8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

__________________

Date of Report (Date of earliest event reported): August 6, 2015 (August 5, 2015)

___________________

MOCON, INC.

(Exact name of registrant as specified in its charter)

Minnesota	000-09273	41-0903312
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

7500 Mendelssohn Avenue North Minneapolis, MN	55428
(Address of Principal Executive Offices)	(Zip Code)

(763) 493-6370

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 – Financial Information

Item 2.02     Results of Operations and Financial Condition.

On August 5, 2015, MOCON, Inc. issued a press release announcing its results of operations and financial condition for its second quarter ended June 30, 2015. A copy of this press release is attached hereto as Exhibit 99.1.

The script and certain remarks of MOCON, Inc.’s Chief Executive Officer, Robert L. Demorest, Chief Financial Officer, Elissa Lindsoe and Chief Operating Officer, Don DeMorett related to the telephone conference held on August 5, 2015 is furnished with this Form 8-K as Exhibit 99.2.

The information contained in this Item 2.02 and the exhibit to this report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any filings made by MOCON, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d)     Exhibits.

Exhibit No.	Description
99.1	Press Release issued August 5, 2015
99.2	Script and certain remarks of Robert L. Demorest, Elissa Lindsoe and Don DeMorett of telephone conference call held August 5, 2015

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SIGNATURES

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

		MOCON, INC.
Dated: August 6, 2015	By:	/s/ Elissa Lindsoe
		Elissa Lindsoe
		Chief Financial Officer, Vice President, Treasurer and Secretary
		(Principal Financial and Accounting Officer)

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MOCON, INC.

CURRENT REPORT ON FORM 8-K

INDEX TO EXHIBITS

Exhibit No.	Description	Method of Filing
99.1	Press Release issued August 5, 2015	Furnished herewith
99.2	Script and certain remarks of Robert L. Demorest, Elissa Lindsoe and Don DeMorett of telephone conference call held August 5, 2015	Furnished herewith

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE	For More Information Contact:
		Elissa Lindsoe, CFO
August 5, 2015		763-493-6370 /
		www.mocon.com

MOCON Reports Second Quarter Results

MINNEAPOLIS, MN, August 5, 2015 – MOCON, Inc. (NASDAQ: MOCO), today reported financial results for the second quarter ended June 30, 2015.

Commenting on the Company’s performance, MOCON’s president and CEO, Robert L. Demorest said, “As we experienced in the first quarter, we continue to be challenged by the soft oil and gas market and by the strong dollar. On a Constant Currency basis, our second quarter revenue grew 5 percent and our Permeation and Package Testing business segments both continue to meet our growth expectations. The Industrial Analyzer and Other segment has experienced success in environmental monitoring and beverage safety markets, which has been offset by softening in the oil and gas sector. For example, in the second quarter, we recorded $1.2 million less in revenue from oil and gas than we did in the second quarter of 2014, which negatively impacted our overall reported revenue growth by nearly 8 percentage points. We are well positioned in the markets we serve and look forward to the continued strengthening of our overall financial performance when general macro-economic factors improve. In the meantime, we are appropriately managing expenses.”

2015 Revenue and Earnings Summary

Second quarter 2015 results compared to second quarter 2014:

● Reported revenue decreased 3 percent as compared to the second quarter 2014. On a Constant Currency basis, revenue increased 5 percent compared to the year ago quarter.

● Revenue (as reported) from foreign customers accounted for 69 percent (35 percent in Europe, 34 percent outside of Europe & the U.S.A.) of total revenue for the second quarter of 2015 compared to 72 percent (43 percent in Europe, 29 percent outside of Europe & the U.S.A.) in the second quarter of 2014.

● EBITDA for second quarter of 2015 was $1.6 million compared to $2.4 million in the second quarter of 2014. See reconciliation to non-GAAP information below.

Six months ended June 30, 2015 results compared to the year ago six month period:

● Reported revenue decreased 2 percent as compared to the year ago period. On a Constant Currency basis, revenue increased 7 percent compared to the year ago six month period.

● Revenue (as reported) from foreign customers accounted for 68 percent (38 percent in Europe, 30 percent outside of Europe & the U.S.A.) of total revenue for the second half of 2015 compared to 72 percent (43 percent in Europe, 29 percent outside of Europe & the U.S.A.) in the second half of 2014.

● EBITDA for the six month period ended June 30, 2015 was $3.6 million compared to $4.1 million in the year ago six month period.

Revenue by Segment ($ in thousands)

	Three Months Ended June 30,
	As Reported				Year over Year Growth					Currency impact on 2015			2015 Revenue at Constant		Year-over-Year Constant Currency
	2015		2014		$			%		Growth $			Currency		Growth %
Package Testing	$	6,473	$	7,354	$	(881	)		-12%	$	(1,065	)	$	7,538		3%
Permeation		5,966		5,044		922			18%		(169	)		6,135		22%
Industrial Analyzers and Other		2,610		3,176		(566	)		-18%		-			2,610		-18%
Total Revenue	$	15,049	$	15,574	$	(525	)		-3%	$	(1,234	)	$	16,283		5%

	Six Months Ended June 30,
	As Reported				Year over Year Growth					Currency impact on 2015			2015 Revenue at Constant		Year-over-Year Constant Currency
	2015		2014		$			%		Growth $			Currency		Growth %
Package Testing	$	13,229	$	13,979	$	(750	)		-5%	$	(2,116	)	$	15,345		10%
Permeation		12,068		10,892		1,176			11%		(488	)		12,556		15%
Industrial Analyzers and Other		5,112		6,017		(905	)		-15%		-			5,112		-15%
Total Revenue	$	30,409	$	30,888	$	(479	)		-2%	$	(2,604	)	$	33,013		7%

Revenue from the Package Testing segment for the three and six months ended June 30, 2015 increased 3 percent and 10 percent, respectively, on a Constant Currency basis and decreased 12 percent and 5 percent, respectively, as reported due to an increase in headspace and mixer products and accessories. The year-to-date growth rate in Package Testing is a better indicator of performance than the second quarter on a stand-alone basis due to the timing of revenue recognition in 2014. The first quarter 2014 revenue was impacted by a warranty issue that was resolved in the second quarter of the same year at which time the first quarter backlog shipped.

Revenue growth for the Permeation segment for the three months and six months ended June 30, 2015 was 22 percent and 15 percent, respectively, on a Constant Currency basis and 18 percent and 11 percent, respectively, as reported. The current year growth is attributable to an increase in demand in the USA for the new generation of oxygen permeation instrumentation, which was introduced to the marketplace during the second half of 2014.

The 18 percent and 15 percent year-over-year revenue decline in the Industrial Analyzer and Other segment for the three and six months ended June 30, 2015 was attributable to an 85 percent and 80 percent decline, respectively, in revenue from the oil and gas market. This decline is offset in part by increases in other markets including sales of environmental monitoring products into Taiwan and BevAlert systems into India and Pakistan.

Gross Profit, Operating Expenses and Other Income Commentary

Gross profit was 53 percent and 54 percent of revenue for the three and six month periods ended June 30, 2015, respectively, compared to 56 percent and 55 percent of revenue for the same periods in 2014, respectively. The decrease in the gross margin rate is driven primarily by reduced volume in Industrial Analyzer and Other segment revenue which provides a lower basis to absorb the semi-variable and fixed production related costs, production ramp up costs associated with the recently introduced next generation Permeation products, and increased cost for products produced in the USA and sold in euros.

Selling, general and administrative expenses were slightly lower during the second quarter and first six months of 2015 compared to the same periods in 2014 due primarily to favorable foreign exchange rates offset by the cost of the Company’s initiative to reduce the number of legal entities. Research and development expenses grew slightly as we continue to invest in next generation product offerings.

Balance Sheet and Cash Flow Summary

● Cash and cash equivalents were $6.0 million on June 30, 2015 compared to $6.3 million on December 31, 2014, which is primarily due to the softening of the euro and Danish krone.

● Net cash provided by operations was $2.1 million compared to $3.9 million in the first six months of 2014 primarily driven by a $1.9 million decline in accounts payable and accrued compensation.

● Days sales outstanding were 53 days, a 2 day improvement from 55 in the first quarter of 2015.

● Total debt was $4.6 million at June 30, 2015 and December 31, 2014.

About MOCON

MOCON is a leading provider of detectors, instruments, systems and consulting services to research laboratories, production facilities, and quality control and safety departments in the medical, pharmaceutical, food and beverage, packaging, environmental, oil and gas and other industries worldwide. See www.mocon.com for more information.

Use of Non-GAAP Financial Measures

MOCON’s management evaluates its financial results on a constant currency basis which is calculated by adjusting the current period reported revenue to the comparative period’s currency translation rate (“Constant Currency”) and believes that investors may want to consider this impact on the Company’s performance. In addition, MOCON supplements its financial statements to provide investors with earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA plus share-based compensation and foreign currency transactional losses (“Adjusted EBITDA”), which are not calculated in accordance with general accepted accounting principles (“GAAP”) in the United States of America.

MOCON believes that these non-GAAP measures provide useful information to the Company’s Board of Directors, management and investors regarding certain trends relating to its financial condition and operating performance. MOCON’s management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses and planning purposes In addition, revenue on a Constant Currency basis is used to assess the revenue growth component of MOCON’s Incentive Pay Plan.

The method MOCON uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. MOCON urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release.

Safe Harbor

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements that can be identified by words such as “will,” “may,” “expect,” “believe,” “anticipate,” “estimate,” “continue,” “planned”, or other similar expressions. All forward-looking statements speak only as of the date of this press release. MOCON undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and the markets in which the Company competes, there are important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements made in this press release. These factors include, but are not limited to, the performance of Dansensor, worldwide economic conditions and fluctuations in foreign currency exchange rates, the terms of our credit agreement including financial covenants included therein, dependence on certain key industries, pricing and lack of availability of raw materials, crude oil pricing impact on oil exploration activities, and other factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and other documents MOCON files with or furnishes to the Securities and Exchange Commission.

MOCON's shares are traded on the NASDAQ Global Market System under the symbol MOCO.

MOCON is a registered trademark of MOCON, Inc.; other trademarks are those of their respective holders.

MOCON, INC.

SUMMARY CONSOLIDATED FINANCIAL DATA

(in Thousands, Except Per Share Data)

STATEMENT OF OPERATIONS DATA: (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015		2014
Revenue
Products	$	12,032		$	12,432		$	24,201	$	24,273
Services		2,338			2,437			4,842		5,238
Consulting		679			705			1,366		1,376
Total revenue		15,049			15,574			30,409		30,887
Cost of revenue
Products		5,497			5,228			10,783		10,670
Services		1,016			1,116			2,064		2,141
Consulting		511			508			1,058		965
Total cost of revenue		7,024			6,852			13,905		13,776
Gross profit		8,025			8,722			16,504		17,111
Selling, general and administrative expenses		5,835			5,947			12,106		12,090
Research and development expenses		1,126			989			2,195		2,114
Operating income		1,064			1,786			2,203		2,907
Other income (expense), net		(113	)		(93	)		138		(150	)
Income before income taxes		951			1,693			2,341		2,757
Income tax expense		305			527			787		861
Net income	$	646		$	1,166		$	1,554	$	1,896
Net income per common share:
Basic	$	0.11		$	0.21		$	0.27	$	0.34
Diluted	$	0.11		$	0.20		$	0.27	$	0.33
Weighted average common shares outstanding:
Basic		5,750			5,655			5,746		5,648
Diluted		5,846			5,775			5,840		5,770

CONDENSED BALANCE SHEET DATA: (unaudited)

	June 30, 2015		December 31, 2014
Assets:
Cash and cash equivalents	$	6,019	$	6,332
Accounts receivable, net		8,801		9,877
Inventories		9,205		8,705
Other current assets		2,254		2,587
Total current assets		26,279		27,501
Property, plant and equipment, net		5,742		5,562
Goodwill, intangibles and other assets		17,652		19,446
Total assets	$	49,673	$	52,509
Liabilities and Shareholders’ Equity:
Revolving lines of credit	$	3,905	$	3,300
Notes payable, current		736		983
Other current liabilities		9,988		11,166
Total noncurrent liabilities		2,007		2,587
Shareholders’ equity		33,037		34,473
Total liabilities and shareholders’ equity	$	49,673	$	52,509

CONDENSED CASH FLOW DATA: (unaudited)

	June 30, 2015			June 30, 2014
Net cash provided by operations	$	2,127		$	3,892
Net cash used in investing activities		(933	)		(716	)
Net cash used in financing activities		(1,046	)		(1,820	)
Effect of exchange rate changes		(461	)		(35	)
Net increase (decrease) in cash		(313	)		1,321
Cash beginning of period		6,332			4,133
Cash end of period	$	6,019		$	5,454

MOCON, INC.

NON-GAAP RECONCILIATION

(in Thousands, Except Share Data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015			2014
Net income	$	646	$	1,166	$	1,554		$	1,896
Interest expense, net		37		47		64			104
Income tax expense		305		527		787			861
Depreciation and amortization		615		640		1,220			1,268
EBITDA		1,603		2,380		3,625			4,129
Share-based compensation		161		142		322			284
Foreign currency transaction loss (gain)		75		47		(203	)		49
Adjusted EBITDA	$	1,839	$	2,569	$	3,744		$	4,462
Net income per common share:
Basic	$	0.11	$	0.21	$	0.27		$	0.34
Diluted	$	0.11	$	0.20	$	0.27		$	0.33
Weighted average common shares outstanding:
Basic		5,750		5,655		5,746			5,648
Diluted		5,846		5,775		5,840			5,770
Non-GAAP income per common share:
Basic	$	0.11	$	0.21	$	0.27		$	0.34
Diluted	$	0.11	$	0.20	$	0.27		$	0.33
Non-GAAP weighted average common shares outstanding:
Basic		5,750		5,655		5,746			5,648
Diluted		5,846		5,775		5,840			5,770

EX-99.2

Exhibit 99.2

MOCON, Inc.

Second Quarter 2015 Conference Call Script

August 5, 2015

Delivered by:      Robert Demorest - MOCO

Elissa Lindsoe– MOCO

Steven Hooser – Three Part Advisors

Operator (if necessary):

Good day, everyone, and welcome to MOCON’s Second Quarter 2015 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Steven Hooser, MOCON’s investor relations representative. Please go ahead Steven.

Steven Hooser:

Thank you for joining us today to discuss our second quarter 2015 financial results. With me on the call today are Robert Demorest, Chief Executive Officer, and Elissa Lindsoe, Chief Financial Officer and Don DeMorett, Chief Operating Officer who will be helping with the Q&A session that we will open up to the audience after we complete our prepared remarks. Please note that we are also webcasting this call. Both the earnings press release that was issued earlier and the webcast link can be accessed on our Investor Relations website at mocon.com. Before I turn the call over to management, I'd like to remind everyone that during today’s call, including the Q&A session, we may make forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the Company. These estimates and plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on the call. These risks include those that are detailed in our most recent Annual Report on Form 10-K and in today’s earnings press release and may be amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the Securities and Exchange Commission. The statements made during this conference call are based upon information known to MOCON as of the date and time of this call. We assume no obligation to update the information presented in today’s call.

During today’s call we will also discuss non-GAAP financial measures, including Constant Currency, EBITDA and Adjusted EBITDA. These measures, when used in combination with GAAP results, provide us with useful information to better understand our business and we believe investors may want to consider this impact on our performance as well. A reconciliation of GAAP to non-GAAP measures can be found in today’s earning’s release.

With that, I’d like to turn the call over to Robert Demorest, MOCON’s President and Chief Executive Officer.

Robert Demorest

Thanks Steven; and thanks to all of you on the line for participating in our earnings call and we appreciate your time and your continued interest in Mocon. While we continue to be faced with the macro economic conditions that clouded our performance in Q1 primarily in terms of the strong dollar and the slowing in oil exploration, however, I am very encouraged by our results. On a constant currency basis our second quarter revenue was up 5 percent and on a year-to-date basis, we are up 7 percent at the half. Our two largest business segments, Permeation and Package Testing, are right in line with our targets as they continue to meet their growth expectations. Industrial Analyzers has had success in environmental monitoring and beverage safety markets but this is masked as we weather the downturn in the oil and gas market. Had our revenue from oil and gas customers been flat year-to-year, our overall constant currency growth rate would have been 12 percent versus 5 percent. Overall, I am excited about the opportunities we have identified, and believe we have the right strategies in place to continue capitalize on them in executing our plan. We have recently added a new executive member, Mike Barto to our already strong team as part of our overall operating plan. I will go over specifics further in the call but for now, I’ll turn the discussion over to Elissa to go through the financials in detail.

Elissa Lindsoe

Thanks Bob, and thanks again to everyone for joining us. In Q2, 69 percent of our reported revenue was generated outside of the United States of which more than half was sold in Europe so once again, although our revenues were up, we were significantly impacted by the strong dollar. Reported revenue for the second quarter of 2015 was 15.0 million, down slightly from $15.6 million during the second quarter of 2014. On a constant currency basis, revenue was $16.3 million, a 5 percent increase year-over-year. Year-to-date June 2015 reported revenue was $30.4 million, or $33 million on a constant currency basis which is 7 percent higher than year-to-date revenue as of June 2014.

While the strengthening of the US dollar negatively impacted our top line by $1.2 million for the quarter and $2.6 million for the YTD, there is much less of an effect to our operating income because a large portion of the costs to support our international businesses are denominated in foreign currencies, which provides a natural hedge -- mitigating the negative effect of a strengthening dollar to operating profits. In Q2 2015, we reported operating income of $1.1 million, or 7 percent of revenue, which is $722K below Q2 2014. Overall reported gross profit was 53 percent of revenue in Q2 2015 compared to 56 percent in Q2 2014 and total operating expenses were up one percentage point year-over-year at 46 percent of revenue.

Much of the increase in operating expense is due to an increase in spending for corporate compliance costs, research and development and for professional fees associated with our initiative to reduce our number of legal entities. Last month we announced the appointment of McGladrey as our new auditors. This change was simply an effort to reduce compliance costs and had no reflection on our relationship with KPMG. Further to that, we are also in the process of reorganizing our legal entity structure which will provide flexibility in moving cash between entities in a tax efficient manner while also eliminating 5 entities which will simplify our tax structure while reducing overall operating expenses.

I will now break down the specifics by business segment:

Our largest segment in Q2 was Package Testing comprising 46 percent of overall revenue on a constant currency basis. Reported revenue was $6.5 million in Q2 2015 and on a constant currency basis was $7.5 million, representing a 3 percent increase over Q2 of 2014. Year-to-date, this segment grew 10 percent on a Constant Currency basis which is a better indicator of performance than Q2 was on a stand-alone basis due to the timing of revenue recognition in 2014. You may recall, that the first quarter of 2014 was impacted by a warranty issue that was resolved in the 2nd quarter of the same year at which time the first quarter backlog shipped. 77 percent of Package Testing revenue on a constant currency basis was sold outside of the U.S. in Q2 compared to 80 percent in Q2 of 2014. The majority of this foreign revenue was denominated in euros and therefore, this segment bore the weight on the majority of the $1.2 million overall currency impact we experienced in Q2. As a reminder, the majority of the operations supporting our Package Testing segment are based in Europe and as a result, FX favorably impacted costs which offset the majority of the revenue impact. Package Testing gross margin was 54 percent of revenue in the 2^nd quarter of 2015 compared to 51 percent of revenue in Q2 2014. This improvement was driven primarily by increased volume from our higher margin headspace and accessory products. Operating expenses were 46 percent of revenue in Q2 2015 compared to 42 percent in the year-ago quarter resulting in operating margins that were 8 percent of revenue compared to 9 percent in Q2 of 2014.

Our next largest segment for the quarter was Permeation comprising 38 percent of overall revenue on a constant currency basis. Reported revenue in Q2 2015 was $6.0 million and $6.1 million on a constant currency basis, or a 22 percent increase over Q2 2014. Of the Permeation constant currency revenue reported in Q2 2015, 72 percent was sold outside of the United States compared to 71 percent in the same quarter of 2014. A larger portion of foreign revenue is denominated in USD and therefore, our Permeation segment took less of a hit to the top line ($169K) than Package Testing did, however, the majority of our Permeation operations are in the USA and therefore, our Permeation segment did experience a greater impact to operating profits. Gross margin was 57 percent of revenue in the second quarter of 2015 compared to 62 percent of revenue in the year-ago quarter. In addition to foreign currency, the second quarter gross margin was negatively impacted by increased consulting and services costs in relation to their respective revenue streams in the quarter. Operating expenses were 38 percent of revenue in Q2 which is down from 49 percent in the year ago quarter. This decline in operating expenses was partially offset by the decrease in gross margin which resulted in Q2 operating margins of 19 percent in 2015 compared to 13 percent in 2014.

Our Industrial Analyzers and Other segment comprised 16 percent of our overall revenue on a constant currency basis. Currently, 100 percent of the revenue in our Industrial Analyzers segment is denominated in USD and therefore is not subject to foreign exchange fluctuations. Q2 revenue in this segment was $2.6 million which is down 18 percent from the $3.2 million reported in Q2 of 2014. In Q2, 2014, we sold nearly $1.4 million to oil and gas customers compared to only $200,000 in Q2 2015 – which means our non-oil and gas revenue grew 33 percent in Q2 when compared to the prior year. During Q2, our environmental monitoring products made a lot of traction in Taiwan and we installed a total of 4 BevAlert systems into Pakistan and India where beverage safety is of great concern given the impure methodology used to produce carbon dioxide in these regions of the world. 56 percent and 58 percent of our Q2 revenue was sold to foreign markets in 2015 and 2014 respectively. Q2 gross margin was 44 percent in 2015 compared to 59 percent in 2014. The year-over-year decline in the Industrial Analyzers and Other gross profit rate was primarily driven by reduced volume which results in a lower base to absorb semi-variable and fixed manufacturing costs. In addition, our operating expenses were 65 percent of revenue in Q2 2015 compared to 45 percent of revenue in Q2 2014. This 20 percentage point increase was driven by lower volume and increased spending (on a dollar basis) as we built operating infrastructure to support the 24 percent year-over-year growth we experienced in 2014. We are currently reviewing cost reduction opportunities while exercising caution to avoid cutting costs in areas that are fueling growth in the medium and longer term. In summary, reduced volume to oil and gas customers, offset in part by an increase in demand for our environmental monitoring and beverage safety systems, coupled with reduced margins and increased operating infrastructure resulted in a Q2 2015 operating margin of negative 21 percent compared to positive 14 percent in all of 2014. As we said on our last call, we continue to believe that low oil prices do not represent long-term challenges to our business. Our customers express confidence that our superior technology positions us well to continue to be a leading player in this market now and as oil prices increase.

Moving on to the remainder of our income statement:

Other Expense for the second quarter of 2015 was $113,000 compared to $94,000 during same quarter in 2014 and our Q2 effective tax rate was 32.1 percent in 2015, up 1 percentage point from Q2 2014. The increase in the rate is due to a higher proportion of projected 2015 taxable income being generated in the U.S than was in 2014.

Net income for the second quarter of 2015 was $646,000, or $0.11 per diluted share, compared to $1.2 million, or $0.20 per diluted share for the second quarter in 2014.

Adjusted EBITDA for second quarter of 2015 was $1.8 million compared to $2.5 million in the second quarter of 2014.

Moving on to our cash flow and balance sheet:

Cash and cash equivalents were $6 million on June 30, 2015 compared to $5.3 million on March 31, 2015 and $6.3 million on December 31, 2014. $456K of the decline from the December 31 balance was driven by foreign exchange while the bulk of the remainder was split between paying dividends and capex offset in part by positive operating cash flows.

Accounts receivable was $8.8 million, which represents days sales outstanding of 53, a 2 day improvement compared to 55 days in the first quarter of 2015.

Inventory was $9.2 million, up slightly from March 31, 2015

In early April, we paid off the Dansensor seller financing in full and the payments toward our term debt facilities were offset by borrowings from our revolver resulting in total debt being flat from December 31, 2014 to June 30, 2015 at $4.6 million.

Net cash provided by operations was $2.1M in the first half of 2015 compared to $3.9 million in the first half of 2014 primarily driven by reduced collections. You may recall that in 2014, we had a project underway to improve the timing of collections which disproportionately benefited 2014 in the level of collections in relation to billings.

With that, I will now turn the call back over to Bob.

Robert Demorest

Thanks Elissa.

To start, I’d like to say that we are encouraged that our overall business is still very solid in nearly all categories, and I am optimistic about the remainder of 2015. I am happy to report that we continue to see nice traction in two of our three reporting segments. We believe that the current headwinds we are facing with the strong dollar and low oil prices are not indicative of a longer term challenge to our momentum, and as the general macro-economic conditions improve we expect to see substantial strength in our business fundamentals. In the meantime, we are appropriately managing expenses and maximizing efficiencies.

A key strategic initiative that is underway within MOCON is a project we call “One MOCON”. As you know, MOCON has a rather large global footprint, with multiple legal entities, operating units and brands in the market. The One MOCON initiative calls for us to merge and consolidate legal entities, create a global senior management team, and create common communications, ERP, and back office platforms. The result of these efforts will be increased operational excellence and global customer service, while also improving compliance, and overall risk reduction throughout our company. Elissa spoke about our current project to consolidate legal entities in her prepared remarks and in my opening remarks, I mentioned that we recently added Mike Barto to our leadership team – These are the latest steps in our One MOCON initiative. Mike is our global VP, Manufacturing and Engineering. Through this new role, we will be able to provide our global customers with an even higher level of innovation, performance, reliability, parts availability and field service. We are all excited to have Mike on board. He has earned a Six Sigma Blackbelt and comes to us with a proven track record in building excellence within the organizations he’s managed.

I’d also like to update everyone on our growth strategy.

Let’s start by reviewing the three current major growth drivers to the markets we serve:

The first is a worldwide desire for increased consumer product safety and quality, especially in food, beverage, medical, and pharmaceutical products, as evidenced by increasingly strict regulatory requirements from governments everywhere.

For example, to target this market, we have investigated the potential for our GreenLight technology to be utilized in the pharmaceutical industry. We believe there is a high need for finding better solutions in contamination detection in the clean rooms of pharma manufacturing. In order to provide the most effective solution and early market acceptance, we have forged a partnership with a world leader in cleanroom environmental monitoring. Particle Measuring Systems (PMS), a Spectris company, has entered into an agreement with MOCON to use the GreenLight technology in a test kit for determining surface hygiene. Both MOCON and PMS expect this new rapid test method to become a growth business as traditional microbial test methods are replaced.

Secondly, there is a growing “Green Movement” across the globe, with increased initiatives and laws aimed at creating and maintaining cleaner air and water. In our Industrial Analyzer and Other business segment, we have seen an increase in orders coming from Asia, as governments in that region increase pressure on industry to clean up air and water discharges. Also, in the US, the EPA is requiring more and more monitoring of ambient air pollution, which we feel holds promise for future sales of our unique and versatile gas analysis products.

And thirdly, there is a desire by multiple industries to increase the control, data collection, and automation of process lines in factories, thereby saving resources, labor, and money, and thus adding quality and yield. In this area of our business, we have seen a rise in orders for our BevAlert systems, which measure and confirm the absence or presence of trace impurities in food-grade carbon dioxide, which is a critical component to the carbonated soft drink industry worldwide.

So how are these 3 growth drivers impacting our business?

In our Package Testing Group, which has grown by 10 percent on a constant currency basis in the first half of 2015, our expertise is in instrumentation for MAP (Modified Atmosphere Packaging) technologies. This process involves flushing food and other packages with inert gases on-line, as they are being packaged and sealed. As mentioned previously, this gas flushes out atmospheric oxygen, often called the “thief of flavor and shelf life,” and thereby extends safely the shelf life of packaged goods without the use of additives or preservatives. The food can now be labeled “all natural, nothing artificially added.” As consumer awareness increases, and the world continues to move toward favoring locally grown foods, with traceability from “farm to fork,” this type of automated process continues to grow in acceptance and importance. We are the world leader in this type of process control instrumentation for the food industry.

Our Permeation Product Group grew 15 percent on a constant currency basis in the first half of 2015. The largest part of this business is helping food, beverage, medical device and pharmaceutical manufacturers safely meet and even extend the desired shelf lives of their products. Gases permeate all plastics, which are the majority of materials used in the packaging of perishable consumer products today. Our Permeation Group is the market leader in testing and measuring these properties of barrier materials, and the global industry relies on MOCON to accurately measure the rates which gases permeate through packages and films. In addition, data generation and automation of these processes are vitally important to customers, both for their own quality programs, and to ensure compliance with regulatory requirements. Our newest product designs and offerings, released in 2014 and 2015 after nearly six years of development, are the most sensitive and easy-to-use permeation instruments ever introduced, and will help keep us years ahead of our competitors. This product area has excellent margins, a healthy stable of IP and trade secrets, and positions MOCON as the world’s market leader in this category. Our business strategy is to continue growing our enviable, large, world-wide installed customer base in line with overall market growth, while garnering even greater growth through the introduction of new products to speed up replacements.

Our Industrial Analyzers and Other business segment has declined by 15 percent in the first half of 2015. Masked by falling revenue from our oil and gas customers, the Industrial Analyzers product group is benefitting from the world-wide emphasis on increased environmental awareness, process gas analysis, worker safety, indoor air quality, and OEM gas sensors, all of which, as Elissa mentioned earlier, are growing portions of this product group. In Q2 2015, these portions of our business collectively grew 33 percent.

And, we expect to see growth with our microbial initiatives, some of which have been described previously.

In summary, we expect organic growth to continue to come from several segments of our business.

MOCON has a long history with an aggressive IP strategy. We maintain a large portfolio of patents for a company our size.

Our ongoing plans for growth include continued substantial funding for research and development to drive new product introductions, together with strategic acquisitions that complement our current business and to make other investments where appropriate.

We continue to look at M&A candidates in all three of our reporting segments. Our targets are generally one of four types:

1. Manufacturers of test and measurement instruments

2. Manufacturers of sensors, detectors, or components

3. Providers of laboratory services

4. Distributors and representatives in selected geographical territories

As mentioned last quarter, we have a healthy list of candidates, many of whom we have qualified and evaluated and IF the right one comes along, we are prepared to move on it. Between 2001 and 2012 we have made 3 acquisitions of which all have been successful and accretive. This was not just luck – for all 3 we used an extremely disciplined approach to diligence that ensured each acquisition was well thought out, had a strategic purpose and was optimally timed. Further, we have learned some lessons along the way and will adjust our approach in order to ensure continued success.

In summary, I remain confident in our ability to stay the course for the remainder of 2015, and I look forward to updating you again at the end of the third quarter.

With that, let me open up the call for your questions. Operator, please instruct our listeners on how to queue up.

After the Q&A:

Robert Demorest

Thank you again for joining us on today’s call. We will look forward to discussing our Q3 results with you sometime in early November. Have a great evening!

Certain remarks of Robert L. Demorest, Chief Executive Officer

● PMS will be purchasing vials and Greenlight® instruments from MOCON. MOCON will be collaborating with PMS to develop a Greenlight ® swabbing kit to be used in the pharmaceutical clean room industry for testing of microbial activity on clean surfaces. The incubation and testing of the swabs is anticipated not to exceed eight hours. [To the best of our knowledge,] this testing method is the fastest testing method available.

● We explored the use of the Greenlight ® application in the meat and produce industries starting in 2012 with the respective industries concluding that the Greenlight® application not being a viable option. In 2014, we had a lot of interest in the dairy industry.

● The next generation instruments is a driver of the increased revenues in the Permeation segment due to the capital equipment re-fresh cycle at our customers is expected to take approximately 10 years.

● MOCON did not experience any declines from the oil and gas sector in the fourth quarter of 2014; rather the declines impacted MOCON beginning in the first quarter of 2015

Certain remarks of Don DeMorett, Chief Operations Officer

● We anticipate improvement in the oil and gas sector in the last half of 2015; however, we are cautiously optimistic.

● Our target is 3 additional instruments in the next generation of Permeation instruments in the coming year, three in 2016 and three in 2017.

Certain remarks of Elissa Lindsoe, Chief Financial Officer

● When the oil and gas sector improves, we anticipate a delay from the time of improvement to the time MOCON will benefit from that improvement.