10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarter Ended June 30, 2016

or

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

For the transition period from to

Commission File Number 000-09273

MOCON, INC.

(Exact name of registrant as specified in its charter)

Minnesota	41-0903312
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

7500 Mendelssohn Avenue North, Minneapolis, Minnesota 55428

(Address of principal executive offices) (Zip code)

(763) 493-6370

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒NO ☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer (do not check if a smaller reporting company) ☐ Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

As of August 2, 2016, we had 5,798,603 common shares issued and outstanding.

MOCON, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

For the Quarter Ended June 30, 2016

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets June 30, 2016 (Unaudited) and December 31, 2015	1
	Condensed Consolidated Statements of Income (Unaudited) Three and six-months ended June 30, 2016 and 2015	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three and six-months ended June 30, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) Six-months ended June 30, 2016 and 2015	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5-12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26
Exhibit Index		27

In this report, references to “MOCON,” “the Company,” “we,” “our,” or “us,” unless the context otherwise requires, refer to MOCON, Inc. and its subsidiaries.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOCON, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(expressed in thousands, except share amounts)

	June 30, 2016 (Unaudited)			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	6,789		$	6,344
Trade accounts receivable, less allowance for doubtful accounts of $165 in 2016 and $141 in 2015		10,449			8,786
Other receivables		296			326
Inventories		7,655			7,790
Prepaid income taxes		260			559
Prepaid expenses, other		962			897
Total current assets		26,411			24,702
Property, plant and equipment, net of accumulated depreciation of $8,289 in 2016 and $8,154 in 2015		5,588			5,995
Goodwill		7,508			7,437
Intangible assets, net		8,636			8,986
Other assets		90			88
Deferred income taxes		212			211
TOTAL ASSETS	$	48,445		$	47,419
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable	$	60		$	65
Accounts payable		3,048			3,033
Accrued compensation and related expenses		3,860			3,969
Other accrued expenses		1,086			811
Accrued product warranties		232			223
Dividends payable		637			637
Deferred revenue		1,436			862
Total current liabilities		10,359			9,600
Revolving lines of credit		2,350			2,793
Notes payable		65			93
Obligations to former employees		35			34
Deferred income taxes		1,051			1,227
Accrued income taxes		201			201
Total noncurrent liabilities		3,702			4,348
Total liabilities		14,061			13,948
Shareholders' equity:
Capital stock – undesignated. Authorized 3,000,000 shares; none issued and outstanding in 2016 and 2015		-			-
Common stock – $0.10 par value. Authorized 22,000,000 shares; issued and outstanding 5,798,103 shares in 2016 and 5,792,126 shares in 2015		580			579
Additional paid-in capital		7,829			7,412
Retained earnings		30,628			30,700
Accumulated other comprehensive loss		(4,653	)		(5,220	)
Total shareholders' equity		34,384			33,471
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	48,445		$	47,419

See accompanying notes to condensed consolidated financial statements.

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MOCON, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - expressed in thousands, except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Revenue:
Products	$	12,244	$	12,032		$	23,628	$	24,201
Services		2,702		2,338			5,514		4,842
Consulting		685		679			1,219		1,366
Total revenue		15,631		15,049			30,361		30,409
Cost of revenue:
Products		5,085		5,497			10,055		10,783
Services		1,294		1,016			2,468		2,064
Consulting		481		511			963		1,058
Total cost of revenue		6,860		7,024			13,486		13,905
Gross profit		8,771		8,025			16,875		16,504
Selling, general and administrative expenses		5,870		5,707			12,008		11,978
Research and development expenses		1,298		1,126			2,501		2,195
Realignment Expense		750		128			750		128
Operating income		853		1,064			1,616		2,203
Other income (expense), net		309		(113	)		274		138
Income before income taxes		1,162		951			1,890		2,341
Income tax expense		373		305			613		787
Net income	$	789	$	646		$	1,277	$	1,554
Net income per common share:
Basic	$	0.14	$	0.11		$	0.22	$	0.27
Diluted	$	0.14	$	0.11		$	0.22	$	0.27
Weighted average common shares outstanding:
Basic		5,794		5,750			5,793		5,746
Diluted		5,817		5,846			5,813		5,840
Cash dividends declared per common share	$	0.11	$	0.11		$	0.22	$	0.22

See accompanying notes to condensed consolidated financial statements.

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MOCON, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - expressed in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016		2015
Net income	$	789		$	646	$	1,277	$	1,554
Other comprehensive income (loss):
Cumulative translation adjustment		(330	)		520		567		(2,193	)
Comprehensive income (loss)	$	459		$	1,166	$	1,844	$	(639	)

See accompanying notes to condensed consolidated financial statements. 

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MOCON, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - expressed in thousands)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income	$	1,277		$	1,554
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense		375			322
Change in fair value of derivative instrument		-			(3	)
(Gain) Loss on disposition of long-term assets		63			(16	)
Gain on sale of business		(352	)		-
Depreciation and amortization		1,387			1,220
Deferred income taxes		(234	)		(106	)
Excess tax benefit from employee stock plans		(2	)		(2	)
Changes in operating assets and liabilities:
Trade accounts receivable, net		(1,603	)		511
Other receivables		37			7
Inventories		131			(650	)
Prepaid income taxes		(145	)		432
Prepaid expenses, other		(29	)		(180	)
Accounts payable		176			(888	)
Accrued compensation and related expenses		(554	)		(962	)
Other accrued expenses		39			293
Accrued product warranties		8			20
Accrued income taxes		354			294
Deferred revenue		571			281
Net cash provided by operating activities		1,499			2,127
Cash flows from investing activities:
Proceeds from sale of business		500			-
Purchases of property, plant and equipment		(326	)		(861	)
Proceeds from sale of property and equipment		50			54
Cash paid for patents and other intangible assets		(64	)		(124	)
Other		-			(2	)
Net cash provided by (used in) investing activities		160			(933	)
Cash flows from financing activities:
Proceeds from the revolving lines of credit		1,100			11,730
Payments on the revolving lines of credit		(1,543	)		(11,125	)
Payments on notes payable and seller financed note payable		(33	)		(538	)
Proceeds from the exercise of stock options		41			149
Excess tax benefit from employee stock plans		2			2
Dividends paid		(1,275	)		(1,264	)
Net cash used in financing activities		(1,708	)		(1,046	)
Effect of exchange rate changes on cash and cash equivalents		494			(461	)
Net increase (decrease) in cash and cash equivalents		445			(313	)
Cash and cash equivalents:
Beginning of period		6,344			6,332
End of period	$	6,789		$	6,019
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	304		$	229
Cash paid during the period for interest	$	41		$	67
Supplemental schedule of noncash investing and financing activities:
Dividends accrued	$	638		$	633
Purchases of prepaid expenses, fixed assets and intangibles in accounts payable	$	94		$	123
Transfers of inventory to fixed assets	$	94		$	28
The Company sold a portion of the business on May 18, 2016.
The reconciliation of cash received and assets removed is as follows (in thousands):
Proceeds from sale of business	$	500
Goodwill		(57	)
Property, Plant, and Equipment, net		(29	)
Inventory		(30	)
Other Assets and Liabilities		(32	)
Total gain on sale of business	$	352

See accompanying notes to condensed consolidated financial statements. 

-4-

MOCON, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2016

(Unaudited)

Note 1 – Condensed Consolidated Financial Statements

The condensed consolidated balance sheet as of June 30, 2016, the condensed consolidated statements of income and comprehensive income (loss), for the three and six-months ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America. These interim unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows at June 30, 2016, and for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain amounts have been reclassified from the prior year presentation to conform to the current year presentation.

The results of operations for the three and six-month period ended June 30, 2016 are not necessarily indicative of operating results for the full year. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, previously filed with the Securities and Exchange Commission.

MOCON Inc. and its subsidiaries, develops, manufacturers and markets measurement, analytical, monitoring and consulting services for customers in the barrier packaging, food, pharmaceutical, consumer products, industrial hygiene, environmental, air quality monitoring, oil and gas exploration and other industries throughout the world.

We report our operating segments as Package Testing Products and Services (“Package Testing”), Permeation Products and Services (“Permeation”), and Industrial Analyzers Products and Services and Other (“Industrial Analyzers and Other”) for financial reporting purposes.

Principles of Consolidation

The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Note 2 – Sale of Business

On January 14, 2016, we entered into an Asset Purchase Agreement, as amended on May 18, 2016 (the “Agreement”) with Volatile Analysis Corporation (“VAC”) pursuant to which we agreed to sell to VAC the assets exclusively used in its business of providing equipment and analytical chemistry services and related formulation, product development, and consulting services, primarily focused on identification of odors and aromas. This business was included in our Permeation segment and conducted from our Round Rock, Texas facility. The purchase and sale of the assets was finalized and closed on May 18, 2016. We received proceeds of $500,000 resulting in a realized gain of $352,000, which is included in other income (expense), net on the consolidated income statement. The remaining $800,000 owed by VAC in accordance with the Agreement will be recognized on the cost recovery method upon receipt. This business does not qualify for discontinued operations or available for sale treatment since it does not represent a strategic shift that had or will have a major effect on our operations and financial results.

-5-

Note 3 – Inventories

Inventories consist of the following (expressed in thousands):

	June 30, 2016		December 31, 2015
Finished products	$	1,891	$	1,366
Work-in-process		1,915		2,375
Raw materials		3,849		4,049
Total Inventory	$	7,655	$	7,790

Note 4 – Net Income Per Common Share

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

The following table presents a reconciliation of the denominators used in the computation of net income per common share – basic, and net income per common share – diluted, for the three and six-months ended June 30, 2016 and 2015 (expressed in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Weighted shares of common stock outstanding - basic		5,794		5,750		5,793		5,746
Dilutive impact of share-based awards		23		96		20		94
Weighted shares of common stock outstanding - diluted		5,817		5,846		5,813		5,840

Outstanding stock options totaling 634,635 and 201,950 for the three-months ended June 30, 2016 and June 30, 2015, respectively, and 659,635 and 246,250 for the six-months ended June 30, 2016 and June 30, 2015, respectively, were excluded from the net income per common share calculation because the shares would be anti-dilutive.

Note 5 – Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2016 were as follows (expressed in thousands):

	Package Testing		Permeation			Industrial Analyzers & Other		Total
Balance as of December 31, 2015	$	4,967	$	1,860		$	610	$	7,437
Foreign currency translation		101		27			-		128
Sale of business		-		(57	)		-		(57	)
Balance as of June 30, 2016	$	5,068	$	1,830		$	610	$	7,508

We test goodwill for impairment annually at the reporting unit level using a fair value approach. We will perform our annual impairment test for goodwill in the fourth quarter or earlier if impairment indicators are identified.

-6-

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

	As of June 30, 2016
	Cost		Accumulated Amortization			Net
Patents	$	1,939	$	(473	)	$	1,466
Trademarks and trade names		3,385		(843	)		2,542
Developed technology		6,256		(2,954	)		3,302
Customer relationships		732		(346	)		386
Internally developed software		1,085		(209	)		876
Other intangibles		214		(150	)		64
	$	13,611	$	(4,975	)	$	8,636

	As of December 31, 2015
	Cost		Accumulated Amortization			Net
Patents	$	1,844	$	(439	)	$	1,405
Trademarks and trade names		3,321		(751	)		2,570
Developed technology		6,121		(2,551	)		3,570
Customer relationships		716		(298	)		418
Internally developed software		1,085		(154	)		931
Other intangibles		214		(122	)		92
	$	13,301	$	(4,315	)	$	8,986

Total amortization expense for the three-months ended June 30, 2016 and June 30, 2015 was $295,000 and $295,000, respectively, and $588,000 and $590,000, respectively, for the six-months ended June 30, 2016 and June 30, 2015. Projects in process are not amortized until the patent or trademark is granted by the regulatory agency or the asset is ready for use. Estimated amortization expense for the remainder of 2016 and each of the four succeeding fiscal years and thereafter based on the intangible assets as of June 30, 2016 is as follows (expressed in thousands):

2016	$	587
2017		1,148
2018		1,116
2019		1,111
2020		1,110
2021 & Thereafter		2,922
	$	7,994

-7-

Note 6 – Accumulated Other Comprehensive Income (Loss)

Adjustments to accumulated other comprehensive income (loss) consist of the following (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	(4,323	)	$	(5,505	)	$	(5,220	)	$	(2,792	)
Foreign currency translation adjustments		(330	)		520			567			(2,193	)
Accumulated other comprehensive loss	$	(4,653	)	$	(4,985	)	$	(4,653	)	$	(4,985	)

Note 7 – Warranty

We provide a warranty for most of our products. Warranties are generally for periods ranging from ninety days to one year, and cover parts and labor for non-maintenance repairs.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. Generally, warranty reserves are also accrued for special rework campaigns for known major product modifications. We also offer extended warranty service contracts for select products when the factory warranty period expires.

Warranty provisions and claims for the three and six-months ended June 30, 2016 and June 30, 2015 were as follows (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	242		$	354		$	223		$	285
Warranty provisions		61			16			205			217
Warranty claims		(71	)		(77	)		(196	)		(209	)
Ending Balance	$	232		$	293		$	232		$	293

Note 8 – Debt

Notes payable consists of the following (expressed in thousands):

	June 30, 2016		December 31, 2015
Capital Leases	$	125	$	158
Less current portion of long-term notes payable		60		65
Total long-term notes payable	$	65	$	93

In the U.S., we have a $10.0 million secured revolving line of credit with a maturity date of August 26, 2018. Interest is charged monthly at one-month LIBOR (0.47 percent) plus 1.5 percent which totaled 1.97 percent at June 30, 2016 and 1.74 percent at December 31, 2015. The line of credit is secured by our assets with the exception of the number of shares of outstanding stock of Dansensor that exceeds 65 percent of the shares outstanding. We had $2.4 million and $2.8 million outstanding on the line of credit at June 30, 2016 and December 31, 2015. Additionally, Dansensor has a DKK 10 million (approximately $1.5 million) available line of credit of which no amounts were outstanding as of June 30, 2016 and December 31, 2015. Outstanding borrowings on the Denmark line of credit are charged interest at 4.35 percent per year.

-8-

We are subject to various financial and restrictive covenants in the bank Credit Agreement, including maintaining certain financial ratios and limits on incurring additional indebtedness, acquisitions, making capital and lease expenditures and making share repurchases. We are in compliance with our debt covenants at June 30, 2016 and expect to remain in compliance through the next twelve months.

As of June 30, 2016, the future minimum principal payments of the notes payable for the remainder of 2016 and each of the three succeeding fiscal years to the maturity of the note are as follows (expressed in thousands):

Minimum principal Payments
2016	$	33
2017		56
2018		36
Total	$	125

Note 9 – Realignment Expenses

During 2015, we implemented a Realignment Plan in order to simplify our business structure by reducing the number of legal entities and by combining the sales and marketing teams of our Package Testing and Permeation segments under common leadership. As of December 31, 2015, approximately $483,000 was included in Accrued Compensation and related expenses and approximately $137,000 was included in Accounts payable on the consolidated balance sheet.

During the three months ended June 30, 2016, management concluded to eliminate the chief operating officer position and a divisional executive position. These two positions have severance agreements for the payment upon the occurrence of certain termination events. As a result, $750,000 of realignment expense was recognized during the three and six-months ended June 30, 2016.

Amounts accrued, realignment expense and cash payments for the three and six-months ended June 30, 2016 and June 30, 2015 were as follows (expressed in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Beginning Balance	$	112		$	-	$	620		$	-
Realignment Expense		750			128		750			128
Cash Payments		(56	)		-		(564	)		-
Ending Balance	$	806		$	128	$	806		$	128

As of June 30, 2016, approximately $806,000 is included in Accrued compensation and related expenses on the consolidated balance sheet and is expected to be paid by the end of 2017.

Note 10 – Income Taxes

Our provision for income tax expense was 32 percent of income before income taxes for each of the three-months ended June 30, 2016 and June 30, 2015. Our provision for income tax expense was 32 percent and 34 percent of income before income taxes for the first half ended June 30, 2016 and June 30, 2015, respectively. The rate in the second quarters and first halves 2016 and 2015 were lower than the statutory rate due primarily to the effect of foreign operations where tax rates tend to be lower, the domestic manufacturing deduction and the research credit. The decrease in the effective tax rate for the first six months of 2016 as compared to 2015 is primarily due to permanent enactment of the research and development credit whereby previously the related tax credit was not in the effective tax rate until enacted later in the year.

-9-

As of June 30, 2016 and December 31, 2015, the liability for gross unrecognized tax benefits was $187,000. With the exception of lapsing statutes of limitation it is expected that the amount of unrecognized tax benefits for positions which we have identified will not materially change in the next twelve months.

Note 11 – Share-Based Compensation

Stock Option Plans

As of June 30, 2016, we have reserved 345,800 shares of common stock for options and other share-based incentive awards that are still available for grant under our 2015 stock incentive plan, and 773,260 shares for options that have been granted under either the 2006 or 2015 stock incentive plan. We issue new shares of common stock upon exercise of stock options.

Amounts recognized in the condensed consolidated financial statements related to share-based compensation are as follows (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Total cost of share-based compensation	$	186		$	161		$	375		$	322
Amount of income tax benefit recognized in earnings		(5	)		(21	)		(5	)		(42	)
Amount charged against net income	$	181		$	140		$	370		$	280

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes). We use historical data to estimate the expected price volatility, expected option life and expected forfeiture rate. Our estimates are based on expected volatility for awards granted on daily historical trading data of our 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. We estimate the expected term consistent with historical exercise and cancellation activity of its previous share-based grants with a seven or ten year as applicable contractual term. Forfeitures are 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.

-10-

A summary of the option activity for the first six months of 2016 is as follows (expressed in thousands, except share and per share amounts):

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Options outstanding, December 31, 2015		797,378		$	14.91		4.7	$	453
Granted		-			-		-		-
Exercised		(4,900	)		10.43		-		-
Cancelled or expired		(19,218	)		15.71		-		-
Options outstanding, June 30, 2016		773,260		$	14.92		4.2	$	292
Options exercisable, June 30, 2016		492,985		$	14.94		3.1	$	278

The total intrinsic value of options exercised was $11,000 and $42,000 during the three-months ended June 30, 2016 and June 30, 2015, respectively, and $17,000 and $183,000 during the six-months ended June 30, 2016 and June 30, 2015, respectively.

As of June 30, 2016, there was $583,000 of total unrecognized compensation cost related to unvested share-based compensation granted under our plans. That cost is expected to be recognized over a weighted-average period of 0.8 years. The total fair value of option shares vested during the three-months ended June 30, 2016 and June 30, 2015 was zero and $88,000, respectively and zero and $176,000 during the six-months ended June 30, 2016 and June 30, 2015, respectively.   

Employee Stock Purchase Plan

On May 27, 2015, our shareholders approved the 2015 Employee Stock Purchase Plan (“Purchase Plan”) whereby 50,000 shares of common stock will be available for future sale. The first offering period began on January 1, 2016 and provides participants an option to purchase shares of our common stock at a price per share equal to 85 percent of the value of the share of common stock at the beginning or end of the offering period (whichever is less). For the offering period ended June 30, 2016, 1,803 shares were purchased under the plan.

Note 12 – Business Segments

We have four operating segments, structured by differences in products and services, that are regularly reviewed by our chief operating decision maker to make decisions about allocating resources and assessing segment performance. The segment performance is evaluated at segment operating income which is defined as gross profit less selling, general and administrative expenses and research and development expenses. General corporate expenses, including costs associated with various support functions such as human resources, information technology, finance and accounting, and general and administrative costs, are allocated to the reportable segments primarily on the basis of segment gross margin. Our four operating segments have been aggregated into three reportable segments. We aggregated our Other Products and Services operating segment into the Industrial Analyzers Products and Services segment based on minimal business activity and materiality.

The Package Testing segment provides customers with the ability to assess package performance, shelf-life, package improvement, cost reduction, sustainability and product safety using Modified Atmosphere Packaging and other technologies. The Permeation segment includes instruments and services that measure the rate at which various gases and vapors permeate through a variety of materials. The Industrial Analyzers and Other segment includes advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, beverage and specialty gas analysis, industrial hygiene and safety, food safety, environmental air monitoring and homeland security.

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The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Intersegment revenue for the three and six-months ended June 30, 2016 and June 30, 2015 were insignificant.

Financial information by reportable segment for the three and six-months ended June 30, 2016 and June 30, 2015 is as follows (expressed in thousands):

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
Three Months Ended June 30, 2016
Revenue	$	7,328	$	5,483	$	2,820		$	-		$	15,631
Gross profit		4,113		3,296		1,362			-			8,771
Operating income (loss)		696		1,023		(116	)		(750	)		853
Three Months Ended June 30, 2015
Revenue	$	6,473	$	5,966	$	2,610		$	-		$	15,049
Gross profit		3,472		3,416		1,138			-			8,026
Operating income (loss)		556		1,143		(507	)		(128	)		1,064
Six Months Ended June 30, 2016
Revenue	$	14,331	$	10,766	$	5,264		$	-		$	30,361
Gross profit		8,144		6,291		2,440			-			16,875
Operating income (loss)		1,543		1,328		(505	)		(750	)		1,616
Six Months Ended June 30, 2015
Revenue	$	13,229	$	12,068	$	5,112		$	-		$	30,409
Gross profit		7,149		6,989		2,366			-			16,504
Operating income (loss)		1,444		1,821		(934	)		(128	)		2,203

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Item 2.  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 discussed below under the caption “Forward-Looking Statements.” The following discussion of the results of 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 report.

Overview

Description of Business

MOCON, Inc. designs, manufactures, markets and services products and provides consulting and testing 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 developing new products, and by acquiring new companies, new product lines, or rights to technologies.

We are headquartered in Minnesota and have operating locations in Minnesota, Denmark, and Colorado. We have offices and laboratories in Germany, France, Italy, Spain and China. We use a mix of a direct sales force and independent sales representatives to market our products and services in the United States, Canada, Europe and China, and we use a network of independent sales representatives and distributors to market and service our products and services in most other foreign countries.

Our ongoing plans for growth include continued substantial funding for research and development to drive new product introductions, together with strategic acquisitions and investments where appropriate.

Significant Transactions and Financial Trends

During 2015, we implemented a series of initiatives, including a reduction in workforce and simplification of business structures (“Realignment Plan”). In conjunction with our One MOCON initiative, the integrations of our European based businesses are near completion which has changed the leadership needs in our business as a whole from one that is operationally based toward another that is designed to fuel growth through our sales strategy. As a result during the months ended June 30, 2016, we strategically eliminated two senior executive positions in our company which included our chief operating officer. 

In January 2016, we entered into an agreement, which was amended on May 18, 2016, to sell substantially all the assets of our odor and aroma business formerly known as Microanalytics (“Microanalytics”) which is located in Round Rock, Texas. The purchase and sale of the assets was finalized and closed on May 18, 2016. The Company received proceeds of $500,000 resulting in a realized gain of $352,000. The remaining $800,000 owed by VAC in accordance with the Agreement will be recognized on the cost recovery method upon receipt.

Products and Services

Package Testing Products and Services

We manufacture and sell three primary products in this group: headspace analyzers, leak detection equipment and gas mixers. 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 in 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®, CheckMate^TM and CheckPoint^TM series of off-line headspace analyzers and the MAP Check 3^TM series of on-line analyzers for continuous and intermittent monitoring of Modified Atmosphere Packaging (MAP) and other gas flushing operations.

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Our leak detection products detect leaks in sterile medical trays, food pouches, blister packs and a wide range of other sealed 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 leak detection products include the LeakMatic II^TM and LeakPointer II^TM series of instruments.

Our gas mixers are used in the food production environment to assure that the package has been properly flushed with the correct mixture of gases. Our gas mixer products include the MAP Mix Provectus and MAP Mix 9001 on-line instruments.

Permeation Products and Services

Our permeation products consist of systems and services that measure the rate at which various gases and vapors transmit through a variety of materials. These products perform measurements under precise temperature, pressure 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. Other customers include manufacturers of flat panel displays, solar panels, electronics, and many other sophisticated materials.

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

● wish to outsource their testing needs to us;

● are interested in evaluating our instrumentation prior to purchase; or

● have purchased our products but have a need for additional capacity.

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 AQUATRAN® ultra-high sensitivity, trace moisture permeation analyzer has been increasingly accepted as the standard test instrument of choice in the flat panel, solar cell and electronics industries. 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 research and development departments, as well as production and quality assurance groups.

Industrial Analyzers Products and Services and Other

We manufacture and distribute advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, process and beverage gas analysis, industrial hygiene, safety, environmental air monitoring and indoor air quality.

In this group, we manufacture and sell two types of gas analyzer instruments: gas chromatographs (GCs) and total hydrocarbon analyzers (THAs). These instruments are typically installed in fixed locations at the monitoring sites and perform their functions of detecting and measuring various gases continually or at regular intervals. We also make miniaturized gas sensors and detectors which are sold to original equipment manufacturers (OEMs) of mobile gas safety equipment.

Our industrial analyzer products, 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 detection in the manufacture of specialty gases, and environmental monitoring (tracking the release, or the presence, of toxic substances). Our newest GC offering measures trace levels of contaminants in beverage grade carbon dioxide which is used to carbonate soft drinks, beer and water.

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We market some of these products under the names PetroAlert®, piD-TECH®, and BevAlert®.

Microbial Detection Products

Our microbial detection products are designed to rapidly detect microbial growth in food and beverage samples. Using the total viable count (TVC) method, our GreenLight® series the Greenlight 930 model of instrument perform rapid and precise measurements to determine the presence or absence of aerobic bacteria in food products or ingredients. 

Results of Operations

The following table sets forth the relationship between various components of our results of operations, stated as a percent of revenue, for the three and six-months ended June 30, 2016 and 2015:

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Revenue		100.0		100.0			100.0		100.0
Cost of revenue		43.9		46.7			44.4		45.7
Gross profit		56.1		53.3			55.6		54.3
Selling, general and administrative expenses		37.6		37.9			39.6		39.8
Research and development expenses		8.3		7.5			8.2		7.2
Realignment expense		4.8		0.9			2.5		0.0
Operating income		5.4		7.0			5.3		7.3
Other income (expense), net		2.0		(0.7	)		0.9		0.4
Income before income taxes		7.4		6.3			6.2		7.7
Income tax expense		2.4		2.0			2.0		2.6
Net income		5.0		4.3			4.2		5.1

Comparison of Financial Results for the Three and Six-Months Ended June 30, 2016 to June 30, 2015

Revenue

Total revenue for the three-months ended June 30, 2016 was $15.6 million, which is 4 percent higher compared to $15.0 million reported in the same period in 2015. The revenue increase is due to an increase of 13 percent and 8 percent for the Package Testing and Industrial Analyzers and Other segment, respectively, offset by a decline of 8 percent for the quarter in the Permeation segment. Total revenue for the six-months ended June 30, 2016 was $30.4 million, which is consistent the same period in 2015.

Revenue to foreign customers for the three-months ended June 30, 2016 and 2015, respectively, amounted to 63 percent and 69 percent of total consolidated revenue. Revenue to foreign customers for the six-months ended June 30, 2016 and 2015, respectively, amounted to 65 percent and 68 percent of total consolidated revenue.

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The following table summarizes total revenue by reporting segments for the three and six-months ended June 30, 2016 and 2015 (expressed in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Package Testing	$	7,328	$	6,473	$	14,331	$	13,229
Permeation		5,483		5,966		10,766		12,068
Industrial Analyzers and Other		2,820		2,610		5,264		5,112
Total Sales	$	15,631	$	15,049	$	30,361	$	30,409

The following table sets forth the relationship between various components of domestic and foreign revenue for the three and six-months ended June 30, 2016 and June 30, 2015 (expressed in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Domestic Revenue	$	5,838	$	4,720	$	10,480	$	9,731
Foreign Revenue:
Europe		5,994		5,221		12,404		11,490
Asia		3,267		3,882		6,269		6,961
Other		532		1,226		1,208		2,227
Total Foreign Revenue		9,793		10,329		19,881		20,678
Total Revenue	$	15,631	$	15,049	$	30,361	$	30,409

Package Testing Products and Services – Revenue in our Package Testing segment increased 13 percent for the three-months ended June 30, 2016, compared to the same period in the prior year, and accounted for 47 percent and 43 percent of our consolidated second quarter revenue in 2016 and 2015, respectively. The increase is due to an increase in demand for our leak and mixer, specifically the MAP Mix Provectus, products as compared to the prior year period. Revenue from foreign destinations comprised 73 percent of total revenue in this segment for both the three-months ended June 30, 2016 and June 30, 2015.

Revenue in our Package Testing segment increased 8 percent for the six-months ended June 30, 2016 compared to the same period in the prior year, and accounted for 47 percent and 43 percent of our consolidated six-months revenue in 2016 and 2015, respectively. The increase is due to an increase in demand for our headspace and mixer products as compared to the prior year period. Revenue from foreign destinations comprised 74 percent and 73 percent of total revenue in this segment for the six-months ended June 30, 2016 and June 30, 2015, respectively.

Permeation Testing Products and Services – Revenue in our Permeation segment decreased 8 percent for the three-months ended June 30, 2016 compared to the same period in the prior year, and accounted for 35 percent and 40 percent of our consolidated second quarter revenue in 2016 and 2015, respectively. Of the 8 percentage points 3 were related to the sale of business. We recorded $160,000 less in odor and aroma consulting revenue during the three months ended June 30, 2016 as a result of the sale of business and our June 30, 2016 backlog indcluded an additional $600,000 for European orders when compared to historical levels. Foreign revenue comprised 60 percent and 69 percent of the shipments in this segment in the second quarter of 2016 and 2015, respectively.

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Revenue in our Permeation segment decreased 11 percent for the six-months ended June 30, 2016 compared to the same period in the prior year, and accounted for 35 percent and 40 percent of our consolidated six-months revenue in 2016 and 2015, respectively. The decrease in the current period is largely attributable to decreased sales in the domestic markets for instrumentation and a decline in consulting service revenue that occurred in the three months ended March 31, 2016. Foreign revenue comprised 66 percent and 71 percent of the shipments in this segment in the first half of 2016 and 2015, respectively.

Industrial Analyzers Products and Services and Other – Revenue in our Industrial Analyzers and Other segment, which accounted for 18 percent and 17 percent for the consolidated second quarter revenue in 2016 and 2015, increased 8 percent during the second quarter 2016 when compared to the same period in 2015. Revenue in this segment is comprised mainly of instruments, sensors and services provided by our Industrial Analyzer products. The increase in revenue for the three month period ended June 30, 2016 compared to the prior year period was due to the continued increase in demand for our sensor and detector products of approximately $0.5 million from our OEM sensor and detectors, which are primarily used in environmental monitoring and worker safety applications, which impacted the domestic and foreign revenue mix. Revenue to foreign destinations comprised 41 percent and 56 percent of total revenue in this segment for the three-months ended June 30, 2016 and 2015, respectively.

Revenue in our Industrial Analyzers and Other segment, increased 6 percent during the first half 2016 when compared to the same period in 2015. The increase in revenue was primarily due to an increase in our sensor and detector products of $1.0 million for the first half of 2016. Revenue to foreign destinations comprised 41 percent and 56 percent of total revenue in this segment for the six-months ended June 30, 2016 and 2015, respectively.

Gross Profit

For the three-months ended June 30, 2016 and 2015, the consolidated gross profit margins were 56 percent and 53 percent, respectively. The gross profit as a percentage of revenue for our Package Testing segment increased by two percentage points to 56 percent in the current quarter, compared to 54 percent in the prior year quarter, due to increased volumes and process improvement initiatives. The gross profit as a percentage of revenue in the Permeation segment increased to 60 percent from 57 percent as compared to the prior year quarter due to customer mix and reduced cost structure to support our consulting revenue. Gross profit as a percentage of revenue for the Industrial Analyzers and Other segment for the current quarter increased by four percentage points to 48 percent compared to 44 percent in the prior year quarter, due to efficiencies gained as a result of the increased in volume of OEM sensor and detector related revenue as well as product cost reduction initiatives that were introduced during the three months ended June 30, 2016.

For the six-months ended June 30, 2016 and 2015, the consolidated gross profit margins were 56 percent and 54 percent, respectively. The gross profit as a percentage of revenue for our Package Testing segment increased by three percentage points to 57 percent in the current six-month period, compared to 54 percent in the prior year six-month period, due to increased volumes and organization changes as part of our process improvement initiatives. The gross profit as a percentage of revenue in the Permeation segment remained consistent at 58 percent compared to the prior year six-month period. Gross profit as a percentage of revenue for the Industrial Analyzers and Other segment for the current six-month period remained consistent at 46 percent compared to the prior year six-month period.

We expect future gross profit percentages to fluctuate depending on the mix of product, service and consulting revenue and the impact of foreign currency fluctuations.

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Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses were $5.9 million, or approximately 38 percent of consolidated revenue, in the three-months ended June 30, 2016, compared to $5.7 million, or approximately 38 percent of consolidated revenue, in the same period of 2015. SG&A expenses were $12.0 million, or approximately 40 percent of consolidated revenue, in the six-months ended June 30, 2016, compared to $12.0 million, or approximately 39 percent of consolidated revenue, in the same period of 2015. The three and six-month SG&A expense includes cost reductions related to our Realignment Plan announced in the fourth quarter of 2015 offset in part by increased professional fees, new hires made prior to realignment and the related personel costs. 

Research and Development Expenses

Research and development (R&D) expenses were $1.3 million, or 8 percent of consolidated revenue in the second quarter 2016, compared to $1.1 million, or 8 percent of revenue in the same period of 2015. R&D expenses were $2.5 million, or 8 percent of consolidated revenue in the first half of 2016, compared to $2.1 million, or 7 percent of revenue in the same period of 2015. The spending levels described above are within our planned level of spending which we project to be between 6 percent and 8 percent of revenue each year.

Realignment Expense

Realignment expense were $750,000 for the three and six-months ended June 30, 2016. This is related to the severance agreements for the chief operating officer and a divisional executive.

In 2015, the realignment expenses for the three and six-months ended was $128,000 related to simplifying our legal entity structure.

Other Income (Expense), net

Other income (expense), net for the three and six-months ended June 30, 2016 and 2015 was as follows (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Interest expense	$	(15	)	$	(37	)	$	(41	)	$	(65	)
Foreign currency exchange gain (loss)		(28	)		(76	)		(37	)		203
Gain on sale of business		352			-			352			-
Total other income (expense)	$	309		$	(113	)	$	274		$	138

The gain on sale of business recognized in 2016 relates to the sale of our business formerly known as Microanalytics.

The six months ended June 30, 2015 foreign currency exchange gain of $203,000 was primarily a result of the timing of payments made in foreign currencies during the first half of 2015 for payables incurred prior to the strengthening of the U.S. dollar.  During 2016, foreign currency exchange rates have not experienced significant fluctuations as compared to 2015.

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Income Tax Expense

Our provision for income tax expense was 32 percent of income before income taxes for each of the three months ended June 30, 2016 and 2015. Our provision for income tax expense was 32 percent and 34 percent of income before income taxes for the first half ended June 30, 2016 and 2015, respectively. The rates in the second quarter and first half of 2016 and 2015 were lower than the statutory rate due primarily to the effect of foreign operations where tax rates tend to be lower, the domestic manufacturing deduction and the research credit. The decrease in the effective tax rate for 2016 as compared to 2015 is primarily due to permanent enactment of the research and development credit whereas previously the related tax credit was not in the effective tax rate until enacted later in the year.

Based on current projected annual operating results, current income tax rates, and current legislation, we expect the effective tax rate for the remainder of 2016 to be consistent with our experience in the six-months of 2016. The overall effective tax rate may fluctuate over time based on the income tax rates in the various jurisdictions in which we operate, and also the level of pre-tax profits in each of these jurisdictions.

Operating Income and Net Income

Operating income was $853,000 in the second quarter 2016 compared to $1.1 million in the second quarter of 2015.  Operating income was $1.6 million in the first half of 2016 compared to $2.2 million in the first half of 2015. The decline for the three and six-months ended June 30, 2016 is primarily due to realignment costs incurred in the second quarter of 2016 offset by the increase in margin contribution as discussed above.

Net income was approximately $789,000 million in the second quarter 2016, compared to a net income of approximately $646,000 in the second quarter 2015. Diluted net income per share was $0.14 and $0.11 in the three-months ended June 30, 2016 and June 30, 2015, respectively. Net income was approximately $1.3 million in the first half of 2016, compared to a net income of approximately $1.6 million in the first half of 2015. Diluted net income per share was $0.22 and $0.27 in the six-months ended June 30, 2016 and June 30, 2015, respectively.

Liquidity and Capital Resources

Total cash and cash equivalents increased $445,000 to $6.8 million during the six-months ended June 30, 2016, compared to $6.3 million at December 31, 2015. Of the June 30, 2016 balance, $4.7 million was held outside of the United States. The year-to-date increase in cash and cash equivalents was primarily due to cash provided from operations of approximately $1.5 million, effect of exchange rate changes of $494,000, offset by cash used in financing of $1.7 million.

Of the $10.0 million available, we had $2.4 million and $2.8 million, respectively, outstanding on the revolving lines of credit as of June 30, 2016 and December 31, 2015. The U.S. revolving line of credit accrues interest at 1.50 percent over the one-month LIBOR rate, which totaled 1.97 percent at June 30, 2016. Our borrowings related to our U.S. revolving line of credit are due on August 26, 2018, and we are subject to certain financial and restrictive covenants.

Our working capital, current assets minus current liabilities, increased by $1.0 million to $16.0 million compared to $15.1 million as of June 30, 2016 and December 31, 2015, respectively. Our cash and cash equivalents balance was positively impacted during the six-months ended June 30, 2016 by approximately $494,000 due to the currency rate fluctuations.

One of our strategic objectives is, as market and business conditions warrant, to consider acquisitions of, or investments in, businesses, products and/or technologies. If we wish to pursue one or more additional acquisition opportunities, this may require the consent of the Bank under the credit agreement we have executed, and we may need to fund such activities with a portion of our cash balances and debt 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 additional restrictive covenants that could limit our operational flexibility and higher interest expense could dilute earnings per share.

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We may invest a portion of our available cash in highly liquid marketable securities consisting primarily of certificates of deposits, 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.

A significant amount of our earnings are generated outside of the U.S.A. and are indefinitely reinvested in non-U.S.A. subsidiaries, resulting in the majority of our cash being held outside the U.S.A. which is available for use by our non-U.S.A. operations. If these funds were repatriated to the U.S.A. or used for U.S.A. operations, the amounts would be subject to U.S.A. tax. Therefore, as we continue to accumulate earnings outside of the U.S.A, we intend to use the cash generated from U.S.A operations as well as borrowings to meet our U.S.A. cash needs. Should we require more capital in the U.S.A. than is generated by our U.S.A. operations, we could elect to repatriate earnings from our non-U.S.A. subsidiaries, seek additional borrowing capacity or seek to raise additional capital in the U.S.A. These alternatives could result in higher effective income tax rates, additional interest expense or other dilution of our earnings.

Cash Flow

Cash Flow from Operating Activities

Our primary source of funds has historically been cash provided by operating activities. In the first six-months of 2016, cash provided by operations totaled approximately $1.5 million, due primarily to net income of $1.3 million, adjusted by non-cash depreciation and amortization of $1.4 million, and a decrease in inventory of $131,000 and an increase in deferred revenue of $571,000 which was offset by an increase in accounts receivable of $1.6 million, a gain on sale of business of $352,000, and a decrease in accrued compensation of $554,000 due primarily to severance and annual bonus payments.

In the first six-months of 2015, cash provided by operations totaled approximately $2.1 million, due primarily to net income of $1.6 million, adjusted by non-cash depreciation and amortization of $1.2 million, and a decrease in accounts receivable of $511,000, an increase in deferred revenue of $281,000 which was offset by an increase in inventories of $650,000 and a decrease in accounts payable of $888,000.

Cash Flow from Investing Activities

Cash provided by investing activities totaled approximately $160,000 in the first six-months of 2016 due primarily to proceeds of sale of business of $500,000, offset by the purchase of property, plant and equipment and intangible assets totaling $390,000.

Cash used in investing activities totaled approximately $933,000 in the first six-months of 2015 due primarily to the purchase of property, plant and equipment and intangible assets totaling $985,000.

Cash Flow from Financing Activities

Cash used in financing activities in the first six-months of 2016 totaled approximately $1.7 million due primarily to dividends paid of $1.3 million and the payments less proceeds for the line of credit of $476,000.

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Cash used in financing activities in the first six-months of 2015 totaled approximately $1.1 million due primarily to dividends paid of $1.3 million. These uses of cash were partially offset by the proceeds received from stock option exercises of $149,000 and to an increase of our notes payable of $67,000.

Although we have repurchased shares of our common stock in the past, we currently are not authorized by our Board of Directors to make repurchases of our common stock. Under the credit agreement with the Bank, we are able to purchase up to $2.0 million in shares of our common stock without the Bank’s approval.

Contractual Obligations

The following table summarizes our future contractual cash obligations as of June 30, 2016 (expressed in thousands):

	Payments Due By Period
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Revolving lines of credit	$	2,350	$	-	$	2,350	$	-	$	-
Operating and capital leases		6,092		1,045		1,485		1,107		2,455
Purchase obligations		5,816		5,816		-		-		-
Realignment accrual		806		632		174		-		-
Total contractual cash obligations	$	15,064	$	7,493	$	4,009	$	1,107	$	2,455

The severance and other payments we expect to make in connection with our Realignment Plans implemented during 2015 and 2016, the payments expected are included in the contractual obligations table above.

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 financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Recently Issued Accounting Guidance

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We are currently evaluating the impact of this guidance on our results of operations and financial position.

Inventory – Simplifying the Measurement of Inventory

In July 2015, the FASB issued ASU 2015-11, Inventory – Simplifying the Measurement of Inventory. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the impact of this guidance on our results of operations and financial position.

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Leases

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The new guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption of the update is permitted. We are currently evaluating the impact of this guidance on our results of operations and financial position.

Stock Compensation

In March 2016, The FASB issued ASU 2016-09, Compensation-Stock Compensation. ASU 2016-09 is an effort to reduce cost and complexity and improve the accounting for share-based payment awards issued to employees for public and private companies. The new guidance is effective for interim and annual periods beginning after December 15, 2016. Early adoption of the update is permitted. We are currently evaluating the impact of this guidance on our results of operations and financial position.

Critical Accounting Policies

Our most critical accounting policies, which are those that require significant judgment, include policies related to revenue recognition, allowance for doubtful accounts, accrual for excess and obsolete inventories, recoverability of long-lived assets, goodwill and income taxes. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended June 30, 2016.

Forward-Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements are described below.

● Decline in overall economic or business conditions;

● Failure to comply with our bank covenants;

● Failure to develop new products and applications, or acquire complementary businesses and productions;

● Failure to attract and retain qualified managerial and technical personal;

● The impact of technological changes that could render our products obsolete;

● Risks inherent in operating internationally and selling and shipping our products and purchasing our products and components internationally;

● The impact of cash held outside the United States;

● The impact of the Euro value decline against the United States dollar;

● Fluctuations in foreign currency exchange rates and interest rates;

● Highly competitive nature of the markets in which we sell our products and the introduction of competing products;

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● Reliance on patents, domestic trademarks laws, trade secrets and contractual provisions;

● Exposure to the fluctuation of our common stock market price;

● Compliance with securities laws and regulations;

● Exposure to risks in evaluation of internal control;

● Increases in prices for raw materials;

● Effects of introducing new products into the marketplace with minimal acceptance concurrently;

● Declining oil prices adversely affecting our revenue in Industrial Analyzers and Other segment;

● Unanticipated charges and unknown cost savings through a realignment plan

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

Today, nearly 65 percent of our consolidated revenue is generated from international customers. In our U.S. operations, we invoice most of these customers in U.S. dollars, so we do not have significant exposure to foreign currency transaction risk in our domestic operations. In our European based operations, we have some exposure to foreign currency fluctuations as we invoice our customers primarily in euros, Danish krone and U.S. dollars. From time to time we use foreign exchange hedging contracts to reduce our exposure in these transactions. We also pay a number of our employees, international suppliers and service providers in their local currency which exposes us to transaction gain or loss. These have not resulted in material amounts in the past. Our foreign operations expose us to foreign currency exchange risk when the Danish krone, euro and yuan currency results of operations are translated to U.S. dollars. Except for the 2015 period, we historically have not experienced any material foreign currency translation gains or losses. During the six months ended June 30, 2016, we recognized a foreign currency translation loss of $37,000.

Our investments in foreign subsidiaries translated into U.S. dollars are not hedged. Any changes in foreign currency exchange rates are reflected as a foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) in shareholders’ equity, and would not impact our net income.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (Exchange Act), 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. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. 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 Quarterly Report on Form 10-Q. Based on the evaluation, the Chief Executive Officer and the 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 and our consolidated subsidiaries 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.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.     OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

We are affected by risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition or operating results or could cause our actual results to differ materially from our expectations are described in our annual report on Form 10-K for the fiscal year ended December 31, 2015 under the heading “Part I – Item 1A. Risk Factors.” There has been no material change in those risk factors.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Unregistered Sales of Equity Securities

We did not sell any equity securities of MOCON, Inc. during the six-month period ended June 30, 2016 that were not registered under the Securities Act of 1933.

Issuer Repurchases of Equity Securities

We did not repurchase any equity securities of MOCON, Inc. during the six-months ended June 30, 2016.

Item 3. Defaults Upon Senior Securities

None.

Items 4. Mine Safety Disclosures

None.

Item 5. Other Information

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Item 6. Exhibits

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

Exhibit No.	Description
10.1	Amended and Restated Asset Purchase Agreement between MOCON, Inc. and Volatile Analysis Corporation dated May 18, 2016 (filed herewith)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101	The following materials from MOCON, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Income, (iii) the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. (filed herewith)

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SIGNATURES

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

	MOCON, INC.
Date: August 9, 2016	/s/ Robert L. Demorest
	Robert L. Demorest
	Chairman, President and Chief
	Executive Officer
	(Principal Executive Officer)
Date: August 9, 2016	/s/ Elissa Lindsoe
	Elissa Lindsoe
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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MOCON, INC.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2016

EXHIBIT INDEX

Exhibit No.	Description
10.1	Amended and Restated Asset Purchase Agreement between MOCON, Inc. and Volatile Analysis Corporation dated May 18, 2016 (filed herewith)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101	The following materials from MOCON, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Income, (iii) the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT

between

MOCON, INC.

and

VOLATILE ANALYSIS CORPORATION

dated as of

May 18, 2016

1.     TABLE OF CONTENTS

Article I Purchase and Sale	1
Section 1.01 Purchase and Sale of Assets.	1
Section 1.02 Excluded Assets.	2
Section 1.03 Assumption of Liabilities.	2
Section 1.04 Purchase Price.	2
Section 1.05 Allocation of Purchase Price.	3
Section 1.06 Withholding Tax.	3
Article II Closing	3
Section 2.01 Closing.	3
Section 2.02 Closing Deliverables.	4
Article III Representations and warranties of seller	4
Section 3.01 Organization and Authority of Seller; Enforceability.	4
Section 3.02 No Conflicts; Consents.	5
Section 3.03 Title to Purchased Assets.	5
Section 3.04 Condition of Assets.	5
Section 3.05 Inventory.	5
Section 3.06 Intellectual Property.	6
Section 3.07 Assigned Contracts.	6
Section 3.08 Compliance With Laws	7
Section 3.09 Legal Proceedings.	7
Section 3.10 Brokers.	7
Article IV Representations and warranties of buyer	7
Section 4.01 Organization and Authority of Buyer; Enforceability.	7
Section 4.02 No Conflicts; Consents.	8
Section 4.03 Legal Proceedings.	8
Section 4.04 Brokers.	8
Article V Covenants	8
Section 5.01 Public Announcements.	8

Section 5.02 Bulk Sales Laws.	8
Section 5.03 Employee Matters.	9
Section 5.04 Non-Competition.	9
Section 5.05 Transfer Taxes.	9
Section 5.06 Further Assurances.	10
Article VI Indemnification	10
Section 6.01 Survival.	10
Section 6.02 Indemnification By Seller.	10
Section 6.03 Indemnification By Buyer.	11
Section 6.04 Indemnification Procedures.	11
Section 6.06 Cumulative Remedies.	11
Article VII Miscellaneous	11
Section 7.01 Expenses.	11
Section 7.02 Notices.	11
Section 7.03 Headings.	13
Section 7.04 Severability.	13
Section 7.05 Entire Agreement.	13
Section 7.06 Successors and Assigns.	13
Section 7.07 No Third-party Beneficiaries.	14
Section 7.08 Amendment and Modification.	14
Section 7.09 Waiver.	14
Section 7.10 Governing Law.	14
Section 7.11 Submission to Jurisdiction.	14
Section 7.12 Waiver of Jury Trial.	14
Section 7.13 Specific Performance.	15
Section 7.14 Counterparts.	15

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT

This Amended and Restated Asset Purchase Agreement (this “Agreement”), dated as of May 18, 2016, is entered into between MOCON, INC., a MINNESOTA corporation (“Seller”) and VOLATILE ANALYSIS CORPORATION., a Delaware corporation (“Buyer”).

RECITALS

WHEREAS, Seller wishes to sell and assign to Buyer, and Buyer wishes to purchase and assume from Seller, the assets of Seller that are used exclusively in Seller’s business currently conducted in Round Rock, Texas which was formerly known as the “Microanalytics” business and which consists of the following activities: (a) analytical chemistry services, formulation, product development, and consulting, all as related to the identification of odors and aromas; (b) the design, development and sale of instruments related to the identification of odors and aromas, and (c) organic permeation testing work currently performed in the Round Rock Texas facility. (the “Business”) and Buyer wishes to assume certain of Seller’s liabilities related to the Business, all subject to the terms and conditions set forth herein;

WHEREAS, Buyer and Seller had previously executed two Asset Purchase Agreements, together with certain ancillary documents, for the sale of the Business by Seller to Buyer, one dated January 14, 2016 and one dated February 29, 2016 (the “Prior Asset Purchase Agreements”) and have mutually agreed to amend and restate certain terms and conditions of the Sale of the Business with the execution of this Amended and Restated Asset Purchase Agreement and further agree that the Prior Asset Purchase Agreements, together with the documents ancillary to the Asset Purchase Agreement are null and void and superseded in their entirety by this Amended and Restated Asset Purchase Agreement and ancillary documents;

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
PURCHASE AND SALE

Section 1.01     Purchase and Sale of Assets. Subject to the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in the assets set forth on Section 1.01 of the disclosure schedules (“Disclosure Schedules”) attached hereto (the “Purchased Assets”), free and clear of any mortgage, pledge, lien, charge, security interest, claim, obligation, or other encumbrance (“Encumbrance”). Buyer and Seller agree that the Prior Asset Purchase Agreements are null and void, and of no force and effect, and superseded in their entirety by the terms and conditions of this Agreement, together with all referenced documents.

Section 1.02     Excluded Assets. Notwithstanding the foregoing, the Purchased Assets shall not include any of the following (the “Excluded Assets”):

(a)     All of Seller’s cash;

(b)     All of Seller’s accounts receivable (including all of Seller’s accounts receivable arising out of the operation of the Business prior to the Closing);

(c)     Any software that is licensed under enterprise licenses of Seller, including all commercial software residing on the computers used by employees of the Business and other software that is not unique to the Business;

(d)     Any rights to the name “MOCON”; and

(e)     Any assets of Seller that are not used exclusively in the Business.

Section 1.03     Assumption of Liabilities. Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge the liabilities and obligations set forth on Section 1.03 of the Disclosure Schedules and those liabilities and obligations arising after the Closing (as defined herein) under the Purchased Assets or from the operation of the Business (collectively, the “Assumed Liabilities”). Other than the Assumed Liabilities, Buyer shall not assume any liabilities or obligations of Seller of any kind, whether known or unknown, contingent, matured or otherwise, whether currently existing or hereinafter created.

Section 1.04     Purchase Price. The aggregate purchase price for the Purchased Assets shall be One Million Three Hundred Thousand Dollars (the “Purchase Price”). Buyer shall also pay to Seller, the amount of $2382.67, which amount represents the cost of health insurance coverage for the Employees of the Business for the month of June which cost shall be paid by Seller to the third party insurer. The Buyer shall pay the Purchase Price to Seller at the Closing (as defined herein) as follows:

(a)     $200,000 in cash, by wire transfer of immediately available funds in accordance with the wire transfer instructions provided by Seller prior to the Closing,

(b)     A Promissory Note in the principal amount of $300,000 due and payable on or before June 30, 2016. In the event that the principal amount of $300,000 is not paid by Buyer to Seller on June 30, 2016 in whole or in part, then the unpaid principal amount shall accrue interest at the rate of 4.5% commencing on the Closing Date, all as set forth in the form of the note attached hereto as Exhibit F; and

(c)     a Promissory Note in the principal amount of $802,382.67 payable over a term of twenty one months and ten days commencing on the Closing Date, which principal amount will be in 4 equal installments of $200,595.67 each, interest shall accrue at the rate of 4.5% per annum, payments of unpaid principal and accrued interest are payable semi-annually, and shall be made on November 30, 2016, February 28, 2017, August 31, 2017 and February 28, 2018, with no penalty for pre-payment, all as set forth in the form of note attached hereto as Exhibit A (the “Promissory Note”).

Section 1.05     Allocation of Purchase Price. Seller and Buyer agree to allocate the Purchase Price among the Purchased Assets for all purposes (including tax and financial accounting) in accordance with Section 1.05 of the Disclosure Schedules and as agreed by their respective accountants, negotiating in good faith on their behalf. Buyer and Seller shall file all tax returns (including amended returns and claims for refund) and information reports in a manner consistent with such allocation.

Section 1.06     Withholding Tax. . Buyer shall be entitled to deduct and withhold from the Purchase Price all taxes that Buyer may be required to deduct and withhold under any applicable tax law. All such withheld amounts shall be treated as delivered to Seller hereunder.

ARTICLE II
CLOSING

Section 2.01     Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place on or before May 18, 2016 (the date the closing occurs, the “Closing Date”) and shall occur remotely by the simultaneous exchange of electronic signatures and delivery of the items contemplated in Section 2.02. For the avoidance of doubt, the Closing Date shall be the date that Seller receives that portion of the Purchase Price defined in Section 1.04(a) above, in readily available cash in Seller’s bank account. The consummation of the transactions contemplated by this Agreement shall be deemed to occur at 12:01 a.m. on the Closing Date. If a party does not deliver on May 18, 2016 its Closing Deliverables due at the Closing as set forth below, the other party can terminate this Agreement and then this Agreement shall be null and void except that such termination will not relieve the other party for its breach prior to such termination.

Section 2.02     Closing Deliverables.

(a)     At the Closing, Seller shall deliver to Buyer the following:

(i)      a bill of sale in the form of Exhibit B (the “Bill of Sale”), duly executed by Seller;

(ii)     an assignment and assumption agreement in the form of Exhibit C hereto (the “Assignment and Assumption Agreement”), duly executed by Seller;

(iii)     an assignment in the form of Exhibit D hereto (the “Intellectual Property Assignments”), duly executed by Seller, transferring all of Seller’s right, title and interest in and to the patents and registered trademarks included in the Purchased Assets to Buyer;

(iv)     Copy of a receipt of disposal of any hazardous chemicals from an authorized disposal company; and

(v)      such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Buyer, as may be required to give effect to this Agreement.

(b)     Seller shall provide redirects to addresses provided to seller by buyer of all content /web pages outlined in the schedule 1.01(C)-2 and all administrative passwords for content access on those pages.

(c)     At the Closing, Buyer shall deliver to Seller the following:

(i)      the portion of the Purchase Price that is payable in readily available cash;

(ii)     the Assignment and Assumption Agreement duly executed by Buyer;

(iii)     The Promissory Notes and Security Agreements, duly executed by Buyer; and

(iv)     such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Seller, as may be required to give effect to this Agreement.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this Article III are true and correct as of the date hereof. For purposes of this Article III, “Seller’s knowledge,” “knowledge of Seller” and any similar phrases shall mean the actual knowledge of any officer of Seller.

Section 3.01     Organization and Authority of Seller; Enforceability. Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota. Seller has full corporate power and authority to enter into this Agreement and the documents to be delivered hereunder, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement and the documents to be delivered hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Buyer) this Agreement and the documents to be delivered hereunder constitute legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms.

Section 3.02     No Conflicts; Consents. The execution, delivery and performance by Seller of this Agreement and the documents to be delivered hereunder, and the consummation of the transactions contemplated hereby, do not and will not: (a) violate or conflict with the articles of incorporation, by-laws or other organizational documents of Seller; (b) violate or conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Seller or the Purchased Assets; (c) conflict with, or result in (with or without notice or lapse of time or both) any violation of, or default under, or give rise to a right of termination, acceleration or modification of any obligation or loss of any benefit under any contract or other instrument to which Seller is a party or to which any of the Purchased Assets are subject; or (d) result in the creation or imposition of any Encumbrance on the Purchased Assets. Seller will provide the necessary third party consent, approval or authorization to Buyer to transfer those contracts that are provided for Section 3.02 of the Disclosure Schedules, within thirty (30) days of Closing. As specifically agreed to by the parties, Seller has no obligation to obtain additional consents or approvals to transfer contracts or agreements from third parties which are included in the list of Purchased Assets.

Section 3.03     Title to Purchased Assets. Seller owns and has good title to the Purchased Assets, free and clear of Encumbrances.

Section 3.04     Condition of Assets. The tangible personal property included in the Purchased Assets is, to Seller’s knowledge, in good condition and is adequate for the uses to which it is being put, and none of such tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost.

Section 3.05     Inventory. All inventory, finished goods, raw materials, work in progress, packaging, supplies, parts and other inventories included in the Purchased Assets consists of a quality and quantity usable and salable in the ordinary course of business. Included in the Purchased Assets are the inventory items that were present in the Round Rock facility as of October 31, 2015 except for such consumable items acquired or consumed in the ordinary course of business since that date.

Section 3.06     Intellectual Property.

(a)     “Intellectual Property” means any and all of the following in any jurisdiction throughout the world: (i) trademarks and service marks, including all applications and registrations and the goodwill connected with the use of and symbolized by the foregoing; (ii) copyrights, including all applications and registrations related to the foregoing; (iii) trade secrets and confidential know-how; (iv) patents and patent applications; (v) internet domain name registrations; and (vi) other intellectual property (vii) case studies designs and/or content (viii) odor and/or aroma marketing materials and including email marketing pieces (ix) all web images and content for any odor and aroma pages on Mocon website, the MDGC website, and related proprietary rights, interests and protections (including all rights to sue and recover and retain damages, costs and attorneys’ fees for past, present and future infringement and any other rights relating to any of the foregoing) and all the links for any of the pages that have current content related to the Business (to ensure Buyer’s ability to maintain search engine viability).

(b)     Section 3.06(b) of the Disclosure Schedules lists all Intellectual Property included in the Purchased Assets (“Purchased IP”). Seller owns or has adequate, valid and enforceable rights to use all the Purchased IP, free and clear of all Encumbrances. Seller is not bound by any outstanding judgment, injunction, order or decree restricting the use of the Purchased IP, or restricting the licensing thereof to any person or entity. With respect to the registered Intellectual Property listed on Section 3.06(b) of the Disclosure Schedules, (i) all such Intellectual Property is valid, subsisting and in full force and effect and (ii) Seller has paid all maintenance fees and made all filings required to maintain Seller’s ownership thereof.

(c)     Seller’s prior and current use of the Purchased IP has not and does not, to Seller’s knowledge, infringe, violate, dilute or misappropriate the Intellectual Property of any person or entity and there are no claims pending or threatened by any person or entity with respect to the ownership, validity, enforceability, effectiveness or use of the Purchased IP. No person or entity is, to Seller’s Knowledge, infringing, misappropriating, diluting or otherwise violating any of the Purchased IP, and neither Seller nor any affiliate of Seller has made or asserted any claim, demand or notice against any person or entity alleging any such infringement, misappropriation, dilution or other violation.

Section 3.07     Assigned Contracts. Each Assigned Contract is valid and binding on Seller in accordance with its terms and is in full force and effect. None of Seller or, to Seller’s knowledge, any other party thereto is in material breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Assigned Contract. No event or circumstance has occurred that, with or without notice or lapse of time or both, would constitute an event of default under any Assigned Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of benefit thereunder. Complete and correct copies of each Assigned Contract have been made available to Buyer and part of disclosure schedules. There are no disputes pending or threatened under any Assigned Contract.

Section 3.08     Compliance With Laws. Seller has complied, and is now complying, with all applicable federal, state and local laws and regulations applicable to ownership and use of the Purchased Assets and the operation of the Business.

Section 3.09     Legal Proceedings. There is no claim, action, suit, proceeding or governmental investigation (“Action”) of any nature pending or, to Seller’s knowledge, threatened against or by Seller (a) arising out of the operation of the Business; or (b) that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

Section 3.10     Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this Article IV are true and correct as of the date hereof. For purposes of this Article IV, “Buyer’s knowledge,” “knowledge of Buyer” and any similar phrases shall mean the actual or constructive knowledge of any director or officer of Buyer, after due inquiry.

Section 4.01     Organization and Authority of Buyer; Enforceability. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. Buyer has full corporate power and authority to enter into this Agreement and the documents to be delivered hereunder, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Buyer of this Agreement and the documents to be delivered hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement and the documents to be delivered hereunder constitute legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms.

Section 4.02     No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the documents to be delivered hereunder, and the consummation of the transactions contemplated hereby, do not and will not: (a) violate or conflict with the certificate of incorporation, by-laws or other organizational documents of Buyer; or (b) violate or conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Buyer. No consent, approval, waiver or authorization is required to be obtained by Buyer from any person or entity (including any governmental authority) in connection with the execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby.

Section 4.03     Legal Proceedings. There is no Action of any nature pending or, to Buyer’s knowledge, threatened against or by Buyer that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action except as previously disclosed to Seller which includes the PPM provided.

Section 4.04     Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.

ARTICLE V
COVENANTS

Section 5.01     Public Announcements. Unless otherwise required by applicable law or stock exchange requirements, neither party shall make any public announcements regarding this Agreement or the transactions contemplated hereby without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed). Notwithstanding the above, the parties agree that the terms and conditions of the Confidentiality and Non-Disclosure Agreement executed by the parties effective March 28, 2014 shall remain in full force and effect according to its terms. Notwithstanding the above, the parties acknowledge that they have previously distributed a joint press release (a copy is attached as Exhibit E) and Buyer acknowledges that Seller will be filing a Form 8-K with the Securities and Exchange Commission.

Section 5.02     Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer.

Section 5.03     Employee Matters. Buyer will make offers of employment, effective as of the Closing, to the employees of Seller who are dedicated to the Business, each of whom is listed on Section 5.03 of the Disclosure Schedules (the “Business Employees”). Such offers of employment and compensation will be based upon Buyer’s business practices and in accordance with all applicable laws. Seller will not intentionally take any actions that will discourage such employees from accepting the offers of employment with Buyer. Any Employees of the Business retained by the Buyer post-Closing shall be eligible for credit for the prior years of service with Seller if years of service are a consideration under any of the Buyer’s benefit or other programs at the time of the Closing.

Section 5.04     Non-Competition. Seller covenants and agrees that for a period of Four (4) years commencing on the Closing Date, Seller will not engage in the activities of the Business, anywhere in the world, (“Competitive Activities”); provided, however, that the foregoing shall not prohibit:

(a)     Seller from engaging in any of its existing or planned businesses (other than the Business); or

(b)     Seller from acquiring any company or business that engages in Competitive Activities provided that such activities do not constitute in excess of twenty-five percent (25%) of the revenues of the company or business to be acquired (based on the sales of such business during the preceding four (4) full calendar quarters). In the event that Seller does acquire a company or business that is engaged in the Competitive Activities, Buyer shall have a Right of First Refusal, for a period of twenty (20) days commencing on the date that Seller provides written notice (which is required within 15 days of Seller entering into a proposed acquisition agreement) to Buyer of the planned acquisition, to sign a non-binding Letter of Intent to indicate its intention to acquire that portion of the acquired company or business that constitutes the Competitive Activities (the “RFR”). Seller shall not unreasonably withhold its agreement to such Letter of Intent where such Letter Of Intent contains commercially reasonable terms. In principal, the Parties agree that the price of the RFR shall be determined on a prorated basis, based on the fraction which is equal to (i) the value of the Competitive Activities, divided by (ii) the acquisition price of the acquired company or business. This fraction shall then be multiplied by the acquisition price of the company or business to yield the RFR price. The RFR shall expire twenty (20) days after Seller delivers written notice of the acquisition to Buyer.

(c)     Seller from providing limited testing services related to and in support of Seller instrument sales.

Section 5.05     Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the documents to be delivered hereunder shall be borne and paid by Seller when due. Seller shall, at its own expense, timely file any tax return or other document with respect to such taxes or fees (and Buyer shall cooperate with respect thereto as necessary).

Section 5.06     Further Assurances. Following the Closing, each of the parties hereto shall execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the documents to be delivered hereunder.

ARTICLE VI
INDEMNIFICATION

Section 6.01     Survival. All representations, warranties, covenants and agreements contained herein and all related rights to indemnification shall survive the Closing.

Section 6.02     Indemnification By Seller. Subject to the other terms and conditions of this Article VI, Seller shall defend, indemnify and hold harmless Buyer, its affiliates and their respective stockholders, directors, officers and employees from and against all third party claims, judgments, direct damages, liabilities, settlements, losses, costs and expenses, including attorneys’ fees and disbursements, arising from or relating to:

(a)     any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement or any document to be delivered hereunder;

(b)     any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement or any document to be delivered hereunder; or

(c)     any Excluded Asset or any liability of Seller that is not an Assumed Liability.

Section 6.03     Indemnification By Buyer. Subject to the other terms and conditions of this Article VI, Buyer shall defend, indemnify and hold harmless Seller, its affiliates and their respective stockholders, directors, officers and employees from and against all claims, judgments, direct damages, liabilities, settlements, losses, costs and expenses, including attorneys’ fees and disbursements, arising from or relating to:

(a)     any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or any document to be delivered hereunder;

(b)     any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement or any document to be delivered hereunder; or

(c)     any Assumed Liability.

Section 6.04     Indemnification Procedures. Whenever any claim shall arise for indemnification hereunder, the party entitled to indemnification (the “Indemnified Party”) shall promptly provide written notice of such claim to the other party (the “Indemnifying Party”). In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any Action by a person or entity who is not a party to this Agreement, the Indemnifying Party, at its sole cost and expense and upon written notice to the Indemnified Party, may assume the defense of any such Action with counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall be entitled to participate in the defense of any such Action, with its counsel and at its own cost and expense. If the Indemnifying Party does not assume the defense of any such Action, the Indemnified Party may, but shall not be obligated to, defend against such Action in such manner as it may deem appropriate, including, but not limited to, settling such Action, after giving notice of it to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate and no action taken by the Indemnified Party in accordance with such defense and settlement shall relieve the Indemnifying Party of its indemnification obligations herein provided with respect to any damages resulting therefrom. The Indemnifying Party shall not settle any Action without the Indemnified Party’s prior written consent (which consent shall not be unreasonably withheld or delayed).

Section 6.05     Cumulative Remedies. The rights and remedies provided in this Article VI are cumulative and are in addition to and not in substitution for any other rights and remedies available at law or in equity or otherwise.

ARTICLE VII
MISCELLANEOUS

Section 7.01     Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

Section 7.02     Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) on the [third] day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7.02):

If to Seller:	MOCON, INC. 7500 Mendelssohn Avenue, N. Minneapolis MN 55428 E-mail: don.demorett@mocon.com Attention:     Donald N. DeMorett
with a copy to:	Fox Rothschild E-mail: PMartin@foxrothschild.com Attention:     Phillip Martin

If to Buyer:	29750 US Highway 431 Grant, AL 35747 E-mail: kbazemore@volatileanalysis.com Attention:     Katherine Bazemore President
with a copy to:	Young Law, LLC Red Mountain Law Group 2100 First Avenue North, Suite 600 Birmingham, AL 35203-4272 frank@younglawllc.com 205-254-1423

Section 7.03     Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

Section 7.04     Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.

Section 7.05     Entire Agreement. This Agreement and the documents to be delivered hereunder constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and the documents to be delivered hereunder, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control. Notwithstanding the above, the terms and conditions of the Non-Disclosure and Confidentiality Agreement executed by the parties effective March 28, 2014 shall remain in full force and effect solely with respect to the subject matter thereof.

Section 7.06     Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

Section 7.07     No Third-party Beneficiaries. Except as provided in Article VI, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 7.08     Amendment and Modification. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto.

Section 7.09     Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

Section 7.10     Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction).

Section 7.11     Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of Texas in each case located in the city of Round Rock and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.

Section 7.12     Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby.

Section 7.13     Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

Section 7.14     Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

MOCON, INC.

By_____________________

Name:

Title:

VOLATILE ANALYSIS CORPORATION

By ______________________

Name: Katherine (Kathy) Bazemore

Title: President and CEO

Schedule 1.01

Purchased Assets

All assets of Seller used exclusively in the Business, including the following:

1. All inventory items used or held for use exclusively in the Business;

2. The equipment, tools, furniture, office equipment, computer hardware, supplies, materials, fixtures and other items of tangible personal property listed on Attachment 1.01-A and additionally all instruments currently on-site at MicroAnalytics including all the permeation instruments, instruments utilized by Don Wright and David Eaton, along with any other instruments on-site if they are not on the listing. It is warranted that no equipment has been removed since Volatile Analysis on-site inventory walk through in December 2015.

3. All of Seller’s rights under the contracts listed on Attachment 1.01-B (the “Assigned Contracts”);

4. All of Seller’s intellectual property and their associated rights described on Attachment 1.01-C;

5. Prepaid expenses to the extent related exclusively to the Business;

6. The goodwill to the Business; and

7. All purchase orders, commercial paperwork, Statements of Work, lab reports, service orders and reports, sales or service contracts, invoices, information, books and records related primarily or exclusively to the Business, including any such files, computer discs and tapes, sales records, customer lists, supplier lists, manuals, and drawings except that Seller shall be allowed to make and retain copies of all Business Information and use the same to the extent necessary to prepare tax returns, prepare financial statements, make SEC filings and fulfill other obligations of Seller.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert L. Demorest, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of MOCON, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2016

/s/ Robert L. Demorest

Robert L. Demorest

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Elissa Lindsoe, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of MOCON, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2016

/s/ Elissa Lindsoe

Elissa Lindsoe

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MOCON, Inc. on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Demorest, Chief Executive Officer of MOCON, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MOCON, Inc.

Date: August 9, 2016

/s/ Robert L. Demorest

Robert L. Demorest

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MOCON, Inc. on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elissa Lindsoe, Chief Financial Officer of MOCON, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MOCON, Inc.

Date: August 9, 2016

/s/ Elissa Lindsoe

Elissa Lindsoe

Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 02, 2016
Document Information [Line Items]
Entity Registrant Name	MOCON INC
Entity Central Index Key	0000067279
Trading Symbol	moco
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		5,798,603
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 6,789	$ 6,344
Trade accounts receivable, less allowance for doubtful accounts of $165 in 2016 and $141 in 2015	10,449	8,786
Other receivables	296	326
Inventories	7,655	7,790
Prepaid income taxes	260	559
Prepaid expenses, other	962	897
Total current assets	26,411	24,702
Property, plant and equipment, net of accumulated depreciation of $8,289 in 2016 and $8,154 in 2015	5,588	5,995
Goodwill	7,508	7,437
Intangible assets, net	8,636	8,986
Other assets	90	88
Deferred income taxes	212	211
TOTAL ASSETS	48,445	47,419
Current liabilities:
Current maturities of notes payable	60	65
Accounts payable	3,048	3,033
Accrued compensation and related expenses	3,860	3,969
Other accrued expenses	1,086	811
Accrued product warranties	232	223
Dividends payable	637	637
Deferred revenue	1,436	862
Total current liabilities	10,359	9,600
Revolving lines of credit	2,350	2,793
Notes payable	65	93
Obligations to former employees	35	34
Deferred income taxes	1,051	1,227
Accrued income taxes	201	201
Total noncurrent liabilities	3,702	4,348
Total liabilities	14,061	13,948
Shareholders' equity:
Capital stock – undesignated. Authorized 3,000,000 shares; none issued and outstanding in 2016 and 2015
Common stock – $0.10 par value. Authorized 22,000,000 shares; issued and outstanding 5,798,103 shares in 2016 and 5,792,126 shares in 2015	580	579
Additional paid-in capital	7,829	7,412
Retained earnings	30,628	30,700
Accumulated other comprehensive loss	(4,653)	(5,220)
Total shareholders' equity	34,384	33,471
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 48,445	$ 47,419

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Trade accounts receivable, allowance for doubtful accounts	$ 165	$ 141
Property, plant and equipment, accumulated depreciation	$ 8,289	$ 8,154
Capital stock, authorized shares (in shares)	3,000,000	3,000,000
Capital stock, shares issued (in shares)	0	0
Capital stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, authorized (in shares)	22,000,000	22,000,000
Common stock, shares issued (in shares)	5,798,103	5,792,126
Common stock, shares outstanding (in shares)	5,798,103	5,792,126

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue:
Products	$ 12,244	$ 12,032	$ 23,628	$ 24,201
Services	2,702	2,338	5,514	4,842
Consulting	685	679	1,219	1,366
Total revenue	15,631	15,049	30,361	30,409
Cost of revenue:
Products	5,085	5,497	10,055	10,783
Services	1,294	1,016	2,468	2,064
Consulting	481	511	963	1,058
Total cost of revenue	6,860	7,024	13,486	13,905
Gross profit	8,771	8,025	16,875	16,504
Selling, general and administrative expenses	5,870	5,707	12,008	11,978
Research and development expenses	1,298	1,126	2,501	2,195
Realignment Expense	750	128	750	128
Operating income	853	1,064	1,616	2,203
Other income (expense), net	309	(113)	274	138
Income before income taxes	1,162	951	1,890	2,341
Income tax expense	373	305	613	787
Net income	$ 789	$ 646	$ 1,277	$ 1,554
Net income per common share:
Basic (in dollars per share)	$ 0.14	$ 0.11	$ 0.22	$ 0.27
Diluted (in dollars per share)	$ 0.14	$ 0.11	$ 0.22	$ 0.27
Basic (in shares)	5,794	5,750	5,793	5,746
Diluted (in shares)	5,817	5,846	5,813	5,840
Cash dividends declared per common share (in dollars per share)	$ 0.11	$ 0.11	$ 0.22	$ 0.22

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net income	$ 789	$ 646	$ 1,277	$ 1,554
Other comprehensive income (loss):
Cumulative translation adjustment	(330)	520	567	(2,193)
Comprehensive income (loss)	$ 459	$ 1,166	$ 1,844	$ (639)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Volatile Analysis Corporation [Member]
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of business	$ (352,000)
Changes in operating assets and liabilities:
Inventories	30,000
Cash flows from investing activities:
Proceeds from sale of business	500,000
Supplemental schedule of noncash investing and financing activities:
Proceeds from sale of business	500,000
Goodwill	(57,000)
Property, Plant, and Equipment, net	(29,000)
Inventory	(30,000)
Other Assets and Liabilities	(32,000)
Total gain on sale of business	352,000
Net income	1,277,000	1,554,000
Share-based compensation expense	375,000	322,000
Change in fair value of derivative instrument		(3,000)
(Gain) Loss on disposition of long-term assets	63,000	(16,000)
Gain on sale of business	(352,000)
Depreciation and amortization	1,387,000	1,220,000
Deferred income taxes	(234,000)	(106,000)
Excess tax benefit from employee stock plans	(2,000)	(2,000)
Trade accounts receivable, net	(1,603,000)	511,000
Other receivables	37,000	7,000
Inventories	131,000	(650,000)
Prepaid income taxes	(145,000)	432,000
Prepaid expenses, other	(29,000)	(180,000)
Accounts payable	176,000	(888,000)
Accrued compensation and related expenses	(554,000)	(962,000)
Other accrued expenses	39,000	293,000
Accrued product warranties	8,000	20,000
Accrued income taxes	354,000	294,000
Deferred revenue	571,000	281,000
Net cash provided by operating activities	1,499,000	2,127,000
Proceeds from sale of business	500,000
Purchases of property, plant and equipment	(326,000)	(861,000)
Proceeds from sale of property and equipment	50,000	54,000
Cash paid for patents and other intangible assets	(64,000)	(124,000)
Other		(2,000)
Net cash provided by (used in) investing activities	160,000	(933,000)
Proceeds from the revolving lines of credit	1,100,000	11,730,000
Payments on the revolving lines of credit	(1,543,000)	(11,125,000)
Payments on notes payable and seller financed note payable	(33,000)	(538,000)
Proceeds from the exercise of stock options	41,000	149,000
Excess tax benefit from employee stock plans	2,000	2,000
Dividends paid	(1,275,000)	(1,264,000)
Net cash used in financing activities	(1,708,000)	(1,046,000)
Effect of exchange rate changes on cash and cash equivalents	(494,000)	461,000
Net increase (decrease) in cash and cash equivalents	445,000	(313,000)
Beginning of period	6,344,000	6,332,000
End of period	6,789,000	6,019,000
Cash paid during the period for income taxes	304,000	229,000
Cash paid during the period for interest	41,000	67,000
Dividends accrued	638,000	633,000
Purchases of prepaid expenses, fixed assets and intangibles in accounts payable	(94,000)	(123,000)
Transfers of inventory to fixed assets	94,000	28,000
Proceeds from sale of business	500,000
Goodwill	(57,000)
Inventory	(131,000)	650,000
Total gain on sale of business	$ 352,000

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Note 1 - Condensed Consolidated Financial Statements

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

Note 1 – Condensed Consolidated Financial Statements

The condensed consolidated balance sheet as of June 30, 2016, the condensed consolidated statements of income and comprehensive income (loss), for the three and six-months ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America. These interim unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows at June 30, 2016, and for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain amounts have been reclassified from the prior year presentation to conform to the current year presentation.

The results of operations for the three and six-month period ended June 30, 2016 are not necessarily indicative of operating results for the full year. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, previously filed with the Securities and Exchange Commission.

MOCON Inc. and its subsidiaries, develops, manufacturers and markets measurement, analytical, monitoring and consulting services for customers in the barrier packaging, food, pharmaceutical, consumer products, industrial hygiene, environmental, air quality monitoring, oil and gas exploration and other industries throughout the world.

We report our operating segments as Package Testing Products and Services (“Package Testing”), Permeation Products and Services (“Permeation”), and Industrial Analyzers Products and Services and Other (“Industrial Analyzers and Other”) for financial reporting purposes.

Principles of Consolidation

The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

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Note 2 - Sale of Business

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 2 – Sale of Business

On January 14, 2016, we entered into an Asset Purchase Agreement, as amended on May 18, 2016 (the “Agreement”) with Volatile Analysis Corporation (“VAC”) pursuant to which we agreed to sell to VAC the assets exclusively used in its business of providing equipment and analytical chemistry services and related formulation, product development, and consulting services, primarily focused on identification of odors and aromas. This business was included in our Permeation segment and conducted from our Round Rock, Texas facility. The purchase and sale of the assets was finalized and closed on May 18, 2016. We received proceeds of $500,000 resulting in a realized gain of $352,000, which is included in other income (expense), net on the consolidated income statement. The remaining $800,000 owed by VAC in accordance with the Agreement will be recognized on the cost recovery method upon receipt. This business does not qualify for discontinued operations or available for sale treatment since it does not represent a strategic shift that had or will have a major effect on our operations and financial results.

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Note 3 - Inventories

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note 3 – Inventories

Inventories consist of the following (expressed in thousands):

	June 30, 2016		December 31, 2015
Finished products	$	1,891	$	1,366
Work-in-process		1,915		2,375
Raw materials		3,849		4,049
Total Inventory	$	7,655	$	7,790

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Note 4 - Net Income Per Common Share

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

Note 4 – Net Income Per Common Share

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

The following table presents a reconciliation of the denominators used in the computation of net income per common share – basic, and net income per common share – diluted, for the three and six-months ended June 30, 2016 and 2015 (expressed in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Weighted shares of common stock outstanding - basic		5,794		5,750		5,793		5,746
Dilutive impact of share-based awards		23		96		20		94
Weighted shares of common stock outstanding - diluted		5,817		5,846		5,813		5,840

Outstanding stock options totaling 634,635 and 201,950 for the three-months ended June 30, 2016 and June 30, 2015, respectively, and 659,635 and 246,250 for the six-months ended June 30, 2016 and June 30, 2015, respectively, were excluded from the net income per common share calculation because the shares would be anti-dilutive.

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Note 5 - Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note 5 – Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2016 were as follows (expressed in thousands):

	Package Testing		Permeation			Industrial Analyzers & Other		Total
Balance as of December 31, 2015	$	4,967	$	1,860		$	610	$	7,437
Foreign currency translation		101		27			-		128
Sale of business		-		(57	)		-		(57	)
Balance as of June 30, 2016	$	5,068	$	1,830		$	610	$	7,508

We test goodwill for impairment annually at the reporting unit level using a fair value approach. We will perform our annual impairment test for goodwill in the fourth quarter or earlier if impairment indicators are identified.

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

	As of June 30, 2016
	Cost		Accumulated Amortization			Net
Patents	$	1,939	$	(473	)	$	1,466
Trademarks and trade names		3,385		(843	)		2,542
Developed technology		6,256		(2,954	)		3,302
Customer relationships		732		(346	)		386
Internally developed software		1,085		(209	)		876
Other intangibles		214		(150	)		64
	$	13,611	$	(4,975	)	$	8,636

	As of December 31, 2015
	Cost		Accumulated Amortization			Net
Patents	$	1,844	$	(439	)	$	1,405
Trademarks and trade names		3,321		(751	)		2,570
Developed technology		6,121		(2,551	)		3,570
Customer relationships		716		(298	)		418
Internally developed software		1,085		(154	)		931
Other intangibles		214		(122	)		92
	$	13,301	$	(4,315	)	$	8,986

Total amortization expense for the three-months ended June 30, 2016 and June 30, 2015 was $295,000 and $295,000, respectively, and $588,000 and $590,000, respectively, for the six-months ended June 30, 2016 and June 30, 2015. Projects in process are not amortized until the patent or trademark is granted by the regulatory agency or the asset is ready for use. Estimated amortization expense for the remainder of 2016 and each of the four succeeding fiscal years and thereafter based on the intangible assets as of June 30, 2016 is as follows (expressed in thousands):

2016	$	587
2017		1,148
2018		1,116
2019		1,111
2020		1,110
2021 & Thereafter		2,922
	$	7,994

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Note 6 - Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note 6 – Accumulated Other Comprehensive Income (Loss)

Adjustments to accumulated other comprehensive income (loss) consist of the following (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	(4,323	)	$	(5,505	)	$	(5,220	)	$	(2,792	)
Foreign currency translation adjustments		(330	)		520			567			(2,193	)
Accumulated other comprehensive loss	$	(4,653	)	$	(4,985	)	$	(4,653	)	$	(4,985	)

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Note 7 - Warranty

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

Note 7 – Warranty

We provide a warranty for most of our products. Warranties are generally for periods ranging from ninety days to one year, and cover parts and labor for non-maintenance repairs.

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. Generally, warranty reserves are also accrued for special rework campaigns for known major product modifications. We also offer extended warranty service contracts for select products when the factory warranty period expires.

Warranty provisions and claims for the three and six-months ended June 30, 2016 and June 30, 2015 were as follows (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	242		$	354		$	223		$	285
Warranty provisions		61			16			205			217
Warranty claims		(71	)		(77	)		(196	)		(209	)
Ending Balance	$	232		$	293		$	232		$	293

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Note 8 - Debt

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 8 – Debt

Notes payable consists of the following (expressed in thousands):

	June 30, 2016		December 31, 2015
Capital Leases	$	125	$	158
Less current portion of long-term notes payable		60		65
Total long-term notes payable	$	65	$	93

In the U.S., we have a $10.0 million secured revolving line of credit with a maturity date of August 26, 2018. Interest is charged monthly at one-month LIBOR (0.47 percent) plus 1.5 percent which totaled 1.97 percent at June 30, 2016 and 1.74 percent at December 31, 2015. The line of credit is secured by our assets with the exception of the number of shares of outstanding stock of Dansensor that exceeds 65 percent of the shares outstanding. We had $2.4 million and $2.8 million outstanding on the line of credit at June 30, 2016 and December 31, 2015. Additionally, Dansensor has a DKK 10 million (approximately $1.5 million) available line of credit of which no amounts were outstanding as of June 30, 2016 and December 31, 2015

. Outstanding borrowings on the Denmark line of credit are charged interest at 4.35 percent per year.

We are subject to various financial and restrictive covenants in the bank Credit Agreement, including maintaining certain financial ratios and limits on incurring additional indebtedness, acquisitions, making capital and lease expenditures and making share repurchases.

We are in compliance with our debt covenants at June 30, 2016 and expect to remain in compliance through the next twelve months

.

As of June 30, 2016, the future minimum principal payments of the notes payable for the remainder of 2016 and each of the three succeeding fiscal years to the maturity of the note are as follows (expressed in thousands):

Minimum principal Payments
2016	$	33
2017		56
2018		36
Total	$	125

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Note 9 - Realignment Expenses

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

Note 9 – Realignment Expenses

During 2015, we implemented a Realignment Plan in order to simplify our business structure by reducing the number of legal entities and by combining the sales and marketing teams of our Package Testing and Permeation segments under common leadership. As of December 31, 2015, approximately $483,000 was included in Accrued Compensation and related expenses and approximately $137,000 was included in Accounts payable on the consolidated balance sheet.

During the three months ended June 30, 2016, management concluded to eliminate the chief operating officer position and a divisional executive position. These two positions have severance agreements for the payment upon the occurrence of certain termination events. As a result, $750,000 of realignment expense was recognized during the three and six-months ended June 30, 2016.

Amounts accrued, realignment expense and cash payments for the three and six-months ended June 30, 2016 and June 30, 2015 were as follows (expressed in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Beginning Balance	$	112		$	-	$	620		$	-
Realignment Expense		750			128		750			128
Cash Payments		(56	)		-		(564	)		-
Ending Balance	$	806		$	128	$	806		$	128

As of June 30, 2016, approximately $806,000 is included in Accrued compensation and related expenses on the consolidated balance sheet and is expected to be paid by the end of 2017.

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Note 10 - Income Taxes

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

Our provision for income tax expense was 32 percent of income before income taxes for each of the three-months ended June 30, 2016 and June 30, 2015. Our provision for income tax expense was 32 percent and 34 percent of income before income taxes for the first half ended June 30, 2016 and June 30, 2015, respectively. The rate in the second quarters and first halves 2016 and 2015 were lower than the statutory rate due primarily to the effect of foreign operations where tax rates tend to be lower, the domestic manufacturing deduction and the research credit. The decrease in the effective tax rate for the first six months of 2016 as compared to 2015 is primarily due to permanent enactment of the research and development credit whereby previously the related tax credit was not in the effective tax rate until enacted later in the year.

As of June 30, 2016 and December 31, 2015, the liability for gross unrecognized tax benefits was $187,000. With the exception of lapsing statutes of limitation it is expected that the amount of unrecognized tax benefits for positions which we have identified will not materially change in the next twelve months.

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Note 11 - Share-based Compensation

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 11 – Share-Based Compensation

Stock Option Plans

As of June 30, 2016, we have reserved 345,800 shares of common stock for options and other share-based incentive awards that are still available for grant under our 2015 stock incentive plan, and 773,260 shares for options that have been granted under either the 2006 or 2015 stock incentive plan. We issue new shares of common stock upon exercise of stock options.

Amounts recognized in the condensed consolidated financial statements related to share-based compensation are as follows (expressed in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Total cost of share-based compensation	$	186		$	161		$	375		$	322
Amount of income tax benefit recognized in earnings		(5	)		(21	)		(5	)		(42	)
Amount charged against net income	$	181		$	140		$	370		$	280

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes). We use historical data to estimate the expected price volatility, expected option life and expected forfeiture rate. Our estimates are based on expected volatility for awards granted on daily historical trading data of our 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. We estimate the expected term consistent with historical exercise and cancellation activity of its previous share-based grants with a seven or ten year as applicable contractual term. Forfeitures are 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.

A summary of the option activity for the first six months of 2016 is as follows (expressed in thousands, except share and per share amounts):

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Options outstanding, December 31, 2015		797,378		$	14.91		4.7	$	453
Granted		-			-		-		-
Exercised		(4,900	)		10.43		-		-
Cancelled or expired		(19,218	)		15.71		-		-
Options outstanding, June 30, 2016		773,260		$	14.92		4.2	$	292
Options exercisable, June 30, 2016		492,985		$	14.94		3.1	$	278

The total intrinsic value of options exercised was $11,000 and $42,000 during the three-months ended June 30, 2016 and June 30, 2015, respectively, and $17,000 and $183,000 during the six-months ended June 30, 2016 and June 30, 2015, respectively.

As of June 30, 2016, there was $583,000 of total unrecognized compensation cost related to unvested share-based compensation granted under our plans. That cost is expected to be recognized over a weighted-average period of 0.8 years. The total fair value of option shares vested during the three-months ended June 30, 2016 and June 30, 2015 was zero and $88,000, respectively and zero and $176,000 during the six-months ended June 30, 2016 and June 30, 2015, respectively.   

Employee Stock Purchase Plan

On May 27, 2015, our shareholders approved the 2015 Employee Stock Purchase Plan (“Purchase Plan”) whereby 50,000 shares of common stock will be available for future sale. The first offering period began on January 1, 2016 and provides participants an option to purchase shares of our common stock at a price per share equal to 85 percent of the value of the share of common stock at the beginning or end of the offering period (whichever is less). For the offering period ended June 30, 2016, 1,803 shares were purchased under the plan.

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Note 12 - Business Segments

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 12 – Business Segments

We have four operating segments, structured by differences in products and services, that are regularly reviewed by our chief operating decision maker to make decisions about allocating resources and assessing segment performance.

The segment performance is evaluated at segment operating income which is defined as gross profit less selling, general and administrative expenses and research and development expenses. General corporate expenses, including costs associated with various support functions such as human resources, information technology, finance and accounting, and general and administrative costs, are allocated to the reportable segments primarily on the basis of segment gross margin. Our four operating segments have been aggregated into three reportable segments. We aggregated our Other Products and Services operating segment into the Industrial Analyzers Products and Services segment based on minimal business activity and materiality.

The Package Testing segment provides customers with the ability to assess package performance, shelf-life, package improvement, cost reduction, sustainability and product safety using Modified Atmosphere Packaging and other technologies. The Permeation segment includes instruments and services that measure the rate at which various gases and vapors permeate through a variety of materials. The Industrial Analyzers and Other segment includes advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, beverage and specialty gas analysis, industrial hygiene and safety, food safety, environmental air monitoring and homeland security.

The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Intersegment revenue for the three and six-months ended June 30, 2016 and June 30, 2015 were insignificant.

Financial information by reportable segment for the three and six-months ended June 30, 2016 and June 30, 2015 is as follows (expressed in thousands):

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
Three Months Ended June 30, 2016
Revenue	$	7,328	$	5,483	$	2,820		$	-		$	15,631
Gross profit		4,113		3,296		1,362			-			8,771
Operating income (loss)		696		1,023		(116	)		(750	)		853
Three Months Ended June 30, 2015
Revenue	$	6,473	$	5,966	$	2,610		$	-		$	15,049
Gross profit		3,472		3,416		1,138			-			8,026
Operating income (loss)		556		1,143		(507	)		(128	)		1,064
Six Months Ended June 30, 2016
Revenue	$	14,331	$	10,766	$	5,264		$	-		$	30,361
Gross profit		8,144		6,291		2,440			-			16,875
Operating income (loss)		1,543		1,328		(505	)		(750	)		1,616
Six Months Ended June 30, 2015
Revenue	$	13,229	$	12,068	$	5,112		$	-		$	30,409
Gross profit		7,149		6,989		2,366			-			16,504
Operating income (loss)		1,444		1,821		(934	)		(128	)		2,203

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

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Note 3 - Inventories (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2016		December 31, 2015
Finished products	$	1,891	$	1,366
Work-in-process		1,915		2,375
Raw materials		3,849		4,049
Total Inventory	$	7,655	$	7,790

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Note 4 - Net Income Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Weighted shares of common stock outstanding - basic		5,794		5,750		5,793		5,746
Dilutive impact of share-based awards		23		96		20		94
Weighted shares of common stock outstanding - diluted		5,817		5,846		5,813		5,840

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Note 5 - Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Goodwill [Table Text Block]

	Package Testing		Permeation			Industrial Analyzers & Other		Total
Balance as of December 31, 2015	$	4,967	$	1,860		$	610	$	7,437
Foreign currency translation		101		27			-		128
Sale of business		-		(57	)		-		(57	)
Balance as of June 30, 2016	$	5,068	$	1,830		$	610	$	7,508

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	As of June 30, 2016
	Cost		Accumulated Amortization			Net
Patents	$	1,939	$	(473	)	$	1,466
Trademarks and trade names		3,385		(843	)		2,542
Developed technology		6,256		(2,954	)		3,302
Customer relationships		732		(346	)		386
Internally developed software		1,085		(209	)		876
Other intangibles		214		(150	)		64
	$	13,611	$	(4,975	)	$	8,636

	As of December 31, 2015
	Cost		Accumulated Amortization			Net
Patents	$	1,844	$	(439	)	$	1,405
Trademarks and trade names		3,321		(751	)		2,570
Developed technology		6,121		(2,551	)		3,570
Customer relationships		716		(298	)		418
Internally developed software		1,085		(154	)		931
Other intangibles		214		(122	)		92
	$	13,301	$	(4,315	)	$	8,986

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2016	$	587
2017		1,148
2018		1,116
2019		1,111
2020		1,110
2021 & Thereafter		2,922
	$	7,994

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Note 6 - Accumulated Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	(4,323	)	$	(5,505	)	$	(5,220	)	$	(2,792	)
Foreign currency translation adjustments		(330	)		520			567			(2,193	)
Accumulated other comprehensive loss	$	(4,653	)	$	(4,985	)	$	(4,653	)	$	(4,985	)

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Note 7 - Warranty (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Beginning balance	$	242		$	354		$	223		$	285
Warranty provisions		61			16			205			217
Warranty claims		(71	)		(77	)		(196	)		(209	)
Ending Balance	$	232		$	293		$	232		$	293

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Note 8 - Debt (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30, 2016		December 31, 2015
Capital Leases	$	125	$	158
Less current portion of long-term notes payable		60		65
Total long-term notes payable	$	65	$	93

Schedule of Maturities of Long-term Debt and Future Minimum Payments Under Capital Leases [Table Text Block]

Minimum principal Payments
2016	$	33
2017		56
2018		36
Total	$	125

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Note 9 - Realignment Expenses (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Beginning Balance	$	112		$	-	$	620		$	-
Realignment Expense		750			128		750			128
Cash Payments		(56	)		-		(564	)		-
Ending Balance	$	806		$	128	$	806		$	128

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Note 11 - Share-based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Total cost of share-based compensation	$	186		$	161		$	375		$	322
Amount of income tax benefit recognized in earnings		(5	)		(21	)		(5	)		(42	)
Amount charged against net income	$	181		$	140		$	370		$	280

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Options outstanding, December 31, 2015		797,378		$	14.91		4.7	$	453
Granted		-			-		-		-
Exercised		(4,900	)		10.43		-		-
Cancelled or expired		(19,218	)		15.71		-		-
Options outstanding, June 30, 2016		773,260		$	14.92		4.2	$	292
Options exercisable, June 30, 2016		492,985		$	14.94		3.1	$	278

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Note 12 - Business Segments (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
Three Months Ended June 30, 2016
Revenue	$	7,328	$	5,483	$	2,820		$	-		$	15,631
Gross profit		4,113		3,296		1,362			-			8,771
Operating income (loss)		696		1,023		(116	)		(750	)		853
Three Months Ended June 30, 2015
Revenue	$	6,473	$	5,966	$	2,610		$	-		$	15,049
Gross profit		3,472		3,416		1,138			-			8,026
Operating income (loss)		556		1,143		(507	)		(128	)		1,064
Six Months Ended June 30, 2016
Revenue	$	14,331	$	10,766	$	5,264		$	-		$	30,361
Gross profit		8,144		6,291		2,440			-			16,875
Operating income (loss)		1,543		1,328		(505	)		(750	)		1,616
Six Months Ended June 30, 2015
Revenue	$	13,229	$	12,068	$	5,112		$	-		$	30,409
Gross profit		7,149		6,989		2,366			-			16,504
Operating income (loss)		1,444		1,821		(934	)		(128	)		2,203

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Note 2 - Sale of Business (Details Textual) - USD ($)		6 Months Ended
	May 18, 2016	Jun. 30, 2016	Jun. 30, 2015
Volatile Analysis Corporation [Member] | Other Nonoperating Income (Expense) [Member]
Gain (Loss) on Disposition of Business	$ 352,000
Volatile Analysis Corporation [Member]
Proceeds from Divestiture of Businesses	500,000	$ 500,000
Gain (Loss) on Disposition of Business		352,000
Sale of Business, Consideration Receivable	$ 800,000
Proceeds from Divestiture of Businesses		500,000
Gain (Loss) on Disposition of Business		$ 352,000

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Note 3 - Major Components of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Finished products	$ 1,891	$ 1,366
Work-in-process	1,915	2,375
Raw materials	3,849	4,049
Total Inventory	$ 7,655	$ 7,790

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Note 4 - Net Income Per Common Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	634,635	201,950	659,635	246,250

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Note 4 - Reconciliation of the Denominators Used in the Computation of Net Income Per Common Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Weighted shares of common stock outstanding - basic (in shares)	5,794	5,750	5,793	5,746
Dilutive impact of share-based awards (in shares)	23	96	20	94
Weighted shares of common stock outstanding - diluted (in shares)	5,817	5,846	5,813	5,840

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Note 5 - Goodwill and Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Amortization of Intangible Assets	$ 295,000	$ 295,000	$ 588,000	$ 590,000

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Note 5 - Changes in the Carrying Amount of Goodwill (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($)
Package Testing Segment [Member]
Balance	$ 4,967
Foreign currency translation	101
Sale of business
Balance	5,068
Permeation Segment [Member]
Balance	1,860
Foreign currency translation	27
Sale of business	(57)
Balance	1,830
Industrial Analyzers and Other Segment [Member]
Balance	610
Foreign currency translation
Sale of business
Balance	610
Balance	7,437
Foreign currency translation	128
Sale of business	(57)
Balance	$ 7,508

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Note 5 - Other Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Patents [Member]
Cost	$ 1,939	$ 1,844
Accumulated amortization	(473)	(439)
Net	1,466	1,405
Trademarks and Trade Names [Member]
Cost	3,385	3,321
Accumulated amortization	(843)	(751)
Net	2,542	2,570
Developed Technology Rights [Member]
Cost	6,256	6,121
Accumulated amortization	(2,954)	(2,551)
Net	3,302	3,570
Customer Relationships [Member]
Cost	732	716
Accumulated amortization	(346)	(298)
Net	386	418
Internally Developed Software [Member]
Cost	1,085	1,085
Accumulated amortization	(209)	(154)
Net	876	931
Other Intangible Assets [Member]
Cost	214	214
Accumulated amortization	(150)	(122)
Net	64	92
Cost	13,611	13,301
Accumulated amortization	(4,975)	(4,315)
Net	$ 8,636	$ 8,986

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Note 5 - Estimated Amortization Expense (Details) $ in Thousands	Jun. 30, 2016 USD ($)
2016	$ 587
2017	1,148
2018	1,116
2019	1,111
2020	1,110
2021 & Thereafter	2,922
	$ 7,994

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Note 6 - Adjustments to Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Beginning balance	$ (4,323)	$ (5,505)	$ (5,220)	$ (2,792)
Foreign currency translation adjustments	(330)	520	567	(2,193)
Accumulated other comprehensive loss	$ (4,653)	$ (4,985)	$ (4,653)	$ (4,985)

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Note 7 - Warranty (Details Textual)	6 Months Ended
	Jun. 30, 2016
Product Warranty Period Low End of Range	90 days
Product Warranty Period High End of Range	1 year

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Note 7 - Warranty Provisions and Claims (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Beginning balance	$ 242	$ 354	$ 223	$ 285
Warranty provisions	61	16	205	217
Warranty claims	(71)	(77)	(196)	(209)
Ending Balance	$ 232	$ 293	$ 232	$ 293

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Note 8 - Debt (Details Textual) DKK in Millions	6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2016 DKK	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Dansensor [Member]
Long-term Line of Credit	$ 0			$ 0
Line of Credit Facility, Maximum Borrowing Capacity		DKK 10	$ 1,500,000
Debt Instrument, Interest Rate, Stated Percentage	4.35%	4.35%
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
Revolving Credit Facility [Member]
Long-term Line of Credit	$ 2,400,000			$ 2,800,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000
London Interbank Offered Rate LIBOR	0.47%
Line of Credit Facility, Interest Rate at Period End	1.97%	1.97%		1.74%
Debt Instrument Percentage of Common Stock Secured	65.00%

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Note 8 - Long-term Notes Payable (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Capital Leases	$ 125	$ 158
Less current portion of long-term notes payable	60	65
Total long-term notes payable	$ 65	$ 93

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Note 8 - Future Minimum Principal Payments of Long-term Notes Payable (Details) - Notes Payable [Member] $ in Thousands	Jun. 30, 2016 USD ($)
2016	$ 33
2017	56
2018	36
Total	$ 125

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Note 9 - Realignment Expenses (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Realignment Plan [Member] | Accrued Compensation and Related Expenses [Member]
Restructuring Reserve, Current	$ 806,000		$ 806,000		$ 483,000
Realignment Plan [Member] | Accounts Payable [Member]
Restructuring Reserve, Current					$ 137,000
Realignment Plan [Member]
Restructuring Charges	750,000		750,000
Restructuring Charges	$ 750,000	$ 128,000	$ 750,000	$ 128,000

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Note 9 - Realignment Expense and Cash Payments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Beginning Balance	$ 112		$ 620
Restructuring Charges	750	128	750	128
Cash Payments	(56)		(564)
Ending Balance	$ 806	$ 128	$ 806	$ 128

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Note 10 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Effective Income Tax Rate Reconciliation, Percent	32.00%	32.00%	32.00%	34.00%
Unrecognized Tax Benefits	$ 187,000		$ 187,000		$ 187,000

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Note 11 - Share-based Compensation (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	May 27, 2015
Stock Incentive Plan 2006 and 2015 [Member]
Common Stock, Capital Shares Reserved for Future Issuance	345,800		345,800
Stock Incentive Plan 2006 or Stock Incentive Plan 2015 [Member]
Common Stock, Capital Shares Reserved for Future Issuance	773,260		773,260
2015 Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant					50,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent			85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Shares Purchased for Award			1,803
Employee Stock Option [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award Fair Value Assumptions Contractual Term			7 years
Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award Fair Value Assumptions Contractual Term			10 years
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	$ 11,000	$ 42,000	$ 17,000	$ 183,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	583,000		$ 583,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			292 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 0	$ 88,000	$ 0	$ 176,000

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Note 11 - Share-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Total cost of share-based compensation	$ 186	$ 161	$ 375	$ 322
Amount of income tax benefit recognized in earnings	(5)	(21)	(5)	(42)
Amount charged against net income	$ 181	$ 140	$ 370	$ 280

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Note 11 - Summary of Stock Option Activity (Details) - Employee Stock Option [Member] - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Options outstanding (in shares)	797,378
Options outstanding, Weighted Average Exercise Price (in dollars per share)	$ 14.91
Options outstanding, Weighted Average Remaining Contractual Term	4 years 73 days	4 years 255 days
Options outstanding, Aggregate Intrinsic Value	$ 453
Granted, Weighted Average Exercise Price (in dollars per share)
Options exercised (in shares)	(4,900)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 10.43
Options cancelled or expired (in shares)	(19,218)
Cancelled or expired, Weighted Average Exercise Price (in dollars per share)	$ 15.71
Options outstanding (in shares)	773,260	797,378
Options outstanding, Weighted Average Exercise Price (in dollars per share)	$ 14.92	$ 14.91
Options outstanding, Aggregate Intrinsic Value	$ 292	$ 453
Options exercisable (in shares)	492,985
Options exercisable, Weighted Average Exercise Price (in dollars per share)	$ 14.94
Options exercisable, Weighted Average Remaining Contractual Term	3 years 36 days
Options exercisable, Aggregate Intrinsic Value	$ 278

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Note 12 - Business Segments (Details Textual)	6 Months Ended
	Jun. 30, 2016
Number of Operating Segments	4
Number of Reportable Segments	3

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Note 12 - Financial Information by Reportable Segment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Package Testing Segment [Member]
Revenue	$ 7,328	$ 6,473	$ 14,331	$ 13,229
Gross profit	4,113	3,472	8,144	7,149
Operating income (loss)	696	556	1,543	1,444
Permeation Segment [Member]
Revenue	5,483	5,966	10,766	12,068
Gross profit	3,296	3,416	6,291	6,989
Operating income (loss)	1,023	1,143	1,328	1,821
Industrial Analyzers and Other Segment [Member]
Revenue	2,820	2,610	5,264	5,112
Gross profit	1,362	1,138	2,440	2,366
Operating income (loss)	(116)	(507)	(505)	(934)
Corporate and Unallocated Segment [Member]
Revenue
Gross profit
Operating income (loss)	(750)	(128)	(750)	(128)
Revenue	15,631	15,049	30,361	30,409
Gross profit	8,771	8,025	16,875	16,504
Operating income (loss)	$ 853	$ 1,064	$ 1,616	$ 2,203