | (481,947             | )          | 97,688 |   |
| Accrued compensation and vacation                                                  |       | (502,428             | )          | (168,325 | ) |
| Other accrued expenses                                                             |       | (74,554              | )          | (47,679 | ) |
| Accrued product warranties                                                         |       | (26,192              | )          | 5,292 |   |
| Accrued income taxes                                                               |       | (4,634               | )          | (40,473 | ) |
| Deferred revenue                                                                   |       | 47,692               |       | — |   |
| Net cash provided by operating activities                                          |       | 306,722              |       | 1,924,390 |   |
|                                                                               |       |                 |       |   |   |
| Cash flows from investing activities:                                              |       |                 |       |   |   |
| Purchases of marketable securities                                                 |       | (979,101             | )          | (4,410,216 | ) |
| Proceeds from maturities of marketable  securities                                 |       | 2,595,900            |       | 3,173,675 |   |
| Purchases of property, plant and equipment                                         |       | (183,385             | )          | (152,255 | ) |
| Proceeds from sale of property and  equipment                                      |       | 1,522                |       | 7,858 |   |
| Purchases of patents and trademarks                                                |       | (73,463              | )          | (84,617 | ) |
| Other                                                                              |       | (1,761               | )          | (1,777 | ) |
| Net cash provided by (used in) investing  activities                               |       | 1,359,712            |       | (1,467,332 | ) |
|                                                                               |       |                 |       |   |   |
| Cash flows from financing activities:                                              |       |                 |       |   |   |
| Net proceeds from line of credit                                                   |       | 400,000              |       | — |   |
| Proceeds from the exercise of stock options                                        |       | 7,685                |       | 385,475 |   |
| Purchases and retirement of common stock                                           |       | (1,589,851           | )          | (1,969 | ) |
| Excess tax benefit from employee stock  plans                                      |       | 25                   |       | 23,978 |   |
| Dividends paid                                                                     |       | (1,006,381           | )          | (885,854 | ) |
| Net cash used in financing activities                                              |       | (2,188,522           | )          | (478,370 | ) |
|                                                                               |       |                 |       |   |   |
| Effect of exchange rate changes on cash and  cash equivalents                      |       | (31,181              | )          | 269,736 |   |
|                                                                               |       |                 |       |   |   |
| Net (decrease) increase in cash and cash  equivalents                              |       | (553,269             | )          | 248,424 |   |
|                                                                               |       |                 |       |   |   |
| Cash and cash equivalents:                                                         |       |                 |       |   |   |
| Beginning of period                                                                |       | 4,553,479            |       | 5,207,105 |   |
| End of period                                                                      |       | $                    | 4,000,210  |   | $ | 5,455,529 |   |
|                                                                               |       |                 |       |   |   |
| Supplemental disclosures of cash flow  information:                                |       |                 |       |   |   |
| Cash paid during the period for income  taxes                                      |       | $                    | 730,621    |   | $ | 1,043,617 |   |
|                                                                               |       |                 |       |   |   |
| Supplemental schedule of noncash investing  and financing activities:              |       |                 |       |   |   |
| Amortization of cumulative unrealized gain  on marketable securities               |       | $                    | (2,527     | ) | $ | (14,462 | ) |
| Dividends accrued                                                                  |       | $                    | 487,093    |   | $ | 473,978 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

3

----

Table ofContents

 

MOCON,INC. AND SUBSIDIARIES

 

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Consolidated Financial Statements

 

Theconsolidated balance sheet as of June 30, 2009, and the consolidatedstatements of income and cash flows for the three- and six-month periods ended June 30,2009 and 2008 have been prepared by us, without audit.  However, all adjustments (consisting solelyof normal recurring adjustments) which are, in the opinion of management,necessary to present fairly the financial position, results of operations andcash flows at June 30, 2009, and for all periods presented, have beenmade.  The results of operations for thethree- and six-month periods ended June 30, 2009 are not necessarilyindicative of operating results for the full year.

 

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted.  It is suggested that theseconsolidated financial statements be read in conjunction with the consolidatedfinancial statements and notes included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008, previously filed with theSecurities and Exchange Commission.

 

We operate in a single industry segment: the developing, manufacturing,and marketing of measurement, analytical, monitoring and consulting productsfor customers in the barrier packaging, food, pharmaceutical, consumerproducts, industrial hygiene, air quality monitoring, oil and gas explorationand other industries throughout the world.

 

*Principles of Consolidation*

 

Theconsolidated financial statements include the accounts of MOCON, Inc. andits subsidiaries after elimination of inter-company transactions and accounts.

 

*Foreign Currency Translation*

* *

Thefinancial statements for operations outside the United States are maintained intheir local currency.  All assets andliabilities of our foreign subsidiaries are translated to United States dollarsat period-end exchange rates, while revenue and expense accounts are translatedat the average exchange rates during the period transactions occurred.  Translation adjustments arising from the useof differing exchange rates are included in accumulated other comprehensiveincome or loss in stockholders’ equity. Gains and losses on foreign currency transactions are included in otherincome or loss.

 

*Use of Estimates*

 

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof revenues and expenses during the reporting period.  Management adjusts such estimates andassumptions when facts and circumstances change.  Illiquid credit markets, volatile equity,foreign currency and energy markets, and declines in business and consumerspending have combined to increase the uncertainty inherent in such estimatesand assumptions.  Actual results coulddiffer from those estimates.

 

4

----

Table of Contents

* *

*Fair Value of Financial Instruments*

* *

Thecarrying value of cash equivalents, accounts receivable, accounts payable andshort-term debt approximates fair value due to the short maturity of thoseinstruments.

 

*Recently Issued AccountingPronouncements*

* *

InFebruary 2008, the Financial Accounting Standards Board (FASB) amended theStatement of Financial Accounting Standard (SFAS) 157 by FASB Staff Position(FSP) Financial Accounting Standard (FAS) 157-2, *EffectiveDate of FASB Statement No. 157* (FSP FAS 157-2).  FSP FAS 157-2 deferred the effective date ofSFAS 157 for all nonfinancial assets and liabilities that are not remeasured atfair value on a recurring basis to fiscal years beginning after February 15,2008.  We adopted the required provisionsof SFAS 157 effective in the first quarter of fiscal 2008.  In the first quarter 2009, we adopted theremaining provisions of SFAS 157. Although we believe the adoption of FSP FAS 157-2 may impact the waythat we determine the fair value of goodwill, indefinite-lived intangibleassets, and other long-lived assets, we do not expect it to have a materialimpact on our results of operations or financial condition.

 

InDecember 2007, the FASB issued SFAS No. 141 (revised 2007), *Business Combinations* (SFAS 141(R)).  SFAS 141(R) retains the fundamentalrequirements of the original pronouncement requiring that the purchase methodbe used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains controlof one or more businesses in the business combination, establishes theacquisition date as the date that the acquirer achieves control and requiresthe acquirer to recognize the assets acquired, liabilities assumed and anynoncontrolling interest at their fair values as of the acquisition date.  SFAS 141(R) also requires thatacquisition-related costs be recognized separately from the acquisition.  We will be required to apply the guidance ofSFAS 141(R) to any business combinations completed on or after January 1,2009.

 

InApril 2008, the FASB issued FSP FAS 142-3, *Determinationof the Useful Life of Intangible Assets*.  FSP FAS 142-3 amends the factors that shouldbe considered in developing renewal or extension assumptions used to determinethe useful life of a recognized intangible asset under SFAS No. 142, *Goodwill and Other Intangible Assets*.  FSP FAS 142-3 was effective for us beginning January 1,2009.  The implementation of FSP FAS142-3 did not have an effect on our consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments,*whichamends SFAS No. 107, *Disclosures about FairValue of Financial Instruments,*to require disclosures about fairvalue of financial instruments for interim reporting periods as well as inannual financial statements.  FSP FAS107-1 and APB 28-1 was effective for us beginning in the second quarter 2009and we have included within our consolidated financial statements thedisclosure of fair value of our financial instruments.

 

InMay 2009, the FASB issued SFAS No. 165, *SubsequentEvents* (SFAS 165).  Thisstatement establishes general standards of accounting for and disclosure ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. SFAS 165 is effective for us in the second quarter 2009.  The adoption of SFAS 165 did not have amaterial impact on our consolidated financial statements.

 

5

----

Tableof Contents

 

Note 2 – Inventories

 

Inventories consist of thefollowing:

 
| ** **        | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------|------------|-------------------------|------------|-----------------------------|------------|
| Finished products |       | $                       | 884,048    |                        | $          | 829,861 |   |
| Work-in-process   |       | 1,471,667               |       | 1,633,577                   |       |
| Raw materials     |       | 2,221,440               |       | 2,268,421                   |       |
|              |       | $                       | 4,577,155  |                        | $          | 4,731,859 |   |

 

Note 3 – Net Income PerCommon Share

 

Basic net income per commonshare is computed by dividing net income by the weighted average number ofshares of common stock outstanding during the period.  Diluted net income per common share iscomputed using the treasury stock method to compute the weighted average commonstock outstanding assuming the conversion of potential dilutive common shares.

 

The following table presents a reconciliation of the denominators usedin the computation of net income per common share — basic, and net income percommon share – diluted, for the three- and six-month periods ended June 30, 2009and 2008:

 
| ** **                                                              | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                               | ** ** | **2008**                             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Weighted  shares of common stock outstanding – basic               |       | 5,560,102                              |       | 5,552,869                            |       | 5,575,990 |   | 5,542,651 |   |
| Weighted  shares of common stock assumed upon exercise of stock options |       | 77,751                                 |       | 135,868                              |       | 67,249 |   | 128,311 |   |
| Weighted  shares of common stock outstanding – diluted             |       | 5,637,853                              |       | 5,688,737                            |       | 5,643,239 |   | 5,670,962 |   |

 

For the three- and six-month periods ended June 30, 2009, therewere 391,924 stock options outstanding that were excluded from the abovecomputation because they were anti-dilutive.

 

Note 4 – Goodwill and Intangible Assets

 

Asof June 30,2009 and December 31, 2008, goodwill amounted to $3,261,248 and$3,267,926, respectively.  The slightdecrease was due to foreign currency translation relating to the acquisition ofPaul Lippke Handels-GmbH.  Otheridentifiable intangible assets (all of which are being amortized exceptprojects in process) are as follows:

 
| ** **                  | ** ** | **As of  June 30, 2009** | ** ** |
|-----------------------------|------------|-------------------------------|------------|
| ** **                  | ** ** | **Cost**                      | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Estimated  Useful Lives** | ** ** |
| Patents                     |       | $                             | 941,290    |   | $ | (385,942 | ) | $ | 555,348 |   | 10 to 17 years |   |
| Trademarks and  trade names |       | 468,913                       |       | (389,303 | ) | 79,610 |   | 5 to 17 years |   |
| Other  intangibles          |       | 778,596                       |       | (711,929 | ) | 66,667 |   | 3 years |   |
|                        |       | $                             | 2,188,799  |   | $ | (1,487,174 | ) | $ | 701,625 |   |   |   |

 

6

----

Table of Contents

 
| ** **                 | ** ** | **As of December 31, 2008** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **Cost**                         | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Estimated  Useful Lives** | ** ** |
| Patents                    |       | $                                | 860,422    |   | $ | (365,329 | ) | $ | 495,093 |   | 10 to 17 years |   |
| Trademarks and trade names |       | 465,756                          |       | (381,551 | ) | 84,205 |   | 5 to 17 years |   |
| Other intangibles          |       | 778,596                          |       | (698,596 | ) | 80,000 |   | 3 years |   |
|                       |       | $                                | 2,104,774  |   | $ | (1,445,476 | ) | $ | 659,298 |   |   |   |

 

Totalamortization expense for the three- and six-month periods ended June 30,2009 and 2008 was $21,198 and $28,404, and $41,697 and $56,462,respectively.  Projects in process arenot amortized until the patent or trademark is granted by the regulatoryagency.  Estimated amortization expensefor the remainder of 2009 and each of the four succeeding fiscal years andthereafter based on the intangible assets as of June 30, 2009 is asfollows:

 

| ** **          | ** ** | **Estimated  Expense** | ** ** |
|---------------------|------------|------------------------|------------|
| 2009                |       | $                      | 42,799     |   |
| 2010                |       | $                      | 77,666     |   |
| 2011                |       | $                      | 63,895     |   |
| 2012                |       | $                      | 31,284     |   |
| 2013                |       | $                      | 26,521     |   |
| 2014 and thereafter |       | $                      | 117,804    |   |

 

### Note 5 – Marketable Securities

###  

As of January 1, 2008, the classification ofour marketable debt securities was changed from available-for-sale toheld-to-maturity.  This change was madedue to our current intent and ability to hold these securities until maturityor the call date as the case may be. Currently, all of our marketable securities mature within two and one-halfyears.  Held-to-maturity securities arerecorded at amortized cost, adjusted for the amortization or accretion ofpremiums or discounts.  A decline in themarket value of any held-to-maturity security below the amortized cost basisthat is deemed other than temporary is charged to income, resulting in theestablishment of a new cost basis for the security.  There was no impairment during the first sixmonths of 2009, therefore no adjustment to the amortized cost basis wasmade.  Under the prior method, thesesecurities were recorded at fair value and the unrealized holding gains andlosses were excluded from income and reported as a separate component ofstockholders’ equity until realized.  Forthe debt securities that were outstanding at December 31, 2007, there wasapproximately $25,000 of unrealized gain that was recorded in stockholders’equity, which was amortized over the remaining life of the securities.  This unrealized gain was fully amortized asof March 31, 2009.

 

The amortized cost and fair value forheld-to-maturity securities by major security type at June 30, 2009 wereas follows:

 

| ** **              | ** ** | **June 30, 2009** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **Amortized  Cost**    | ** ** | **Fair  Value** | ** ** |
| Certificates of deposit |       | $                      | 5,710,929  |   | $ | 5,711,000 |   |
| Municipal bonds         |       | 4,225,182              |       | 4,244,130 |   |
|                    |       | $                      | 9,936,111  |   | $ | 9,955,130 |   |

 

7

----

Tableof Contents

 

Note 6 – ComprehensiveIncome

 

Othercomprehensive income pertains to foreign currency translation adjustments thatare not included in net income but rather are recorded directly in stockholders’equity.

 

| ** **                                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                          | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net income                                                          |       | $                                     | 515,519    |                                | $          | 1,051,369 |   | $ | 914,436 |   | $ | 1,936,996 |   |
| Foreign currency translation adjustment                             |       | 429,313                               |       | (1,338                              | )          | (9,998 | ) | 330,355 |   |
| Amortization of cumulative unrealized gain on marketable securities |       | —                                |       | (14,462                             | )          | (2,527 | ) | (14,462 | ) |
| Comprehensive income                                                |       | $                                     | 944,832    |                                | $          | 1,035,569 |   | $ | 901,911 |   | $ | 2,252,889 |   |

 

Note 7 – Note Payable - Bank

 

Duringthe second quarter 2009, we executed a $1,000,000 revolving line of creditagreement with a bank, the proceeds of which are to be used for working capitalpurposes.  The obligation to repay theamounts borrowed are evidenced by an unsecured 90 day promissory note due September 12,2009, with interest calculated at 2.25% above the daily three month LIBORrate.  As of June 30, 2009, the ratewas 2.85%.  There are no restrictivecovenants or compensating balance requirements associated with this line ofcredit.  At June 30, 2009, there was$400,000 outstanding under the line.

 

Note 8 – Warranty

 

We provide a warranty for most of our products.  Warranties are for periods ranging fromninety days to one year, and cover parts and labor for non-maintenance repairs,at our location.  Operator abuse,improper use, alteration, damage resulting from accident, or failure to followmanufacturer’s directions are excluded from warranty coverage.

 

Warranty expense is accrued at the time of sale based on historicalclaims experience.  Warranty reserves arealso accrued for special rework campaigns for known major productmodifications.  We also offer extendedwarranty service contracts for select products when the factory warranty periodexpires.

 

Warranty provisions and claims for the six-month periods ended June 30,2009 and 2008 were as follows:

 

| ** **           | ** ** | **Six Months  Ended  June 30,** | ** ** |
|----------------------|------------|--------------------------------------|------------|
| ** **           | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| Beginning  balance   |       | $                                    | 229,087    |   | $ | 201,373 |   |
| Warranty  provisions |       | 83,732                               |       | 171,957 |   |
| Warranty  claims     |       | (110,125                             | )          | (163,990 | ) |
| Ending balance       |       | $                                    | 202,694    |   | $ | 209,340 |   |

 

Note 9 – Income Taxes

 

MOCON, Inc. or one of our subsidiaries files income tax returns inthe U.S. federal jurisdiction, several state jurisdictions, China andGermany.  With limited exceptions, we areno longer subject to income tax examinations by taxing authorities for taxableyears before 2005.

 

8

----

Table of Contents

 

As of December 31, 2008, the liability for gross unrecognized taxbenefits was $168,000, which included potential benefits of $121,000 that, ifrecognized, would affect the effective tax rate.  During the six months ended June 30,2009, there were no significant changes to the total gross unrecognized taxbenefits.  It is expected that the amountof unrecognized tax benefits for positions which we have identified will notchange significantly in the next twelve months.

 

Note 10 – Stock-Based Compensation

 

As of June 30, 2009, we have reserved 233,400 shares of commonstock for options and other stock-based incentive awards that are stillavailable for grant under our 2006 stock incentive plan, and 846,012 shares foroptions that have been granted under either the 2006 stock incentive plan orthe 1998 stock option plan but have not yet been exercised.  We issue new shares of common stock uponexercise of stock options.  There were no options granted in the first sixmonths of 2009.

 

Amountsrecognized in the consolidated financial statements related to stock-basedcompensation are as follows:

 
| ** **                                           | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                           | ** ** | **2009**                               | ** ** | **2008**                             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Total cost of  stock-based compensation              |       | $                                      | 57,414     |                                 | $          | 76,429 |   | $ | 115,731 |   | $ | 154,068 |   |
| Amount of income  tax benefit recognized in earnings |       | (2,992                                 | )          | (17,626                              | )          | (5,649 | ) | (30,179 | ) |
| Amount charged  against net income                   |       | $                                      | 54,422     |                                 | $          | 58,803 |   | $ | 110,082 |   | $ | 123,889 |   |

 

The fair value of each option grant is estimated on the date of grantusing the Black-Scholes option-pricing model (Black-Scholes).  We use historical data to estimate theexpected price volatility, expected option life and expected forfeiturerate.  We base our estimate of expectedvolatility for awards granted on daily historical trading data of our commonstock for a period equivalent to the expected term of the award.  The risk-free interest rate is based on theU.S. Treasury yield curve in effect at the time of grant for the estimated lifeof the option.  We estimate the expectedterm consistent with historical exercise and cancellation activity of ourprevious share-based grants with a ten-year contractual term.  Forfeitures are based on historicalexperience.  The dividend yield iscalculated based upon the dividend payments made during the prior four quartersas a percent of the average stock price for that period.

 

A summary of the optionactivity for the first six months of 2009 is as follows:

 

| ** **                            | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise  Price per  Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|-----------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at December 31, 2008 |       | 848,562               |       | $                                                 | 8.81       |                                                | 4.9        |                            | $          | 567,879 |   |
| Options granted                       |       | —                |       | —                                            |       | —                                              |       |                            |       |
| Options cancelled/expired             |       | (1,550                | )          | $                                                 | 10.53      |                                                | —     |                            |       |   |
| Options exercised                     |       | (1,000                | )          | $                                                 | 7.69       |                                                | —     |                            |       |   |
| Outstanding at June 30,  2009    |       | 846,012               |       | $                                                 | 8.81       |                                                | 4.4        |                            | $          | 610,127 |   |
|                                  |       |                  |       |                                              |       |                                                |       |                            |       |
| Exercisable at June 30, 2009     |       | 700,843               |       | $                                                 | 8.60       |                                                | 4.0        |                            | $          | 603,064 |   |

 

The total intrinsic value of options exercised was $985 and $104,553during the three-month periods ended June 30, 2009 and 2008, respectively,and $985 and $141,788 during the first six months of 2009 and 2008,respectively.

 

9

----

Tableof Contents

 

A summary of the status ofour unvested option shares as of June 30, 2009 is as follows:

 

| ** **                         | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------------------------------|------------|
| Unvested at December 31, 2008 |       | 163,469               |       | $                                             | 2.47       |   |
| Options granted                    |       | —                |       | —                                        |       |
| Options cancelled                  |       | (1,550                | )          | $                                             | 2.66       |   |
| Options vested                     |       | (16,750               | )          | $                                             | 2.40       |   |
| Unvested at June 30, 2009     |       | 145,169               |       | $                                             | 2.48       |   |

 

As of June 30, 2009, there was $359,456 of total unrecognizedcompensation cost related to unvested stock-based compensation granted underour plans.  That cost is expected to berecognized over a weighted-average period of 1.2 years.  The total fair value of option shares vestedduring the three-month periods ended June 30, 2009 and 2008 was $20,100and $26,884, respectively, and $40,200 and $53,768 during the six-month periodsended June 30, 2009 and 2008, respectively.

 

Note 11 – Subsequent Event

 

In August 2009, we repurchased 240,000 shares of our outstandingcommon stock for a total purchase price of $1,992,000, or $8.30 per share.  This purchase entailed the use of funds whichhad been authorized by the Board of Directors in June 2009.

 

Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations

 

ThisManagement’s Discussion and Analysis provides material historical andprospective disclosures intended to enable investors and other users to assessour financial condition and results of operations.  Statements that are not historical areforward-looking and involve risks and uncertainties discussed below under thecaption “Forward-Looking Statements.” The following discussion of the results of operations and financialcondition of MOCON should be read in conjunction with our consolidatedfinancial statements and the related notes thereto included elsewhere in thisreport.

 

### ***Overview***

### ** **

MOCON, Inc. designs, manufactures, markets andservices products and provides consulting services primarily in the measurementand analytical instrument and services markets. Our products include instruments that detect, measure and monitor gasesand chemical compounds.  We continuallyseek growth opportunities through technological and product improvement, byacquiring and developing new products, and by acquiring new companies.

 

We have three primary operating locations in theUnited States — Minnesota, Colorado and Texas — and foreign offices in Germanyand China.  We use a direct sales forceand independent sales representatives to market our products and services inthe United States, Canada, Germany and China and use a network of independentsales representatives to market and service our products and services in otherforeign countries.

 

Historically, a significant portion of our revenueshave come from international customers. In this regard, we acquired our subsidiary in Germany in 2004 tosolidify our presence and opportunities in Europe.  Similarly, we opened our office in Shanghai,China in 2007 to better serve our Asian customers.

 

Our current plans for growth include continuedfunding for research and development to foster new

 

10

----

Tableof Contents

 

product development together with strategicacquisitions where appropriate.

 

### ***Results of Operations***

### ** **

The following table setsforth the relationship between various components of our results of operations,stated as a percent of sales, for the three- and six-month periods ended June 30,2009 and 2008:

 

| ** **                                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------|------------|---------------------------------------|------------|------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                              | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Sales                                        |       | 100.0                                 |       | 100.0                                    |       | 100.0 |   | 100.0 |   |
| Cost of sales                                |       | 43.5                                  |       | 40.4                                     |       | 42.7 |   | 41.3 |   |
| Gross profit                                 |       | 56.5                                  |       | 59.6                                     |       | 57.3 |   | 58.7 |   |
| Selling, general and administrative expenses |       | 38.8                                  |       | 33.1                                     |       | 40.3 |   | 33.8 |   |
| Research and development expenses            |       | 7.2                                   |       | 6.5                                      |       | 7.7 |   | 6.9 |   |
| Operating income                             |       | 10.5                                  |       | 20.0                                     |       | 9.3 |   | 18.0 |   |
| Other income                                 |       | 1.8                                   |       | 2.1                                      |       | 1.9 |   | 1.9 |   |
| Income before income taxes                   |       | 12.3                                  |       | 22.1                                     |       | 11.2 |   | 19.9 |   |
| Income taxes                                 |       | 4.3                                   |       | 7.9                                      |       | 3.9 |   | 6.8 |   |
| Net income                                   |       | 8.0                                   |       | 14.2                                     |       | 7.3 |   | 13.1 |   |

###  

### *Comparison of Financial Results for the Three- andSix-Month Periods Ended June 30, 2009 and 2008*

### * *

### *Sales*

###  

Sales for the three-month period ended June 30,2009 were $6,421,000, down 13% compared to $7,379,000for the same period in 2008.  The effectsof the global economic recession contributed to a decrease in sales across mostmajor product lines and market regions. On a geographical basis, sales decreased 20% and 7% in our domestic andforeign markets, respectively.  Domesticand foreign sales accounted for 43% and 57%, respectively, of our consolidatedsecond quarter sales in 2009, and 47% and 53% of our consolidated sales,respectively, for the same period in 2008.

 

Sales for the six-month period ended June 30,2009 were $12,593,000, down 15% compared to $14,841,000for the same period in 2008.  Sales inthe prior period benefited from a weaker U.S. dollar which made our productsand services more attractive in the European market.  On a geographical basis, sales decreased 19%and 12% in our domestic and foreign markets, respectively.  Domestic and foreign sales accounted for 45%and 55%, respectively, of our consolidated sales for the first six months of2009, and 47% and 53% for the same period in 2008.

 

The following table summarizes total sales by product line for thethree- and six-month periods ended June 30, 2009 and 2008:

 

| ** **                                                | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2009**                               | ** ** | **2008**                             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Permeation  products and services                         |       | $                                      | 3,619,027  |                                 | $          | 4,302,125 |   | $ | 7,211,652 |   | $ | 8,236,178 |   |
| Gas,  headspace, and other analyzer products and services |       | 2,381,052                              |       | 2,751,485                            |       | 4,747,048 |   | 5,780,563 |   |
| Other  instruments and services                           |       | 421,257                                |       | 325,112                              |       | 634,395 |   | 824,415 |   |
|                                                      |       | $                                      | 6,421,336  |                                 | $          | 7,378,722 |   | $ | 12,593,095 |   | $ | 14,841,156 |   |

 

11

----

Tableof Contents

 

The following table sets forth the relationshipbetween various components of domestic and foreign sales for the three- andsix-month periods ended June 30, 2009 and 2008:

 

| ** **           | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|----------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **           | ** ** | **2009**                               | ** ** | **2008**                             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Domestic sales       |       | $                                      | 2,773,904  |                                 | $          | 3,456,007 |   | $ | 5,663,336 |   | $ | 6,948,938 |   |
| Foreign sales:       |       |                                   |       |                                 |       |   |   |   |   |
| Europe               |       | 1,769,388                              |       | 1,790,772                            |       | 3,363,147 |   | 3,773,673 |   |
| Asia                 |       | 1,371,598                              |       | 1,491,505                            |       | 2,543,181 |   | 2,924,700 |   |
| Other                |       | 506,446                                |       | 640,438                              |       | 1,023,431 |   | 1,193,845 |   |
| Total foreign  sales |       | 3,647,432                              |       | 3,922,715                            |       | 6,929,759 |   | 7,892,218 |   |
|                 |       | $                                      | 6,421,336  |                                 | $          | 7,378,722 |   | $ | 12,593,095 |   | $ | 14,841,156 |   |

 

***Permeation Products and Services*** —Sales of our permeation products and services, which accounted for 56% and 58%of our consolidated second quarter sales in 2009 and 2008, respectively,decreased 16% during the second quarter 2009 compared to the same period in2008.  This decrease, in both ourdomestic and foreign markets, was due primarily to decreased demand for our corepermeation instruments, as orders for capital equipment have weakened.  International sales of permeation productsand services accounted for 68% of the total sales of this product group in thesecond quarter 2009.

 

Sales of our permeation products and services, whichaccounted for approximately 57% and 55% of our consolidated sales during thefirst six months in 2009 and 2008, respectively, decreased 12% during the firstsix months of 2009 compared to the same period in 2008.  The decrease was evident in both our domesticand foreign markets.

 

***Gas, Headspace, and Other Analyzer Products andServices*****— Sales of ourgas, headspace, and other analyzer products and services, which accounted for37% of our consolidated second quarter sales in both 2009 and 2008, decreased13% during the second quarter 2009 compared to the same period in 2008.  Within this group, sales of our packagingproducts, which includes headspace analyzers and leak detection equipment,increased 27% during the second quarter 2009 compared to the same period in2008 primarily due to continued growth of the PAC CHECK® series of headspace analyzers including thenew Model 450 EC benchtop unit, and the Lippke® Model 4500 package test system.  However, sales of our gas analyzer productsthrough our Baseline subsidiary decreased 36% due primarily to reduced demandfor gas chromatograph instruments and piD-TECH® sensors. Sales of our total hydrocarbon analyzer instruments were consistentbetween periods.

 

Sales of our gas, headspace, and other analyzerproducts and services, which accounted for 38% and 39% of our consolidatedsales during the first six months in 2009 and 2008, respectively, decreased 18%during the first six months of 2009 compared to the same period in 2008.  Within this group, sales of our packagingproducts, which includes headspace analyzers and leak detection equipment,increased 4% during the first six months of 2009 compared to the same period in2008.  However, sales of our gas analyzerproducts through our Baseline subsidiary decreased 26% due primarily to reduceddemand for gas chromatograph and total hydrocarbon analyzer instruments, aswell as piD-TECH sensors, partially offset by an increase in sales of detectorsto the OEM market.

 

***Other Instruments and Services*****— Sales in our other instruments and servicescategory, which accounted for 7% and 5% of our consolidated second quartersales in 2009 and 2008, respectively, increased 30% in the second quarter 2009,compared to the same period in 2008. This increase was due primarily to increased demand for our aroma andoff-odor compound analysis instruments and an increase in contractmanufacturing of sample preparation products.

 

12

----

Tableof Contents

 

Sales in our other instruments and servicescategory, which accounted for 5% and 6% of our consolidated sales during thefirst six months in 2009 and 2008, respectively, decreased 23% during the firstsix months of 2009, compared to the same period in 2008.  This decrease was due primarily to areduction in contract manufacturing of sample preparation products and reducedsales of non-MOCON products by our German subsidiary.

 

### *Gross Profit*

###  

The gross profit margins for our product sales were57.2% and 60.5% for the three-month periods ended June 30, 2009 and 2008,respectively.  This decrease wasprimarily due to the lower percentage of permeation equipment sold, whichgenerally carries a higher gross margin, as well as the lower volume over whichto allocate fixed costs.  The grossprofit margins for our consulting services were 48.4% and 46.4%, respectively,for the three-month periods ended June 30, 2009 and 2008.  This increase was primarily due to the increasein sales and also the varying margins between consulting service projects.

 

For the six months ended June 30, 2009 and2008, the gross profit margins for our products were 58.4% and 59.7%,respectively.  This decrease wasprimarily due to sales mix as sales of higher margin permeation equipment werelower in the current period, as well as the lower volume over which to allocatefixed costs.  For the six months ended June 30,2009 and 2008, the gross profit margins for our consulting services were consistentat 41.8% and 41.3%, respectively.

 

*Selling, General andAdministrative Expenses*

 

Selling, general and administrative (SG&A)expenses were $2,491,000 in the three-month period ended June 30, 2009,consistent with $2,441,000 in the same period of 2008.  As a percentage, SG&A expenses were 38.8%and 33.1% of consolidated sales in the second quarters of 2009 and 2008,respectively, due to the lower sales level in 2009.  Higher wages and benefits and increasedmarketing expenses were offset by lower professional fees and stock optionexpense in the second quarter 2009 compared to the same period in 2008.

 

SG&A expenses were $5,072,000 in the six-monthperiod ended June 30, 2009, consistent with $5,024,000 in the same periodof 2008.  As a percentage, SG&Aexpenses were 40.3% and 33.8% of consolidated sales in the first six months of2009 and 2008, respectively, due to the lower sales level in 2009.  Higher wages and benefits and increasedmarketing expenses were offset by lower incentive compensation, stock optionexpense and professional fees in the first six months of 2009 compared to thesame period in the prior year.

 

### *Research and Development Expenses*

###  

Research and development (R&D) expenses were$462,000, or 7.2% of sales in the second quarter 2009, compared to $483,000, or6.5% of sales, in the same period of 2008. R&D expenses were $970,000, or 7.7% of sales in the first six monthsof 2009, compared to $1,027,000, or 6.9% of sales, in the same period of 2008.  Our intent is to spend between 6% and 8% ofconsolidated sales on R&D on an on-going basis.

 

13

----

### Table of Contents

 

### *Other Income*

###  

Other income for the three-and six-month periods ended June 30, 2009 and 2008 was as follows:

 

| ** **                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                     | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Interest income                |       | $                                     | 103,154    |                                | $          | 141,169 |   | $ | 220,916 |   | $ | 280,278 |   |
| Foreign currency exchange gain |       | 12,611                                |       | 12,378                              |       | 4,593 |   | 5,793 |   |
| Other                          |       | 3,507                                 |       | 3,374                               |       | 3,070 |   | 2,543 |   |
|                           |       | $                                     | 119,272    |                                | $          | 156,921 |   | $ | 228,579 |   | $ | 288,614 |   |

 

Interest income decreased for both the secondquarter and six months ended June 30, 2009, compared to the same periodsin 2008, due to lower average yields on lower average interest bearinginvestments.

 

### *Income Tax Expense*

###  

Our provision for income taxes was 35.0% of incomebefore income taxes for the second quarter ended June 30, 2009, comparedto 35.6% of income before income taxes for the second quarter ended June 30,2008.  This decrease in the effective taxrate in the second quarter 2009 was primarily due to a one-time charge thatoccurred in the second quarter 2008.

 

For the six months ended June 30, 2009, ourprovision for income taxes was 34.9% of income before income taxes compared to34.2% of income before income taxes for the similar period in the prioryear.  The higher rate in the currentyear was primarily due to the impact of permanent items applied to a lower incomebase.

 

### Based on current projected annual operating resultsand current income tax rates, we expect the effective tax rate for theremainder of 2009 to be in the range of 33% to 36%.  This rate fluctuates over time based on theincome tax rates in the various jurisdictions in which we operate, and also thelevel of profits in those jurisdictions.

### * *

### *Net Income*

###  

Net income was $516,000 in the second quarter 2009,compared to $1,051,000 in the first quarter 2008.  Diluted net income per share was $0.09 and$0.18 in the second quarters of 2009 and 2008, respectively.  For the six months ended June 30, 2009,net income was $914,000, or $0.16 per diluted share, compared to net income of$1,937,000, or $0.34 per diluted share in the prior year.

 

*Liquidity and Capital Resources*

 

We have historically financed our operations,capital expenditures and other liquidity needs through our cash flows generatedfrom operations.  During the secondquarter 2009, we initiated a $1,000,000 revolving line of credit to supplement currentworking capital requirements. Total cash, cash equivalents and marketablesecurities decreased $2,173,000 during the first six months of 2009 to$13,936,000 as of June 30, 2009, compared to $16,109,000 at December 31,2008.  The primary reason for thisdecrease was due to the repurchase of 181,171 shares of our common stock for anaggregate of $1,590,000.  Our workingcapital as of June 30, 2009 increased $655,000 to $18,548,000, as comparedto $17,893,000 at December 31, 2008. We invest our excess cash in marketable securities consisting primarilyof municipal bonds, certificates of deposits and U.S. treasuryobligations.  We believe that acombination of our existing cash, cash equivalents and marketable securities,revolving credit line and cash flow from operations will continue to beadequate to fund our operations, capital expenditures, dividend payments 

 

14

----

Tableof Contents

 

and authorized stock repurchases for at least thenext twelve months.  Purchases ofproperty and equipment were relatively constant between the first six months of2009 and 2008, and we had no material commitments for capital expenditures asof June 30, 2009.

 

One of our strategic objectives is, as market andbusiness conditions warrant, to consider acquisitions of businesses, productsor technologies.  We may need to fundsuch activities, should they arise, with a combination of cash on hand and debtand/or equity financing, although no assurance can be given that such debtand/or equity financing will be available at reasonable terms or at all.  If we raise additional funds by issuing debt,we may be subject to restrictive covenants that could limit our operationalflexibility and higher interest expense could dilute earnings per share.  Any plan to raise additional capital mayinvolve an equity-based or equity-linked financing, which may be dilutive toexisting shareholders.

 

*Cash Flow*

 

Cash Flow from Operating Activities

 

Our primary source of funds is cash provided byoperating activities which totaled $307,000 and $1,924,000 in the first sixmonths of 2009 and 2008, respectively. The key components of the cash provided by operating activities in 2009were the income for the period and reduced inventories and accountsreceivable.  These increases werepartially offset by a reduction of accounts payable, a reduction in accruedcompensation and vacation, which was primarily due to the March 2009payment of incentive bonuses related to 2008, and an increase in prepaid incometaxes.

 

### Cash Flow from Investing Activities

###  

Cash provided by (used in) investing activitiestotaled $1,360,000 and ($1,467,000) in the first six months of 2009 and 2008,respectively.  The primary reasons forcash provided by investing activities in 2009 were net proceeds from maturitiesof marketable securities of $1,617,000, offset somewhat by purchases ofproperty and equipment.  We presently donot believe that any significant property, plant and equipment expenditures arerequired to accommodate our current level of operations.

 

Cash Flow from FinancingActivities

 

Cash used in financingactivities totaled $2,189,000 and $478,000 in the first six months of 2009 and2008, respectively.  During the first sixmonths of 2009 and 2008, we made dividend payments to our shareholders of$1,006,000 and $886,000, respectively.  During the second quarter of 2009, weborrowed $1,000,000 under our revolving line of credit and repaid $600,000before June 30, 2009.  Also, duringthe second quarter 2009, we repurchased $1,590,000 of our outstanding commonstock.  Partially offsetting the impactof the dividend payments in 2008 were the proceeds from the exercise of stockoptions in the amount of $385,000.

 

In June 2009, our Board of Directorsauthorized, depending upon market conditions and other factors, the repurchaseof up to a total of $2,000,000 of our common stock.  As of June 30, 2009, the full amount ofthis authorization remained in place. During the first six months of 2009 we repurchased 181,171 shares at atotal cost of $1,590,000 which completely utilized the prior authorization.

 

***ContractualObligations***

** **

We refer you to our Annual Report on Form 10-Kfor the year ended December 31, 2008 for a summary of our contractual obligations.  There has been no material change in thisinformation.

 

### ***Off-Balance Sheet Arrangements***

### ** **

Exceptfor operating leases entered into in the ordinary course of business andcustomary 

 

15

----

Table of Contents

 

indemnificationobligations under certain of our agreements entered into in the ordinary courseof business, we do not have any material off-balance sheet arrangements.

 

***Recently Issued AccountingPronouncements***

*** ***

InJune 2009,  the FASB issued SFAS No. 167,*Amendments to FASB Interpretation No. 46(R) *(SFAS167).  SFAS 167 amends certainrequirements of FASB Interpretation No.46 (revised December 2003), *Consolidation of Variable Interest Entities*, to improvefinancial reporting by enterprises involved with variable interest entities andto provide more relevant and reliable information to users of financialstatements.  SFAS 167 becomes effectivefor us in 2010.  We do not expect theadoption of SFAS 167 to have a material effect on our consolidated financialstatements.

 

InJune 2009, the FASB issued SFAS No. 168, *The FASBAccounting Standards CodificationTM and the Hierarchy of Generally AcceptedAccounting Principles* (SFAS 168). SFAS 168 replaces SFAS No. 162 and establishes the *FASB Accounting Standards Codification* (Codification) as thesource of authoritative accounting principles recognized by the FASB to beapplied by nongovernmental entities in the preparation of financial statementsin conformity with GAAP.  Rules andinterpretive releases of the Securities and Exchange Commission (SEC) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants.  All guidance containedin the Codification carries an equal level of authority.  SFAS 168 becomes effective for us in thethird quarter of 2009.  We do not expectthat the adoption of SFAS 168 will have a material effect on our consolidatedfinancial statements.

 

***CriticalAccounting Policies***

*** ***

Our significant accounting policies are described inNote 1 to our consolidated financial statements.  This Management’s Discussion and Analysis ofFinancial Condition and Results of Operations is based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America.  The preparation of these consolidatedfinancial statements requires management to make estimates and judgments thataffect the reported amount of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  The Securities and Exchange Commission hasdefined a company’s most critical accounting policies as those that are mostimportant to the portrayal of its financial condition and results ofoperations, and which require the company to make its most difficult andsubjective judgments, often as a result of the need to make estimates ofmatters that are inherently uncertain. Based on this definition, we have identified the following criticalaccounting policies.  Although we believethat our estimates and assumptions are reasonable, they are based uponinformation available when they are made. Actual results may differ significantly from these estimates underdifferent assumptions or conditions.

 

*Revenuerecognition* — We recognize revenue when it is realized orrealizable and earned.  In accordancewith the Securities and Exchange Commission Staff Accounting Bulletin 104 (SAB104), *Revenue Recognition,*weconsider revenue realized or realizable when persuasive evidence of anarrangement exists, the product has been shipped or the services have beenprovided to the customer, title and risk of loss of products has passed to thecustomer, the sales price is fixed or determinable, and collectibility isreasonably assured.  Our terms are F.O.B.shipping point with no right of return, and customer acceptance of our productsis not required.  The revenue recognitionpolicy does not differ among the various product lines, the marketing venues,or various geographic destinations.  Wedo not have distributors who stock our equipment.  We do not offer rebates, price protection, orother similar incentives, and discounts when offered are recorded as areduction in revenue.

 

Revenue for preventivemaintenance agreements is recognized on a per visit basis and extendedwarranties on a straight-line basis over the life of the contracts, inaccordance with FASB Technical Bulletin 90-1, *Accountingfor Separately Priced Extended Warranty and Product Maintenance Contracts*.

 

16

----

Table of Contents

 

Emerging Issues Task Force(EITF) Issue 00-21, *Revenue Arrangements withMultiple Deliverables*, provides revenue recognition guidance forarrangements with multiple deliverables, and the criteria to determine if itemsin a multiple deliverable agreement should be accounted for separately.  If products or services are sold on astandalone basis, revenue is recognized as the products or services aredelivered.  When products or services aresold as part of a multiple element arrangement, we allocate revenue on arelative fair value basis.

 

*Allowance for doubtful accounts and sales returns* —Our allowance for doubtful accounts and sales returns is for accountsreceivable balances that are estimated to be uncollectible as well asanticipated sales returns.  The reserveis based on a number of factors, including: (1) an analysis of customer accounts and (2) our historicalexperience with accounts receivable write-offs and sales returns.  The analysis includes the age of thereceivable, the financial condition of a customer or industry and generaleconomic conditions.  We believe ourfinancial results could be materially different if historical trends do notreflect actual results or if economic conditions worsened for ourcustomers.  In the event we determinedthat a smaller or larger allowance for doubtful accounts is appropriate, wewould record a credit or charge to selling, general and administrative expensein the period that we made such a determination.  As of June 30,2009, we had $180,000 reserved against our accounts receivable for doubtfulaccounts and sales returns.

 

*Accrual for excess and obsolete inventories*—**We perform an analysis to identify excessand obsolete inventory.  We record acharge to cost of sales for amounts identified. Our analysis includes inventory levels, the nature of the finishedproduct and its inherent risk of obsolescence and the on-hand quantitiesrelative to the sales history of that finished product.  We believe that our financial results couldbe materially different if historical trends do not reflect actual results orif demand for our products decreased because of economic or competitiveconditions or otherwise.  As of June 30, 2009,we had $308,000 accrued for excess and obsolete inventories.

 

*Recoverability of long-lived assets*—**We assess the recoverability of goodwilland other long-lived assets annually or whenever events or changes incircumstances indicate that expected future undiscounted cash flows might notbe sufficient to support the carrying amount of an asset.  We deem an asset to be impaired if a forecastof undiscounted future operating cash flows is less than an asset’s carryingamount.  If an asset is determined to beimpaired, the loss is measured as the amount by which the carrying value of theasset exceeds its fair value.  Changes inour business strategies, changes in the economic environment in which weoperate, competitive conditions, and other factors could result in futureimpairment charges.

 

*Accrued product warranties*—**Our products are generally covered by awarranty, with warranty periods ranging from ninety days to one year from thedate of sale.  Estimated warranty costsare accrued in the same period in which the related revenue is recognized,based on anticipated parts and labor costs, utilizing historicalexperience.  Additional warranty reservesare also accrued for major rework campaigns. We periodically assess the adequacy of our warranty reserves based onchanges in these factors and record any necessary adjustments if actual claimexperience indicates that adjustments are necessary.  Although we believe the likelihood to berelatively low, warranty claims experience could be materially different fromactual results due to manufacturing changes that could impact product quality,a change in our warranty policy in response to industry trends, as yetunrecognized defects in products sold, or other factors.  As of June 30,2009, we had $203,000 accrued for future estimated warranty claims.

 

*Income taxes*—**In the preparation of our consolidatedfinancial statements, management is required to estimate income taxes in eachof the jurisdictions in which we operate. This process involves estimating actual current tax exposures togetherwith assessing temporary differences resulting from differing treatment ofitems for tax and accounting purposes. These differences result in deferred tax assets and liabilities, whichare included in our Consolidated Balance Sheets.

 

17

----

Tableof Contents

 

Management reviews the deferred tax assets forrecoverability on a quarterly basis and assesses the need for valuationallowances.  These deferred tax assetsare evaluated by considering historical levels of income, estimates of futuretaxable income streams and the impact of tax planning strategies.  A valuation allowance is recorded to reducedeferred tax assets when it is determined that it is more likely than not thatwe would not be able to realize all or part of our deferred tax assets.  At June 30,2009 and December 31, 2008, we provided a valuation allowance in theapproximate amount of $370,000 and $364,000, respectively, against our netdeferred tax assets, related primarily to the long-term capital losscarryforward.

 

### ***Forward-LookingStatements***

### ** **

Thisquarterly report on Form 10-Q contains or incorporates by reference notonly historical information, but also forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended, and are subject to the safeharbor created by those sections.  Inaddition, we or others on our behalf may make forward-looking statements fromtime to time in oral presentations, including telephone conferences and/or webcasts open to the public, in press releases or reports, on our website orotherwise.  All statements other thanstatements of historical facts included in this report that address activities,events or developments that we expect, believe or anticipate will or may occurin the future are forward-looking statements including, in particular, thestatements about our plans, objectives, strategies and prospects regarding,among other things, our financial condition, results of operations andbusiness.  We have identified some ofthese forward-looking statements with words like “believe,” “may,” “could,” “might,”“forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,”“plan,” “predict,” “anticipate,” “estimate,” “approximate” or “continue” andother words and terms of similar meaning. These forward-looking statements may be contained in the notes to ourconsolidated financial statements and elsewhere in this report, including underthe heading “Management’s Discussion and Analysis of Financial Condition andResults of Operations.”

 

Forward-lookingstatements involve risks and uncertainties. These uncertainties include factors that affect all businesses as wellas matters specific to us.  Some of thefactors known to us that could cause our actual results to differ materiallyfrom what we have anticipated in our forward-looking statements are describedbelow.

 

·                  Increases in prices for rawmaterials;

·                  Risks inherent in operatinginternationally and selling and shipping our products and purchasing ourproducts and components internationally;

·                  Fluctuations in foreigncurrency exchange rates and interest rates;

·                  Failure to develop newproducts and technologies, delays in new product introduction and lack ofmarket acceptance of new products;

·                  Failure to effect strategicacquisitions and integrate effectively newly acquired operations;

·                  Incurrence of additional debt,contingent liabilities and expenses in connection with future acquisitions;

·                  The effects of the globaleconomic downturn and continuing decreases in capital spending by our customersthat may occur as a result;

·                  Exposure to assertions ofintellectual property claims and failure to protect our intellectual property;

·                  Disruption in our ability tomanufacture our products or the ability of our key suppliers to provide usproducts or components or raw materials for products resulting in our inabilityto supply market demand for our products;

·                  Reliance on independentsales distributors and sales associates to market and sell our products;

·                  Highly competitive nature ofthe markets in which we sell our products and the introduction of competingproducts;

 

18

----

Tableof Contents

 

·                  Loss of customers;

·                  Failure to retain seniormanagement or replace lost senior management;

·                  Employee slowdowns, strikesor similar actions;

·                  Reliance on our managementinformation systems for inventory management, distribution, accounting andother functions;

·                  Effects of any pending orthreatened litigation;

·                  Failure to comply withapplicable laws and regulations and adverse changes in applicable laws or regulations;

·                  Changes in generallyaccepted accounting principles; or

·                  Conditions and changes ingeneral economic and business conditions.

 

Formore information regarding these and other uncertainties and factors that couldcause our actual results to differ materially from what we have anticipated inour forward-looking statements or could otherwise materially adversely affectour business, financial condition or operating results, see our annual reporton Form 10-K for the fiscal year ended December 31, 2008 under theheading “Part I — Item 1A.  RiskFactors” on pages 8 through 12 of such report.

 

Wewish to caution readers not to place undue reliance on any forward-lookingstatement that speaks only as of the date made and to recognize thatforward-looking statements are predictions of future results, which may notoccur as anticipated.  Actual resultscould differ materially from those anticipated in the forward-lookingstatements and from historical results, due to the risks and uncertaintiesdescribed above, as well as others that we may consider immaterial or do notanticipate at this time. Although we believe that the expectations reflected inour forward-looking statements are reasonable, we do not know whether ourexpectations will prove correct.  Theexpectations reflected in our forward-looking statements can be affected byinaccurate assumptions we might make or by known or unknown risks anduncertainties, including those described above. The risks and uncertainties described above are not exclusive andfurther information concerning us and our business, including factors thatpotentially could materially affect our financial results or condition, mayemerge from time to time.  We assume noobligation to update forward-looking statements to reflect actual results orchanges in factors or assumptions affecting such forward-lookingstatements.  We advise you, however, toconsult any further disclosures we make on related subjects in our quarterlyreports on Form 10-Q and current reports on Form 8-K we file with orfurnish to the Securities and Exchange Commission.

 

Item 3.                                             Quantitativeand Qualitative Disclosures About Market Risk

 

*EquityPrice and Interest Rate Risk*

 

Allof our marketable securities, the majority of which are insured by the FDIC,are at fixed interest rates and mature within two and one-half years;therefore, we believe that the market risk arising from the holding of thesefinancial instruments is minimal.

 

### *Foreign Currency Risk*

###  

Historically,in excess of 50% of our consolidated sales have been to internationaldestinations.  Since we invoice most ofthese customers in U.S. dollars, we do not have significant exposure to foreigncurrency transaction risk.  We invoice asmall amount to our international customers in their local currency whichexposes us to some transaction gain or loss when converting their payments intoU.S. dollars.  We also pay a small numberof our international suppliers in their local currency which exposes us totransaction gain or loss.  However, thesehave not resulted in material amounts in the past.  Our foreign operations expose us to foreigncurrency exchange risk when the euro and yuan currency results of operationsare translated to U.S. dollars.  While wehistorically have not experienced any material foreign currency translationlosses, we may engage in hedging activity in the future to minimize thisrisk.  

 

19

----

Table of Contents

 

Ournet investment in foreign subsidiary translated into U.S. dollars is nothedged.  Any changes in foreign currencyexchange rates would be reflected as a foreign currency translation adjustment,a component of accumulated other comprehensive income in stockholders’ equity,and would not impact our net income.

 

Item 4T.            Controlsand Procedures

 

*Evaluationof Disclosure Controls and Procedures*

 

Wemaintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) that are designed to ensure that information required to bedisclosed by us in the reports we file or submit under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized, and reported,within the time periods specified in the Securities and Exchange Commission’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, werecognize that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and we necessarily are required to apply our judgment inevaluating the cost-benefit relationship of possible controls andprocedures.  Our management evaluated,with the participation of our Chief Executive Officer and Chief FinancialOfficer, the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered in this QuarterlyReport on Form 10-Q.  Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of the end ofsuch period, to provide reasonable assurance that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms,and that material information relating to our Company and our consolidatedsubsidiaries is made known to management, including our Chief Executive Officerand Chief Financial Officer, particularly during the period when our periodicreports are being prepared.

 

*Changes in Internal Control OverFinancial Reporting*

 

Therewas no change in our internal control over financial reporting that occurredduring our quarter ended June 30,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

PART II.       OTHER INFORMATION

 

Item 1A.            Risk Factors

 

We are affected by risksspecific to us as well as factors that affect all businesses operating in aglobal market.  The significant factorsknown to us that could materially adversely affect our business, financialcondition or operating results are described in our annual report on Form 10-Kfor the fiscal year ended December 31, 2008 under the heading “Part I— Item 1A. Risk Factors.”  There has beenno material change in those risk factors.

 

20

----

Tableof Contents

 

Item 2.                                     UnregisteredSales of Equity Securities, Use of Proceeds and Issuer Purchases of EquitySecurities

 

*Unregistered Sales of Equity Securities*

 

We did not sell any equitysecurities of MOCON, Inc. during the second quarter ended June 30, 2009that were not registered under the Securities Act of 1933.

 

*Issuer Repurchases of Equity Securities*

 

The following table shows our stock repurchase activity during thesecond quarter ended June 30, 2009:

 
| **Period**                                     | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid Per  Share** | ** ** | **Total Number  of Shares  Purchased as  Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Maximum  Amount of  Authorization  Remaining  Under the  Plan** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| April 1, 2009 through April 30, 2009 |       | —                                  |       | —                              |       | —                                                                                           |       | —                                                            |       |
| May 1, 2009 through May 31, 2009     |       | 1,296                                   | (1)        | $                                   | 8.72       |                                                                                             | 1,296      |                                                              | $          | 1,548,000 |   |
| June 1, 2009 through June 30, 2009   |       | 177,255                                 | (1)        | $                                   | 8.75       |                                                                                             | 177,255    |                                                              | $          | 2,000,000 |   |

 

----

(1)   The 178,551 shares repurchased during theperiods indicated above exhausted the amount remaining in the November 9,2005 authorization by our Board of Directors. After these repurchases were made, on June 23, 2009, our Board ofDirectors authorized the repurchase of up to an additional $2,000,000 of ourcommon stock.  This program has noexpiration date, but may be suspended or discontinued at any time by our Boardof Directors.  There was $2,000,000remaining in this authorization as of June 30, 2009.

 

Except as set forth in thetable above, we did not purchase any shares of our common stock or other equitysecurities registered pursuant to Section 12 of the Securities ExchangeAct of 1934, as amended, during the second quarter ended June 30, 2009.

 

Item 4.                                     Submissionof Matters to a Vote of Security Holders

 

(a)   Our Annual Meeting of Shareholders was heldon May 19, 2009.

 

(b)   The results of the shareholder votes were asfollows:

 

21

----

Table ofContents

 
| ** **                                                             | ** ** | **For**   | ** ** | **Against/Withhold** | ** ** | **Abstain** | ** ** | **Broker  Non-Votes** | ** ** |
|------------------------------------------------------------------------|------------|-----------|------------|----------------------|------------|-------------|------------|-----------------------|------------|
| 1. Election of Directors                                          |       |      |       |                 |       |        |       |                  |       |
| Robert L. Demorest                                                     |       | 5,077,443 |       | 29,148               |       | —      |       | —                |       |
| Dean B. Chenoweth                                                      |       | 5,065,851 |       | 40,740               |       | —      |       | —                |       |
| Donald N. DeMorett                                                     |       | 5,081,462 |       | 25,129               |       | —      |       | —                |       |
| J. Leonard Frame                                                       |       | 5,053,411 |       | 53,180               |       | —      |       | —                |       |
| Robert F. Gallagher                                                    |       | 4,989,813 |       | 116,778              |       | —      |       | —                |       |
| Daniel W. Mayer                                                        |       | 5,081,163 |       | 25,428               |       | —      |       | —                |       |
| Ronald A. Meyer                                                        |       | 5,080,282 |       | 26,309               |       | —      |       | —                |       |
| Richard A. Proulx                                                      |       | 5,070,271 |       | 36,320               |       | —      |       | —                |       |
| Tom C. Thomas                                                          |       | 4,866,873 |       | 239,718              |       | —      |       | —                |       |
|                                                                   |       |      |       |                 |       |        |       |                  |       |
| 2. Ratification of Independent  Registered Public Accounting Firm |       | 4,883,505 |       | 15,707               |       | 207,379     |       | —                |       |

 

Item 6.                                     Exhibits

 

The following exhibits are being filed or furnished with this quarterlyreport on Form 10-Q:

 
| **Exhibit  No.** | ** ** | **Description**                                                                                          |
|------------------|------------|----------------------------------------------------------------------------------------------------------|
| 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 |
| 32.1             |       | Certification of Chief Executive Officer Pursuant  to Section 906 of the Sarbanes-OxleyAct of 2002  |
| 32.2             |       | Certification of Chief Financial Officer Pursuant  to Section 906 of the Sarbanes-OxleyAct of 2002  |

 

22

----

Table of Contents

 

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 theundersigned hereunto duly authorized.

 

 
|                       | MOCON, INC.                                            |
|----------------------------|--------------------------------------------------------|
|                       |                                                   |
|                       |                                                   |
| Date: August 13, 2009 | /s/ Robert L. Demorest                                 |
|                       | Robert L. Demorest                                     |
|                       | Chairman, President and Chief Executive Officer        |
|                       | (Principal Executive Officer)                          |
|                       |                                                   |
|                       |                                                   |
| Date: August 13, 2009 | /s/ Darrell B. Lee                                     |
|                       | Darrell B. Lee                                         |
|                       | Vice President, Treasurer and Chief Financial  Officer |
|                       | (Principal Financial and Accounting Officer)           |

 

23

----

Table of Contents

 

MOCON, INC.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2009

 

EXHIBIT INDEX

 
| **Exhibit  No.** | ** ** | **Description**                                                                                          | ** ** | **Method of  Filing** |
|------------------|------------|----------------------------------------------------------------------------------------------------------|------------|-----------------------|
| 31.1             |       | Certification of Chief Executive Officer Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 |       | Filed herewith        |
| 31.2             |       | Certification of Chief Financial Officer Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 |       | Filed herewith        |
| 32.1             |       | Certification of Chief Executive Officer Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |       | Furnished herewith    |
| 32.2             |       | Certification of Chief Financial Officer Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |       | Furnished herewith    |

 

24

----