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



FORM 10-K

(Mark one)ý

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from  to
  .

Commission File No.: 000-09273



MOCON, Inc.(Exact name of registrant as specified in its charter)

Minnesota(State or other jurisdiction of
incorporation or organization)

41-0903312(I.R.S. Employer
Identification No.)7500 Boone Avenue NorthMinneapolis, Minnesota(Address of principal executive offices)

55428(Zip Code)


Registrant's telephone number, including area code:(763) 493-6370

Securities
registered under Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Stock, par value $.10 per share

The NASDAQ Stock Market LLC
(NASDAQ Global Market)


Securities
registered under Section 12(g) of the Act:None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    YES o    NO ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    YES o    NO ý

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 ý    NO o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files).    YES o    NO o*

* The registrant has not yet been phased into the interactive data requirements.

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (do not check if a smaller
reporting company)

Smaller reporting company ý


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

The aggregate market value of the registrant's common stock, excluding outstanding shares beneficially owned by directors and executive officers, computed by reference to the
price at which the common stock was last sold as of June 30, 2009 (the last business day of the registrant's second quarter) as reported by the Nasdaq Global Market System, was $43,179,422.

As
of March 22, 2010, 5,192,445 shares of common stock of the registrant were deemed outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III
of this annual report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant's Proxy
Statement for its 2010 Annual Meeting of Shareholders to be held May 20, 2010.



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PART I

This annual report on Form 10-K contains or incorporates by reference not only historical
information, but also 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, and are subject to the safe harbor created by those sections. We refer you to the information under the heading "Part I. Item 1. BusinessForward-Looking
Statements."

As used in this annual report on Form 10-K, references to "MOCON," the "Company," "we," "our" or "us," unless the context otherwise requires,
refer to MOCON, Inc. and our subsidiaries.

All trademarks or trade names referred to in this report are the property of their respective owners.

ITEM 1.    BUSINESS

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.

Our
gas and vapor permeation products were first used in the food packaging industry to measure small amounts of moisture which adversely affects dry cereal and other food packaging.
Today our core business, the detection, measurement and analysis of vapors and gases, serves industries far beyond food packaging. Our products serve niche markets from foods, beverages,
pharmaceuticals and consumer products, to oil and gas exploration, industrial safety and homeland security. For example, our newest analyzers measure the parameters necessary to predict the safe shelf
life of packaged foods. This effort is leading us into the food and beverage safety markets worldwide.

Our
principal business strategy is to employ our product development and technological capabilities, manufacturing processes and marketing skills in market niches where we can
successfully penetrate the market and then strive to become a leader in the market segment. Our management team continually emphasizes product innovation, product performance, quality improvements,
cost reductions and other value-adding activities. We continually seek growth opportunities through technological and product improvement, by acquiring and developing new products, and by acquiring
new companies.

MOCON, Inc.
was incorporated as a Minnesota corporation in February 1966, and was initially involved in the commercialization of technology developed for the measurement of water
vapor permeating through various materials. Today, the key drivers in the industries we serve are food product safety and quality, improving workplace safety, and supplying equipment for oil and gas
exploration.

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

Our
current plans for growth include substantial funding for research and development to foster new product development together with strategic acquisitions where appropriate.

Our
principal executive offices and worldwide headquarters are located at 7500 Boone Avenue North, Minneapolis, Minnesota 55428, and our telephone number is
(763) 493-6370. Our website address iswww.mocon.com. The information contained on our website or connected to our website is not
incorporated by reference into this annual report on Form 10-K and should not be considered part of this report.

We
make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or

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furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the Securities and Exchange Commission. We also make available, free of charge and through our website, to any shareholder who requests, the charters of our board committees and our Code of
Ethics. Requests for copies can be directed to our Chief Financial Officer at the address and phone number above.

Products and Services

We develop, manufacture, market and service measurement, analytical and monitoring products used to detect, measure and analyze gases
and chemical compounds, as well as provide related consulting services. Please see our consolidated financial statements beginning on page F-1 for financial information concerning
our business, including our sales, net income and net assets. Our sales are grouped into four major categories as discussed below.

Permeation Products and Services

Our permeation products consist of systems and services that measure the rate at which various gases and vapors transmit through
various materials. These products perform measurements under precise temperature and relative humidity conditions. The principal market for these products consists of manufacturers of packaging
materials, including manufacturers of papers, plastic films, coatings and containers and the users of such packaging materials, such as companies in the food, beverage, pharmaceutical and consumer
product industries.

We
also provide certain laboratory testing services to companies that have a need for our permeation products. These services consist primarily of testing film and package permeation for
companies that:



Our
permeation products and services accounted for approximately 57%, 53% and 53% of our consolidated sales in 2009, 2008 and 2007, respectively. Permeation instruments that we currently
manufacture include OX-TRAN® systems for oxygen transmission rates, PERMATRAN-W® systems for water vapor transmission rates, and
PERMATRAN-C® systems for carbon dioxide transmission rates. Our systems are available in a wide range of options for our customers, including high or low throughput, price,
sensitivity and ease of use. They are primarily marketed to both research and development departments as well as production and quality assurance groups.

Gas Analyzer Instruments, Sensors and Detectors

Our Baseline-MOCON, Inc. subsidiary located near Boulder, Colorado produces advanced gas analysis and monitoring instrumentation
used in applications such as oil and gas exploration, process gas analysis, industrial hygiene and safety, environmental air monitoring and homeland security.

We
manufacture and sell two types of gas analyzer instrumentsgas chromatographs and total hydrocarbon analyzers. These instruments are typically installed in fixed locations
at the monitoring sites and generally perform their functions of detecting and measuring various hydrocarbons continually or at regular intervals. We also sell gas sensors and detectors which are sold
to original equipment manufacturers (OEMs) of mobile equipment.

Our
gas analyzer instruments, sensors and detectors are for use in industrial hygiene (detection of hazardous gases in the workplace), hydrocarbon gas analysis for oil and gas
exploration, contaminant

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detection
in the manufacture of specialty gases, and environmental monitoring (tracking the release, or the presence, of toxic substances). These substances can include the intentional release of
toxic gases by terrorists which would be a homeland security application.

Our
gas analyzer instruments, sensors and detectors accounted for approximately 18%, 23% and 21% of our consolidated sales in 2009, 2008 and 2007, respectively. We market some of these
products under the names BEVALERT®, PETROALERT®, and piD-TECH®.

Packaging Products and Services

We manufacture and sell two primary products in this groupheadspace analyzers and leak detection equipment. Our headspace
analyzer products are used to analyze the amount and type of gas present in the headspace of flexible and rigid packages, as applied to gas flushing modified or controlled atmosphere packaging. The
principal market for these products consists of packagers of foods, beverages and pharmaceuticals. Our headspace analyzer products include the PAC CHECK® series of off-line
headspace analyzers and the GSA series of on-line gas stream analyzers for continuous and intermittent monitoring of modified atmosphere packaging (MAP) and other gas flushing
operations.

Our
leak detection products detect leaks in sterile medical trays, food pouches, blister packs and a wide range of other packages. We currently manufacture three types of leak detection
instruments. The first type is a non-destructive leak detector that senses small amounts of carbon dioxide escaping from a package or tray. The second type of instrument detects leaks and
checks for seal integrity by applying and measuring pressure within a package. The third type pulls a vacuum on a package and looks for vacuum or gas flow changes. The principal markets for these
products are packagers of sterile medical items, pharmaceuticals and food products.

Our
packaging products and services group accounted for 18%, 16% and 17% of our consolidated sales in 2009, 2008 and 2007, respectively. We market these products under the names PAC
CHECK®, LIPPKE®, SKYE® and PAC GUARD®.

Other Instruments and Services



We provide consulting and analytical services, on a special project basis, for customers that require custom solutions to unique
problems. Services that we typically provide relate to:



The
principal markets for our consulting and analytical services consist of manufacturers of foods, beverages, pharmaceuticals, plastics, chemicals, electronics and personal care
products.



We sell various gas chromatographic (GC) instruments and provide services with an emphasis on multidimensional gas chromatography
through our Microanalytics Instrumentation Corp. (Microanalytics) subsidiary, which is located near Austin, Texas. A variety of GC specific applications have been developed by our Microanalytics
personnel, ranging from petroleum and petrochemical purity assay to aroma and off-odor analysis for the food, beverage, packaging and other industries. We integrate GCs and components that
we purchase from third parties to form multidimensional GC

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analyzer
systems. These GC analyzers represent state-of-the-art technology in gas chromatographic separations and are used in identifying compounds causing
off-odors in various products, in identifying critical aroma compounds, and in high purity analysis of single component matrixes. Our GC analyzer products include the
AROMATRAX® systems for odor and aroma analysis and profiling, the PURI-TRAX systems consisting of a vinyl chloride monomer purity analysis system and a system for
measuring trace levels of oxygenated hydrocarbons in a variety of hydrocarbon products and process streams such as liquefied petroleum gases, and the VAPO-JECT automated
vaporizing injector system for permanent and liquefied petroleum gases. The principal markets for our GC analyzer products consist of food, beverage, petroleum, chemical and petrochemical
manufacturers.



Our weighing products automatically determine the weight of pharmaceutical capsules and tablets and reject those that are out of
acceptable limits. Our VERICAP® high-speed capsule weighing system runs at rates up to 2,000 capsules per minute and can be integrated into a capsule production line in
pharmaceutical factories. Our AB automatic balance weighing systems are designed for off-line use for both tablets and capsules, and we market these products primarily to the
pharmaceutical industry. In addition, we sell tablet inspection systems and blister packaging-related equipment through our Lippke subsidiary, which is also an agent for other manufacturers.

Our
other instruments and services groups accounted for an aggregate of approximately 7%, 8% and 9% of our consolidated sales in each of the years 2009, 2008 and 2007.

Competition

We have several competitors for all of our products and services in both foreign and domestic markets. The principal competitive
factors for our products and services are:



We
compete with a variety of companies in each market in which we sell our products. Some of our competitors have greater assets and resources than we do, and some are smaller than we
are. To remain competitive, we must continue to invest in research and development, marketing, customer service and support, and manage our operating expenses. We believe that we have strategies in
place to develop technological and other advantages that will give us a competitive advantage over our competitors. However, there can be no assurance that we will have sufficient resources to execute
these strategies, or that our competitors will not develop new technologies or other advantages which would require us to reduce our prices, result in lost orders or otherwise adversely affect our
financial results.

Manufacturing and Supplies

We manufacture products at our locations in Minnesota, Texas and Colorado. Our manufacturing capabilities include electro-mechanical
assembly, testing, integration of components and systems, calibration and validation of systems. Certain components that we use in our
products are currently purchased from single source suppliers. Although we purchase additional quantities of these components in the case of an interruption or delay in supply, an interruption of one
of these sources could result in delays in our production while we locate an alternative supplier, which in turn could result in a loss of sales and income.

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Patents, Trademarks and Other Intellectual Property Rights

We believe that the protection afforded us by our patent rights is important to our business, and we will continue to seek patent
protection for our technology and products. We require all of our employees and consultants to assign to us all inventions that are conceived and developed during their employment, except to the
extent prohibited by applicable law. To protect our proprietary information, we have entered into confidentiality and non-compete agreements with those of our employees and consultants who
have access to sensitive information. We hold both United States and international patents and have U.S. and international patents pending. We currently hold 42 U.S. patents and 36 foreign patents
which will expire during the period from 2010 through 2026, and have another 43 patents pending. We do not believe that the expiration of our patents on their scheduled expiration dates will have a
material adverse effect on our business.

We
own or have applied for certain trademarks which protect and identify our products. Our trademarks and service marks include the following registered marks: MOCON®,
AQUATRACE®, AQUATRAN®, AROMATRAN®, AROMATRAX®, BASELINE®, BEVALERT®, CAL-SMART®, COULOX®,
FLO SMART®, HERSCH®, LIPPKE®, LIQUI-BLOK®, OPTIPERM®, OX-TRAN®, PAC CHECK®, PAC
GUARD®, PERMATRAN-C®, PERMATRAN-W®, PETROALERT®, piD-TECH®, QUICK START®, SKYE®
and VERICAP®. Our trademarks and service marks have a life of 10 to 20 years, and are subject to periodic maintenance which may be extended in accordance with applicable law.

Marketing and Customers; Distribution Methods

We market our products and services throughout the United States and in over 60 foreign markets. We use a direct sales force of
approximately 20 employees and approximately 15 independent sales representatives to market and sell our products and services to end users in the United States, Canada, Germany and China, and use a
network of approximately 55 independent sales representatives to market, service and sell our products and services in other foreign countries. To our knowledge, none of our independent sales
representatives sell a material amount of product manufactured by any of our competitors.

For
information concerning our export sales by geographic area, see Note 13 of the notes to consolidated financial statements. We market products and services to research
laboratories, production environments and quality control applications in the life science, medical, food, pharmaceutical, plastics, paper, electronics, oil and gas and other industries. No single
customer accounted for 10% or more of our consolidated sales in any of the fiscal years ended December 31, 2009, 2008 and 2007, and we do not believe that the loss of any single customer would
have a material adverse effect on our business or financial performance. One independent representative accounted for approximately 6% of our consolidated sales in each of the years 2009, 2008 and
2007.

Backlog

As of December 31, 2009, our total backlog was $2,440,794 for all of our products as compared to $2,157,132 and $3,384,510 as of
December 31, 2008 and 2007, respectively. We anticipate shipping the majority of the current backlog in 2010.

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Research and Development

We are committed to an ongoing engineering program dedicated to innovating new products and improving the quality and performance of
our existing products. Our engineering expenses are primarily incurred in connection with the improvement of existing products, cost reduction efforts, and the development of new products that may
have additional applications or represent extensions of existing product lines. None of these costs are borne directly by our customers.

We
incurred expenses of $1,847,993, $1,950,754 and $2,030,157 during the fiscal years ended December 31, 2009, 2008 and 2007, respectively, for research and development (R&D) of
our products. These amounts were approximately 7% of our consolidated sales for each of those three fiscal years. On an annual basis, we currently intend to spend approximately 6% to 8% of our
consolidated sales on R&D in the future.

Working Capital Practices

We strive to maintain a level of inventory that is appropriate given our projected sales. Our standard domestic payment terms are net
30 days and our international payment terms vary but generally range between 30 and 90 days. International sales are, in some cases, transacted pursuant to letters of credit.

Seasonality

Our business is not seasonal in nature.

Employees

As of December 31, 2009, we had approximately 130 full-time employees. Included in this total are approximately 20
scientists and engineers who research and develop potential new products. None of our employees are represented by a labor union, and we consider our employee relations to be satisfactory.

Executive Officers

Our executive officers, their ages and their offices held, as of March 22, 2010, are as follows:

Name

Age

TitleRobert L. Demorest


64

Chairman of the Board, President and
Chief Executive Officer, MOCON, Inc.Daniel W. Mayer


59

Executive Vice President, MOCON, Inc.Darrell B. Lee


61

Vice President, Chief Financial Officer, Treasurer and Secretary, MOCON, Inc.Douglas J. Lindemann


52

Vice President and General Manager, MOCON, Inc.Robert E. Forsberg


54

President, Baseline-MOCON, Inc.


There
are no family relationships among any of our directors and executive officers. Information regarding the business experience of our executive officers is set forth below.

Mr. Robert
L. Demorest has been our President, Chief Executive Officer, and Chairman of the Board since April 2000. Mr. Demorest is also a director of Marten
Transport, Ltd., a publicly traded company.

Mr. Daniel
W. Mayer has been an Executive Vice President for us since January 1995.

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Mr. Darrell
B. Lee has been our Chief Financial Officer, Vice President, Treasurer and Secretary since January 2006. Mr. Lee served as our Director of External Reporting
from April 2005 to January 2006. Prior to that time, Mr. Lee had served as Vice President and Chief Financial Officer of Spinal Designs International, Inc., a health-care
company based in Minneapolis, Minnesota, since 1993.

Mr. Douglas
J. Lindemann has been a Vice President and General Manager for us since January 2001.

Mr. Robert
E. Forsberg has been the President of Baseline-MOCON, Inc. for more than five years.

Forward-Looking Statements

This Annual Report on Form 10-K contains or incorporates by reference not only historical information, but also
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, and are
subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone
conferences and/or web casts open to the public, in press releases or reports, on our website or otherwise. All statements other than statements of historical facts included in this Annual Report on
Form 10-K that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in
particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations, addressable market size estimates and
business. We have identified some of these 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" and other words and terms of similar meaning. These forward-looking statements may be contained in the notes to our
consolidated financial statements and elsewhere in this Annual Report on Form 10-K, including under the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Forward-looking
statements involve risks and uncertainties. These uncertainties include factors that affect all businesses as well as matters specific to us. The following are some of
the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements: successfully competing against our
competitors; acceptance, endorsement, and use of our products; technological changes and product obsolescence; our ability to identify acquisition candidates and successfully integrate the operations
of those acquisitions into our existing operations; the impact of worldwide economic conditions on our operations; the disruption in global financial markets and the potential impact on the ability of
our counterparties to perform their obligations and our ability to obtain future financing; factors impacting the stock market and share price; ability of our manufacturing facilities to meet customer
demand; reliance on single source suppliers; loss or impairment of a principal manufacturing facility; regulatory matters; timing and success of new product introductions; adequate protection of our
intellectual property rights; product liability claims; and currency and other economic risks inherent in selling our products internationally.

For
more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking
statements or otherwise could materially adversely affect our business, financial condition or operating results, refer to this Annual Report on Form 10-K under Part I,
Item 1A, "Risk Factors."

All
forward-looking statements included in this Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements. We wish to
caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to

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recognize
that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking
statements and from historical results, due to the risks and uncertainties described in this Annual Report on Form 10-K under the heading "Item 1A. Risk Factors" below, as
well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know
whether our expectations will prove correct. The expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties, including those described below under the heading "Item 1A. Risk Factors." The risks and uncertainties described under the heading "Item 1A. Risk Factors" below are not
exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume
no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any
further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities
and Exchange Commission.

ITEM 1A.    RISK FACTORS

The following are significant factors known to us that could have material adverse effects on our business, financial condition or
operating results and should be considered carefully in connection with any evaluation of an investment in our common stock. Additionally, the following risk factors could cause our actual results to
materially differ from those reflected in any forward-looking statements.

Worldwide economic conditions have depressed capital spending during the last year and adversely affected our business, operating results and financial condition and a
continuation of economic conditions resulting in lower capital spending may adversely affect us and decrease our stock price.

We believe that the deterioration in general worldwide economic conditions have resulted, and may continue to result, in our customers
decreasing their capital expenditures. Our customers include pharmaceutical, food, medical and chemical companies, laboratories, government agencies and public and private research institutions. The
capital spending of these entities can have a significant effect on the demand for our products. Decreases in capital spending by any of these customer groups could have a material adverse effect on
our sales, business and results of operations.

Consistent
with the above, our customers' and independent representatives' ability to borrow money from their existing lenders or to obtain credit from other sources to purchase our
products may be impaired. Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments and such losses have
historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past, especially given the
current turmoil in the worldwide economy. A significant change in the liquidity or financial condition of our customers could cause unfavorable trends in our receivable collections and additional
allowances may be required, which could adversely affect our operating results. In addition, the worldwide economic crisis may adversely impact our suppliers' ability to provide us with materials and
components, which could adversely affect our business and operating results. If investors have concerns that our business, operating results and financial condition will be negatively impacted by a
worldwide economic downturn, our stock price could decrease.

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Some of the markets in which we operate have experienced minimal growth in recent years, and our ability to increase our sales will depend in part on our ability to develop
new products, develop new applications for our existing products or acquire complementary businesses and product lines.

We have identified a number of strategies that we believe will allow us to grow our business and increase our sales in markets
experiencing minimal growth, including developing new products and technologies, capitalizing on our relationship with Luxcel Biosciences Limited, developing new applications for our technologies,
acquiring complementary businesses and product lines, and strengthening our sales force. However, we can make no assurance that we will be able to successfully implement these strategies, or that
these strategies will result in the growth of our business or an increase in our sales.

If we fail to attract and retain qualified managerial and technical personnel, we may fail to remain competitive.

Our future success depends, in significant part, upon the continued service and performance of our senior management and other key
personnel. We rely on knowledgeable, experienced and skilled technical personnel, particularly engineers, scientists and service personnel, to design, assemble, sell and service our products. The loss
of the services of our management team, some of whom have significant experience in our industry, and other key personnel could impair our ability to effectively manage our company and to carry out
our business plan. Our inability to attract or retain qualified personnel could have a significant negative effect and thereby materially harm our business and financial condition.

If we acquire businesses in the future, we could experience a decrease in our profit margins, a decrease in our net income, and other adverse consequences.

One of our growth strategies is to supplement our internal growth with the acquisition of businesses and technologies that complement
or augment our existing products. Some of the businesses that we previously acquired have produced net operating losses or low levels of profitability. Other businesses that we may acquire in the
future may be marginally profitable or unprofitable, and may require us to improve the operations and market penetration of such companies in order to achieve the level of profitability that we
desire.

Further,
acquisitions and the integration of those acquisitions involve a number of risks, including:



In
addition, acquisitions that we believe will be beneficial to our business and financial results are difficult to identify and complete for a number of reasons, including the
competition among prospective buyers. We may not be able to complete acquisitions in the future, and have not completed an

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acquisition
since January 2004. Any acquisitions that we do complete in the future may have an adverse effect on our financial performance and liquidity. It may be necessary for us to raise additional
funds either through public or private debt or equity financing in order to finance any future acquisitions. Any equity or debt financing, if available at all, may be on terms that are not favorable
to us and may dilute the percentage ownership of our existing shareholders.

We face risks of technological changes that may render our products obsolete.

The markets for our products and services are characterized by technological change and evolving industry standards. As a result of
such changes and evolving standards, our products may become noncompetitive or obsolete and we may have to develop new products in order to maintain or increase our sales. New product introductions
that are responsive to these factors require significant planning, design, development and testing at the technological, product and manufacturing process levels, and we may not be able to timely
develop new products. In addition, industry acceptance of new technologies that we may develop may be slow due to, among other things, existing regulations or standards written specifically for older
technologies and general unfamiliarity of users with new technologies. As a result, any new products that we may develop may not generate any meaningful sales or profits for us for a number of years,
if at all.

A significant portion of our sales are generated from foreign countries and selling in foreign countries entails a number of risks which could result in a decrease in our
sales or an increase in our operating expenses.

Sales outside the United States accounted for approximately 56% of our sales in each of the years 2009 and 2008, and approximately 52%
of our sales in 2007. We expect that foreign sales will continue to account for a significant portion of our revenues in the future. Sales to customers in foreign countries are subject to a number of
risks including, among others:



If
any of these risks were to materialize, our sales into foreign countries could decline, or our operating costs could increase, which would adversely affect our financial results.

Fluctuations in foreign currency exchange rates could result in declines in our reported net sales and net earnings.

Because the functional currency of our foreign operations is the applicable local currency, we are exposed to foreign currency exchange
rate risk arising from transactions in the normal course of

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business,
such as sales to third party customers and purchases from suppliers denominated in foreign currencies. Our reported net sales and net earnings are subject to fluctuations in foreign exchange
rates. Because our products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States
while a weaker dollar generally has a positive effect. Our primary exchange rate exposure is with the euro. We currently do not use hedging activities to minimize the volatility associated with
foreign currency exchange rate changes. If we do use such activities in the future, they also involve some risk.

Some of our competitors have greater resources than we do, which may provide our competitors with an advantage in the development and marketing of new products.

We currently encounter, and expect to continue to encounter, competition in the sale of our products. We believe that the principal
competitive factors affecting the market for our products include product quality and performance, price, reliability and customer service. Our competitors include large multinational corporations.
Some of our competitors have substantially greater financial, marketing and other resources than we do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the promotion and sale of their products than we can. In addition, competition could increase if new companies enter the market or if
existing competitors expand their product lines or intensify efforts within existing product lines. Our current products, products under development and our ability to discover new technologies may be
insufficient to enable us to compete effectively with our competitors.

Our reliance upon patents, domestic trademark laws, trade secrets and contractual provisions to protect our proprietary rights may not be sufficient to protect our
intellectual property from others who may sell similar products.

We hold patents relating to various aspects of our products and believe that proprietary technical know-how is critical to
many of our products. Proprietary rights relating to our products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are
maintained in confidence as trade secrets. We cannot be certain that we will be issued any patents from any pending or future patent applications owned by or licensed to us or that the claims allowed
under any issued patents will be sufficiently broad to protect our technology. In the absence of patent protection, we may be vulnerable to competitors who attempt to copy our products or gain access
to our trade secrets and proprietary know-how. Our competitors may initiate litigation to challenge the validity of our patents, or they may use their resources to design comparable
products that do not infringe our patents. We may incur substantial costs if our competitors initiate litigation to challenge the validity of our patents or if we initiate any proceedings to protect
our proprietary rights. If the outcome of any such litigation is unfavorable to us, it could have a material adverse effect on our business and results of operations. There may also be pending or
issued patents held by parties not affiliated with us that relate to our products or technologies and we may need to acquire licenses to any such patents to continue selling some or all of our
products. If we are required to obtain any such license in order to be able to continue to sell some or all of our products, we may not be able to do so on terms that are favorable to us, if at all.

In
addition, we rely on trade secrets and proprietary know-how that we seek to protect, in part, by confidentiality agreements with our collaborators, employees and
consultants. These agreements may be breached and we may not have adequate remedies for any such breach. Even if these confidentiality agreements are not breached, our trade secrets may otherwise
become known or be independently developed by competitors.

12

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We rely on our management information systems for inventory management, distribution and other functions. If our information systems fail to adequately perform these
functions or if we experience an interruption in their operation, our business and results of operations could be adversely affected.

The efficient operation of our business depends on our management information systems. We rely on our management information systems to
effectively manage accounting and financial functions, order entry, order fulfillment and inventory replenishment. The failure of our
management information systems to perform could disrupt our business and could result in decreased sales, increased overhead costs, excess inventory and product shortages, causing our business and
results of operations to suffer. In addition, our management information systems are vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks, computer
viruses or hackers, power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruption could adversely affect our business and results of operations.

The market price of our common stock has fluctuated significantly in the past and will likely continue to do so in the future and any broad market fluctuations may
materially adversely affect the market price of our common stock.

The market price of our common stock has been volatile in the past, ranging from a high sales price of $10.04 and a low sales price of
$6.74 during 2009, and several factors could cause the price to fluctuate substantially in the future. These factors include:



In
addition, the stock prices of instrumentation companies have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of such
companies. This market volatility may adversely affect the market price of our common stock.

Complying with securities laws and regulations is costly for us.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations promulgated by
the SEC and Nasdaq, are creating particular challenges for smaller publicly-held companies like us. We are committed to maintaining high standards of corporate governance and public
disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses
and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of
2002 and the related regulations regarding our assessment of our internal control over financial reporting have required, and will continue to require, the expenditure of significant financial and
managerial resources.

If we experience any increase in the cost of raw materials or supplies, we may experience a decrease in profit margins.

In the past, the overall cost of the materials that we purchase has not risen much more than the rate of inflation. We believe that the
price of our products and the prices of our competitors' products

13

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is
a significant factor affecting our customers' buying decisions and consequently, we may not be able to pass along any cost increases in raw materials and supplies in the form of price increases or
sustain profit margins that we have achieved in prior years.

We have spent significant resources to develop new products in the food and beverage safety and packaging industries and we have thus far only realized minimal revenues from
these products.

We recently began to market our newest BevAlert system and OpTech-O2 Platinum analyzer. We believe that there
are significant addressable markets for both of these products and while we believe both of these products are superior in many respects to other similar products being sold by our competitors, each
one is new to the marketplace and may not gain the market acceptance necessary to allow us to capitalize on what we believe will be an increasing demand in the food and beverage industries for safety
testing and monitoring products. We have realized modest revenues from sales of our BevAlert system and began commercial production of our OpTech-O2 Platinum analyzer in the
fourth quarter of 2009. If we are not able to successfully market these products, we will not recover the significant research and development and other expenses we have incurred to bring these
products to market.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.    PROPERTIES

We lease an aggregate of 61,375 square feet of office, engineering, laboratory and production space in Minnesota, Texas, Germany and
China. We believe that all of our facilities are generally adequate for their present operations and that suitable space is readily available if any of our leases are not extended.

Our
headquarters and operations center occupy approximately 47,200 square feet of space in Minneapolis, Minnesota. This space is leased until June 2010. We have signed a lease for a new
location in Minneapolis, Minnesota that will commence June 1, 2010. This new location consists of approximately 60,000 square feet of space and will serve as our new headquarters and
Minneapolis operations center.

Microanalytics'
operations occupy approximately 5,100 square feet of space in the metropolitan area of Austin, Texas. This space is leased until February 2011.

Lippke's
operations are located in Neuwied, Germany, and occupy approximately 8,075 square feet. This space is leased until July 2018.

The
MOCON (Shanghai) Trading Co., Ltd. operations are located in Shanghai, China, and occupy approximately 1,000 square feet. This space is leased until December 2010.

In
addition to our leased facilities described above, we own approximately two acres of land and a building located near Boulder, Colorado that consists of approximately 9,300 square
feet of office and production space in which our Baseline-MOCON, Inc. subsidiary conducts its operations.

ITEM 3.    LEGAL PROCEEDINGS

There are no material pending legal, governmental, administrative or other proceedings to which we are a party or of which any of our
property is the subject.

ITEM 4.    RESERVED

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Dividends

Our common stock is quoted on the Nasdaq Global Market System under the symbol MOCO. The following table sets forth, for the fiscal
periods indicated, the high and low sales prices for our common stock as reported by the Nasdaq Global Market System. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions. The following table also sets forth, for the fiscal periods indicated, the amount of cash dividends declared
on our common stock:

2009

2008Fiscal Period

High

Low

Dividend

High

Low

Dividend1st Quarter

$
9.25

$
6.74

$
0.09

$
11.83

$
9.64

$
0.0802nd Quarter


10.04


8.10


0.09


11.30


10.23


0.0853rd Quarter


9.00


7.95


0.09


11.44


9.63


0.0854th Quarter


9.81


7.46


0.09


11.24


6.70


0.090


We
have paid quarterly cash dividends without interruption or decline since 1988. Cash dividends paid in 2009, 2008 and 2007 totaled $1,958,750, $1,835,707 and $1,703,965, respectively.
Our Board of Directors monitors and evaluates our dividend practice quarterly, and the Board may elect at any time to increase, decrease or not pay a dividend on our common stock based upon our
financial condition, results of operations, cash requirements and future prospects and other factors deemed relevant by the Board.

For
information concerning securities authorized for issuance under equity compensation plans, please see Part IIIItem 12.

Holders

As of March 22, 2010, there were approximately 267 holders of record and approximately 3,163 beneficial holders of our
common stock.

Issuer Repurchases of Equity Securities

We did not repurchase any shares of our common stock or other equity securities of MOCON registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, during the fourth quarter ended December 31, 2009. On June 23, 2009, our Board of Directors authorized the repurchase of up to $2,000,000
in shares of our common stock (which authorization was given after we exhausted the prior authorization through purchases of shares of our common stock earlier in 2009), however, this amount has been
exhausted and we currently are not authorized by our Board of Directors to make further repurchases of our common stock.

Recent Sales of Unregistered Securities

During the fourth quarter and year ended December 31, 2009, we did not issue or sell any shares of our common stock or other
equity securities of MOCON without registration under the Securities Act of 1933, as amended.

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ITEM 6.    SELECTED FINANCIAL DATA

Years Ended December 31,2009

2008

2007

2006

2005(in thousands, except per share data)CONSOLIDATED STATEMENT OF INCOME DATA:Sales

$
26,638

$
29,696

$
27,397

$
26,290

$
24,582Net income


2,910


4,059


3,805


3,911


2,915Net income per common share:Basic


0.54


0.73


0.69


0.72


0.54Diluted


0.53


0.72


0.67


0.71


0.53Cash dividends declared per share


0.36


0.34


0.315


0.30


0.285




As of December 31,2009

2008

2007

2006

2005(in thousands)CONSOLIDATED BALANCE SHEET DATA:Current assets

$
23,706

$
22,357

$
21,306

$
21,023

$
18,257Total assets


30,327


32,953


29,673


26,877


23,657Current liabilities


4,088


4,464


3,949


4,817


4,418Noncurrent liabilities


257


271


339


100


440Stockholders' equity


25,982


28,218


25,385


21,960


18,799


16

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and
other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties including those discussed under the
heading "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K. For more information, see "Part I Item 1 BusinessForward-Looking
Statements" of this Annual Report on Form 10-K. The following discussion of the results of the operations and financial condition of MOCON should be read in conjunction with our
consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

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. We continually seek growth opportunities through
technological and product improvement, by acquiring and developing new products, and by acquiring new companies.

We
have three primary operating locations in the United StatesMinnesota, Colorado and Texasand foreign offices in Germany and China. We use a mix of direct
sales force and independent sales representatives to market our products and services in the United States, Canada, Germany and China and use a network of independent sales representatives to market
and service our products and services in other foreign countries.

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

Our
current plans for growth include substantial funding for research and development to foster new product development together with strategic acquisitions where appropriate.

Significant Transactions and Financial Trends

Throughout these financial sections, you will read about significant transactions or events that materially contribute to, or reduce
our earnings, and materially affect our financial results and financial position. In 2009, our revenues and net income were negatively impacted by the depressed worldwide economic conditions, as
compared to 2008 results.

Our
international sales have historically accounted for a significant portion of our revenues, and we expect our international sales, as a percentage of total sales, to continue to
increase for the foreseeable future.

Our
research and development costs were approximately 7% of our consolidated sales for the years 2009, 2008 and 2007. On an annual basis, we intend to spend approximately 6% to 8% of our
sales on research and development in the future.

While
these items are important in understanding and evaluating our financial results, certain trends, such as our international sales accounting for a significant portion of our
revenues, and other transactions or events such as those discussed later in this Management's Discussion and Analysis, may also have a material impact on our financial results.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to our consolidated financial statements included in Item 8
of this Annual Report on Form 10-K. This Management's Discussion and Analysis

17

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of
Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. The Securities and Exchange Commission has defined a company's most critical accounting policies as those that are most important
to the portrayal of its financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies. Although we believe that our estimates and assumptions are
reasonable, they are based upon information available when they are made. Actual results may differ significantly from these estimates under different assumptions or conditions.

Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence
of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or
determinable, and collectability is reasonably assured. Our terms are F.O.B. shipping point with no right of return, except in rare cases, and customer acceptance of our products is not required. The
revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not
offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

Revenue
for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts.

Revenues
from shipments with multiple element arrangements are recognized as each element is earned, and is allocated among elements on a relative fair value basis when such elements
have standalone value.

Allowance for Doubtful Accounts and Sales Returns

Our allowance for doubtful accounts and sales returns is for accounts receivable balances that are estimated to be uncollectible as
well as anticipated sales returns. The reserve is based on a number of factors, including: (1) an analysis of customer accounts and (2) our historical experience with accounts receivable
write-offs and sales returns. The analysis includes the age of the receivable, the financial condition of a customer or industry and general economic conditions. We believe our financial
results could be materially different if historical trends are not predictive of future results or if economic conditions worsened for our customers. In the event we determined that a smaller or
larger allowance for doubtful accounts is appropriate, we would record a credit or charge to selling, general and administrative expense in the period that we made such a determination. As of
December 31, 2009 and 2008, we had $162,315 and $137,182, respectively, reserved against our accounts receivable for doubtful accounts and sales returns.

Accrual for Excess and Obsolete Inventories

We perform an analysis to identify excess and obsolete inventory. We record a charge to cost of sales for amounts identified. Our
analysis includes inventory levels, the nature of the components and their inherent risk of obsolescence and the on-hand quantities relative to the sales history of that component. We
believe that our financial results could be materially different if historical trends are not predictive of future results or if demand for our products decreased because of economic or competitive
conditions or otherwise. As of December 31, 2009 and 2008, we had $301,240 and $303,823, respectively, accrued for excess and obsolete inventories.

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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, changes in the economic environment in which we operate, competitive conditions, and other factors could result in future impairment charges. We did not record any long-lived
asset impairment charges in 2009 or 2008.

Accrued Product Warranties

Our products are generally covered by a warranty, with warranty periods ranging from ninety days to one year from the date of sale.
Estimated warranty costs are accrued in the same period in which the related revenue is recognized, based on anticipated parts and labor costs, utilizing historical experience. Additional warranty
reserves are also accrued for major rework campaigns. We periodically assess the adequacy of our warranty reserves based on changes in these factors and record any necessary adjustments if actual
claim experience indicates that adjustments are necessary. Although we believe the likelihood to be relatively low, warranty claims experience could be materially different from actual results due to
manufacturing changes that could impact product quality, a change in our warranty policy in response to industry trends, as yet unrecognized defects in products sold, or other factors. As of
December 31, 2009 and 2008, we had $209,710 and $229,087, respectively, accrued for future estimated warranty claims.

Income Taxes

In the preparation of our consolidated financial statements, management is required to estimate income taxes in each of the
jurisdictions in which we operate. This process involves estimating actual current tax exposures together with assessing temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

Management
reviews the deferred tax assets for recoverability on a quarterly basis and assesses the need for valuation allowances. These deferred tax assets are evaluated by considering
historical levels of income, estimates of future taxable income streams and the impact of tax planning strategies. A valuation allowance is recorded to reduce deferred tax assets when it is determined
that it is more likely than not that we would not be able to realize all or part of our deferred tax assets. At December 31, 2009 and 2008, we provided a valuation allowance in the amounts of
$320,000 and $364,000, respectively, against our net deferred tax assets, related primarily to a long-term capital loss carryforward.

On
January 1, 2007, we adopted FIN 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
109, now codified in ASC 740. ASC 740 requires application of a more-likely-than-not threshold to the recognition and
derecognition of uncertain tax positions. Under ASC 740, once the more-likely-than-not threshold is met, the amount of
benefit to be recognized is the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the
expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. We have recognized a tax accrual in the amount of $202,000 and $216,000 in 2009 and
2008, respectively, for estimated exposures associated with uncertain tax positions, and periodically adjust this accrual when facts and circumstances change. However, due to the complexity of some of
these uncertainties, the ultimate settlement may result in payments that are significantly different from our current estimate of tax liabilities, resulting in the recognition of additional charges or
benefits to income tax expense.

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Results of Operations

The following table sets forth the relationship between various components of our results of operations, stated as a percent of sales,
for fiscal years ended December 31, 2009, 2008 and 2007. Our historical financial data were derived from our consolidated financial statements and related notes included in Item 8 of
this Annual Report on Form 10-K.

Percent of Sales2009

2008

2007Sales


100.0


100.0


100.0Cost of sales


41.6


40.8


41.6Gross profit


58.4


59.2


58.4Selling, general and administrative expenses


37.0


34.2


31.5Research and development expenses


6.9


6.6


7.4Operating income


14.5


18.4


19.5Other income, net


1.4


2.0


2.1Income before income taxes


15.9


20.4


21.6Income taxes


5.0


6.7


7.7Net income


10.9


13.7


13.9


The
following table summarizes total sales by product line for 2009, 2008 and 2007:

Years Ended December 31,2009

2008

2007Permeation products and services

$
15,126,259

$
15,850,027

$
14,428,823Gas analyzers, sensors and detectors


4,933,256


6,678,982


5,662,923Packaging products and services


4,701,279


4,822,009


4,685,403Other instruments and services


1,877,304


2,344,688


2,619,433Total sales

$
26,638,098

$
29,695,706

$
27,396,582


The
following table sets forth the relationship between various components of domestic and foreign sales for 2009, 2008 and 2007:

Years Ended December 31,2009

2008

2007Domestic sales

$
11,790,911

$
12,960,723

$
13,160,268Foreign sales:Europe


6,591,749


7,836,335


6,595,075Asia


5,996,005


6,144,822


5,309,901Other


2,259,433


2,753,826


2,331,338Total foreign sales


14,847,187


16,734,983


14,236,314Total sales

$
26,638,098

$
29,695,706

$
27,396,582


Sales



Sales for 2009 were $26,638,000, a decrease of 10% compared to $29,696,000 for 2008. We believe the global economic slowdown caused
some of our potential customers to either defer their capital

20

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expenditures
or purchase less expensive models. The decrease in sales was primarily the result of lower gas analyzer instrument sales to the oil and gas exploration and environmental monitoring
markets. In addition, sales of our permeation equipment declined in 2009 as demand in our foreign markets slowed after our strong marketing emphasis in 2008 of a new low cost product. Our consolidated
domestic sales, which accounted for 44% of total sales in both 2009 and 2008, decreased 9% in 2009. Our consolidated foreign sales, which accounted for 56% of total sales in both 2009 and 2008,
decreased 11% in 2009. The impact of any price increases was not significant in 2009.



Sales of our permeation products and services, which accounted for 57% and 53% of our consolidated sales in 2009 and 2008,
respectively, decreased $724,000, or 5% in 2009 compared to 2008. This decrease in permeation sales was primarily due to lower shipments to our foreign markets as a result of the slow economy and the
corresponding shift to lower cost equipment. We experienced increased sales volume of the PERMATRAN-W Model 1/50 (lower price point product for less sensitivity in water vapor
measurement), and the AQUATRAN (a high-end instrument targeted at the electronics, flat panel display, fuel cell, solar cell and other high barrier markets) during the year. Our domestic
sales of permeation products increased 5% from 2008 to 2009, as the U.S. economy began to recover from the downturn we experienced beginning in the second half of 2008.



Sales of our gas analyzers, sensors and detector products, which accounted for 18% and 23% of our consolidated sales in 2009 and 2008,
respectively, decreased $1,746,000, or 26% in 2009 compared to 2008. This decrease was due primarily to lower shipments of instruments to the oil and gas drilling market as a result of lower oil
prices, as well as reduced instrument sales to the environmental monitoring market due to economic factors. Our BevAlert instrument is used in the carbonated beverage industry for measuring purity of
carbon dioxide and is gaining increased market acceptance, although our sales of this product have been modest to date. Increased concerns by carbonated beverage companies to prevent recalls due to
unsafe products are driving this sector. Sales of our piD-TECH sensors to the OEM portable sensor market and other OEM detectors were relatively stable between 2008 and 2009.



Sales of our packaging products (headspace analyzers and leak detectors), which accounted for 18% and 16% of our consolidated sales in
2009 and 2008, respectively, decreased $121,000, or 3% in 2009 compared to 2008. The decrease was due primarily to a shift in demand from the more expensive bench-top headspace analyzers
to the less expensive portable handheld units. The PAC CHECK series of analyzers continues to gain acceptance in both our domestic and foreign markets. Sales of the Lippke 4000 and 4500 series leak
detection instruments also continue to do well. A major focus in 2009 was on strengthening our offerings in the MAP (modified atmospheric packaging) area, where we see potential growth as our food
manufacturing customers continue to evaluate ways to safely extend the shelf life of their perishable products.



Sales of our other instruments and services group, which accounted for 7% and 8% of our consolidated sales in 2009 and 2008,
respectively, decreased $467,000, or 20% in 2009 compared to 2008. This group consists of our weighing and pharmaceutical products, our consulting and testing services, our contract manufacturing and
non-MOCON products sold by our German subsidiary. The decrease from 2008 to 2009 was due primarily to lower shipments of our weighing and pharmaceutical products. This group consists of a
small number of products compared to our other product groups and

21

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will
typically experience significant fluctuations in demand. In 2009, we committed additional resources to place emphasis on growing our consulting and testing services area. We continue to see
growth in this area as we increase our offerings and services.



Sales for 2008 were $29,696,000, an increase of 8% compared to $27,397,000 for 2007. This increase in sales was primarily the result of
the increased volume of our permeation products and services, gas analyzer instruments and sensors, and packaging products. These increases were partially offset by decreases in the sale of weighing
and pharmaceutical products and gas chromatography instruments and services. Our domestic sales were $12,961,000, or 44% of total sales in 2008, a 2% decrease compared to $13,160,000, or 48% of sales
in 2007. Our foreign sales were $16,735,000, or 56% of total sales in 2008, an increase of 18% compared to $14,236,000, or 52% of sales in 2007. The overall sales volume increase in 2008 was driven by
an increased demand as a result of enhanced marketing efforts in our foreign markets, which offset a slight decline in sales in our domestic markets. The impact of any price increases was not
significant in 2008.



Sales of our permeation products and services, which accounted for 53% of our consolidated sales in both 2008 and 2007, increased
$1,421,000, or 10% in 2008 compared to 2007. This increase in permeation sales was primarily due to a 21% increase in foreign sales. We believe that product introductions in recent years, specifically
the PERMATRAN-W Model 1/50 (lower price point product for less sensitivity in water vapor measurement), and growing
acceptance of the AQUATRAN (for increased sensitivity in measuring water vapor) were factors in this growth. Domestic sales declined 11% from 2007 to 2008, which we believe was attributable to the
slowdown in the U.S. economy in the second half of the year.



Sales of our gas analyzers, sensors and detector products, which accounted for 23% and 21% of our consolidated sales in 2008 and 2007,
respectively, increased $1,016,000, or 18% in 2008 compared to 2007. This increase was due primarily to increased shipments of the piD-TECH Plus to the OEM portable sensor market, which
increase was offset somewhat by a decrease in the sales of gas chromatographs. Sales of total hydrocarbon analyzer instruments were essentially the same in both years. Total domestic sales increased
$820,000, or 24% in 2008 compared to 2007, and foreign sales increased $196,000, or 9% over the same period.



Sales of our packaging products (headspace analyzers and leak detectors), which accounted for 16% and 17% of our consolidated sales in
2008 and 2007, respectively, increased $137,000, or 3% in 2008 compared to 2007. The increase resulted from sales of our Lippke 4000 leak detection instrument primarily in the European markets as well
as continued market acceptance of our PAC CHECK series of analyzers generally used for headspace analysis. Our emphasis on the international markets resulted in a 19% increase in sales outside the
U.S. of packaging products in 2008 over 2007, and our entry into the medical device market in 2008 contributed to the overall sales increase.



Sales of our other instruments and services group, which accounted for 8% and 9% of our consolidated sales in 2008 and 2007,
respectively, decreased $275,000, or 10% in 2008 compared to

22

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2007.
This decrease was due primarily to lower shipments of our weighing and pharmaceutical products and reduced consulting and testing services performed.

Gross Profit



Our gross profit percentages were 58.4% and 59.2% during 2009 and 2008, respectively. The slight decrease in gross profit percentage
resulted primarily from lower production volume in our gas analyzer instrument area over which to allocate fixed manufacturing costs.



Our gross profit percentages were 59.2% and 58.4% during 2008 and 2007, respectively. The increase in gross profit percentage resulted
primarily from a higher concentration of permeation equipment sales, sales of new products which replaced older, less profitable items, and higher volume in our detector and sensor area which resulted
in increased manufacturing efficiencies.

Selling, General and Administrative Expenses



Selling, general and administrative expenses were $9,858,000 and $10,170,000, or 37.0% and 34.2% of sales in 2009 and 2008,
respectively. The decrease of $312,000 was due primarily to the following: lower travel, promotion and advertising due to cost reductions implemented during 2009; decreased stock option expense due to
the lower computed fair value; and lower incentive compensation as a result of lower profitability.



Selling, general and administrative expenses were $10,170,000 and $8,644,000, or 34.2% and 31.5% of sales in 2008 and 2007,
respectively. The increase of $1,526,000 was due primarily to the following: higher salaries and benefits relating to annual wage increases and a 5% increase in average headcount; increased travel,
marketing and promotion expenses related to our increased emphasis in foreign markets; and increased professional fees.

Research and Development Expenses



Research and development (R&D) expenses were $1,848,000 and $1,951,000 in 2009 and 2008, or 6.9% and 6.6% of sales, respectively. The
lower expense in 2009 was the result of our decision to delay certain expenditures due to the economic slowdown. For the foreseeable future, we intend to allocate on an annual basis approximately 6%
to 8% of sales to research and development. We believe continued R&D expenditures are necessary as we develop new products to expand revenue opportunities in our niche markets and remain competitive.



R&D expenses were $1,951,000 and $2,030,000 in 2008 and 2007, or 6.6% and 7.4% of sales, respectively. The relatively consistent
spending between years was in line with our 2008 R&D plan.

23

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Other Income, Net

Other income, net for 2009, 2008 and 2007 was as follows:

Years Ended December 31,2009

2008

2007Interest income on investments

$
369,176

$
575,094

$
565,441Foreign currency exchange (loss) gain


(2,956
)

12,500


1,165Other


(168
)

1,317


13,668Total other income

$
366,052

$
588,911

$
580,274


Interest
income decreased in 2009, as compared to 2008, due to both lower average invested balances of cash and marketable securities and lower average yields. Total cash and marketable
securities decreased approximately $1,778,000 from December 31, 2008 to December 31, 2009. Interest income increased slightly in 2008, as compared to 2007, primarily due to higher
average invested balances of cash and marketable securities, partially offset by lower average yields. Total cash and marketable securities increased approximately $1,084,000 from December 31,
2007 to December 31, 2008.

Income Tax Expense

Our provision for income taxes for 2009 was $1,319,000, or 31.2% of income before income taxes, compared to $1,990,000, or 32.9% of
income before income taxes for 2008. This year over year decrease in the effective tax rate was due primarily to lower state income taxes, a reduction in the valuation allowance, and the effect of
lower statutory tax rates in our foreign entities.

Our
provision for income taxes for 2008 was $1,990,000, or 32.9% of income before income taxes, compared to $2,113,000, or 35.7% of income before income taxes for 2007. This year over
year decrease in the effective tax rate was due primarily to the increased amount of tax-exempt interest earned, lower statutory tax rates in Germany in 2008, and a reduction in the tax
contingency accrual.

We
anticipate our effective tax rate for the full year 2010 will range between 31% and 35%.

Inflation

We do not believe that inflation has had a material effect on our results of operations in recent years; however, there can be no
assurance that our business will not be adversely affected by inflation in the future.

Liquidity and Capital Resources

Total cash, cash equivalents and marketable securities decreased $1,778,000 during 2009 to $14,331,000 as of December 31, 2009,
compared to $16,109,000 at December 31, 2008. We describe the reasons for this decrease below under the caption "Cash Flows from Operating Activities." Our working capital as of
December 31, 2009 increased $1,725,000 to $19,617,000, compared to $17,893,000 at December 31, 2008.

We
invest a large portion of our available cash in highly liquid certificates of deposit, municipal bonds and money market funds. Our investment policy is to manage these assets to
preserve principal,
maintain adequate liquidity at all times, and maximize returns subject to investment guidelines we maintain. We do not have any investments in auction rate or hard-to-value
securities.

We
have historically financed our operations, capital equipment and other cash requirements through cash flows generated from operations. We believe that a combination of our existing
cash, cash

24

---



equivalents
and marketable securities, plus an expected continuation of cash flow from operations, will continue to be adequate to fund operations and working capital, capital expenditures, dividend
payments and any stock repurchase programs that may be authorized in the future. Our belief is based on current business operations and economic conditions and assumes that we continue to operate our
business in the ordinary course. During 2009, we borrowed and repaid a short-term loan to supplement our working capital requirements. We currently do not have any committed lines of credit or other
credit facilities, and it is uncertain whether such facilities could be obtained in sufficient amounts or on acceptable terms. As of December 31, 2009, we had no commitments for any material
capital expenditures.

One
of our strategic objectives is, as market and business conditions warrant, to consider acquisitions of businesses, products or technologies. In this regard, in January 2010, we made
a minority equity investment of €2,500,000 in Luxcel Biosciences Limited, an Irish company, to help us establish a stronger presence in the food safety market. If we consummate one or
more additional acquisition opportunities, the cost of which exceeds our existing cash resources, we may need to fund such activities with a portion of our cash balances and debt and/or equity
financing. If we need to raise additional capital, an equity-based or equity-linked financing may be used which could be dilutive to existing shareholders. If we raise additional funds by issuing
debt, we may be subject to restrictive covenants that could limit our operational flexibility and higher interest expense could dilute earnings per share.

Cash Flow



Our primary source of funds is cash provided by operating activities. Cash flow from operating activities totaled $4,153,000,
$3,602,000 and $4,234,000 in 2009, 2008 and 2007, respectively. In 2009, cash provided by operating activities increased by $551,000 compared to 2008. This increase was due primarily to the
year-over-year decreases in inventories, prepaid income taxes and other receivables, and the increase in deferred revenue. In 2008, cash provided by operating activities
decreased by $632,000 compared to 2007. This decrease was due primarily to the year-over-year increases in inventories and prepaid income taxes. Working capital requirements
typically will increase or decrease with changes in the level of sales. In addition, the timing of certain accrued payments will affect the annual cash flow. Income tax payments and any employee
incentive payments affect the timing of our operating cash flow as they are accrued throughout the year but paid on a quarterly, semi-annual or annual basis.



Cash provided by investing activities totaled $6,161,000 in 2009 as compared to cash used of $2,694,000 in 2008 and $1,743,000 in 2007.
Typically, the main source of cash provided or used in this category relates to the trading activity of our marketable securities. Cash provided by maturities of marketable securities, net of
purchases, was $6,615,000 in 2009; cash used for marketable security purchases, net of maturities, was $1,760,000 and $704,000 in 2008 and 2007, respectively. Purchases of property, plant and
equipment totaled $307,000 in 2009, primarily for additions of office, manufacturing and laboratory equipment, as compared to $720,000 and $437,000 in 2008 and 2007, respectively. We do not believe
that any major property, plant and equipment expenditures are required to accommodate our current level of operations.

25

---





Cash paid for acquisitions in 2007 of $575,000 was related to our purchase of Lippke. This amount resulted from an adjustment of the required earnout payments between the minimum amount
originally recorded and the amount that was ultimately paid.



Cash used in financing activities totaled $5,551,000 in 2009 as compared to $1,391,000 in 2008 and $1,182,000 in 2007. The primary use
of cash for financing activities in 2009 was the repurchase of an aggregate of 424,000 shares of common stock for a total amount of $3,602,000. In 2009, 2008 and 2007 we used $1,959,000, $1,836,000
and $1,704,000, respectively, for payment of dividends to our shareholders.

Cash
flow from the exercise of stock options generated $10,000, $479,000 and $461,000, for the years 2009, 2008 and 2007, respectively.

Contractual Obligations

The following table summarizes our future contractual cash obligations as of December 31, 2009 (in thousands):

Payments Due By PeriodTotal

Less than
1 year

1-3 years

4-5 years

After 5 yearsOperating leases

$
979


291


351


226


111Inventory purchase obligations


1,192


1,181


11





Minority equity investment


3,625


3,625








Total contractual cash obligations

$
5,796


5,097


362


226


111


Subsequent
to December 31, 2009, we signed a new 15-year lease for a property which will replace our current Minneapolis headquarters and operations center. The new
lease will commence on June 1, 2010. The required future minimum lease payments, starting at $367,000 per year and subject to annual increases, have not been included in the above table.

We
adopted FIN 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement 109, now codified in
ASC 740, on January 1, 2007. We had $289,000 of gross unrecognized tax benefits as of the date of adoption and $202,000 and $216,000 at December 31, 2009 and 2008, respectively.
The timing of any payments which could result from these unrecognized tax benefits will depend on a number of factors. Accordingly, we cannot make reasonably reliable estimates of the period of
potential cash settlement, if any, with taxing authorities. Due to the uncertainty regarding the timing of these liabilities, we have excluded these amounts from the contractual obligations table.

We
are parties to a severance agreement with five of our executive officers which provides for the payment to the executive of a lump sum amount upon the occurrence of certain
termination events. The payment could amount to one or two times the executive's current annual salary depending on the reason for termination.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are
reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

26

---



Recently Issued Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation
No. 46(R), now codified in ASC 810, which amends the consolidation guidance applicable to variable interest entities and is effective for us beginning
July 1, 2010. We believe the adoption of this pronouncement will not have a significant impact on our consolidated financial statements.

In
September 2009, the FASB ratified its guidance on two revenue recognition standards which were to become effective for us beginning January 1, 2011. With earlier adoption
permitted, we elected to adopt this guidance in the first quarter 2010. Under the new guidance on revenue arrangements with multiple deliverables, when vendor specific objective evidence or third
party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the
relative selling price method. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the
tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to the new guidance for multiple deliverable
arrangements discussed above. We believe the adoption of this guidance will not have a material impact on our consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Substantially all of our marketable securities, some of which are insured by the FDIC, are at fixed interest rates and mature within
two years; therefore, we believe that the market risk arising from the holding of these financial instruments is minimal. Based on our average invested cash balances during 2009, a 1% (100 basis
points) decrease in the interest rate on such balances would result in a reduction in interest income of approximately $152,000 on an annual basis.

Foreign Currency Exchange Risk

Historically, in excess of 50% of our consolidated sales have been to international destinations. Since we invoice most of these
customers in U.S. dollars, we do not have significant exposure to foreign currency transaction risk. We invoice a small amount to our international customers in their local currency which exposes us
to some transaction gain or loss when converting their payments into U.S. dollars. We also pay a small number of our international suppliers in their local currency which exposes us to transaction
gain or loss. However, these have not resulted in material amounts in the past. Our foreign operations expose us to foreign currency exchange risk when the euro and yuan currency results of operations
are translated to U.S. dollars. While we historically have not experienced any material foreign currency translation losses, we may engage in hedging activity in the future to minimize this risk. Our
net investment in foreign subsidiary translated into U.S. dollars is not hedged. Any changes in foreign currency exchange 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.

27

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and Report of Independent Registered Public Accounting Firm are included beginning on
page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)  (in thousands, except per share data)

Quarter1st

2nd

3rd

4th2009:Sales

$
6,172

$
6,421

$
6,601

$
7,444Gross profit


3,591


3,627


3,918


4,434Net income


399


516


874


1,122Net income per common share:Basic

$
0.07

$
0.09

$
0.17

$
0.22Diluted


0.07


0.09


0.16


0.212008:Sales

$
7,462

$
7,379

$
7,429

$
7,426Gross profit


4,308


4,400


4,563


4,310Net income


886


1,051


1,082


1,040Net income per common share:Basic

$
0.16

$
0.19

$
0.19

$
0.19Diluted


0.16


0.18


0.19


0.19


Note:
The sum of the quarterly amounts above may not agree with annual amounts due to rounding.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A(T).    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) that are designed to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is
accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.

28

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Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered in this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that material information relating to our company is made known to management, including our
Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Management's Report on Internal Control over Financial Reporting

MOCON's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our
management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2009.

This
annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's
report in this annual report.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our fourth quarter of the year ended
December 31, 2009 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute,
assurance that the objectives of the system will be met. In designing and operating a control system, one must consider the potential benefits of controls relative to their costs and the reality of
limited resources available to allocate to control activities, particularly in smaller companies. In addition, the design of any control system is based in part upon certain assumptions about the
likelihood of future events and there can be no assurance that any control will meet its objectives under all potential future conditions. Because of such inherent limitations in any control system,
there can be no absolute assurance that control issues, misstatements, and/or fraud will be prevented or detected.

ITEM 9B.    OTHER INFORMATION

None.

29

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under Item 10 of this Annual Report on Form 10-K is to be contained under the
headings "Proposal OneElection of DirectorsInformation About Board Nominees," "Proposal OneElection of DirectorsAdditional Information About Board
Nominees," "Corporate GovernanceInformation About our Board and its Committees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement to
be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not
filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the
120-day period.

The
information concerning our executive officers is included in this Annual Report under Item 1, "Executive Officers" and is incorporated herein by reference.

During
the fourth quarter 2009, we made no material changes to the procedures by which shareholders may recommend nominees to the board of directors, as described in our most recent
proxy statement.

Our
Code of Ethics applies to all of our officers, directors and employees, including our principal executive officer and principal financial officer, and meets the requirements of the
rules and regulations of the Securities and Exchange Commission. We will disclose any amendments to, and any waivers from a provision of, our Code of Ethics on a Form 8-K filed with
the Securities and Exchange Commission. We make available, free of charge and through our website, to any shareholder who requests, the charters of our board committees and our Code of Ethics. Our
website iswww.mocon.com.

To
request a copy of the charters of our board committees or our Code of Ethics, write to us at:



ITEM 11.    EXECUTIVE COMPENSATION

The information required under Item 11 of this Annual Report on Form 10-K is to be contained under the
headings "Director Compensation," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report" in our definitive proxy statement to be
filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed
with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the
120-day period.

30

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under Item 12 of this Annual Report on Form 10-K is to be contained under the
headings "Principal Shareholders and Beneficial Ownership of Management" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which
involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by
this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

The
following table summarizes outstanding options under our equity compensation plans as of December 31, 2009. Our only equity compensation plans as of December 31, 2009
were the MOCON, Inc. 2006 Stock Incentive Plan and the MOCON, Inc. 1998 Stock Option Plan. The MOCON, Inc. 1998 Stock Option Plan has terminated with respect to future grants.
Options and other stock incentive awards to be granted in the future under the MOCON, Inc. 2006 Stock Incentive Plan are within the discretion of our Board of Directors and the Compensation
Committee of our Board of Directors and therefore cannot be ascertained at this time.

Plan Category

Number of Securities to be
Issued upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in First Column)Equity compensation plans approved by security holders


937,250

$
8.84


141,012Equity compensation plans not approved by security holders








Total


937,250





141,012


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required under Item 13 of this Annual Report on Form 10-K is to be contained under the
heading "Related Party Relationships and Transactions" and "Corporate GovernanceDirector Independence" in our definitive proxy statement to be filed with the SEC with respect to our next
annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the
end of the fiscal year covered by this
report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

31

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ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under Item 14 of this Annual Report on Form 10-K is to be contained under the
headings "Proposal TwoRatification of Selection of Independent Registered Public Accounting FirmAudit, Audit-Related, Tax and Other Fees" and "Proposal
TwoRatification of Selection of Independent Registered Public Accounting FirmPre-Approval Policies and Procedures" in our definitive proxy statement to be filed
with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with
the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the
120-day period.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



The
following consolidated financial statements of MOCON, Inc. and its subsidiaries are included herein:

PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of December 31, 2009 and 2008

F-2Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007

F-3Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 2009, 2008
and 2007

F-4Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

F-5Notes to Consolidated Financial Statements

F-6




The
following financial statement schedule is included herein and should be read in conjunction with the consolidated financial statements referred to above:

Schedule II: Valuation and Qualifying Accounts

S-1




The
exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index.

A
copy of any of the exhibits listed or referred to above will be furnished at a reasonable cost to any person who was a shareholder of MOCON as of March 22, 2010, upon receipt
from any such person of a written request for any such exhibit. Such request should be sent to MOCON, Inc., 7500 Boone Avenue North, Minneapolis, Minnesota 55428; Attn: Shareholder Information.

The
following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant
to Item 15(a):



32

---





The
exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index.



See
Item 15(a)(2) above for the financial statement schedule filed herewith.

33

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 30, 2010

MOCON, Inc.By:

/s/ ROBERT L. DEMOREST Robert L. Demorest,Chairman of the Board, President and Chief Executive Officer (principal executive officer)By:

/s/ DARRELL B. LEE Darrell B. Lee,Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer)


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
indicated and on March 30, 2010.

Signature and Title/s/ ROBERT L. DEMOREST Robert L. Demorest, Chairman of the Board, President and Chief Executive Officer/s/ DEAN B. CHENOWETH Dean B. Chenoweth, Director/s/ DONALD N. DEMORETT Donald N. DeMorett, Director/s/ J. LEONARD FRAME J. Leonard Frame, Director/s/ ROBERT F. GALLAGHER Robert F. Gallagher, Director/s/ DANIEL W. MAYER Daniel W. Mayer, Director/s/ RONALD A. MEYER Ronald A. Meyer, Director/s/ RICHARD A. PROULX Richard A. Proulx, Director/s/ TOM C. THOMAS Tom C. Thomas, Director


34

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MOCON, INC. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2009, 2008 and 2007

Table of Contents

PageReport of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets


F-2Consolidated Statements of Income


F-3Consolidated Statements of Stockholders' Equity and Comprehensive Income


F-4Consolidated Statements of Cash Flows


F-5Notes to Consolidated Financial Statements


F-6


35

---





Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
MOCON, Inc.:

We
have audited the accompanying consolidated balance sheets of MOCON, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the
consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MOCON, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, taken as a whole, presents fairly, in all material respects, the information set
forth therein.

/s/ KPMG LLPMinneapolis, Minnesota
March 30, 2010


F-1

---



MOCON, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2009 and 2008

2009

2008AssetsCurrent assets:Cash and cash equivalents

$
9,393,127

$
4,553,479Marketable securities, current


4,371,119


7,087,373Trade accounts receivable, less allowance for doubtful accounts of $162,315 in 2009 and $137,182 in 2008


4,589,998


4,514,359Other receivables


92,738


255,923Inventories


4,265,470


4,731,859Prepaid income taxes


223,648


465,641Prepaid expensesother


357,911


385,264Deferred income taxes


411,549


362,773Total current assets


23,705,560


22,356,671Marketable securities, noncurrent


567,163


4,468,064Property, plant, and equipment, net


1,655,187


1,826,269Goodwill


3,300,088


3,267,926Technology rights and other intangibles, net


738,035


659,298Deferred income taxes


280,548


298,094Other assets


80,427


76,905Total assets

$
30,327,008

$
32,953,227Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
1,343,739

$
1,676,448Compensation and related expenses


1,479,398


1,498,428Other accrued expenses


163,640


310,828Accrued product warranties


209,710


229,087Dividends payable


465,302


503,308Deferred revenue


426,277


245,793Total current liabilities


4,088,066


4,463,892Obligations to former employees


54,141


55,522Accrued income taxes


202,418


215,820Total noncurrent liabilities


256,559


271,342Total liabilities


4,344,625


4,735,234Commitments and contingencies (Note 7)Stockholders' equity:Capital stockundesignated. Authorized 3,000,000 shares





Common stock$0.10 par value. Authorized 22,000,000 shares; issued and outstanding 5,170,018 shares in 2009 and 5,592,314 shares in 2008


517,002


559,231Capital in excess of par value


114,021


2,868,669Retained earnings


24,690,293


24,268,266Accumulated other comprehensive income


661,067


521,827Total stockholders' equity


25,982,383


28,217,993Total liabilities and stockholders' equity

$
30,327,008

$
32,953,227


See
accompanying notes to consolidated financial statements.

F-2

---



MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2009, 2008 and 2007

2009

2008

2007Sales:Products

$
24,791,998

$
28,016,390

$
25,659,362Consulting services


1,846,100


1,679,316


1,737,220Total sales


26,638,098


29,695,706


27,396,582Cost of sales:Products


10,011,394


11,136,392


10,398,764Consulting services


1,056,916


978,529


985,879Total cost of sales


11,068,310


12,114,921


11,384,643Gross profit


15,569,788


17,580,785


16,011,939Selling, general and administrative expenses


9,858,493


10,170,083


8,643,735Research and development expenses


1,847,993


1,950,754


2,030,157Operating income


3,863,302


5,459,948


5,338,047Other income, net


366,052


588,911


580,274Income before income taxes


4,229,354


6,048,859


5,918,321Income taxes


1,318,867


1,990,000


2,113,000Net income

$
2,910,487

$
4,058,859

$
3,805,321Net income per common share:Basic

$
0.54

$
0.73

$
0.69Diluted

$
0.53

$
0.72

$
0.67Weighted average common shares outstanding:Basic


5,393,066


5,565,801


5,500,767Diluted


5,457,964


5,649,208


5,682,562


See
accompanying notes to consolidated financial statements.

F-3

---



MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income

Years ended December 31, 2009, 2008 and 2007

Common stockAccumulated
other
comprehensive
income (loss)Number
of shares

Amount

Capital in
excess of
par value

Retained
earnings

TotalBalance, December 31, 2006


5,469,275

$
546,928

$
1,218,115

$
20,036,869

$
158,061

$
21,959,973Stock options exercised


58,776


5,877


455,497








461,374Dividends declared ($0.315 per share)











(1,736,012
)




(1,736,012
)Stock-based compensation expense








393,153








393,153Tax benefit on stock plans








60,418








60,418Net income











3,805,321





3,805,321Cumulative translation adjustment














414,281


414,281Adjustment for unrealized gain on marketable equity securities














26,759


26,759Comprehensive income

















4,246,361Balance, December 31, 2007


5,528,051


552,805


2,127,183


22,106,178


599,101


25,385,267Stock options exercised


79,183


7,918


553,460








561,378Purchase and retirement of common stock


(14,920
)

(1,492
)

(139,836
)







(141,328
)Dividends declared ($0.34 per share)











(1,896,771
)




(1,896,771
)Stock-based compensation expense








303,292








303,292Tax benefit on stock plans








24,570








24,570Net income











4,058,859





4,058,859Cumulative translation adjustment














(54,518
)

(54,518
)Amortization of cumulative unrealized gain on marketable securities














(22,756
)

(22,756
)Comprehensive income

















3,981,585Balance, December 31, 2008


5,592,314


559,231


2,868,669


24,268,266


521,827


28,217,993Stock options exercised


1,275


128


9,903








10,031Purchase and retirement of common stock


(423,571
)

(42,357
)

(2,992,010
)

(567,716
)




(3,602,083
)Dividends declared ($0.36 per share)











(1,920,744
)




(1,920,744
)Stock-based compensation expense








227,434








227,434Tax benefit on stock plans








25








25Net income











2,910,487





2,910,487Cumulative translation adjustment














141,767


141,767Amortization of cumulative unrealized gain on marketable securities














(2,527
)

(2,527
)Comprehensive income

















3,049,727Balance, December 31, 2009


5,170,018

$
517,002

$
114,021

$
24,690,293

$
661,067

$
25,982,383


See accompanying notes to consolidated financial statements.

F-4

---



MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2009, 2008 and 2007

2009

2008

2007Cash flows from operating activities:Net income

$
2,910,487

$
4,058,859

$
3,805,321Adjustments to reconcile net income to net cash provided by operating activities:Stock-based compensation expense


227,434


303,292


393,153Loss on disposition of long-term assets


9,459


33,967


26,009Depreciation and amortization


577,530


582,767


576,059Deferred income taxes


(31,230
)

(118,456
)

116,696Excess tax benefit from employee stock plans


(25
)

(24,570
)

(60,418
)Changes in operating assets and liabilities:Trade accounts receivable


(506,210
)

(12,146
)

226,148Other receivables


163,047


(70,230
)

(18,182
)Inventories


477,724


(796,400
)

(289,435
)Prepaid income taxes


243,058


(476,565
)

Prepaid expensesother


27,777


(52,948
)

(82,246
)Accounts payable


84,797


61,065


50,617Compensation and related expenses


(25,295
)

167,393


(18,891
)Other accrued expenses


(147,548
)

8,962


(19,674
)Accrued product warranties


(20,228
)

30,280


(50,945
)Accrued income taxes


(18,095
)

(105,441
)

(202,180
)Deferred revenue


180,484


12,501


(217,630
)Net cash provided by operating activities


4,153,166


3,602,330


4,234,402Cash flows from investing activities:Purchases of marketable securities


(979,101
)

(8,916,510
)

(9,822,218
)Proceeds from maturities of marketable securities


7,593,729


7,156,094


9,118,709Cash paid for acquisitions








(574,568
)Purchases of property, plant and equipment


(306,572
)

(719,641
)

(436,527
)Proceeds from sale of property and equipment


4,491


7,554


9,595Cash paid for patent and trademark registrations


(148,064
)

(218,486
)

(136,065
)Other


(3,522
)

(3,387
)

98,490Net cash provided by (used in) investing activities


6,160,961


(2,694,376
)

(1,742,584
)Cash flows from financing activities:Proceeds from the exercise of stock options


10,031


478,878


461,374Purchases and retirement of common stock


(3,602,083
)

(58,828
)

Excess tax benefit from employee stock plans


25


24,570


60,418Dividends paid


(1,958,750
)

(1,835,707
)

(1,703,965
)Net cash used in financing activities


(5,550,777
)

(1,391,087
)

(1,182,173
)Effect of exchange rate changes on cash and cash equivalents


76,298


(170,493
)

348,418Net increase (decrease) in cash and cash equivalents


4,839,648


(653,626
)

1,658,063Cash and cash equivalents:Beginning of year


4,553,479


5,207,105


3,549,042End of year

$
9,393,127

$
4,553,479

$
5,207,105Supplemental disclosures of cash flow information:Cash paid during the year for income taxes

$
1,367,575

$
2,457,312

$
2,208,601Cash paid during the year for interest


4,046





Supplemental schedule of noncash investing and financing activities:Dividends accrued

$
465,302

$
503,308

$
442,244Unrealized holding gain on available-for-sale securities








26,759Amortization of cumulative unrealized gain on marketable securities


(2,527
)

(22,756
)

Noncash purchase and retirement of common stock





(82,500
)

Noncash exercise of stock options





82,500





See accompanying notes to consolidated financial statements.

F-5

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies

MOCON, Inc. (the Company) operates in a single industry segment: the developing, manufacturing and marketing of measurement, analytical, monitoring and consulting products for
customers in the barrier packaging, food, pharmaceutical, consumer products, industrial hygiene, air quality monitoring, oil and gas exploration and other industries throughout the world. The
following is a summary of the
significant accounting policies used in the preparation of the Company's consolidated financial statements.











F-6

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)









F-7

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)









F-8

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)











F-9

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)





F-10

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(2) Marketable Securities

The classification of our marketable securities was changed as of January 1, 2008 from available-for-sale to held-to-maturity. The
amortized cost and fair value for held-to-maturity securities by major security type at December 31, 2009 and 2008 were as follows:

2009Amortized
Cost

Fair
ValueHeld-to-maturity:Municipal bonds

$
2,550,294

$
2,584,917Certificates of deposit


2,387,988


2,388,000$
4,938,282

$
4,972,9172008Amortized
Cost

Fair
ValueHeld-to-maturity:Municipal bonds

$
4,603,040

$
4,614,136Certificates of deposit


6,949,870


6,949,972Unamortized holding gain on marketable securities


2,527


$
11,555,437

$
11,564,108


There
were no gross realized gains or losses for the years ended December 31, 2009, 2008 and 2007.

Maturities
of investment securities at December 31, 2009 and 2008 were as follows:

2009

2008Amortized
Cost

Fair
Value

Amortized
Cost

Fair
ValueDue within one year

$
4,371,119

$
4,399,293

$
7,087,373

$
7,105,317Due after one year


567,163


573,624


4,465,537


4,458,791$
4,938,282

$
4,972,917

$
11,552,910

$
11,564,108


(3) Inventories

The major components of inventories at December 31, 2009 and 2008 were as follows:

2009

2008Finished products

$
939,385

$
829,861Work-in-process


1,404,012


1,633,577Raw materials


1,922,073


2,268,421$
4,265,470

$
4,731,859


F-11

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(4) Property, Plant and Equipment

Property, plant and equipment at December 31, 2009 and 2008 consisted of the following:

2009

2008

Estimated
useful livesLand

$
200,000

$
200,000

Buildings


759,281


742,755

27 yearsMachinery and equipment


3,209,227


3,127,428

3 to 10 yearsOffice equipment


1,192,958


1,111,484

2 to 15 yearsLeasehold improvements


634,166


658,864

1 to 5 yearsVehicles


261,035


260,192

3 to 5 yearsTotal property, plant and equipment


6,256,667


6,100,723Less accumulated depreciation


(4,601,480
)

(4,274,454
)Net property, plant and equipment

$
1,655,187

$
1,826,269


Depreciation
of property, plant and equipment was $475,673, $464,015 and $420,606 for the years ended December 31, 2009, 2008 and 2007, respectively.

(5) Goodwill and Other Intangible Assets



As of December 31, 2009 and 2008, goodwill amounted to $3,300,088 and $3,267,926, respectively. The increase was due to foreign
currency translation relating to the acquisition of Paul Lippke Handels-GmbH. The Company completed its annual impairment tests during the fourth quarters of 2009 and 2008 and determined
there was no impairment.



Other intangible assets (all of which are being amortized except projects in process) are as follows:

As of December 31, 2009Cost

Accumulated Amortization

NetPatents

$
1,008,032

$
(402,392
)
$
605,640Trademarks and trade names


477,486


(398,424
)

79,062Other intangibles


778,596


(725,263
)

53,333$
2,264,114

$
(1,526,079
)
$
738,035


F-12

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(5) Goodwill and Other Intangible Assets (Continued)



As of December 31, 2008Cost

Accumulated Amortization

NetPatents

$
860,422

$
(365,329
)
$
495,093Trademarks and trade names


465,756


(381,551
)

84,205Other intangibles


778,596


(698,596
)

80,000$
2,104,774

$
(1,445,476
)
$
659,298


Amortization
expense was $101,857, $118,752 and $155,453 in 2009, 2008 and 2007, respectively.

Estimated
amortization expense for the fiscal years 2010 to 2014 and thereafter is $88,628, $74,989, $42,564, $37,871, $221,218, respectively.

(6) Warranty

The Company provides a warranty for most of its products. Warranties are for periods ranging from ninety days to one year, and cover parts and labor for non-maintenance
repairs, at the Company 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 sale based on historical claims experience. Warranty reserves are also accrued for special rework campaigns for known major product
modifications. The Company also offers extended warranty service contracts for select products when the factory warranty period expires.

Warranty
provisions and claims for the years ended December 31, 2009, 2008 and 2007 were as follows:

Description

Balance at
Beginning of
Year

Warranty
Provisions

Warranty
Claims

Balance at
End of YearYear ended December 31, 2007:Allowance for product warranties

$
246,737


354,383


399,747


201,373Year ended December 31, 2008:Allowance for product warranties

$
201,373


416,043


388,329


229,087Year ended December 31, 2009:Allowance for product warranties

$
229,087


294,579


313,956


209,710


(7) Commitments and Contingencies



The Company leases its facilities and certain equipment pursuant to operating leases. The facility leases expire at various times
through July 2018 and require the Company to pay operating costs, including real estate taxes.

F-13

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(7) Commitments and Contingencies (Continued)

Rental
expense, including charges for operating costs, was $462,131, $450,725 and $421,840 in 2009, 2008 and 2007, respectively.

The
following is a schedule of future minimum lease payments, excluding charges for operating costs, for operating leases as of December 31, 2009:

Year Ending December 312010

$
291,0602011


116,9172012


116,9172013


116,9172014 and thereafter


337,624$
979,435


Subsequent
to December 31, 2009, the Company signed a new 15-year lease for a property which will replace its current Minneapolis headquarters and operations center.
The new lease will commence on June 1, 2010. The required future minimum lease payments, starting at $367,000 per year and subject to annual increases, have not been included in the above
table.



The Company is a party to a severance agreement with five of its executive officers which provides for the payment to the executive of
a lump sum amount upon the occurrence of certain termination events. The payment could amount to one or two times the executive's current annual salary depending on the reason for termination.



At December 31, 2009, the Company had approximately $1.2 million of purchase order commitments to suppliers of the
Company for delivery of inventory primarily during 2010.



At December 31, 2009, the Company had committed to acquire a minority equity interest in Luxcel Biosciences Limited, an Irish
company, for approximately $3.6 million. This transaction was closed on January 15, 2010.

(8) Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, several state jurisdictions, China and Germany. With limited exceptions, the Company is
no longer subject to income tax examinations by taxing authorities for taxable years before 2006.

F-14

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

Income before income taxes was as follows:

2009

2008

2007Income before income taxes:Domestic

$
2,824,000

$
4,901,000

$
4,580,000Foreign


1,405,000


1,148,000


1,338,000Total

$
4,229,000

$
6,049,000

$
5,918,000


The
provision (benefit) for income taxes consists of the following:

2009

2008

2007Current tax expense:Federal

$
892,905

$
1,502,000

$
1,383,000State


106,816


170,000


178,000Foreign


352,512


414,000


570,000Total current expense


1,352,233


2,086,000


2,131,000Deferred tax expense:Federal


(42,277
)

(66,000
)

33,000State


(4,727
)

(7,000
)

4,000Foreign


13,638


(23,000
)

(55,000
)Total deferred expense (benefit)


(33,366
)

(96,000
)

(18,000
)Provision for income taxes

$
1,318,867

$
1,990,000

$
2,113,000


The
effective income tax rate varies from the federal statutory tax rate for the following reasons:

Percentage of pretax income
for years ended December 31,2009

2008

2007Tax at statutory federal income tax rate


34.0
%

34.0
%

34.0
%Increases (reductions) in taxes resulting from:State income taxes, net of federal benefit


1.6


2.1


2.0Change in valuation allowance


(1.0
)

0.7


Domestic manufacturing deduction


(1.5
)

(1.6
)

(1.7
)Effect of foreign operations


(1.6
)

(0.7
)

1.0Tax-exempt interest


(0.9
)

(1.3
)

(0.9
)Changes in unrecognized tax benefits


(0.3
)

(0.7
)

Stock option compensation


1.6


1.0


1.4Research credit


(1.2
)

(0.8
)

(0.5
)Other


0.5


0.2


0.4Effective income tax rate


31.2
%

32.9
%

35.7
%


F-15

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

The
tax effect of significant temporary differences representing deferred tax assets and liabilities at December 31, 2009 and 2008 were as follows:

2009

2008Deferred tax assets:Allowance for doubtful accounts

$
42,273

$
34,324Inventory items


117,039


104,273Reserves and accruals


377,191


342,464Capital loss carryforward


319,873


321,058Compensation expensestock options


89,837


79,630NOL carryforward





42,827Intangibles


53,019


54,979Other


64,374


71,598Subtotal


1,063,606


1,051,153Less: Valuation allowance


(319,873
)

(363,885
)Total deferred tax assets


743,733


687,268Deferred tax liabilities:Fixed assets


(51,636
)

(26,401
)Net deferred tax asset

$
692,097

$
660,867


As
of December 31, 2009, the Company has determined that establishing a valuation allowance against the deferred tax assets is required since it is more likely than not that the
tax benefits of the $319,873 from the capital loss carryforward will not be realized through generating of future capital gain income. The reduction in the valuation allowance from 2008 to 2009 was
due to the re-evaluation of a net operating loss carryforward relating to our China location. However, the Company believes it is more likely than not that the remainder of its deferred
tax assets at December 31, 2009 will be realized either through future taxable income or net operating loss carrybacks.

As
of December 31, 2009, there were approximately $5,400,000 of accumulated undistributed earnings from the Company's German subsidiary that are considered to be reinvested
indefinitely. No deferred tax liability has been provided on such earnings. If they were remitted to the Company, applicable U.S. federal and foreign withholding taxes would be partially offset by
available foreign tax credits.

The
Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109(FIN 48), now codified in ASC 740, on January 1, 2007, and upon adoption did not need to recognize an adjustment in the previously recorded

F-16

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

liability
for unrecognized income tax benefits. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

Balance at January 1, 2009

$
168,000Additions based on tax positions related to the current year


33,000Additions based on tax positions related to the prior year


4,000Reductions due to closing of statute of limitations


(12,000
)Reductions based on tax positions related to the prior year


(18,000
)Balance at December 31, 2009

$
175,000


Included
in the balance of total unrecognized tax benefits at December 31, 2009 are potential benefits of $127,000 that if recognized would affect the effective tax rate on income
before income taxes. The difference between this amount and the corresponding amount of gross unrecognized tax benefits related primarily to the deferred federal benefit for state income tax related
amounts.

The
Company does not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months.

The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to $27,000
and $48,000 on a gross basis at December 31, 2009 and 2008, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above.

(9) Stock-Based Compensation

As of December 31, 2009, the Company has reserved 141,012 shares of common stock for options and other stock-based incentive awards that are still available for grant under the
Company's 2006 stock incentive plan, and 937,250 shares for options that have been granted under either the Company's 2006 stock incentive plan or 1998 stock option plan but have not yet been
exercised. The Company issues new shares of common stock upon exercise of stock options.

Under
the Company's stock-based incentive plans, option exercise prices are 100% of the market value of the common stock at the date of grant, except if incentive options granted under
the 1998 and 2006 plans were granted to persons owning more than 10% of the Company's stock, in which case the option price would be 110% of the market value. Exercise periods are generally for seven
to ten years. Certain of the plans allow for the granting of nonqualified stock options. Upon the exercise of these nonqualified options, the Company may realize a compensation deduction allowable for
income tax purposes. The after-tax effect of these tax deductions is included in the accompanying consolidated financial statements as an addition to capital in excess of par value.

Stock-based
compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related stock-based reward. The Company
generally provides for the vesting of stock options in equal annual installments over a four-year period commencing on the one-year anniversary of the date of grant, or over a
one-year period with one-fourth of the underlying shares vesting at the end of each three-month period following the grant date. Stock-based

F-17

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

compensation
expense recognized in the consolidated financial statements for 2009, 2008 and 2007 was as shown below:

Years Ended December 31,2009

2008

2007Total cost of stock-based compensation

$
227,434

$
303,292

$
393,153Amount of income tax benefit recognized in earnings


(10,964
)

(44,896
)

(53,543
)Amount charged against net income

$
216,470

$
258,396

$
339,610


The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes). The Company uses historical data to estimate the
expected price volatility, expected option life and expected forfeiture rate. The Company based its estimate of expected volatility for awards granted in 2009, 2008 and 2007 on daily historical
trading data of its common stock for a period equivalent to the expected term of the award. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for the estimated life of the option. The Company estimated the expected term consistent with historical exercise and cancellation activity of its previous share-based grants with a
seven-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior four quarters as a
percent of the average stock price for that period. The following assumptions were used to estimate the fair value of options granted during 2009, 2008 and 2007 using the Black-Scholes model:

2009

2008

2007Dividend yield


4.1
%

3.1
%

2.6
%Expected volatility


41
%

37
%

34
%Risk-free interest rate


3.0
%

2.1
%

4.0
%Expected lives (in years)


5.5


5.4


5.4


F-18

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

Information
regarding the Company's stock option plans for 2007, 2008 and 2009 was as follows:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
ValueOptions outstanding, December 31, 2006


853,875

$
8.52


6.6Granted


95,850


10.95


7.0Exercised


(58,776
)

7.85Cancelled or expired


(34,512
)

11.26Options outstanding, December 31, 2007


856,437


8.73


5.4

$
2,061,171Granted


91,500


8.58


7.0Exercised


(79,183
)

7.09Cancelled or expired


(20,192
)

10.96Options outstanding, December 31, 2008


848,562


8.81


4.9

$
567,879Granted


96,500


9.21


7.0Exercised


(1,275
)

7.87Cancelled or expired


(6,537
)

10.37Options outstanding, December 31, 2009


937,250

$
8.84


4.2

$
881,656Options exercisable, December 31, 2009


774,938

$
8.70


3.7

$
860,748


The
weighted average grant date fair value based on the Black-Scholes model for options granted in 2009, 2008 and 2007 was $2.53, $2.16 and $3.02, respectively. The total intrinsic value
of options exercised was $1,151, $296,904 and $216,882 during the years ended December 31, 2009, 2008 and 2007, respectively. The aggregate intrinsic values are based upon the closing price of
our common stock on the last day of the respective fiscal year.

A
summary of the status of the Company's unvested option shares as of December 31, 2009 is as follows:

Number of
Shares

Weighted
Average
Grant Date
Fair ValueUnvested at December 31, 2008


163,469

$
2.47Options granted


96,500


2.53Options cancelled


(4,537
)

2.53Options vested


(93,120
)

2.47Unvested at December 31, 2009


162,312

$
2.50


F-19

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

As
of December 31, 2009, there was $406,436 of total unrecognized compensation cost related to unvested stock-based compensation granted under the Company's plans. That cost is
expected to be recognized over a weighted-average period of 1.6 years. The total fair value of option shares vested during the years 2009, 2008 and 2007 was $230,365, $304,302 and $394,818,
respectively.

(10) Other Income

Other income, net for 2009, 2008 and 2007 was as follows:

Years Ended December 31,2009

2008

2007Interest income on investments

$
369,176

$
575,094

$
565,441Foreign currency exchange (loss) gain


(2,956
)

12,500


1,165Other


(168
)

1,317


13,668Total other income

$
366,052

$
588,911

$
580,274


(11) Stockholders' Equity

In the period from March through June 2009, the Company repurchased 181,171 shares of its outstanding common stock. These purchases exhausted the authorization which had been in place
since November, 2005. On June 23, 2009, the Board of Directors authorized the repurchase of up to an additional $2,000,000 of our common stock. In August 2009, the Company repurchased a total
of 242,400 shares of the Company's common stock which exhausted the existing authorization. Currently, there is no authorization in place to repurchase any of the Company's common stock.

(12) Net Income per Common Share

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 years ended December 31, 2009, 2008 and 2007:

Years Ended December 31,2009

2008

2007Weighted shares of common stock outstandingbasic


5,393,066


5,565,801


5,500,767Weighted shares of common stock assumed upon exercise of stock options


64,898


83,407


181,795Weighted shares of common stock outstandingdiluted


5,457,964


5,649,208


5,682,562


Outstanding
stock options totaling 574,387, 484,574 and 140,850 at December 31, 2009, 2008 and 2007, have been excluded from the net income per common share calculations because
the effect on net income per common share would not have been dilutive.

F-20

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(13) Product Line, Geographical and Significant Customer Information

The Company operates in a single industry segment which consists of the development, manufacturing and marketing of measurement, analytical, monitoring, and consulting products used to
detect, measure and analyze gases and chemical compounds for customers in the barrier packaging, food, pharmaceutical and other industries throughout the world.

The
following table summarizes total sales by product line for 2009, 2008 and 2007 respectively:

Years Ended December 31,2009

2008

2007Permeation products and services

$
15,126,259

$
15,850,027

$
14,428,823Gas analyzers, sensors and detectors


4,933,256


6,678,982


5,662,923Packaging products and services


4,701,279


4,822,009


4,685,403Other instruments and services


1,877,304


2,344,688


2,619,433Total sales

$
26,638,098

$
29,695,706

$
27,396,582


The
following table summarizes total sales, based upon the country to which sales to external customers were made for fiscal years 2009, 2008 and 2007. All of the Company's tangible
long-lived assets are located in the United States, except for an insignificant amount of property and equipment in Germany and China.

Years Ended December 31,2009

2008

2007Domestic sales

$
11,790,911

$
12,960,723

$
13,160,268Foreign sales:Europe


6,591,749


7,836,335


6,595,075Asia


5,996,005


6,144,822


5,309,901Other


2,259,433


2,753,826


2,331,338Total foreign sales


14,847,187


16,734,983


14,236,314Total sales

$
26,638,098

$
29,695,706

$
27,396,582


The
Company's products are marketed outside of North America through various independent representatives. One independent representative accounted for approximately 6% of our
consolidated sales in each of the years 2009, 2008 and 2007.

No
single customer accounted for 10% or more of the Company's consolidated revenues in any of the fiscal years ended December 31, 2009, 2008 and 2007.

(14) Savings and Retirement Plan

The Company has a 401(k) Savings and Retirement Plan covering substantially all of its employees. The Company provides matching contributions in accordance with the plan. The Company's
contributions to this plan in 2009, 2008 and 2007 were $193,115, $169,465 and $85,145, respectively.

F-21

---



MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(15) Subsequent Event

In January 2010, the Company acquired a minority equity ownership interest in Luxcel Biosciences Limited (Luxcel) based in Cork, Ireland. The investment of €2,500,000
(approximately $3,625,000) was made through the Company's wholly-owned subsidiary, MOCON Netherlands Holding B.V., and amounted to a 16.9% equity interest in Luxcel. Luxcel has developed
phosphorescence-based sensors that enable rapid, high-throughput screening and detection of bacterial contamination of food samples, non-invasive analysis of gas in food,
beverage and pharmaceutical packaging, and one of the most specific measures of drug toxicity and metabolism within pharmaceutical research and development.

F-22

---





MOCON, INC.  EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2009

Exhibit No.

Exhibit

Method of Filing3.1

Restated Articles of Incorporation of MOCON, Inc.

Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No. 000-09273)3.2

Third Restated Bylaws of MOCON, Inc.

Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on December 20, 2007 (File No. 000-09273)10.1

Office/Warehouse Lease, dated July 29, 1994, by and between MOCON, Inc. and DRESCO III, Inc.

Incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 000-09273)10.2

Lease Notification and Extension Agreement, dated June 6, 1997, by and between MOCON, Inc. and DRESCO III, Inc.

Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 000-09273)10.3

Second Lease Notification and Extension Agreement, dated November 17, 1999, by and between MOCON, Inc. and Boone Associates LLC

Incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-09273)10.4

Office/Warehouse Lease, dated March 9, 2010, by and between MOCON, Inc. and Minnesota Industrial Properties Limited Partnership

Filed herewith10.5

MOCON, Inc. 1998 Stock Option Plan, as amended

Incorporated by reference to Appendix A to our Definitive Proxy Statement on Form DEF-14A filed on April 9, 2002 (File No. 000-09273)10.6

Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended

Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)10.7

Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended

Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)10.8

MOCON, Inc. 2006 Stock Incentive Plan

Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)


---



Exhibit No.

Exhibit

Method of Filing10.9

Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan

Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)10.10

Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan

Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)10.11

Form of Executive Severance Agreement

Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 000-09273)10.12

2003 Compensation Committee resolution setting forth the MOCON Incentive Pay Plan

Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 000-09273)10.13

Description of Non-Employee Director Retirement Plan

Incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 000-09273)10.14

Subscription and Shareholders Agreement dated December 21, 2009 among MOCON, Inc., Luxcel Biosciences, Enterprise Ireland, Glanbia Enterprise Fund, and certain other parties named therein

Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed December 23, 2009 (File No. 000-09273)10.15

Description of Non-Employee Director Compensation Arrangements

Filed herewith10.16

Description of Executive Officer Compensation Arrangements

Filed herewith21.1

Subsidiaries of MOCON, Inc.

Filed herewith23.1

Consent of Independent Registered Public Accounting Firm

Filed herewith31.1

Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith31.2

Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

Furnished herewith32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

Furnished herewith


---



Financial Statement Schedule:

IIValuation and Qualifying Accounts

All other schedules are omitted as the required information is inapplicable or the information is presented in our consolidated
financial statements or related notes.

Description

Balance at Beginning of Year

Charged to Costs and Expenses

Deductions

Balance at End of YearYear ended December 31, 2007:Allowance for doubtful accounts and sales returns

$
179,861


23,209


77,273


125,797Year ended December 31, 2008:Allowance for doubtful accounts and sales returns

$
125,797


158,133


146,748


137,182Year ended December 31, 2009:Allowance for doubtful accounts and sales returns

$
137,182


113,521


88,388


162,315


S-1

---



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