UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-Q

(Mark One)

|[X] |  | Quarterly
 Report Pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934 For the
Quarter Ended March 31, 2004
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

or

|[   ] |  | Transition
 Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange Act of 1934 For the
transition period from _________________ to _________________
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number 0-9273

MOCON, INC.(Exact name 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 all reports required to be filed by section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES _X_ NO ___

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).YES ___  NO _X_

5,410,764 Common Shares were
outstanding as of March 31, 2004



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MOCON, INC. AND
SUBSIDIARIES

INDEX TO FORM 10-QFor the Quarter Ended
March 31, 2004

|                                                                    | Page
Number
|------------------------------------------------------------------- | -----------
|PART I. FINANCIAL INFORMATION                                       |            
|                                                                   
|Item 1.  Financial Statements                                       |            
|Condensed Consolidated Balance Sheets                               |            
|March 31, 2004 (Unaudited) and December 31, 2003                    |            
|                                                                   
|Condensed Consolidated Statements of Income (Unaudited)             |            
|Three months ended March 31, 2004 and 2003                          |            
|                                                                   
|Condensed Consolidated Statements of Cash Flows (Unaudited)         |            
|Three months ended March 31, 2004 and 2003                          |            
|                                                                   
|Notes to Condensed Consolidated Financial Statements (Unaudited)    |            
|                                                                   
|Item 2.  Management's Discussion and Analysis of                    |            
|Financial Condition and Results of Operations                       |            
|                                                                   
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk |            
|                                                                   
|Item 4.  Controls and Procedures                                    |            
|                                                                   
|PART II. OTHER INFORMATION                                          |            
|                                                                   
|Item 6.  Exhibits and Reports on Form 8-K                           |            
|                                                                   
|Signatures                                                          |            



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOCON, INC.

CONDENSED CONSOLIDATED
BALANCE SHEETS(Unaudited)

|                                                           | March 31,
2004 | December 31,
2003
|---------------------------------------------------------- | -------------- | -----------------
|ASSETS                                                     |                |                  
|Current assets:                                            |                |                  
|Cash and temporary cash investments                        |                |                  
|Marketable securities, current                             |                |                  
|Trade accounts receivable, less allowance for doubtful     |                |                  
|accounts of $255,000 in 2004 and $244,000 in 2003          |                |                  
|Other receivables                                          |                |                  
|Inventories                                                |                |                  
|Prepaid expenses                                           |                |                  
|Deferred income taxes                                      |                |                  
|                                                           |                |                  
|Total current assets                                       |                |                  
|                                                           |                |                  
|Marketable securities, noncurrent                          |                |                  
|                                                           |                |                  
|Property, plant and equipment, net                         |                |                  
|                                                           |                |                  
|Other assets:                                              |                |                  
|Software development costs, net of accumulated             |                |                  
|amortization of $519,298 in 2004 and $435,430 in 2003      |                |                  
|Goodwill                                                   |                |                  
|Technology rights and other intangibles, net               |                |                  
|Other                                                      |                |                  
|                                                           |                |                  
|Total other assets                                         |                |                  
|                                                           |                |                  
|TOTAL ASSETS                                               |                |                  
|                                                           |                |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                       |                |                  
|Current liabilities:                                       |                |                  
|Accounts payable                                           |                |                  
|Accrued compensation and vacation                          |                |                  
|Other accrued expenses                                     |                |                  
|Accrued product warranties                                 |                |                  
|Accrued income taxes                                       |                |                  
|Dividends payable                                          |                |                  
|                                                           |                |                  
|Total current liabilities                                  |                |                  
|                                                           |                |                  
|                                                          
|Obligations to former employees                            |                |                  
|Minimum earnout payable                                    |                |                  
|Deferred income taxes                                      |                |                  
|                                                           |                |                  
|Total non-current liabilities                              |                |                  
|                                                           |                |                  
|Total liabilities                                          |                |                  
|                                                           |                |                  
|Stockholders' equity:                                      |                |                  
|Capital stock - undesignated - authorized 3,000,000 shares |                |                  
|Common stock - $.10 par value.  Authorized 22,000,000      |                |                  
|shares; issued and outstanding 5,410,764 shares in 2004    |                |                  
|and 5,406,189 shares in 2003                               |                |                  
|Capital in excess of par value                             |                |                  
|Retained earnings                                          |                |                  
|Accumulated other comprehensive (loss) income              |                |                  
|                                                           |                |                  
|Total stockholders' equity                                 |                |                  
|                                                           |                |                  
|TOTAL LIABILITIES AND                                      |                |                  
|STOCKHOLDERS' EQUITY                                       |                |                  
|                                                           |                |                  

See accompanying notes to condensed
consolidated financial statements.

-1-

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MOCON, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF INCOME(Unaudited)

|                                             | Three Months Ended
March 31,
|-------------------------------------------- | ----------------------------
|
|Sales:                                       |                             
|Products                                     |                             
|Consulting services                          |                             
|                                             |                             
|Total sales                                  |                             
|                                             |                             
|                                            
|Cost of sales:                               |                             
|Products                                     |                             
|Consulting services                          |                             
|                                             |                             
|Total cost of sales                          |                             
|                                             |                             
|                                            
|Gross profit                                 |                             
|                                             |                             
|                                            
|Selling, general and administrative expenses |                             
|                                            
|Research and development expenses            |                             
|                                             |                             
|                                            
|Operating income                             |                             
|                                            
|Investment income                            |                             
|                                             |                             
|                                            
|Income before income taxes                   |                             
|                                            
|Income taxes                                 |                             
|                                             |                             
|                                            
|Net income                                   |                             
|                                             |                             
|Net income per common share:                 |                             
|Basic                                        |                             
|                                             |                             
|Diluted                                      |                             
|                                             |                             
|                                            
|Weighted average shares outstanding:         |                             
|Basic                                        |                             
|                                             |                             
|Diluted                                      |                             
|                                             |                             

See accompanying notes to condensed
consolidated financial statements.

-2-

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MOCON, INC.

CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                     | Three Months
Ended March 31,
|-------------------------------------------------------------------- | ----------------------------
|                                                                     |                             
|
|                                                                     |                             
|Cash flows from operating activities:                                |                             
|Net income                                                           |                             
|Adjustments to reconcile net income to net cash provided by          |                             
|operating activities:                                                |                             
|Write-offs of intangible assets                                      |                             
|Depreciation and amortization                                        |                             
|Deferred income taxes                                                |                             
|Changes in operating assets and liabilities, net of effect of        |                             
|acquisitions:                                                        |                             
|Trade accounts receivable                                            |                             
|Other receivables                                                    |                             
|Inventories                                                          |                             
|Prepaid expenses                                                     |                             
|Accounts payable                                                     |                             
|Accrued compensation and vacation                                    |                             
|Other accrued expenses                                               |                             
|Accrued product warranties                                           |                             
|Accrued income taxes                                                 |                             
|                                                                     |                             
|Net cash provided by operating activities                            |                             
|                                                                     |                             
|Cash flows from investing activities:                                |                             
|Cash paid in acquisitions, net of cash acquired                      |                             
|Purchases of marketable securities                                   |                             
|Proceeds from sales or maturities of marketable securities           |                             
|Purchases of property and equipment                                  |                             
|Purchases and development of software                                |                             
|Purchases of patents and trademarks                                  |                             
|Other                                                                |                             
|                                                                     |                             
|Net cash used in investing activities                                |                             
|                                                                     |                             
|Cash flows from financing activities:                                |                             
|Proceeds from the exercise of stock options                          |                             
|Purchases and retirement of common stock                             |                             
|Dividends paid                                                       |                             
|Other                                                                |                             
|                                                                     |                             
|Net cash used in financing activities                                |                             
|                                                                     |                             
|Effect of exchange rate changes on cash                              |                             
|Net increase (decrease) in cash and temporary cash investments       |                             
|Cash and temporary cash investments:                                 |                             
|Beginning of period                                                  |                             
|                                                                     |                             
|End of period                                                        |                             
|                                                                     |                             
|Supplemental disclosures of cash flow information:                   |                             
|Cash paid during the period for income taxes                         |                             
|Supplemental schedule of noncash investing and financing activities: |                             
|Unrealized holding gain on available-for-sale securities             |                             
|Dividends accrued                                                    |                             
|Minimum earnout payable                                              |                             

See accompanying notes to condensed
consolidated financial statements.

-3-

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MOCON, INC. AND
SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

Note 1  Condensed
Consolidated Financial Statements

The condensed consolidated balance
sheet as of March 31, 2004, the condensed consolidated statements of income for the
three-month periods ended March 31, 2004 and 2003, and the condensed consolidated
statements of cash flows for the three-month periods ended March 31, 2004 and 2003 have
been prepared by us, without audit. However, all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary to present
fairly the financial position, results of operations and cash flows at March 31, 2004,
and for all periods presented, have been made. The results of operations for the period
ended March 31, 2004 are not necessarily indicative of operating results for the full
year.

Certain information and footnote
disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been
condensed or omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and notes
included in the Companys Annual 10-K Report for the fiscal year ended December 31,
2003, previously filed with the Securities and Exchange Commission.

Principles of Consolidation

The consolidated financial
statements include the accounts of MOCON, Inc. and its subsidiaries after elimination of
inter-company transactions and accounts.

Foreign Currency Translation

The financial statements for
operations outside the United States are maintained in their local currency. All assets
and liabilities of our foreign subsidiary are translated to United States dollars at
period-end exchange rates, while revenue and expense accounts are translated at the
average exchange rates during the period transactions occurred. Translation adjustments
arising from the use of differing exchange rates are included in accumulated other
comprehensive income in stockholders equity. Gains and losses on foreign currency
transactions are included in other income or loss.

Stock-Based Compensation

We use the intrinsic-value method
for employee stock-based compensation pursuant to Accounting Principles Board Opinion No.
25 (Opinion 25), Accounting for Stock Issued to Employees. Under the guidelines of
Opinion 25, compensation cost for stock-based employee compensation plans is recognized
based on the difference, if any, between the quoted market price of the stock on the date
of grant and the amount an employee must pay to acquire the stock.

We have adopted the disclosure-only
provisions for employee stock-based compensation and the fair-value method for
nonemployee stock-based compensation of Statement of Financial Accounting Standard (SFAS)
No. 123, Accounting for Stock-Based Compensation. These provisions require us to show, on
a pro forma basis, our net income and income per common

-4-

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share if we had recorded an expense
for our stock options at the time of grant. Other than disclosure in this footnote, we do
not use these pro forma results for any purpose. No stock options were granted during the
three-month periods ended March 31, 2004 and 2003.

Had we recorded compensation cost
based on the estimated fair value on the date of grant, as defined by SFAS No. 123, our
net income and net income per common share would have been reduced to the pro forma
amounts indicated below:

|                                            | Three Months Ended
March 31,
|------------------------------------------- | ----------------------------
|                                            |                             
|
|                                            |                             
|Net income - as reported                    |                             
|Deduct:  Total stock-based employee         |                             
|compensation expense determined under       |                             
|fair value based method for all awards, net |                             
|of related tax effects                      |                             
|                                            |                             
|Net income - pro forma                      |                             
|                                            |                             
|Net income per common share - as reported:  |                             
|Basic                                       |                             
|Diluted                                     |                             
|Net income per common share - pro forma:    |                             
|Basic                                       |                             
|Diluted                                     |                             

New Accounting Pronouncements

In December 2003, the FASB issued
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities,
which addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, which was issued in January 2003. We will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that
were created before January 1, 2004, the assets, liabilities and noncontrolling interests
of the VIE initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized interest
being recognized as the cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first applies may be
used to measure the assets, liabilities and noncontrolling interest of the VIE. FIN 46R
did not have an impact on the Companys condensed consolidated financial statements.

FASB Statement No. 150, Accounting
for Certain Financial Instruments  with Characteristics of both Liabilities and  Equity,
was issued in May 2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial instruments within
its scope. For us, the Statement was effective for instruments entered into or modified
after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for
mandatorily

-5-

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redeemable financial instruments.
For certain mandatorily redeemable financial instruments, the Statement will be effective
for us on January 1, 2005. The effective date has been deferred indefinitely for certain
other types of mandatorily redeemable financial instruments. We currently do not have any
financial instruments that are within the scope of this Statement.

Note 2  Inventories

Inventories consist of the following:

|                  | March 31,
2004 | December 31,
2003
|----------------- | -------------- | -----------------
|Finished products |                |                  
|Work in process   |                |                  
|Raw materials     |                |                  
|                  |                |                  
|                  |                |                  
|                  |                |                  

Note 3  Net Income Per Common
Share

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

The following table presents a
reconciliation of the denominators used in the computation of net income per common share
 basic and net income per common share  diluted for the three- month periods
ended March 31, 2004, and 2003:

|                                      | Three Months Ended
March 31,
|------------------------------------- | ----------------------------
|
|Weighted shares of common stock       |                             
|outstanding - basic                   |                             
|Weighted shares of common stock       |                             
|issuable upon exercise of outstanding |                             
|stock options                         |                             
|                                      |                             
|Weighted shares of common stock       |                             
|outstanding - diluted                 |                             
|                                      |                             

Note 4  Goodwill and
Intangible Assets

As of March 31, 2004, unamortized
goodwill amounted to $1,868,804, which includes the current year addition of $522,009
related to the acquisition of Paul Lippke Handels-GmbH. Other identifiable intangible
assets are as follows:

-6-

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|                          | As of March 31, 2004
|------------------------- | --------------------
|                          |                     
|
|                          |                     
|Patents                   |                     
|Trademarks and tradenames |                     
|Technology rights         |                     
|Other intangibles         |                     
|                          |                     
|                          |                     
|                          |                     

Total amortization expense for the
three months ended March 31, 2004 and 2003 was $144,912 and $45,602, respectively.
Estimated amortization expense for each of the five succeeding fiscal years based on the
intangible assets as of March 31, 2004 is as follows:

|     | Estimated
Expense
|---- | -----------------
|2004 |                  
|2005 |                  
|2006 |                  
|2007 |                  
|2008 |                  

Note 5  Marketable Securities

Available-for-sale securities are
recorded at fair value. Unrealized holding gains and losses on available-for-sale
securities are excluded from income and are reported as a separate component of
stockholders equity until realized. A decline in the market value of any
available-for-sale security below cost that is deemed other than temporary is charged to
income resulting in the establishment of a new cost basis for the security. At March 31,
2004, and March 31, 2003, this resulted in a net unrealized gain of $3,213 and $1,669,
respectively, within stockholders equity.

Note 6  Comprehensive Income

Other comprehensive income pertains
to net unrealized gains and losses on marketable securities and foreign currency
translation adjustments that are not included in net income but rather are recorded
directly in stockholders equity.

|                                                    | Three Months Ended
March 31,
|--------------------------------------------------- | ----------------------------
|
|                                                    |                             
|Net income                                          |                             
|Foreign currency translation adjustment             |                             
|Net unrealized (loss) gain on marketable securities |                             
|                                                    |                             
|Comprehensive income                                |                             
|                                                    |                             

-7-

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Note 7  Warranty Guarantees

We provide a warranty for most of
our products. Warranties are for periods ranging from ninety 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 follow manufacturers
directions, are excluded from warranty coverage.

Warranty expense is accrued at the
time of sales based on historical claims experience. Special warranty reserves are also
accrued for special rework campaigns for known major product modifications. We also offer
service contracts for select products when the factory warranty period expires.

Warranty provisions and claims for
the three-month periods ended March 31, 2004 and 2003 were as follows:

|                                        | Three Months Ended
March 31,
|--------------------------------------- | ----------------------------
|                                        |                             
|
|                                        |                             
|Beginning balance                       |                             
|Warranty provisions(1)                  |                             
|Warranty claims                         |                             
|                                        |                             
|Ending balance                          |                             
|                                        |                             
|(1) includes adjustment for acquisition

Note 8  Lab Connections Relocation

During the first quarter of
2004, we incurred expenses of $78,900 related to the relocation of our Boston,
Massachusetts, Lab Connections subsidiary operations to Round Rock, Texas. The
expenses included $16,000 for termination of its lease on the Boston facility
and $63,000 for other costs associated with the move.

Note 9  Acquisition

Effective January 1, 2004, we acquired Paul Lippke Handels-GmbH Prozess- und Laborsysteme (Lippke) which is
located in Germany. Lippke had been the primary distributor of our products in Europe for
approximately thirty years, and also served in the capacity of distributor or agent for
several companies in addition to MOCON. The acquisition of Lippke provides us with a direct presence in Europe, which we plan to leverage to benefit all of our product
and service offerings. We acquired all of the shares of Lippke for a base
purchase price of $802,688. In addition, we are obligated to make three future
earnout payments to Lippkes former parent company based on the net
profits of Lippke in each of the years 2004, 2005, and 2006, with a minimum payment
amount of 100,000 euros per year which is included in the financial statements.

The purchase price of the
acquisition was:

|Cash consideration (625,000 euros)               |  |  | $ | 802,688   | 
|------------------------------------------------ |  |  | - | --------- | 
|Present value of future minimum earnout payments |  |  |   | 349,747   | 
|Costs associated with the transaction            |  |  |   | 184,975   | 
|                                                 |  | 
|                                                 |  |  | $ | 1,337,410 | 
|                                                 |  | 

Purchase Price Allocation

The purchase price was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed based on
their estimated fair values at the acquisition date. The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed as of the
acquisition date:

-8-

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|Cash and marketable securities                                  |  |  | $ | 518,980    |  
|--------------------------------------------------------------- |  |  | - | ---------- | -
|Current assets, principally accounts receivable and inventories |  |  |   | 1,088,824  |  
|Property, plant and equipment                                   |  |  |   | 166,021    |  
|Identifiable intangible assets:                                 |  | 
|Domain names                                                    |  |  |   | 5,700      |  
|Trademark and trade name                                        |  |  |   | 335,000    |  
|Commercial agent/subagent network                               |  |  |   | 70,000     |  
|Sales order backlog                                             |  |  |   | 84,896     |  
|Compiled customer list                                          |  |  |   | 48,000     |  
|Manufacturer's representative contracts                         |  |  |   | 225,000    |  
|Goodwill                                                        |  |  |   | 522,009    |  
|Current liabilities                                             |  |  |   | (1,355,257 | )
|Other non-current liabilities                                   |  |  |   | (371,763   | )
|                                                                |  | 
|                                                                |  |  | $ | 1,337,410  |  
|                                                                |  | 

The allocation of the purchase price
was based, in part, on a third-party valuation of the fair value of identifiable
intangible assets, and certain property, plant and equipment. Other non-current liabilities includes deferred income taxes of $264,683 and obligations payable to two former employees totaling $107,080. The cost of the
identifiable intangible assets will be amortized on a straight-line basis over periods of
less than 1 to 5 years. We expect that substantially all of the amount
allocated to goodwill will not be deductible for tax purposes.

The results of Lippke have been
included in the consolidated financial statements since the date of acquisition of
January 1, 2004.  Unaudited pro forma results of operations for the three months
ended March 31, 2004 and 2003 are included below.  Such pro forma information
assumes that the above acquisition had occurred as of January 1, 2004 and 2003.  This
summary is not necessarily indicative of what our results of operations would have been had we been a combined entity during the period ended March 31, 2004 and
2003, nor does it purport to represent results of operations for any future periods. Pro
forma adjustments consist primarily of amortization of intangible assets.

|                             | Three Months Ended
March 31,
|---------------------------- | ----------------------------
|                             |                             
|
|                             |                             
|Net sales                    |                             
|Net income                   |                             
|Net income per common share: |                             
|Basic                        |                             
|Diluted                      |                             

-9-

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MOCON, INC.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q includes certain
statements that are deemed to be forward-looking statementswithin the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this Form 10-Q that address activities, events, or
developments that we expect, believe, or anticipate will or may occur in the future, are
forward-looking statements. The forward-looking statements in this filing are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from those
projected in the forward-looking statements because these statements are subject to a
number of risks and uncertainties including the risk factors described in our annual
report on Form 10-K for the year ended December 31, 2003, including, but not limited to,
the factors included in the section entitled Certain Important Factors. Persons
reading this Form 10-Q should carefully review the discussion of all of the risk factors
described in such Form 10-K and in our other filings made from time to time with the
Securities and Exchange Commission.

Overview

MOCON, Inc. designs, manufactures,
markets, and services products and provides consulting services primarily in the
measurement and analytical instrument and services markets. Our products include
instruments that detect, measure and monitor gases and chemical compounds as well as
products that prepare samples of various substances for laboratory analysis. Although
some of the markets for our products are maturing, we continually seek growth
opportunities through technological and product improvement, by acquiring and developing
new products, and by acquiring new companies.

Effective January 1, 2004, we
acquired Paul Lippke Handels-GmbH Prozess- und Laborsysteme (Lippke) which is located in
Germany. Lippke had been the primary distributor of our products in Europe for
approximately thirty years, and also served in the capacity of distributor or agent for
several companies in addition to MOCON. The acquisition of Lippke provides us with a
direct presence in Europe, which we plan to leverage to benefit all of our product and
service offerings. We acquired all of the shares of Lippke for a base purchase price of
$802,688. In addition, we are obligated to make three future earnoutpayments
to Lippkes former parent company based on the net profits of Lippke in each of the
years 2004, 2005, and 2006, with a minimum payment amount of 100,000 euros per year.

Prior to 1998, we expanded our
business primarily through internally developing new products and technologies, acquiring
product lines and technology, and licensing our products and technology. In 1998, 2001,
2003, and 2004, we supplemented our internal growth through a total of five acquisitions
that have provided us with additional technologies, products and product development
expertise. We have three primary operating locations in the United States and one in
Germany.

-10-

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Critical Accounting Policies

Our estimates related to certain
assets and liabilities are an integral part of the consolidated financial statements.
These estimates are considered critical to the consolidated financial statements because
they require subjective and complex judgments.

Allowance for doubtful accounts
 This reserve is for accounts receivable balances that are potentially
uncollectible. The reserve is based on (1) an analysis of customer accounts and (2) our
historical experience with accounts receivable write-offs. The analysis includes the age
of the receivable, the financial condition of a customer or industry, and general
economic conditions. We believe the results could be materially different if historical
trends do not reflect actual results or if economic conditions worsened for our customers.

Inventory obsolescence analysis
 We perform an analysis to identify inventory shrinkage, slow moving, and obsolete
inventory. We record a charge to cost of sales for amounts identified. Our analysis
includes inventory levels, physical inventory counts, cycle count adjustments, the nature
of the finished product and its inherent risk of obsolescence, the gross margin of the
product, and the on-hand quantities relative to the sales history of that finished
product. We believe that the results could be materially different if historical trends
do not reflect actual results or if demand for our products decreased because of economic
or competitive conditions.

Recoverability of Long-Lived Assets
 We assess the recoverability of goodwill and other long-lived assets annually or
whenever events or changes in circumstances indicate that expected future undiscounted
cash flows might not be sufficient to support the carrying amount of an asset. We deem an
asset to be impaired if a forecast of undiscounted future operating cash flows is less
than an assets carrying amount. If an asset is determined to be impaired, the loss
is measured as the amount by which the carrying value of the asset exceeds its fair
value. Changes in our business strategies and/or changes in the economic environment in
which we operate may result in future impairment charges.

Results of Operations

The following table sets forth the
relationship between various components of operations, stated as a percent of sales, for
the quarters ended March 31, 2004, and 2003.

|                                              | Percent of Sales
|--------------------------------------------- | ----------------
|                                              |                 
|
|                                              |                 
|
|                                              |                 
|Sales                                         |                 
|Cost of sales                                 |                 
|                                              |                 
|Gross profit                                  |                 
|Selling, general, and administrative expenses |                 
|Research and development expenses             |                 
|                                              |                 
|Operating income                              |                 
|Investment income                             |                 
|                                              |                 
|Income before income taxes                    |                 
|Income taxes                                  |                 
|                                              |                 
|Net income                                    |                 
|                                              |                 

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The following table sets forth the
relationship between various components of domestic and foreign sales, stated as a
percent of total sales, for the quarter ended March 31, 2004 and 2003.

|                    | Percent of Sales
|------------------- | ----------------
|                    |                 
|
|                    |                 
|
|                    |                 
|Domestic sales      |                 
|Foreign sales:      |                 
|Japan               |                 
|Western Europe      |                 
|Canada              |                 
|Other               |                 
|                    |                 
|Total foreign sales |                 
|                    |                 
|Total sales         |                 
|                    |                 

Net Sales

First quarter sales were $5,752,405
in 2004, up 14% compared to $5,029,150 in 2003. The increase in sales from 2003
to 2004 was primarily the result of the addition of Lippke, which provided
$863,320 in net incremental sales. On a product basis, the increase in sales
from 2003 to 2004 was primarily due to increased sales of our permeation
products (including $431,871 in net additional foreign permeation sales from
Lippke), the foreign sales of our leak detection products (including $180,918 in
net additional foreign leak detection sales from Lippke), the sales of our
sample preparation products and the domestic sales of our gas chromatography
analyzer products. These increases are offset somewhat by decreases in the
domestic sales of our weighing products. The impact of price increases was not
significant.

We use a network of independent
representatives to market and service our products in foreign countries, and expect that
international sales will continue to account for a significant portion of our revenues
for the foreseeable future. Effective January 1, 2004, we acquired Paul Lippke
Handels-GmbH Prozess- und Laborsysteme (Lippke) which is located in Germany. Lippke had
been the primary distributor of our products in Europe for approximately thirty years,
and also served in the capacity of distributor or agent for several companies in addition
to MOCON. This acquisition gives us a direct presence in Europe. The acquisition of
Lippke is expected to have a positive impact on sales in 2004, particularly for revenues
associated with our permeation products.

In first quarter 2004, domestic
sales increased 7% to $2,832,824 and foreign sales increased 22% to $2,919,581. Foreign
sales were 51% of total sales in first quarter 2004, compared to $2,384,073, or 47% of
sales in 2003. Domestic sales were 49% of total first quarter sales in 2004, compared to
$2,645,077 or 53% in 2003.

| | Permeation Products
| | -------------------

Permeation products accounted for
approximately 55% and 59% of our consolidated first quarter sales in 2004 and 2003,
respectively. The volume of both domestic and foreign permeation sales increased during
the first quarter of 2004, and the increase in foreign sales was due primarily to the net
additional sales associated with Lippke.

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| | Weighing Products
| | -----------------

Weighing products accounted for
approximately 2% and 6% of our consolidated first quarter sales in 2004 and 2003,
respectively. Weighing product sales decreased in 2004 versus 2003 due to decreased sales
of our Automatic Balance (AB) weighing system and the parts and services related to both
our VERICAP and AB weighing systems.

| | Sample Preparation Products
| | ---------------------------

Sample preparation products
accounted for approximately 2% and less than 1% of our consolidated first quarter sales
in 2004 and 2003, respectively. Sales of the sample preparation products sold by our Lab
Connections, Inc. subsidiary increased in 2004 versus 2003 primarily due to sales of our
low-cost unit targeted to the polymer market. During the first quarter of 2004 we moved
Lab Connections into our Round Rock, Texas location and closed the Boston location.
The total costs incurred in the first quarter associated with this relocation were
$78,900. This consolidation is expected to result in reduced operating costs going
forward.

| | Gas Analyzer Products
| | ---------------------

Gas analysis and monitoring
instrumentation products sold at our Baseline-MOCON, Inc. subsidiary were consistent at
approximately 14% and 15% of our consolidated first quarter sales in 2004 and 2003,
respectively. In order to reduce operating costs and increase operating efficiencies, during the first quarter of 2004 we
moved a portion of Baselines production to our Minneapolis, Minnesota facility.

| | Gas Chromatography Analyzer Products
| | ------------------------------------

Sales of gas chromatography
components at our Microanalytics Instrumentation Corp. subsidiary accounted for
approximately 3% and 1% of our consolidated first quarter sales in 2004 and 2003,
respectively. This increase is primarily due to additional instrument sales.

| | Leak Detection Products
| | -----------------------

Sales of our leak detection products
were approximately 6% and 3% of our consolidated first quarter sales in 2004 and 2003,
respectively. The increase is primarily due to net additional foreign leak detection sales associated with Lippke.

| | Headspace Analyzer Products
| | ---------------------------

Headspace analyzer products were
consistent at approximately 8% and 7% of our consolidated first quarter sales in 2004 and
2003, respectively.

| | Consulting and Analytical Services
| | ----------------------------------

Consulting and analytical services
sales were also consistent at approximately 7% and 8% of our consolidated first quarter
sales in 2004 and 2003, respectively.

Gross Profit

Our gross profit margin was 52% and
55% for the three-month periods ended March 31, 2004 and 2003, respectively. The first quarter 2004
gross profit margin is lower as a percentage of sales than the same period in 2003 due mostly to costs related to
the acquisition of Lippke including the write-off of costs assigned to

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finished goods inventory under
purchase accounting rules of $96,000, costs associated with the relocation of our Lab
Connections subsidiary to Round Rock, Texas, and additional costs associated with moving
a portion of our Baseline subsidiarys manufacturing to Minneapolis, Minnesota. We
believe both of these manufacturing consolidations will positively impact future
operating income as reduced costs and increased operating efficiencies are realized.

Selling, General and Administrative
Expenses

Selling, general and administrative
(SG&A) expenses in first quarter 2004 were $2,157,129, or 37.5% of sales, compared to
$1,510,989, or 30% of sales in 2003. The increase in SG&A expenses from first quarter
2003 to first quarter 2004 is primarily due to costs associated with the increase in
sales, including Lippke sales, and also to costs associated with the acquisition of
Lippke including amortization of $57,000 related to purchased backlog and ongoing
amortization related to various other purchased intangibles of $44,000.

Research and Development Expenses

Research and development (R&D)
expenses were $341,716, or approximately 6% of sales in first quarter 2004, compared to
$346,318, or approximately 7% of sales in first quarter 2003. Continued R&D
expenditures are necessary as we develop new products to expand in our niche markets. For
the foreseeable future, we expect to allocate on an annual basis approximately 6% to 8%
of sales to research and development.

Investment Income

Investment income decreased to
$21,176 in first quarter 2004 from $31,902 in first quarter 2003. The decrease in 2004 is
primarily due to slightly lower average yields on lower cash balances.

Income Tax Expense

Our provision for income taxes was
33.7% of income before income taxes in first quarter 2004 and 35% in 2003, respectively.
Based on current operating conditions and income tax laws, we expect the tax rate for all
of 2004 to be in the range of 33% to 36%.

Net Income

Net income was $336,185 in first
quarter of 2004 compared to $606,677 in first quarter of 2003. Diluted net income per
share was $.06 per share in 2004 compared to $.11 per share in 2003.

Liquidity and Capital Resources

We continue to maintain a strong
financial position. Our financial position as of March 31, 2004 reflects an increase in working capital of $13,124 to $10,915,250, compared to $10,902,126 at December 31, 2003. Total cash, temporary cash investments and marketable securities
decreased slightly during the first quarter 2004 to $6,789,095, primarily due to the
$802,688 base purchase price paid to acquire Lippke, a first quarter dividend payment to
our shareholders of $351,403, and final dividend payments to Lippkes former parent
Company totaling $449,087, offset by net income and a decrease in accounts receivable.
Our Board of Directors has authorized, depending upon market conditions and other
factors, the repurchase of up to a total of $3,200,000 of our common stock at prices not
exceeding the market price at the time of the purchase. As of March 31, 2004, $2,572,394
was remaining in this authorization. The $137,259 decrease in accounts receivable in
first quarter 2004 versus year end 2003 is primarily due to improved accounts receivable
collection efforts. Inventory increased $363,955 in the first quarter 2004 compared to
the fourth quarter 2003, primarily due to the acquisition of Lippke.

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Total current liabilities increased
$571,655 and long-term liabilities increased $596,296 in the first quarter of 2004, both
also primarily due to the Lippke acquisition. In the first quarter 2004, we purchased
$52,737 of property, plant and equipment, and $21,954 in the same period of 2003.

Cash flow from operations has
historically been sufficient to meet our liquidity requirements, capital expenditures and
research and development costs. Cash flow from operations totaled $1,311,335 and
$1,585,307 in 2004 and 2003, respectively.

We had no material commitments for capital expenditures as of March 31, 2004. We do not believe
that any major property, plant and equipment expenditures are required to accommodate the
current level of operations. We anticipate that a combination of our existing cash,
temporary cash investments and marketable securities, plus an expected continuation of
cash flow from operations, will continue to be adequate to fund operations, capital
expenditures and dividend payments in the foreseeable future.

Foreign Currency Exchange Risk

We have one foreign operation that
exposes us to translation risk when the local currency financial statements are
translated to U.S. dollars. Since changes in translation risk are reported as adjustments
to stockholders equity, a 10% change in the foreign exchange rate would not have a
material effect on our financial position, results of operations or cash flows.

New Accounting Pronouncements

In December 2003, the FASB issued
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities,
which addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, which was issued in January 2003. We will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that
were created before January 1, 2004, the assets, liabilities and noncontrolling interests
of the VIE initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized interest
being recognized as the cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first applies may be
used to measure the assets, liabilities and noncontrolling interest of the VIE. FIN 46R
did not have an impact on the Companys condensed consolidated financial statements.

FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,
was issued in May 2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial instruments within
its scope. For us, the Statement was effective for instruments entered into or modified
after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for
mandatorily redeemable financial instruments. For certain mandatorily redeemable
financial instruments, the Statement will be effective for us on January 1, 2005. The
effective date has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. We currently do not have any financial instruments that
are within the scope of this Statement.

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MOCON, INC.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

Market Risk Management

Substantially all of our marketable
securities are at fixed interest rates. However, virtually all of our marketable
securities mature within two years, therefore, we believe that the market risk arising
from the holding of these financial instruments is minimal.

We currently sell our products and
services in United States dollars, or the local currency of our foreign subsidiary
(euros); accordingly, our foreign operation exposes us to translation risk when the local
currency financial statements are translated to U.S. dollars. Since changes in
translation risk are reported as adjustments to stockholders equity, a 10% change
in the foreign exchange rate would not have a material effect on our financial position,
results of operations or cash flows.

Item 4. Controls and Procedures

As of March 31, 2004, the end of the
period covered by this report, we conducted an evaluation, under the supervision and with
the participation of our Chief Executive Officer and Chief Financial Officer, of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective in alerting them in a timely manner to material information
required to be included in our periodic SEC filings. There were no changes identified by
our Chief Executive Officer and Chief Financial Officer in our internal control over
financial reporting during our most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

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MOCON, INC.

PART II.  OTHER INFORMATION

Item 6. Exhibits and Reports on Form
8-K

| | a. |  | Exhibits
| | -- |  | --------

|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-Oxley Act of 2002 | 
|32.2 |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 

| | b. |  | Reports
on Form 8-K
| | -- |  | -------------------

| | On
February 3, 2004, we furnished a report on Form 8-K under Item 2, Acquisition or
Disposition of Assets, to announce that we issued a press release on January 30,
2004 announcing the completion of the acquisition of Paul Lippke Handels-GmbH Prozess-
und Laborsysteme, a German company (Lippke) which such press release was
attached as an exhibit to the report.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 24, 2004, we furnished a report on Form 8-K under Item 12, Results of
Operations and Financial Condition, to announce that we issued a press release on
February 24, 2004, announcing results of operations and financial condition for the
fourth quarter and full year period ended December 31, 2003, which such press release was
attached as an exhibit to the report.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

|                   | MOCON, INC.Registrant                                                                                                                   
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------
|                  
|                  
|Date: May 17, 2004 | /s/ Robert L. Demorest
Robert L. Demorest
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)                 
|                  
|                  
|                  
|Date: May 17, 2004 | /s/ Dane D. Anderson
Dane D. Anderson
Vice President, Treasurer and Chief
Financial Officer
(Principal Financial and Accounting Officer)

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