10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-K

(Mark one)

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

For the fiscal year ended December 31, 2016

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

For the transition period from ________________ to __________________.

Commission File No.: 000-09273

____________________

Mocon, inc.

(Exact name of registrant as specified in its charter)

Minnesota	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)

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

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

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.10 per share	The NASDAQ Stock Market LLC
	(NASDAQ Global Market)

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

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

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

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

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

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 registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒

The aggregate market value of the registrant’s common stock, excluding outstanding shares beneficially owned by directors and executive officers, computed by reference to the price at which the common stock was last sold as of June 30, 2016 (the last business day of the registrant’s second quarter) as reported by the Nasdaq Global Market System, was $76,782,697.

As of March 3, 2017, 5,854,761 shares of common stock of the registrant were deemed outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this annual report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant’s Proxy Statement for its 2017 Annual Meeting of Shareholders to be held May 25, 2017.

part i

This annual report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. We refer you to the information under the heading “Part I. Item 1. Business – Forward-Looking Statements.”

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

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

Item 1. BUSINESS

MOCON, Inc. designs, manufactures, markets and services products, and provides consulting services, primarily in the test and measurement, analytical instrument and services markets. Our products include instruments that detect, measure and monitor gases and other chemical compounds which help our customers improve the quality of their products, as well as develop new products.

Our gas and vapor permeation instruments were first used in the food packaging industry, starting in the 1970s, to measure small amounts of moisture which can adversely affect dry cereals and other food packaging. Today our core business is involved in the detection, measurement and analysis of vapors and gases, serving industries far beyond food packaging. Our products serve markets such as foods, beverages, pharmaceuticals and consumer products, oil and gas exploration and industrial and environmental safety.

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

MOCON, Inc. was incorporated as a Minnesota corporation in February 1966 as Modern Controls, Inc., and was initially involved in the commercialization of technology developed for the measurement of water vapor permeating through food packaging materials. Today, the key drivers in the industries we serve are food and beverage product safety and quality, improving workplace safety, supplying testing equipment for oil and gas exploration, and analyzing the quality of air both indoors and outdoors as well as water.

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

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

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We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We also make available, free of charge and through our website, to any shareholder who requests, the charters of our Board committees and our Code of Ethics. Requests for copies can be directed to our Chief Financial Officer at the address and phone number above.

Products and Services

We develop, manufacture, market and service test and measurement, analytical and monitoring instruments and systems used to detect, measure and analyze gases and other chemical compounds, as well as provide related consulting services. Please see our consolidated financial statements beginning on page F-1 for financial information concerning our business, including our revenue, net income and net assets.

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.

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. During 2016, we introduced a modular leak testing product named LeakProtego that is designed to detect micro leaks in packages.

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.

Our package testing products and services group accounted for 48 percent, 44 percent and 44 percent of our consolidated revenue in 2016, 2015 and 2014, respectively.

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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.

Our permeation products and services accounted for approximately 36 percent, 40 percent and 36 percent of our consolidated revenue in 2016, 2015 and 2014, respectively. Permeation instruments that we currently manufacture include OX-TRAN^® systems for oxygen transmission rates, PERMATRAN-W^® systems for water vapor transmission rates, and PERMATRAN-C^® systems for carbon dioxide transmission rates. Our 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 Analyzer Products and Services

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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Revenue for our Industrial Analyzer business’ products accounted for approximately 16 percent, 16 percent and 20 percent of our consolidated revenue in each of the years 2016, 2015 and 2014. 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 instrument performs rapid and precise measurements to determine the presence or absence of aerobic bacteria in food products or ingredients. In addition to instruments, we sell vials and swab kits which provide a recurring revenue opportunity. Revenue from these products do not contribute to our total revenue at a meaningful level.

Competition

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

● product quality and performance;

● product reliability;

● product support; and

● price.

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

Manufacturing and Supplies

Our manufacturing capabilities include electro-mechanical assembly, testing, integration of components and systems, calibration and validation of systems. Certain components that we use in our products are currently purchased from single source suppliers. Although we maintain an inventory of these components, an interruption or delay in supply from one of these sources could result in delays in our production while we locate an alternative supplier, which in turn could result in a loss of sales and income.

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Patents, Trademarks and Other Intellectual Property Rights

We believe that the protection afforded us by our patent rights is important to our business, and we will continue to seek patent protection for our technology and products. We require all of our employees and consultants to assign to us all inventions that are conceived and developed during their employment, except to the extent prohibited by applicable law. To protect our proprietary information, we have entered into confidentiality and non-compete agreements with those of our employees and consultants who have access to sensitive information. We hold both U.S. and international patents and have U.S. and international patents pending. We currently hold 49 active U.S. patents and 91 foreign patents which will expire during the period from 2017 through 2034, and have another 34 patents pending. We do not believe that the expiration of our patents on their scheduled expiration dates will have a material adverse effect on our business.

We own, have the right to use, or have applied for certain trademarks which protect and identify our products. Our trademarks and service marks include the following: MOCON^®, APCHECK^®, AQUATRACE^®, AQUATRAN, BASELINE^®, BEVALERT, CALCARD^®, CAL-SMART^®, CheckMate, CheckPoint, CMV-2, COULOX^®, DANSENSOR^®, FLO SMART^®, GREENLIGHT, HERSCH^®, IMPULSE^®, ISM-3, LeakMatic, LeakPointer, LIPPKE^®, LUXCEL, MAP Check 3, MAP Mix, MICROANALYTICS^®, MULTICHECK^®, OPTECH^®, OX-TRAN, PAC CHECK^®, PAC GUARD^®, PERMATRAN-C^®, PERMATRAN-W^®, PETROALERT^®, piD-TECH^®, QUICK START^®, SKYE^®, TRU SEAL^® , VOC-TRAQ^® and VACUCORE. Our trademarks and service marks have a life of 5 to 20 years, and are subject to periodic maintenance which may be extended in accordance with applicable law.

Marketing and Customers; Distribution Methods

We market our products and services throughout the United States and in over 60 foreign markets. We use a direct sales force of approximately 25 employees and 100 independent sales representatives and distributors to market and sell our products and services to end users throughout the world. To our knowledge, none of our independent sales representatives sell a material amount of product manufactured by any of our competitors.

For information concerning our export sales by geographic area, see Note 15 of the notes to consolidated financial statements. We market products and services to research laboratories, production departments and quality control groups in the life science, medical, food, pharmaceutical, plastics, paper, electronics, oil and gas and other industries. We do not believe that the loss of any single customer would have a material adverse effect on our business or financial performance.

Backlog

As of December 31, 2016, our total backlog was $5.6 million for all of our products as compared to $5.3 million as of December 31, 2015. We anticipate shipping substantially all of the December 31, 2016 backlog in 2017.

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Research and Development

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

We incurred expenses of approximately $4.8 million, $4.3 million and $4.2 million during the fiscal years ended December 31, 2016, 2015 and 2014, respectively, for research and development (R&D) of our products. These amounts were 7 percent to 8 percent of our consolidated revenue for each of those three fiscal years. On an annual basis, we currently intend to spend 6 percent to 8 percent of our consolidated revenue on R&D in the future.

Working Capital Practices

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

Seasonality

Our business is not seasonal in nature.

Employees

As of December 31, 2016, we had approximately 258 full-time employees. Included in this total are 24 scientists and engineers who research and develop potential new products. None of our employees are represented by a labor union, and we consider our employee relations to be satisfactory.

Executive Officers of the Registrant

Our executive officers, their ages and their offices held, as of March 9, 2017 are as follows:

Name	Age	Title
Robert L. Demorest	71	Chairman of the Board, President and
		Chief Executive Officer, MOCON, Inc.
Elissa Lindsoe	50	Chief Financial Officer, MOCON, Inc.
Michael Barto	42	Senior Vice President of Manufacturing and Engineering
Maurice Janssen	48	Senior Vice President of Global Sales & Marketing

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

Mr. Robert L. Demorest has been our President, Chief Executive Officer, and Chairman of the Board since April 2000. Mr. Demorest is also a director of Marten Transport, Ltd., a publicly traded company located in Mondovi, Wisconsin, and is a member of its audit committee.

Ms. Elissa Lindsoe has been our Chief Financial Officer since October 2014. Ms. Lindsoe was previously the CFO of Galil Medical Ltd., a private equity owned medical device manufacturing firm.

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Mr. Michael Barto has been a Vice President for us since August 2015. Mr. Barto was promoted to Senior Vice President of Manufacturing and Engineering in December of 2016. Prior to joining MOCON in 2015, Mr. Barto was the Director of Sensor Technology for the Rosemount Flow division of Emerson since March 2012.

Mr. Maurice Janssen joined us in January 2017. Prior to joining MOCON, Maurice was Vice President of Sales & Marketing, Latin America, for FOSS ANA, a Danish-based supplier of analytical instruments for the food, beverage and agriculture sectors.

Forward-Looking Statements

This Annual Report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our website or otherwise. All statements other than statements of historical facts included in this Annual Report on Form 10-K that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations, addressable market size estimates and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “could,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this Annual Report on Form 10-K, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses as well as matters specific to us. The following are some of the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements: realizing the expected financial benefits from the acquisition of Dansensor and the Realignment Plan; general economic conditions; failing to comply with the terms of our credit agreement; restrictions in our credit agreement, growth in the markets we serve, successfully competing against competitors; the decline in the value of the Euro and the price of oil; factors impacting the stock market and share price; ability of the Company’s manufacturing facilities to meet customer demand; regulatory matters; timing and success of new product introductions; adequate protection of intellectual property rights; and currency and other economic risks inherent in selling products internationally.

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

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

ITEM 1A. RISK FACTORS

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

If economic conditions decline, this could adversely affect our business, operating results and financial condition.

Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions poses a risk as consumers and businesses postpone spending in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values, which could have a material negative effect on demand for our products and services. Our customers include pharmaceutical, food, medical and chemical companies; laboratories; government agencies; and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for our products. Decreases in capital spending by any of these customer groups could have a material adverse effect on our revenue, business and results of operations.

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

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If we violate the terms of our credit agreement and financial covenants, it could cause our lender to demand immediate repayment of our credit facilities.

We have a credit agreement with Wells Fargo Bank, our primary lender, with which we entered into a line of credit through August 26, 2018. Our credit agreement with Wells Fargo Bank includes various financial and restrictive covenants. Our current internal projections indicate that we will be in compliance with our financial and restrictive covenants for the next 12 months. However, unforeseen circumstances may develop which could result in us violating our loan covenants. If we violate the terms of our credit agreement, including our financial and restrictive covenants, Wells Fargo Bank could deem us to be in default and require us to immediately repay the entire outstanding balance of our credit facilities, if any. If we do not have the funds available to repay the credit facilities or we cannot find another source of financing, we may fail to meet the terms of our agreement which could decrease the value of our common stock or have other material adverse consequences for us.

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

We have identified a number of strategies that we believe will allow us to grow our business and increase our revenue in markets experiencing minimal growth. This includes developing new products and technologies, entering new markets such as food safety, developing new applications for our technologies, acquiring complementary businesses and product lines, and strengthening our sales force. However, we can make no assurance that we will be able to successfully implement these strategies, or that these strategies will result in the growth of our business or an increase in our revenue. Acquisitions that we may find attractive may be subject to the consent of Wells Fargo Bank under the credit agreement we have executed with them.

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

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

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

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

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

Revenue outside the United States accounted for approximately 66 percent of our revenue in 2016, 66 percent in 2015 and 69 percent in 2014, and we expect that foreign revenue will continue to account for a significant portion of our revenues in the future. Revenue to customers in foreign countries are subject to a number of risks including, among others:

● agreements may be difficult to enforce;

● receivables may be difficult to collect;

● certain regions may experience political unrest and conflict and economic instability;

● foreign customers may have longer payment cycles;

● the countries into which we sell may impose tariffs or adopt other restrictions on foreign trade;

● currency fluctuations could reduce reported revenue and profitability in future periods;

● fluctuations in exchange rates may affect product demand;

● legal and regulatory requirements may be difficult to monitor and comply with, especially if inconsistent with U.S. laws and regulations;

● customizing products for foreign countries and managing and staffing international operations may lead to increased costs; and

● protection of intellectual property in foreign countries may be more difficult to enforce.

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

A portion of our revenue is derived from third party distributors and a disruption to our relationship with them could adversely impact our business. In addition, a portion of our international revenue is derived through third party distributors. As a result, we are dependent upon the financial health of our distributors. We also are dependent upon the compliance of our distributors with foreign laws and the U.S. Foreign Corrupt Practices Act, or the FCPA. If a distributor were to go out of business, it would take substantial time, cost and resources to find a suitable replacement.

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Further, changes to tax and trade policies, international trade agreements and other governmental regulations affecting trade between the United States and other countries could adversely affect our ability to sell our products in countries outside the United States, increases the costs of selling outside the United States or decrease the profitability of selling outside the United States. Recent elections in the United States could increase the likelihood of any such change being pursued by the United States government.

Fluctuations in foreign currency exchange rates could result in declines in our cash, revenue and earnings.

Because the functional currency of our foreign operations is the applicable local currency, we are exposed to foreign currency transaction risk arising from transactions in the normal course of business, such as revenue to third party customers and purchases from suppliers denominated in foreign currencies. At December 31, 2016, there were no forward contract hedge instruments in place in our foreign operations.

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

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

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

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

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

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

The market price of our common stock has been volatile in the past, with closing prices ranging from a high of $19.65 and a low of $13.01 during 2016. Several factors could cause the price to fluctuate substantially in the future. Some of these factors include:

● announcements of new products by us or our competitors;

● quarterly fluctuations in our financial results;

● merger and acquisition activity in our industry segment;

● customer contract awards;

● a change to the rates at which we have historically paid dividends, which could be impacted by our credit agreement with Wells Fargo Bank;

● changes in regulation; and

● general economic and political conditions in the various markets where our products are sold.

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

Complying with securities laws and regulations is costly for us.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations promulgated by the SEC and Nasdaq, are creating particular challenges for smaller publicly-held companies like us. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

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We are exposed to risks relating to our evaluation of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our assessment of its internal control over financial reporting have required and will continue to require the expenditure of significant financial and managerial resources. Although our management has concluded that our internal control over financial reporting was effective as of December 31, 2016 and our independent registered public accounting firm agreed, no assurance can be provided that our management or independent registered public accounting firm will reach a similar conclusion as of any later date. Our failure to maintain effective internal control over financial reporting may have an adverse effect on our stock price.

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

In the past, the overall cost of the materials that we purchase has not risen much more than the rate of inflation. We believe that the price of our products and the prices of our competitors’ products is a significant factor affecting our customers’ buying decisions and consequently, we may not be able to pass along any cost increases in raw materials and supplies in the form of price increases or sustain profit margins that we have achieved in prior years.

We have spent significant resources to develop new products, and the realized revenue from these products may be minimal for a time frame after each new product is being introduced to the marketplace.

In recent years we began to market new products including next generation of existing products such as the OX-TRAN 2/22, PERMATRAN-W 3/34 and LeakProtego. We believe that there are significant markets for our new products and while we believe these products are superior in many respects to similar products being sold by our competitors, each one is new to the marketplace and may not gain the market acceptance necessary to allow us to capitalize on what we believe will be an increasing demand in the industries for which products are utilized. While we have realized increasing revenue of products introduced in the marketplace historically, there can be no assurance that revenue of these products will continue. While we believe our recent new product offerings represent a dramatic improvement over existing technology being used in the respective applications, for some of them, we have not realized significant revenue to date.

If we are not able to successfully market new products, we will not recover the significant research and development and other expenses we have incurred to bring these products to market.

Our information systems are critical to our business. If our information systems fail to adequately perform, or any our systems were accessed by unauthorized parties, our business, reputation, financial condition, and operating results could be adversely affected.

We have many information systems that are critical to our business. These information systems are used to record, process, summarize, transmit, and store electronic information, including, among other things, sensitive data related to our research and development efforts and third party information. Although we take steps to secure our information systems and protect data stored on these systems, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage, and interruption from a number of potential sources and events, including unauthorized access or security breaches, cyber attacks, computer or other disruptive events. Any unauthorized access of our information systems or loss of information stored on our information systems could result in legal claims or proceedings and could disrupt our business and harm our reputation, which cause our business, reputation, financial condition, and operating results to suffer.

Beginning in 2015, we implemented a realignment plan (“Realignment Plan”), which may result in additional or unanticipated non-recurring charges, and we may not be able to achieve the cost savings and other benefits expected from these realignment efforts.

 Throughout 2015, we completed an initiative to reduce the number of legal entities by merging those entities into other legal entities we have. This initiative is intended to reduce the complexity and administrative burden and cost of maintaining those legal entities. Further, to improve our profitability, during the fourth quarter of 2015, we brought the Package Testing and Permeation segment sales and marketing functions under common leadership and decreased our U.S. headcount by 5 percent. We continued these efforts during 2016, with the elimination of the chief operating officer position and the hiring of a Sr. VP of Global Sales and Marketing, and other personnel changes. These changes were also designed to strengthen our market presence and provide a cost-effective approach to achieving our objectives.

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 However, we may not be able to achieve the level of benefits that we expect to realize from these or any future realignment activities, within expected timeframes, or at all. Changes in the amount, timing and character of charges related to our current or future realignment activities and the failure to complete, or a substantial delay in completing, our current and any future realignment plan could have a material adverse effect on our financial results.  

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. PROPERTIES

We lease an aggregate of 110,460 square feet of office, engineering, laboratory and production space in Minnesota, Germany, Denmark, Spain, Italy, France and China. We believe that all of our facilities are generally adequate for their present operations and that suitable space is readily available if any of our leases are not extended.

We signed a 15-year lease for our Minneapolis headquarters and operations center. The lease commenced July 1, 2011 and is for a location consisting of approximately 60,000 square feet of space. This space is leased until October 2025. This location is our corporate headquarters from which a portion of all reporting segments conduct operations.

Dansensor A/S, based in Denmark, and operating subsidiaries located in Germany, France, Spain, and Italy lease an aggregate of approximately 37,000 square feet. These buildings are leased through various dates until December 2021. These properties are utilized for the operations of the Package Testing segment.

Dansensor A/S also has a location in Neuwied, Germany that occupies approximately 8,075 square feet. This space is leased until July 2018. This property is utilized for the operations of the Permeation segment. During 2016, this lease was negotiated to expand the existing building with an additional 3,000 square feet, which is expected to be completed in the second quarter of 2017 at which time will be utilized for the operations of Permeation and Package Testing segments. The renegotiated lease will expire in June 2028.

The MOCON (Shanghai) Trading Co., Ltd. operations are located in Shanghai, China, and occupy approximately 1,700 square feet. This space is leased until December 2017. This property is utilized in the operations of the Permeation segment.

In addition to our leased facilities described above, we own approximately two acres of land and a building located near Boulder, Colorado that consists of approximately 9,300 square feet of office and production space for our Industrial Analyzers and Other segment.

Item 3. LEGAL PROCEEDINGS

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

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ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED ShareHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Dividends

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

	2016						2015
Fiscal Period	High		Low		Dividend		High		Low		Dividend
1st Quarter	$	14.66	$	13.01	$	0.11	$	17.29	$	15.86	$	0.11
2nd Quarter	$	14.85	$	13.16	$	0.11	$	17.99	$	15.90	$	0.11
3rd Quarter	$	16.87	$	14.05	$	0.11	$	16.25	$	13.03	$	0.11
4th Quarter	$	19.65	$	15.05	$	0.11	$	15.20	$	13.54	$	0.11

We have been consistently paying dividends since 1984. Cash dividends paid in 2016, 2015 and 2014 were approximately $2.6 million, $2.5 million and $2.5 million, respectively. Our Board of Directors monitors and evaluates our dividend practice quarterly, and the Board may elect at any time to increase, decrease or not pay a dividend on our common stock based upon our financial condition, results of operations, cash requirements and future prospects and other factors deemed relevant by the Board. Under the loan agreement we have with Wells Fargo Bank, we are required to maintain certain financial ratios. One of these ratios will be impacted by the amount of dividends we pay. If paying dividends at our historical rate were to cause us to be out of compliance with this ratio, or otherwise cause us to be in breach of our covenants under our loan agreement with Wells Fargo Bank, we may be required to reduce or eliminate dividends until such time as we are able to repay our loan, regain compliance with the financial ratios and other covenants in the loan agreement, or negotiate a waiver or amendment with Wells Fargo Bank.

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

Holders

As of March 3, 2017, there were approximately 309 holders of record and 3,400 beneficial holders of our common stock.

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Issuer Repurchases of Equity Securities

Other than the withholding of 65,728 shares of our common stock in connection with the cashless net exercise of stock options to pay the exercise price of such options, we did not repurchase any shares of our common stock or other equity securities of MOCON registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the fourth quarter ended December 31, 2016. We currently are not authorized by our Board of Directors to make repurchases of our common stock.

Recent Sales of Unregistered Securities

During the fourth quarter and year ended December 31, 2016, we did not issue or sell any shares of our common stock or other equity securities of MOCON without registration under the Securities Act of 1933, as amended.

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Stock Performance Graph

The following graph compares the cumulative shareholder return on MOCON’s common stock to the S&P 500 Index and a peer group consisting of five companies with a market capitalization similar to MOCON. The peer companies were selected from the scientific and technical instruments industry within the technology sector. The graph compares the performance for the last five fiscal years, assuming an investment of $100 on December 31, 2011, including the reinvestment of all dividends. The peer group consists of the following companies: CyberOptics Corporation, eMagin Corporation, Perceptron, Inc., Sypris Solutions, Inc. and Transcat, Inc. We chose these five companies because they operate in similar technology sectors that we do and have a market capitalization similar to ours.

	12/11		12/12		12/13		12/14		12/15		12/16
MOCON, Inc.		100.00		92.43		104.57		121.75		102.45		140.71
S&P 500		100.00		116.00		153.58		174.60		177.01		198.18
Peer Group		100.00		91.12		104.10		99.10		72.69		111.45

Source: Research Data Group, Inc.

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ITEM 6.  SELECTED FINANCIAL DATA

	Years Ended December 31,
	2016			2015		2014		2013		2012
	(in thousands, except per share data)
CONSOLIDATED STATEMENTS OF INCOME DATA:
Revenue	$	63,311	(1)	$	60,754	$	64,475	$	57,108	$	49,941
Net income		5,000			2,972		1,536		3,461		2,002
Net income per common share:
Basic		0.86			0.52		0.27		0.62		0.37
Diluted		0.86			0.51		0.27		0.61		0.35
Cash dividends declared per share		0.44			0.44		0.44		0.44		0.42

(1) See Note 1, page F-9.

	As of December 31,
	2016		2015		2014		2013		2012
	(in thousands)
CONSOLIDATED BALANCE SHEET DATA:
Current assets	$	27,162	$	24,702	$	27,501	$	27,570	$	26,913
Total assets		48,448		47,419		52,509		58,704		57,220
Current liabilities		10,715		9,600		15,449		16,935		16,494
Noncurrent liabilities		1,282		4,348		2,587		4,300		6,845
Shareholders' equity		36,451		33,471		34,473		37,469		33,881

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAl CONDITION AND RESULTS OF OPERATIONS

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

Overview

MOCON, Inc. designs, manufactures, markets and services products and provides consulting 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

Throughout these financial sections, you will read about significant transactions or events that materially contribute to, or reduce our earnings, and materially affect our financial results and financial position.

Our research and development costs were approximately 7 percent to 8 percent of our consolidated revenue in 2016, 2015 and 2014. On an annual basis, we intend to spend 6 percent to 8 percent of our revenue on research and development in the future.

Beginning 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 individual segment-based toward another that is designed to fuel growth through our sales strategy. As a result, during 2016, we continued to evaluate our business needs and therefore have incurred additional realignment expenses from the elimination of two senior executive positions in our company which included our chief operating officer. These actions are intended to increase operating efficiencies and provide additional resources to execute our long-term growth strategy.

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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 our 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 was conducted from a facility in Round Rock, Texas. The purchase and sale of the assets was finalized and closed on May 18, 2016. We received proceeds of $701,000 resulting in a realized gain of $553,000, which is included in other income (expense), net on the Consolidated Statement of Income. The remaining $599,000 owed by VAC as of December 31, 2016 in accordance with the Agreement will be recognized on the cost recovery method upon receipt. This business does not qualify for discontinued operations since it does not represent a strategic shift that had or will have a major effect on our operations and financial results. The revenue related to this business was $54,000, $0.6 million and $0.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. The gross profit/(loss) contribution related to the Microanalytics business was ($0.1) million, $0.2 million and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

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

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Securities and Exchange Commission has defined a company’s most critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies. Although we believe that our estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ significantly from these estimates under different assumptions or conditions.

Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We consider product revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. We recognize service and consulting revenue upon delivery of the services. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered, are recorded as a reduction in revenue. We record revenue net of sales tax charged to the customer.

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Revenue for service arrangements such as maintenance, repair, technical support are recognized either as the service is provided or ratably over the defined contractual period for service maintenance. Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts. Unearned revenue related to these contracts is recorded in current liabilities in the consolidated balance sheets.

Periodically, we have shipments of products to customers where we are required to recognize revenue under the accounting guidance related to multiple element arrangements. This guidance provides that the overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling price, as demonstrated by vendor-specific objective evidence (VSOE) or third-party evidence (TPE). Where VSOE or TPE is not available, revenue will be assigned to each element using an estimated selling price.

Reserve for Doubtful Accounts and Returns

Our allowance for doubtful accounts and returns is for accounts receivable balances that are estimated to be uncollectible as well as anticipated returns. The reserve is based on a number of factors, including: (1) an analysis of customer accounts and (2) our historical experience with accounts receivable write-offs and returns. The analysis includes the age of the receivable, the financial condition of a customer or industry and general economic conditions. We believe our financial results could be materially different if historical trends are not predictive of future results or if economic conditions worsened for our customers. In the event we determined that a smaller or larger allowance for doubtful accounts is appropriate, we would record a credit or charge to selling, general and administrative expense in the period that we made such a determination. As of December 31, 2016 and 2015, we had approximately $180,000 and $141,000, respectively, reserved against our accounts receivable for doubtful accounts and returns.

Accrual for Excess and Obsolete Inventories

We perform an analysis to identify excess and obsolete inventory. We record a charge to cost of revenue for amounts identified. Our analysis includes inventory levels, the nature of the components and their inherent risk of obsolescence, and the on-hand quantities relative to the sales history of that component. We believe that our financial results could be materially different if historical trends are not predictive of future results or if demand for our products decreased because of economic or competitive conditions or otherwise. As of December 31, 2016 and 2015, we had approximately $552,000 and $511,000, respectively, accrued for excess and obsolete inventories.

Recoverability of Long-Lived Assets

We assess the recoverability of definite-lived intangibles and other long-lived assets periodically whenever events or changes in circumstances indicate that expected future undiscounted cash flows might not be sufficient to support the carrying amount of an asset, or asset group. We deem an asset to be impaired if a forecast of undiscounted future operating cash flows is less than an asset’s carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying value of the asset exceeds its fair value. Changes in our business strategies, changes in the economic environment in which we operate, competitive conditions, and other factors could result in future impairment charges.

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During 2014 we identified an impairment indicator and concluded that the carrying value of our investment in an affiliated company, Luxcel Biosciences Limited (Luxcel) exceeded its fair value. The impairment was determined to be other-than-temporary. As a result, a non-cash, non-tax deductible impairment charge of $3.2 million, representing 100 percent of the carrying value, has been recognized within operating expenses of the consolidated statements of income in 2014.

Goodwill

We assess the recoverability of goodwill on our annual measurement date or whenever events or changes in circumstances indicate that a potential impairment may exist. Goodwill is considered to be impaired if it is determined that the carrying amount of the reporting unit exceeds its fair value. Assessing the impairment of goodwill requires us to make judgments regarding the fair value of the net assets of our reporting units and the allocation of the carrying amount of shared assets to the reporting units. Our annual assessment included comparison of the carrying amount of the net assets of a reporting unit, including goodwill, to the fair value of the reporting unit. A significant change in our market capitalization or in the carrying amount of net assets of a reporting unit could result in an impairment charge in future periods. We performed our annual 2016 assessment during the fourth quarter, and determined there was no impairment of goodwill for any of our reporting units as their related fair values were in excess of their carrying values.

Income Taxes

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

Management reviews the deferred tax assets for recoverability on a quarterly basis and assesses the need for valuation allowances. These deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income streams and the impact of tax planning strategies. A valuation allowance is recorded to reduce deferred tax assets when it is determined that it is more likely than not that we would not be able to realize all or part of our deferred tax assets. We provided a valuation allowance in the amount of $1.4 million and $1.3 million at December 31, 2016 and 2015, respectively, against our net deferred tax assets.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 requires application of a more-likely-than-not threshold to the recognition and de-recognition of uncertain tax positions. Under ASC 740, once the more-likely-than-not threshold is met, the amount of benefit to be recognized is the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. We have unrecognized tax benefits in the amount of $134,000 and $201,000 in 2016 and 2015, respectively, for estimated exposures associated with uncertain tax positions. However, due to the complexity of some of these uncertainties, the ultimate settlement may result in payments that are different from our current estimate of tax liabilities, resulting in the recognition of additional charges or benefits to income tax expense.

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Results of Operations

The following table sets forth the relationship between various components of our results of operations, stated as a percent of revenue, for fiscal years ended December 31, 2016, 2015 and 2014. Our historical financial data were derived from our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

	Percent of Revenue
	2016		2015		2014
Revenue		100.0		100.0		100.0
Cost of revenue		43.7		45.3		44.0
Gross profit		56.3		54.7		56.0
Selling, general and administrative expenses		37.3		38.6		38.8
Research and development expenses		7.7		7.1		6.5
Realignment Expense		1.4		1.7		-
Impairment of investment in affiliated company		-		-		4.9
Operating income		9.9		7.3		5.8
Other income (expense), net		0.6		0.1		(0.5	)
Income before income taxes		10.5		7.4		5.3
Income taxes		2.6		2.5		3.0
Net income		7.9		4.9		2.3

The following table summarizes total revenue by segment for 2016, 2015 and 2014 (expressed in thousands):

		Years Ended December 31,
	2016			2015 (1)			2014
Package Testing	$	30,257	$	26,583		$	28,071
Permeation		23,039		24,599			23,380
Industrial Analyzers and Other		10,015		9,572			13,024
Total revenue	$	63,311	$	60,754	(1)	$	64,475

(1) See revision note on Note 1, page F-9.

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The following table sets forth the relationship between various components of domestic and foreign revenue for 2016, 2015 and 2014 (expressed in thousands):

	Years Ended December 31,
	2016		2015		2014
Domestic revenue	$	21,660	$	20,872	$	19,836
Foreign revenue:
Europe		26,190		23,203		26,324
Asia		12,790		12,762		14,166
Other		2,671		3,917		4,149
Total foreign revenue		41,651		39,882		44,639
Total revenue	$	63,311	$	60,754	$	64,475

Revenue

Fiscal 2016 vs. Fiscal 2015

Revenue in 2016 was $63.3 million, an increase of 4 percent compared to $60.8 million for 2015. The growth in our Package Testing and Industrial Analyzers and Other segments was offset by the decline in revenue for our Permeation segment. We believe future revenue results depend primarily upon our ability to continue to introduce new products, retain and attract market demand and grow in the markets we serve, including oil and gas markets.

Package Testing Products and Services

Revenue in our Package Testing segment accounted for 48 percent and 44 percent of our consolidated revenue in each of 2016 and 2015, respectively. Revenue grew 14 percent in the year ended December 31, 2016 to $30.3 million compared to $26.6 million in 2015. This growth is a result of a continued demand for our headspace analyzers, leak detection equipment and related services There are increasingly more two income households in Europe which is driving consumer trends toward convenience and sustainable food packaging. In the U.S., growth in modified atmosphere packaging technologies is being driven through overall market expansion as food production lines are upgraded. Revenue to foreign destinations comprised 73 percent and 74 percent of total revenue in this segment for the years ended December 31, 2016 and 2015, respectively.

Permeation Testing Products and Services

Revenue in our Permeation segment accounted for 36 percent and 40 percent of our consolidated revenue for the years ended December 31, 2016 and 2015, respectively. Revenue decreased six percent in the year ended December 31, 2016 to $23.0 million compared to $24.6 million in 2015. The decrease is attributable to decreased revenue in the domestic markets. Approximately $640,000 of this decrease is driven by the sale of the business formerly known as Microanalytics. Foreign revenue comprised 68 percent of the revenue in this segment in 2016, compared to 63 percent from the prior year.

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Industrial Analyzer Products and Services and Other

Revenue in our Industrial Analyzers and Other segment accounted for 16 percent of our consolidated revenue for both the years ended December 31, 2016 and 2015. Revenue increased slightly from prior year to $10.0 million during the year ended December 31, 2016 compared to $9.6 million for 2015. The increase in revenue compared to the prior year is primarily due to growth experienced in the sensor and detector products during 2016 of approximately $1.3 million, partially offset by a decrease of instrument sales from the beverage safety and oil and gas exploration markets. Revenue to foreign destinations comprised 38 percent and 49 percent of total revenue in this segment for the years ended December 31, 2016 and 2015, respectively.

Fiscal 2015 vs. Fiscal 2014

Revenue in 2015 was $60.8 million, a decrease of 4 percent compared to $64.5 million for 2014. Foreign currency translation had an unfavorable impact of $5.3 million compared to the prior year. When excluding the effect of the currency rate impact, revenue grew 3 percent. The growth in our Package Testing and Permeation segments on a constant currency basis was offset by the decline in revenue for our Industrial Analyzers and Other segment. We believe future revenue results depend primarily upon our ability to continue to introduce new products, retain and attract market demand and grow in the markets we serve, including oil and gas markets.

Package Testing Products and Services

Revenue in our Package Testing segment accounted for 44 percent and 44 percent of our consolidated revenue in each of 2015 and 2014, respectively. Revenue decreased 5 percent in the year ended December 31, 2015 to $26.6 million compared to same period in 2014. Revenue in our Package Testing segment was negatively impacted by $4.4 million during 2015 due to currency rate fluctuations as compared to the prior year. Excluding the impact of the currency rate fluctuations, revenue for our Package Testing segment grew 11 percent compared to the prior year. This growth on a constant currency basis is a result of a continued revenue increase in our headspace and mixer products as we increase our market share. Revenue to foreign destinations comprised 74 percent and 77 percent of total revenue in this segment for the years ended December 31, 2015 and 2014, respectively.

Permeation Testing Products and Services

Revenue in our Permeation segment increased 5 percent for the current year as compared to the prior year, and accounted for 40 percent and 36 percent of our consolidated revenue for the years ended December 31, 2015 and 2014, respectively. Permeation segment revenue was negatively impacted by $897,000 due to currency rate fluctuations compared to the prior year. Excluding the impact of the currency rate fluctuations, revenue for our Permeation segment grew 9 percent compared to the prior year. This increase is due to strong demand for our new generation of oxygen permeation instrumentation. Foreign revenue comprised 63 percent of the revenue in this segment in 2015, compared to 70 percent from the prior year.

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Industrial Analyzer Products and Services and Other

Revenue in our Industrial Analyzers and Other segment accounted for 16 percent and 20 percent of our consolidated revenue for the years ended December 31, 2015 and 2014, respectively. Revenue decreased 27 percent to $9.6 million during the year ended December 31, 2015 compared to $13.0 million for the same period in 2014. The decline in revenue compared to the prior year was primarily due to a 77 percent, or $3.9 million, decline in instrument revenue from the oil and gas exploration markets partially offset by an increase in demand from the environmental monitoring, in which instrument sales were up 5 percent, and beverage safety markets. Revenue to foreign destinations comprised 49 percent and 50 percent of total revenue in this segment for the years ended December 31, 2015 and 2014, respectively.

Gross Profit

Fiscal 2016 vs. Fiscal 2015

Our overall gross profit was 56 percent and 55 percent of revenue during 2016 and 2015, respectively. Gross profit as a percentage of revenue in our Package Testing segment increased three percentage points to 57 percent in 2016 from 54 percent in 2015 driven by revenue growth and process improvement initiatives. The gross profit as a percentage of revenue in our Permeation segment increased by one percentage points to 60 percent in the current year from 59 percent in 2015 driven by the mix of product services and consulting. The gross profit as a percentage of revenue in our Industrial Analyzers and Other segment declined by one percentage points to 45 percent in 2016 compared to 46 percent in 2015 driven by growth in the sensor related revenue which generates lower margins.

Fiscal 2015 vs. Fiscal 2014

Our overall gross profit was 55 percent and 56 percent of revenue during 2015 and 2014, respectively. Gross profit as a percentage of revenue in our Package Testing segment increased five percentage points to 54 percent in 2015 from 49 percent in 2014 due to an increase in the revenue volume from headspace and accessory products which have a higher level of gross profit. The gross profit as a percentage of revenue in our Permeation segment decreased by five percentage points to 59 percent in the current year from 64 percent in 2014 due to foreign exchange pricing impacts on instruments made in the U.S.A. and sold in foreign currencies and additional production costs related to the new generation of instruments. The gross profit as a percentage of revenue in our Industrial Analyzers and Other segment declined by ten percentage points to 46 percent in 2015 compared to 56 percent in 2014. The decline in gross profit as a percent of revenue is due to decrease in volume to absorb semi-variable and fixed production related costs and an increase in warranty costs for a quality issue with sensor components in the latest release of gas chromatograph instruments.

Selling, General and Administrative Expenses

Fiscal 2016 vs. Fiscal 2015

Selling, general and administrative expenses were approximately $23.6 million and $23.5 million, or 37 and 39 percent of revenue for, 2016 and 2015, respectively. During 2016, cost reductions realized from our realignment plans were partially offset by increased personnel costs due to new hires to support growth and inflation.

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Fiscal 2015 vs. Fiscal 2014

Selling, general and administrative expenses were approximately $23.5 million and $25.0 million, or 39 percent of revenue for 2015 and 2014, respectively. During 2015, selling, general and administrative expenses included an increase in domestic commissions due to an increase in domestic revenue and additional personnel costs due to increased headcount, offset by a decline in the foreign currency rates when compared to the prior year.

Research and Development Expenses

Fiscal 2016 vs. Fiscal 2015

Research and development (R&D) expenses were approximately $4.8 million and $4.3 million in 2016 and 2015, or 8 percent and 7 percent of revenue in each year, respectively. For the foreseeable future, we intend to continue spending 6 percent to 8 percent of revenue to R&D. We believe continued R&D expenditures are necessary as we develop new products to expand revenue opportunities in our niche markets to remain competitive.

Fiscal 2015 vs. Fiscal 2014

Research and development (R&D) expenses were approximately $4.3 million and $4.2 million in 2015 and 2014, or 7 percent of revenue in each year.

Realignment expenses

Realignment expense was approximately $903,000 and $1.0 million for year ended December 31, 2016 and 2015, respectively.

During 2016, management concluded to eliminate the chief operating officer position and a divisional executive position in addition to other personnel changes. As a result, $903,000 of realignment expense was recognized during 2016.

During 2015, we implemented a series of activities including the 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 Permeation and Package Testing segments under common leadership. The realignment expenses incurred in 2015 were $1.0 million. There were no realignment expenses in 2014. The Realignment Plan activities completed during 2015 included:

● The elimination of approximately 10 positions across all areas

● Costs associated with legal and professional fees of $414,000

● Separation costs of $635,000

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Impairment of investment in affiliated company

In January 2010, we acquired a minority equity ownership interest in Luxcel Biosciences Limited (Luxcel) based in Cork, Ireland. The investment of €2.5 million amounted to a 16.9 percent equity interest in Luxcel. During 2014 we became aware of a triggering event that indicated possible impairment. After further analysis, we determined that the investment was other than temporarily impaired, and as a result, recorded a non-cash, non-tax deductible charge of $3.2 million in 2014 to fully impair the asset.

Other Income (Expense), Net

Other income (expense), net for 2016, 2015 and 2014 was as follows (expressed in thousands):

	Years Ended December 31,
	2016			2015			2014
Interest income	$	-		$	2		$	3
Interest expense		(56	)		(119	)		(186	)
Foreign currency exchange gain (loss)		(116	)		209			(136	)
Other		(10	)		1			13
Gain on sale of business		553			-			-
Total other income (expense), net	$	371		$	93		$	(306	)

Fiscal 2016 vs. Fiscal 2015

The interest expense in 2016 is primarily related to the debt incurred in connection with the line of credit, and the foreign currency exchange loss was primarily due to transaction settlement in the normal course of business. Interest expense decrease in 2016 compared to 2015 due to the net pay-down on total debt by $2.8 million year over year. The gain on sale of business is related to the sale of our odor and aroma business formerly known as Microanalytics.

Fiscal 2015 vs. Fiscal 2014

Interest income stayed consistent in 2015, as compared to 2014, due to similar levels of cash. The interest expense in 2015 is primarily related to the debt incurred in connection with the line of credit, and the foreign currency exchange gain was primarily due to revaluing the foreign currency contract and related note payable to fair value. Interest expense decrease in 2015 compared to 2014 due to the net pay-down on total debt by $1.6 million year over year.

Income Tax Expense

Fiscal 2016 vs. Fiscal 2015

Our provision for income taxes in 2016 was $1.7 million, or 25 percent of income before income taxes, compared to $1.5 million, or 33 percent of income before income taxes for 2015. The current year effective tax rate is lower than the expected statutory rate due to the effect of foreign operations where we generally experience lower tax rates, tax benefits associated with the change in our assertion over unremitted earnings, and the research credit and domestic manufacturing deduction for 2016, which is partially offset by discrete items recognized in 2016 associated with foreign income inclusions required for U.S. income tax purposes.

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Fiscal 2015 vs. Fiscal 2014

Our provision for income taxes in 2015 was $1.5 million, or 33 percent of income before income taxes, compared to $1.9 million, or 56 percent of income before income taxes for 2014. The prior year effective tax rate is lower than the expected statutory rate due to the effect of foreign operations where we generally experience lower tax rates, and the research credit and domestic manufacturing deduction for 2015 partially offset by discrete items recognized in 2015.

Inflation

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

Liquidity and Capital Resources

Total cash and cash equivalents was $8.3 million and $6.3 million at December 31, 2016 and 2015. Of the $8.3 million in cash and cash equivalents as of December 31, 2016, $4.8 million was held at banks located primarily in Germany and Denmark. Cash provided by operating activities was approximately $7.3 million in 2016 compared to $6.4 million in 2015. Cash flows provided by operating activities were offset by cash used to pay down our debt, net of proceeds in the amount of $2.8 million; dividends paid totaling $2.6 million, and $1.0 million was used to purchase property, plant and equipment.

At December 31, 2016, we had $163,000 in total debt compared to $3.0 million on December 31, 2015. Total debt on December 31, 2016 is comprised of capital leases for equipment.

Our working capital as of December 31, 2016 increased approximately $1.3 million to $16.4 million, compared to $15.1 million at December 31, 2015. This increase was primarily due to an increase in cash and trade accounts receivable, partially offset by a decrease in inventory and an increase in accrued income taxes.

During 2016, management eliminated the chief operating officer position and a divisional executive position in addition to other personnel changes. This resulted in a non-recurring charge of $903,000 during 2016. The total cash paid during 2016 for these activities was $400,000, with an additional $500,000 expected to be paid in 2017.

During 2015, we implemented a Realignment Plan which decreased our U.S.A. headcount by 5 percent, including elimination of vacant positions. In addition, during 2015 we undertook an initiative to reduce the number of legal entities that we have and resulted in a non-recurring charge of $1.0 million during 2015. The total cash paid during 2015 for these activities was $400,000 and an additional $600,000 was paid during 2016.

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 the U.S.A. and have historically been indefinitely reinvested in non-U.S.A. subsidiaries, resulting in the majority of our cash being held outside the U.S.A. If these funds were repatriated to the U.S.A. or used for U.S.A. operations, the amount would be subject to U.S.A. taxes with the related foreign tax credit, such that a net benefit is available from unremitted non-U.S.A earnings. Therefore, we intend to remit and use the cash generated from non-U.S.A. operations as well as borrowings, if needed, to meet our U.S.A. cash needs. As the remittance is expected to occur within the foreseeable future, we have recorded an income tax benefit associated with this remittance. Further, we intend to accrue income taxes on unremitted earnings going forward to reflect the expectation of future remittances to the U.S.A., which may increase our effective tax rate upon utilization of existing foreign tax credits. We could also seek additional borrowing capacity or seek to raise additional capital in the U.S.A. These alternatives could result in additional interest expense or other dilution of our earnings.

We believe that a combination of our existing cash and cash equivalents, funds available under the revolving credit facility, and an expected continuation of cash flow from operations, will continue to be adequate to fund our operations and working capital, capital expenditures, required payments on indebtedness, costs of realignment expenses and declared dividend payments.

Cash Flow

Cash Flows from Operating Activities

Our primary source of funds has historically been cash provided by operating activities. Cash flow from operating activities totaled $7.3 million, $6.4 million and $9.7 million in 2016, 2015 and 2014, respectively. The increase in 2016 was driven by an increase in overall net income of $2.0 million, a decrease in inventory along with an increase in accrued income taxes, and offset by an increase in accounts receivable. The decrease in 2015 was driven by an increase in accounts receivable, which is at a lesser rate than 2014, with a decrease of $3.3 million in 2015 revenue compared to 2014 along with a decrease in accounts payable and overall operating income. The increase in 2014 was primarily due to the decrease in accounts receivable from 2013, partially offset by increases in inventories. Working capital requirements typically will increase or decrease with changes in the level of revenue. In addition, the timing of certain accrued payments will affect cash flow from reporting period to reporting period. Income tax payments and any employee incentive payments affect the timing of our operating cash flow as they are accrued throughout the year but paid on a quarterly, semi-annual or annual basis.

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Cash Flows from Investing Activities

Cash flows used in investing activities totaled $275,000 in 2016 as compared to $1.7 million in 2015 and $1.5 million in 2014, respectively. The primary uses of cash for investing activities in 2016 were for purchase of property, plant and equipment of $907,000 and cash paid for intangible assets of $179,000. These uses were partially offset by proceeds from the sale of property, plant and equipment, sale of business, and cash surrender value of line insurance in the amount of $701,000, $52,000 and $58,000 respectively. The primary uses of cash for investing activities in 2015 were for purchase of property, plant and equipment of $1.6 million and cash paid for intangible assets of $218,000. These uses were partially offset by proceeds from the sale of property, plant and equipment and cash surrender value of line insurance in the amount of $56,000 and $96,000 respectively. The primary uses of cash for investing activities in 2014 were for purchase of property, plant and equipment of $1.3 million and cash paid for intangible assets of $540,000. These uses were partially offset by proceeds from the sale of marketable securities and property, plant and equipment in the amount of $205,000 and $154,000 respectively. We do not believe that any major property, plant and equipment expenditures are required to accommodate our current level of operations.

Cash Flows from Financing Activities

Cash used in financing activities totaled approximately $5.0 million in 2016, due primarily to the net reduction of the line of credit totaling $2.8 million and dividends paid in the amount of $2.6 million. These uses were partially offset by the proceeds from the exercise of share based options in the amount of $406,000. Cash used in financing activities totaled approximately $4.0 million in 2015, due primarily to the pay-down of term loans in the amount of $704,000, the net reduction of the line of credit totaling $1.1 million and dividends paid in the amount of $2.5 million. These uses were partially offset by the proceeds from the exercise of stock options in the amount of $315,000.Cash used in financing activities in 2014 was $5.4 million, due primarily to the pay-down of term loans in the amount of $2.7 million, the net reduction of the line of credit totaling $1.0 million, and dividend payments in the amount of $2.5 million. These uses were partially offset by the proceeds from the exercise of stock options in the amount of $702,000.

Contractual Obligations

The following table summarizes our future contractual cash obligations as of December 31, 2016 (expressed in thousands):

	Payments Due By Period
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Operating and capital leases	$	7,541	$	1,143	$	2,529	$	1,404	$	2,465
Purchase obligations		5,565		5,565		-		-		-
Realignment Accrual		547		547		-		-		-
Total contractual cash obligations	$	13,653	$	7,255	$	2,529	$	1,404	$	2,465

We lease space in Minneapolis, Minnesota which services as our headquarters and operations center. The lease commenced on June 1, 2011 and is for a 15 year term. The required future minimum lease payments, starting at $367,000 per year and subject to annual increases, have been included in the above table.

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In Europe, we have operating lease agreements for company automobiles as well as the buildings occupied by each subsidiary location in Germany, Spain, Italy, France, and Denmark. The required minimum lease payments range from the low thousands of dollars up to $400,000 per year and are included in the table above. The leases have various maturity dates through June 2028.

We entered into a capital lease agreement on August 27, 2015 for a new phone system. The lease term is 3 years with an imputed interest rate of 1.70 percent per annum. The present value of the minimum lease payments was $162,000 at inception. We entered into a capital lease agreement on November 1, 2016 for new server equipment. The lease term is 3 years with an imputed interest rate of 2.28 percent per annum. The present value of the minimum lease payments was $68,000 at inception.

In the U.S., we have a secured line of credit with availability up to a maximum of $10.0 million which was amended on August 28, 2015 with a maturity date of August 26, 2018. As of December 31, 2016 the outstanding balance is zero. In addition, Dansensor has a DKK 5 million (approximately $0.7 million) available line of credit of which no amount was outstanding as of December 31, 2016.

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 December 31, 2016 and expect to remain in compliance through 2017.    

In relation to our accrual for uncertain tax positions, we have approximately $134,000 and $201,000 accrued at December 31, 2016 and 2015, respectively. The timing of any payments which could result from these unrecognized tax benefits will depend on a number of factors. Accordingly, we cannot make reasonably reliable estimates of the period of potential cash settlement, if any, with taxing authorities. Due to the uncertainty regarding the timing of these liabilities, we have excluded these amounts from the contractual obligations table.

We have severance agreements with four of our executive officers and two of our vice presidents, which provides for the payment of a lump sum amount upon the occurrence of certain termination events. The payment could range from an amount of half to two times their current annual salary depending on the reason for termination. In connection with our Realignment Plan, we expensed $903,000 during 2016 for separation agreements with officers and executives. As of December 31, 2016, $547,000 of this expense is included in accrued compensation, and per the agreements will be paid during 2017.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Guidance

New Accounting Standards Not Yet Adopted

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Revenue from Contracts with Customers

In May 2014, the FASB issued new accounting requirements for the recognition of 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. The Company intends to adopt the new standard in the first quarterly period of fiscal 2018. We do not believe adoption of the new standard will have a material impact on our Consolidated Statements of Income, but expect expanded financial statement footnote disclosure. We are continuing to evaluate the impacts of the pending adoption, and have engaged a third party to assist management in assessing the impact. As such, our preliminary assessments are subject to change.

Inventory – Simplifying the Measurement of Inventory

In July 2015, the FASB issued new accounting guidance in an effort to simplify 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 do not believe adoption of the new standard will have a material impact on our results of operations and financial position.

Leases

In February 2016, the FASB issued new accounting guidance, which 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 a new standard that changes the accounting for share-based payments. The standard is effective for the Company in fiscal 2017. It simplifies several aspects of accounting for share-based payments, including the accounting for income taxes, forfeitures, and classification in the statement of cash flows. Under the new standard, excess tax benefits on the exercise of stock options currently credited to equity will reduce the current tax provision, potentially creating volatility in the Company’s effective tax rate. We do not believe adoption of the new standard will have a material impact on our results of operations and financial position.

ITEM 7.A Quantitative and Qualitative disclosures about market risk

Interest Rate Risk 

Our principal financial market risks are sensitive to interest rates and foreign currency exchange rates. Our market risk on interest rates relates primarily to LIBOR-based short-term debt from commercial banks and interest-bearing cash equivalents and short-term investments which are generally instruments with maturities of three months or less. Based on our average debt balances during 2016, a 100 basis point change in interest rates would potentially increase or decrease interest expense, net of offsetting impacts in interest income, by approximately $17,000.

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Foreign Currency Exchange Risk

Today, nearly 66 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 for revenue transacted by the U.S. operation. In our European based operations, we have some exposure to foreign currency fluctuations as we invoice our customers primarily in euros and Danish krone. The revenue impact due to foreign currency fluctuations has been immaterial during 2016. In addition, we have some exposure due to foreign exchange pricing impacts on instruments made in the U.S.A. and sold in foreign currencies by non-U.S. operations. However, because we also pay a number of our employees, international suppliers and service providers in their local foreign currency, the negative impact to revenue due to the strong U.S. dollar is naturally hedged resulting in minimal impact to our operating income. However, the net transactional gains or losses resulting from the revenue and expense transactions denominated in foreign currencies have not been material in the past.

We experienced a net of approximately $116,000 foreign currency transactional loss during the year ended December 31, 2016 primarily due to the weakening of European currencies. Our balance sheet related translation income (loss) is recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets.

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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 

(in thousands, except per share data) 

	Quarter ended
	March 31,		June 30,			September 30,		December 31,
2016:
Revenue	$	14,730	$	15,631		$	16,060	$	16,890
Gross profit		8,104		8,771			9,198		9,584
Net income		488		789			1,964		1,759
Net income per common share:
Basic	$	0.08	$	0.14		$	0.34	$	0.30
Diluted		0.08		0.14			0.34		0.30
2015:
Revenue	$	15,360	$	15,049	(1)	$	15,022	$	15,323
Gross profit		8,479		8,025			8,318		8,402
Net income		908		646			1,152		266
Net income per common share:
Basic	$	0.16	$	0.11		$	0.20	$	0.05
Diluted		0.16		0.11			0.20		0.05

(1) See Note 1, Page F-9

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

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ITEM 9. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system is designed to provide reasonable assurance to our management, Board of Directors and shareholders regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external reporting purposes.

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

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.

RSM US LLP, an independent registered public accounting firm, has issued an auditors’ report on management’s assessment of our internal control over financial reporting as of December 31, 2016, which is included elsewhere in this Form 10-K.

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.

(d) Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

During the fourth quarter 2016, we made no material changes to the procedures by which shareholders may recommend nominees to the board of directors, as described in our most recent proxy statement.

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

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

MOCON, Inc.

7500 Mendelssohn Avenue North

Minneapolis, Minnesota 55428

Attention: Chief Financial Officer

Item 11. EXECUTIVE COMPENSATION

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

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ITem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED shareHOLDER MATTERS

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

The following table summarizes outstanding options under our equity compensation plans as of December 31, 2016. Our only equity compensation plans as of December 31, 2016 were the MOCON, Inc. 2015 Equity Incentive Plan, MOCON, Inc. 2006 Stock Incentive Plan, as amended, the MOCON, Inc. 1998 Stock Option Plan and the 2015 Employee Stock Purchase Plan. The MOCON, Inc. 2006 Stock Incentive Plan and MOCON, Inc. 1998 Stock Option Plan have terminated with respect to future grants. Options and other stock incentive awards to be granted in the future under the MOCON, Inc. 2015 Equity Incentive Plan are within the discretion of our Board of Directors and the Compensation Committee of our Board of Directors and therefore cannot be ascertained at this time.

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1)		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column)
Equity compensation plans approved by security holders		814,544	$	16.04		226,915
Equity compensation plans not approved by security holders		—		—		—

(1) Excludes employee stock purchase rights under the MOCON Inc. 2015 Employee Stock Purchase Plan, as amended. Under such plan, each eligible employee may purchase up to $25,000 of common stock of the Company at semi-annual intervals on June 30th and December 31st each calendar year at a purchase price per share equal to 85% of the closing sales price per share of shares of common stock on the first or last day of the offering period, whichever is lowest.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

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

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Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)            1.     Financial Statements

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

	Page
Reports of Independent Registered Public Accounting Firms	F-1
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-4
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014	F-5
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014	F-6
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014	F-8
Notes to Consolidated Financial Statements	F-9

2.     Financial Statement Schedule

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

Schedule II: Valuation and Qualifying Accounts  S-1

41

3.     Exhibits

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

A. MOCON, Inc. 2006 Stock Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 1, 2011 (File No. 000-09273)).

B. Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)).

C. Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)).

D. MOCON, Inc. 2015 Equity Incentive Plan, as amended and restated (filed herewith).

E. MOCON, Inc. 2015 Stock Purchase Plan (filed herewith).

F. First Amendment to MOCON, Inc. 2015 Employee Stock Purchase Plan (filed herewith).

G. Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 000-09273)).

I. MOCON, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 3, 2017 (File No. 000-09273)).

J. MOCON, Inc. Special Performance Bonus Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 3, 2017 (File No. 000-09273)).

K. Description of Non-Employee Director Retirement Plan (incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 000-09273)).

L. Description of Non-Employee Director Compensation Arrangements (filed herewith).

M. Description of Executive Officer Compensation Arrangements (filed herewith).

N. Amendment to Executive Severance Agreement (incorporated by reference to Exhibit 10.21 to our Annual Report on FOrm 10-K for the fiscal year ended December 31, 2015 (File No. 000-09273).

42

(b) Exhibits

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

(c) Financial Statement Schedule

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

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 9, 2017	MOCON, Inc.
	By:/s/ Robert L. Demorest
	Robert L. Demorest, Chairman of the Board,
	President and Chief Executive Officer
	(principal executive officer)
	By:/s/ Elissa Lindsoe
	Elissa Lindsoe, Chief Financial Officer,
	(principal financial and accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on March 9, 2017.

Signature and Title

/s/ Robert L. Demorest

Robert L. Demorest, Chairman of the Board, President and Chief Executive Officer

/s/ Robert F. Gallagher

Robert F. Gallagher, Director

/s/ Bradley D. Goskowicz

Bradley D. Goskowicz, Director

/s/ Kathleen Iverson

Kathleen Iverson, Director

/s/ Tom C. Thomas

Tom C. Thomas, Director

/s/ David J. Ward

David J. Ward, Director

/s/ Paul R. Zeller

Paul R. Zeller, Director

44

MOCON, INC. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2016, 2015 and 2014

Table of Contents

	Page
Reports of Independent Registered Public Accounting Firms	F-1
Consolidated Balance Sheets	F-4
Consolidated Statements of Income	F-5
Consolidated Statements of Comprehensive Income (Loss)	F-6
Consolidated Statements of Shareholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9

45

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
MOCON, Inc.

We have audited MOCON, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. MOCON, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, MOCON, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of MOCON, Inc. and subsidiaries as of and for the year ended December 31, 2016, and our report dated March 9, 2017 expressed an unqualified opinion.

/s/ RSM US LLP

Minneapolis, Minnesota

March 9, 2017 

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
MOCON, Inc.


We have audited the accompanying consolidated balance sheet of MOCON, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for the years then ended. Our audit also included the financial statement schedule listed in Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MOCON, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MOCON, Inc.’s and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 9, 2017 expressed an unqualified opinion on the effectiveness of MOCON, Inc. and subsidiaries’ internal control over financial reporting.

/s/ RSM US LLP

Minneapolis, Minnesota

March 9, 2017

F-2

The Board of Directors and shareholders

MOCON, Inc.:

We have audited the accompanying consolidated statements of income of MOCON, Inc. and subsidiaries for the year ended December 31, 2014, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations of MOCON, Inc. and subsidiaries for the year ended December 31, 2014, and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Minneapolis, Minnesota

March 12, 2015

F-3

MOCON, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015

(expressed in thousands, except share amounts)

	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	8,313		$	6,344
Trade accounts receivable, less allowance for doubtful accounts of $180 in 2016 and $141 in 2015		10,726			8,786
Other receivables		21			326
Inventories		6,728			7,790
Prepaid income taxes		498			559
Prepaid expenses, other		876			897
Total current assets		27,162			24,702
Property, plant, and equipment, net of accumulated depreciation of $8,537 in 2016 and $8,154 in 2015		5,457			5,995
Goodwill		7,180			7,437
Intangible assets, net		7,831			8,986
Other assets		118			88
Deferred income taxes		700			211
Total assets	$	48,448		$	47,419
Liabilities and Shareholders’ Equity
Current liabilities:
Current maturities of long-term notes payable	$	83		$	65
Accounts payable		2,905			3,033
Accrued compensation and related expenses		3,948			3,969
Other accrued expenses		947			811
Accrued product warranties		209			223
Accrued income taxes		999			-
Dividends payable		644			637
Deferred revenue		980			862
Total current liabilities		10,715			9,600
Line of credit		-			2,793
Notes payable		80			93
Obligations to former employees		-			34
Deferred income taxes		1,068			1,227
Accrued income taxes		134			201
Total noncurrent liabilities		1,282			4,348
Total liabilities		11,997			13,948
Commitments and contingencies (Note 7)
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 5,854,413 shares in 2016 and 5,792,126 shares in 2015		585			579
Additional paid-in capital		8,617			7,412
Retained earnings		33,144			30,700
Accumulated other comprehensive loss		(5,895	)		(5,220	)
Total shareholders’ equity		36,451			33,471
Total liabilities and shareholders' equity	$	48,448		$	47,419

See accompanying notes to consolidated financial statements.

F-4

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2016, 2015 and 2014

(expressed in thousands, except per share amounts)

	2016		2015		2014
Revenue:
Products	$	49,506	$	47,832	$	50,694
Services		11,674		9,956		10,658
Consulting		2,131		2,966		3,123
Total revenue		63,311		60,754		64,475
Cost of revenue:
Products		21,198		21,308		22,174
Services		4,793		4,205		4,188
Consulting		1,663		2,017		1,999
Total cost of revenue		27,654		27,530		28,361
Gross profit		35,657		33,224		36,114
Selling, general and administrative expenses		23,615		23,468		24,988
Research and development expenses		4,844		4,341		4,191
Realignment expenses		903		1,049		-
Impairment of investment in affiliated company		-		-		3,171
Operating income		6,295		4,366		3,764
Other income (expense), net		371		93		(306	)
Income before income taxes		6,666		4,459		3,458
Income taxes		1,666		1,487		1,922
Net income	$	5,000	$	2,972	$	1,536
Net income per common share:
Basic	$	0.86	$	0.52	$	0.27
Diluted	$	0.86	$	0.51	$	0.27
Weighted average common shares outstanding:
Basic		5,802		5,753		5,665
Diluted		5,835		5,818		5,754
Dividends declared per common share	$	0.44	$	0.44	$	0.44

See accompanying notes to consolidated financial statements.

F-5

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Years ended December 31, 2016, 2015 and 2014

(expressed in thousands)

	2016			2015			2014
Net income	$	5,000		$	2,972		$	1,536
Other comprehensive income (loss):
Cumulative translation adjustment		(674	)		(2,429	)		(3,405	)
Comprehensive income (loss)	$	4,326		$	543		$	(1,869	)

See accompanying notes to consolidated financial statements.

F-6

MOCON, INC. AND SUBSIDIARIES 

Consolidated Statements of Shareholders’ Equity

Years ended December 31, 2016, 2015 and 2014

(expressed in thousands, except share amounts)

	Common stock				Additional					Accumulated other
	Number of shares		Amount		paid-in capital		Retained earnings			comprehensive income (loss)			Total
Balance, January 1, 2014		5,630,197	$	563	$	5,064	$	31,229		$	613		$	37,469
Stock options exercised, net of surrendered shares		102,308		10		692		-			-			702
Dividends declared ($0.44 per share)		-		-		-		(2,500	)		-			(2,500	)
Share-based compensation expense		-		-		591		-			-			591
Tax benefit on stock plans		-		-		80		-			-			80
Net income		-		-		-		1,536			-			1,536
Cumulative translation adjustment		-		-		-		-			(3,405	)		(3,405	)
Balance, December 31, 2014		5,732,505		573		6,427		30,265			(2,792	)		34,473
Stock options exercised, net of surrendered shares		59,621		6		309		-			-			315
Dividends declared ($0.44 per share)		-		-		-		(2,536	)		-			(2,536	)
Share-based compensation expense		-		-		668		-			-			668
Tax benefit on stock plans		-		-		8		-			-			8
Net income		-		-		-		2,972			-			2,972
Cumulative translation adjustment		-		-		-		-			(2,429	)		(2,429	)
Balance, December 31, 2015		5,792,126		579		7,412		30,701			(5,221	)		33,471
Stock issued under share-based equity plans		62,287		6		444		-			-			450
Dividends declared ($0.44 per share)		-		-		-		(2,557	)		-			(2,557	)
Share-based compensation expense		-		-		750		-			-			750
Tax benefit on stock plans		-		-		11		-			-			11
Net income		-		-		-		5,000			-			5,000
Cumulative translation adjustment		-		-		-		-			(674	)		(674	)
Balance, December 31, 2016		5,854,413	$	585	$	8,617	$	33,144		$	(5,895	)	$	36,451

See accompanying notes to consolidated financial statements.

F-7

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2016, 2015 and 2014

(expressed in thousands)

	2016			2015			2014
Cash flows from operating activities:
Net income	$	5,000		$	2,972		$	1,536
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense		750			668			591
Change in other receivable		-			(3	)		186
Loss on disposition of long-term assets		67			16			34
Gain on sale of business		(553	)		-			-
Depreciation and amortization		2,551			2,460			2,555
Impairment of investment in affiliated company		-			-			3,171
Deferred income taxes		(801	)		457			(147	)
Excess tax benefit from employee stock plans		11			(8	)		(80	)
Changes in operating assets and liabilities:
Trade accounts receivable		(1,589	)		615			1,727
Other receivables		309			(194	)		(68	)
Inventories		1,264			725			(1,557	)
Prepaid income taxes		(21	)		162			(279	)
Prepaid expenses		64			61			296
Accounts payable		(811	)		(1,349	)		519
Accrued compensation and related expenses		(359	)		71			625
Other accrued expenses		163			84			(18	)
Accrued product warranties		(13	)		(49	)		(32	)
Accrued income taxes		1,152			(205	)		211
Deferred revenue		123			(111	)		400
Net cash provided by operating activities		7,307			6,372			9,670
Cash flows from investing activities:
Proceeds from sale of business		701			-			-
Purchases of property, plant and equipment		(907	)		(1,617	)		(1,349	)
Proceeds from sale of property and equipment		52			56			154
Cash paid for intangible assets		(179	)		(218	)		(540	)
Proceeds from maturities of marketable securities		-			-			205
Other		58			96			(3	)
Net cash used in investing activities		(275	)		(1,683	)		(1,533	)
Cash flows from financing activities:
Payments on notes payable and seller financed note payable		(62	)		(704	)		(2,709	)
Proceeds from the line of credit		2,750			21,974			23,552
Payments on the line of credit		(5,543	)		(23,065	)		(24,507	)
Proceeds from the exercise of stock options		406			315			702
Excess tax benefit from employee stock plans		(11	)		8			80
Proceeds from ESPP		44			-			-
Dividends paid		(2,551	)		(2,530	)		(2,489	)
Net cash used in financing activities		(4,967	)		(4,002	)		(5,371	)
Effect of exchange rate changes on cash and cash equivalents		(96	)		(675	)		(567	)
Net increase in cash and cash equivalents		1,969			12			2,199
Cash and cash equivalents:
Beginning of year		6,344			6,332			4,133
End of year	$	8,313		$	6,344		$	6,332
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes	$	1,365		$	1,256		$	2,184
Cash paid during the year for interest	$	94		$	124		$	206
Supplemental schedule of noncash investing and financing activities:
Dividends accrued	$	644		$	637		$	631
Purchases of prepaid expenses, fixed assets and intangibles in accounts payable	$	124		$	109		$	204
Transfer of inventory to fixed assets	$	123		$	130		$	18
Purchases of fixed assets in notes payable	$	68		$	162		$	-
Transfer of notes payable balance to line of credit	$	-		$	585		$	-

See accompanying notes to consolidated financial statements.

 F-8

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(1)  Summary of Significant Accounting Policies

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

We report our operating segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting. Our operating segments are Permeation Products and Services (“Permeation”), Package Testing Products and Services (“Package Testing”), and Industrial Analyzer Products and Services and Other (“Industrial Analyzers and Other”) for financial reporting purposes.

Revision to previously issued financial information

The Company discovered the elimination of intercompany revenue and the related gross profit related to our Permeation Products and Services reporting segment was incorrectly recognized for the three months ended September 30, 2015. We assessed the impact of the error and concluded that it was not material to any of our previously issued financial statements; however, we had chosen to correct the misstatement by revising our previously issued unaudited three months ended September 30, 2015 Consolidated Statement of Operations. The revision had no impact to gross profit, operating income, earnings per share, Consolidated Balance Sheet or Consolidated Statement of Cash Flows. The impact of the misstatement of previously reported revenue and cost of sales was $470,000. The following table represents the effects of the revisions for the year ended December 31, 2015 (expressed in thousands).

	As previously reported		Effect of Revision			As Revised
Year ended December 31, 2015
Revenue:
Products	$	48,302	$	(470	)	$	47,832
Services		9,956		-			9,956
Consulting		2,966		-			2,966
Total revenue	$	61,224	$	(470	)	$	60,754
Cost of Revenue:
Products	$	21,778	$	(470	)	$	21,308
Services		4,205		-			4,205
Consulting		2,017		-			2,017
Total cost of revenue		28,000		(470	)		27,530
Gross profit	$	33,224	$	-		$	33,224

F-9

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

The following is a summary of the significant accounting policies used in the preparation of our consolidated financial statements.

(a) 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.

(b) Foreign Currency Translation

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

(c) Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of short-term investments which are readily convertible to cash.

(d) Trade Accounts Receivable

Credit is granted to customers in the normal course of business. Receivables are recorded at original carrying value, which approximates fair value, less reserves for estimated uncollectible amounts and sales returns. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. When facts and circumstances dictate, we may need to adjust our estimates and assumptions.

(e) Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, and market represents the lower of replacement cost or estimated net realizable value. We record an estimate for excess and obsolete inventory which is based on historical usage and sales history.

(f) Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation and amortization are typically computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred and significant renewals and betterments are capitalized. The present value of capital lease obligations are classified as long-term debt and the related assets are included in property, plant and equipment. Amortization of equipment under capital leases is included in depreciation expense.

F-10

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(g) Goodwill and Other Intangible Assets

As of December 31, 2016 and 2015, we have recorded approximately $7.2 million and $7.4 million of goodwill, respectively. We test goodwill at least annually for impairment. We completed our annual impairment test of goodwill and concluded that no impairment existed as of December 31, 2016 and 2015.

Intangible assets consist of developed technology, customer relationships, patents, trademarks and other intangibles. Developed technology, patents, trademarks and other intangibles are carried at cost less accumulated amortization. Costs incurred in connection with applications for new patents are deferred until a final determination, with respect to the application, is made by appropriate regulatory agencies. Costs of patents abandoned are charged to income in the period of abandonment. Developed technologies are amortized over 10 years or less. Patent costs, trademarks and trade names are amortized over the lesser of 17 years or their estimated useful lives using the straight-line method. Other intangibles are amortized over 3 to 5 years.

(h) Software Development Costs

We capitalize certain software development costs related to software that is essential to the hardware within certain instruments we sell. Capitalized software development costs consist primarily of purchased materials and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of revenue over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Our capitalized software development costs are included in intangible assets on the consolidated balance sheets and are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. As of December 31, 2016 and 2015 approximately $1.1 million of software development costs are being amortized over 7 to 10 years. Amortization expense was approximately $108,000, $108,000 and $46,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of five years and are reported as a component of property, plant and equipment on the consolidated balance sheets. Depreciation expense was approximately $398,000, $221,000 and $213,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

F-11

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

We review our long-lived assets and certain identifiable intangibles for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During 2014 we identified an impairment indicator related to our investment in affiliated company, Luxcel Biosciences Limited (Luxcel) and concluded that the carrying value of Luxcel exceeded its fair value. The impairment was determined to be other-than-temporary. As a result, an impairment of $3.2 million, or 100 percent of the carrying value, was recognized within operating expenses of the consolidated statements of income in 2014. The investment in Luxcel has been reported in our unallocated-corporate reporting segment. Likewise, the impairment loss is allocated therein as well.

(j) Warranty

We have a liability recorded for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting claim, new product introductions and other factors. In the event we determine that its current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made.

(k) Use of Estimates

The preparation of the consolidated financial statements, in accordance with generally accepted principles in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property, valuation of plant and equipment, valuation of investment in affiliated company, goodwill and intangible assets, inventory reserves, allowance for doubtful accounts, uncertain tax positions and warranty reserves. Actual results could differ from those estimates.

(l) Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. 

F-12

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates.  For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

(m) Fair Value of Financial Instruments

Our financial instruments are recorded in the consolidated balance sheets. The carrying amount for cash and cash equivalents, accounts receivable, line of credit, accounts payable and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments.

There are three levels within the fair value hierarchy that may be used to measure fair value:

Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3: Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

(n) Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

F-13

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014  

Revenue for service arrangements such as maintenance, repair, and technical support are recognized either as the service is provided or ratably over the defined contractual period for service maintenance as noted in the paragraph below. Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts. Unearned revenue related to these contracts is recorded in current liabilities in the consolidated balance sheets.

We periodically have shipments of products to customers in which revenue is recognized under the accounting guidance related to multiple element arrangements. We allocate the overall arrangement fee to each element (both delivered and undelivered items) based on their relative selling price, as demonstrated by vendor – specific evidence (VSOE) or third –party evidence (TPE). Where VSOE or TPE is not available, revenue is allocated using an estimated selling price.

Shipping and handling fees billed to customers are reported within revenue in the consolidated statements of income, and the related costs are included in cost of revenue in the consolidated statements of income.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities in the consolidated balance sheets.

(o) Advertising Costs

We incur advertising costs associated with trade shows, print advertising and brochures. Such costs are charged to expense as incurred. Advertising expense was approximately $501,000, $646,000 and $845,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

(p) Research and Development Costs

Research and development costs associated with new products or enhancements are charged to expenses from operations as incurred.

(q) Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average of common and potential dilutive common shares outstanding during the year.

(r) Share-Based Compensation

The Company recognizes share-based compensation expense for its related compensation programs, which include stock incentive plans and the Employee Stock Purchase Plan (ESPP).

Share-based compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related share-based reward. We generally provide for the vesting of stock options in equal annual installments over a four-year period commencing on the one-year anniversary of the date of grant, or on one installment commencing on the one-year anniversary.

F-14

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014  

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. We base our estimate of expected volatility for awards granted in 2016, 2015 and 2014 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 estimated the expected term consistent with historical exercise and cancellation activity of our previous share-based grants with a seven-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior four quarters as a percent of the average share price for that period. See Note 10 for additional information on share-based compensation.

(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 our 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. During the year we received proceeds of $701,000 resulting in a realized gain of $553,000, which is included in other income (expense), net on the Consolidated Statement of Income. The remaining $599,000 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.

(3)       Inventories

The major components of inventories at December 31, 2016 and 2015 were as follows (expressed in thousands):

	2016		2015
Finished products	$	1,252	$	1,366
Work-in-process		1,991		2,375
Raw materials		3,485		4,049
Total Inventory	$	6,728	$	7,790

F-15

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(4)       Property, Plant and Equipment

Property, plant and equipment at December 31, 2016 and 2015 consisted of the following (dollar amounts expressed in thousands):

	2016			2015			Estimated useful lives (years)
Land	$	200		$	200			—
Buildings		786			786			27
Machinery and equipment		4,975			5,178		3	to	10
Office equipment		5,607			5,436		2	to	15
Leasehold improvements		2,121			2,125		1	to	15
Vehicles		305			424		3	to	5
Total property, plant and equipment		13,994			14,149
Less accumulated depreciation		(8,537	)		(8,154	)
Net property, plant and equipment	$	5,457		$	5,995

Depreciation of property, plant and equipment was approximately $1.5 million, $1.3 million and $1.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

(5)       Goodwill and Other Intangible Assets

Goodwill

As of December 31, 2016 and 2015, goodwill amounted to approximately $7.2 million and $7.4 million, respectively. We test goodwill for impairment annually at the reporting unit level using a fair value approach, in accordance with the provisions of ASC 350, Goodwill and Other. We completed our annual impairment tests during the fourth quarter 2016 and 2015 and determined there was no impairment.

The changes in the carrying amount of goodwill for the year ended December 31, 2016 is as follows (expressed in thousands):

	Package Testing			Permeation			Industrial  Analyzers & Other		Total
Balance as of December 31, 2014	$	5,508		$	2,029		$	610	$	8,147
Foreign currency translation		(541	)		(169	)		-		(710	)
Balance as of December 31, 2015		4,967			1,860			610		7,437
Sale of business (see Note 2)		-			(57	)		-		(57	)
Foreign currency translation		(148	)		(52	)		-		(200	)
Balance as of December 31, 2016	$	4,819		$	1,751		$	610	$	7,180

F-16

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014 

Other Intangible Assets

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

	As of December 31, 2016
	Cost		Accumulated Amortization			Net
Patents	$	2,021	$	(508	)	$	1,513
Trademarks and trade names		3,219		(886	)		2,333
Developed technology		5,923		(3,125	)		2,798
Customer relationships		693		(366	)		327
Internally developed software		1,085		(263	)		822
Other intangibles		214		(176	)		38
	$	13,155	$	(5,324	)	$	7,831

	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

Amortization expense was approximately $1.1 million, $1.2 million and $1.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Estimated amortization expense for the fiscal years ending December 31, 2017 to 2021, and thereafter is approximately $1.1 million, $1.1 million, $1.1 million, $1.1 million, $0.5 million and $2.3 million, respectively.

(6)       Warranties

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

Warranty expense is accrued at the time of sale based on historical claims experience. 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.

F-17

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

Warranty provisions and claims for the years ended December 31, 2016, 2015 and 2014 were as follows (expressed in thousands):

Description	Balance at Beginning of Year		Warranty Provisions		Warranty Claims		Balance at End of Year
Year ended December 31, 2016:
Allowance for product warranties	$	223		331		345	$	209
Year ended December 31, 2015:
Allowance for product warranties	$	285		288		350	$	223
Year ended December 31, 2014:
Allowance for product warranties	$	336		297		348	$	285

(7)       Commitments and Contingencies

(a) Leases

We lease our facilities and certain equipment pursuant to operating and capital leases. The facility leases expire at various times through June 2028 and require us to pay operating costs, including real estate taxes. Equipment under capital lease consists of service vehicles, a phone system, and servers net of accumulated depreciation totaling approximately $211,000 and $195,000 for the years ended December 31, 2016 and 2015, respectively.

Rental expense for operating leases, including charges for operating costs, were approximately $1.1 million, $1.1 million and $1.2 million for years ended December 31, 2016, 2015 and 2014, respectively.

The following is a schedule of future minimum lease payments, excluding charges for operating costs, as of December 31, 2016 (expressed in thousands):

Year Ending December 31:
	Operating Leases		Capital Leases
2017	$	1,058	$	85
2018		900		60
2019		807		21
2020		741		-
2021		1,947		-
Thereafter		1,922		-
	$	7,375		166
Less amounts representing interest				3
Present value of minimum lease commitments			$	163

F-18

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(b) Severance Agreements

We have severance agreements with our four executive officers and two vice presidents which provides for the payment to the officer of a lump sum amount upon the occurrence of certain termination events.

On September 9, 2014, we entered into a Confidential Separation and Release Agreement (“Separation Agreement”) with former Chief Financial Officer at that time.  In connection with the Separation Agreement, we recognized approximately $107,000 in expense during the year ended December 31, 2014 related to severance costs.  As of December 31, 2014, approximately $72,000 was included in accrued compensation and related expenses on the consolidated balance sheets. This balance was paid in full in 2015.

On August 5, 2016, MOCON entered into a Separation Agreement and General Release “(the “Separation Agreement”) with former Chief Operating Officer at that time. In connection with the Separation Agreement, we recognized approximately $305,000 in expense during the year ended December 31, 2016 related to severance costs, which is included in realignment expense on the Consolidated Statement of Income. As of December 31, 2016, $191,000 is included in accrued compensation .

(c) Inventory Purchase Obligations

At December 31, 2016, we had approximately $5.6 million of purchase order commitments to our suppliers for delivery of inventory primarily during 2017.

(8)       Realignment Expenses

During 2016, management concluded to eliminate the chief operating officer position and a divisional executive position in addition to other personnel changes. As a result, $903,000 of realignment expense was recognized during 2016.

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. The realignment expenses incurred in 2015 were $1.0 million. Realignment Plan activities completed during 2015 included:

● The elimination of approximately 10 positions across all areas

● Costs associated with legal and professional fees of $414,000

● Separation costs of $635,000

These expenses were recognized in the Consolidated Statement of Incomes as Realignment expenses during the year ended December 31, 2015. These expenses were paid in full during 2016.

F-19

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

Amounts accrued, realignment expenses and cash payments for the year ended December 31, 2016 and 2015 were as follows (expressed in thousands):

	Year ending December 31,
	2016			2015
Beginning Balance	$	620		$	-
Realignment Expense		903			1,049
Cash Payments		(976	)		(429	)
Ending Balance	$	547		$	620

(9)       Income Taxes

Income before income taxes was as follows (expressed in thousands):

	2016		2015		2014
Income before income taxes:
Domestic	$	1,635	$	2,314	$	968
Foreign		5,031		2,145		2,490
Total	$	6,666	$	4,459	$	3,458

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

	2016			2015			2014
Current tax expense:
Federal	$	787		$	1,208		$	1,076
State		71			48			95
Foreign		1,456			1,009			893
Total current expense		2,314			2,265			2,064
Deferred tax expense (benefit):
Federal		(539	)		(508	)		171
State		(10	)		(15	)		(27	)
Foreign		(99	)		(255	)		(286	)
Total deferred expense (benefit)		(648	)		(778	)		(142	)
Provision for income taxes	$	1,666		$	1,487		$	1,922

F-20

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

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

	Percentage of pretax income
	for years ended December 31,
	2016			2015			2014
Tax at statutory federal income tax rate		34.0	%		34.0	%		34.0	%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit		0.6			0.8			0.4
Change in valuation allowance		1.0			0.9			32.8
Domestic manufacturing deduction		(1.5	)		(1.8	)		(3.5	)
Effect of foreign operations		(5.3	)		(2.3	)		(7.0	)
Foreign dividend income		27.5			-			-
Unremitted earnings		(10.0	)		-			-
Foreign tax credit		(18.5	)		-			-
Changes in unrecognized tax benefits		(0.8	)		(2.6	)		0.0
Stock option compensation		1.1			2.9			3.0
Research credit		(3.4	)		(4.7	)		(4.3	)
Other, including provision to return adjustments		0.3			6.3			0.2
Effective income tax rate		25.0	%		33.5	%		55.6	%

The tax effect of significant temporary differences representing deferred tax assets and liabilities at December 31, 2016 and 2015 were as follows (expressed in thousands):

	2016			2015
Deferred tax assets:
Allowance for doubtful accounts	$	18		$	3
Inventory items		530			576
Reserves and accruals		226			413
Compensation expense - stock options		348			274
Foreign tax credit carryover		-			170
Unremitted Earnings		665			-
R&D credit carryover		237			171
Impairment		1,127			1,123
Other		209			220
Subtotal		3,360			2,950
Less: Valuation allowance		(1,363	)		(1,294	)
Total deferred tax assets		1,997			1,656
Deferred tax liabilities:
Fixed assets		(979	)		(1,071	)
Intangibles		(1,386	)		(1,601	)
Total deferred tax liabilities		(2,365	)		(2,672	)
Net deferred tax liability	$	(368	)	$	(1,016	)

F-21

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

As of December 31, 2016, we have established a valuation allowance of $1.4 million against the deferred tax assets associated with the capital loss related to the impairment of investment in an affiliated company and from the carry-forward of state R&D tax credits, as these will not be realized through generating future income of appropriate character. However, we believe it is more likely than not that the remainder of our deferred tax assets at December 31, 2016 will be realized primarily through carryback potential, reversing taxable temporary differences, and generating future income.

As of December 31, 2016, there was approximately $3.4 million of accumulated undistributed earnings remaining at our foreign subsidiaries. During the fourth quarter of 2016, we changed our assertion related to unremitted earnings of foreign subsidiaries and are no longer asserting permanent reinvestment of unremitted earnings.  The remittance of these earnings is expected in the foreseeable future, defined within one year, and will result in a benefit from excess foreign tax credits. We have a repatriation plan to remit earnings and associated tax pools during 2017. As such, the Company has recorded the related deferred tax asset related to repatriation.  The Company expects to realize the benefit of excess foreign tax credits through carryback potential and generating future foreign source income.    As a result of the change in assertion, we will accrue applicable deferred tax for these unremitted earnings going forward.    

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (expressed in thousands):

	2016			2015			2014
Balance at January 1	$	187		$	302		$	264
Additions based on tax positions related to the current year		-			-			61
Additions based on tax positions related to the prior year		-			-			-
Reductions due to closing of statute of limitations		(62	)		(25	)		(23	)
Reductions based on tax positions related to the prior year		-			(90	)		-
Balance at December 31	$	125		$	187		$	302

Included in the balance of total unrecognized tax benefits at December 31, 2016 are potential benefits of approximately $99,000 that if recognized would affect the effective tax rate on income before income taxes. The difference between this amount and the corresponding amount of gross unrecognized tax benefits related primarily to the deferred federal benefit for state income tax related amounts.

The gross unrecognized tax benefit is expected to decrease due to statute closures in the next twelve months. Absent the decrease of the unrecognized tax benefit as a result of statute close we do not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to approximately $8,000 and $13,000 on a gross basis at December 31, 2016 and 2015, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above.

We file income tax returns in the U.S. federal jurisdiction, several state jurisdictions, China, France, Germany, Denmark, Italy, Luxembourg, Spain and the Netherlands. With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before 2012.  

F-22

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

(10)     Share-Based Compensation

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The Purchase Plan consists of a 6-month offering period whereby employees can purchase shares at a price equal to 85 percent of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The 15 percent discount is expensed over the offering period as share-based compensation expense. A maximum of 50,000 common shares can be purchased through the ESPP. During the year ended December 31, 2016, 3,585 shares were purchased under the ESPP. As of the year ended December 31, 2016, the Company had 46,415 shares of common stock available for future purchases under the ESPP. The weighted average grant date fair value of the Company’s ESPP purchase right was $2.35.

Stock Incentive Plans

As of December 31, 2016, we have reserved 180,500 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 814,544 shares for options that have been granted under either our 2006 or 2015 stock incentive plans but have not yet been exercised. We issue new shares of common stock upon exercise of stock options.

Under our share-based incentive plans, option exercise prices are 100 percent of the market value of the common stock at the date of grant, except if incentive options granted under the 2006 and 2015 plans were granted to persons owning more than 10 percent of our stock, in which case the option price would be 110 percent of the market value. Exercise periods are generally for seven years. The plans allow for the granting of nonqualified stock options. Upon the exercise of these nonqualified options, we may realize a compensation deduction allowable for income tax purposes. The after-tax effect of these tax deductions is included in the accompanying consolidated financial statements as an addition to additional paid-in capital.

Share-based compensation expense recognized in the consolidated financial statements for 2016, 2015 and 2014 was as shown below (expressed in thousands):

	Years Ended December 31,
	2016		2015			2014
Cost of share-based compensation - stock incentive plans	$	733	$	668		$	591
Cost of share-based compensation - ESPP		17		-			-
Amount of income tax benefit recognized in earnings		11		(39	)		(104	)
Amount charged against net income	$	761	$	629		$	487

F-23

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

The following assumptions were used to estimate the fair value of options granted during 2016, 2015 and 2014 using the Black-Scholes model:

	2016			2015			2014
Dividend yield		2.7	%		2.8	%		3.4	%
Expected volatility		25	%		32	%		37	%
Risk-free interest rate		1.6	%		1.6	%		1.7	%
Expected lives (in years)		5.9			6.8			6.4

Information regarding our stock option plans for 2014, 2015 and 2016 is as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in thousands)
Options outstanding, December 31, 2013		622,300		$	12.34		3.7	$	2,175
Granted		298,500			16.60
Exercised		(175,800	)		10.97
Cancelled or expired		(22,325	)		15.04
Options outstanding, December 31, 2014		722,675			14.35		4.6		2,555
Granted		206,300			14.30
Exercised		(115,922	)		10.24
Cancelled or expired		(15,675	)		15.51
Options outstanding, December 31, 2015		797,378			14.91		4.7	$	453
Granted		187,200			18.51
Exercised		(124,291	)		12.89
Cancelled or expired		(45,743	)		15.27
Options outstanding, December 31, 2016		814,544		$	16.04		4.6	$	2,820
Options exercisable, December 31, 2016		575,469		$	15.20		3.8	$	2,472

The weighted average grant date fair value based on the Black-Scholes model for options granted in 2016, 2015 and 2014 was $4.11, $3.40 and $4.28, respectively. The total intrinsic value of options exercised was $550,000, $585,000 and $979,000 during the years ended December 31, 2016, 2015 and 2014, respectively. The aggregate intrinsic values are based upon the closing price of our common stock on the last day of the respective fiscal year.

F-24

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

A summary of the status of our unvested option shares as of December 31, 2016 is as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Unvested at December 31, 2015		289,400		$	3.43
Options granted		187,200			4.11
Options cancelled		(31,925	)		3.22
Options vested		(205,600	)		3.37
Unvested at December 31, 2016		239,075		$	4.05

As of December 31, 2016, there was $938,000 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 1.6 years. The total fair value of option shares vested during the years 2016, 2015 and 2014 was $692,000, $630,000 and $550,000, respectively.

(11) Other Income (Expense), net

Other income (expense), net for 2016, 2015 and 2014 was as follows (expressed in thousands):

	Years Ended December 31,
	2016			2015			2014
Interest income	$	-		$	2		$	3
Interest expense		(56	)		(119	)		(186	)
Foreign currency exchange gain (loss)		(116	)		209			(136	)
Other		(10	)		1			13
Gain on sale of business		553			-			-
Total other income (expense), net	$	371		$	93		$	(306	)

(12)     Net Income per Common Share

The following table presents a reconciliation of the denominators used in the computation of net income per common share – basic and net income per common share – diluted for the years ended December 31, 2016, 2015 and 2014 (expressed in thousands):

	Years Ended December 31,
	2016		2015		2014
Weighted shares of common stock outstanding - basic		5,802		5,753		5,665
Dilutive impact of share-based awards		33		65		89
Weighted shares of common stock outstanding - diluted		5,835		5,818		5,754

F-25

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014 

Outstanding stock options totaling 662,700, 610,153 and 147,100 options for years ended December 31, 2016, 2015 and 2014, respectively, were excluded from the net income per common share – diluted calculation because the shares would be anti-dilutive.

(13)     Savings and Retirement Plan

We have a 401(k) Savings and Retirement Plan covering our U.S. employees and several defined contribution pension plans covering certain employees outside of the U.S. We provide matching contributions in accordance with the plans. Our contributions to these plans in 2016, 2015 and 2014 were approximately $964,000, $925,000 and $882,000, respectively.

(14)     Debt

Long-term notes payable consists of the following (expressed in thousands):

	December 31, 2016		December 31, 2015
Capital leases (Note 7)	$	163	$	158
Total long-term notes payable		163		158
Less current portion of long-term notes payable		83		65
Total long-term notes payable	$	80	$	93

In the U.S., we have a $10.0 million secured line of credit which was amended on August 28, 2015 with a maturity date of August 26, 2018. As of December 31, 2016 the outstanding balance is zero. The amendment increased the principal amount from $6.0 million to $10.0 million, modified the maturity date, decreased the interest rate from 1.75 basis plus one-month LIBOR to 1.50 basis plus one-month LIBOR and revised certain debt covenants. Interest is charged monthly at one-month LIBOR (0.62 percent) plus 1.50 basis points which totaled 2.12 percent and 1.74 percent at December 31, 2016 and 2015, respectively. The line of credit is secured by our assets with the exception of the number of Dansensor shares of outstanding stock that exceeds 65 percent of the total shares outstanding. We had $0 and $2.8 million outstanding on the line of credit at December 31, 2016 and December 31, 2015, respectively. Additionally, Dansensor has a DKK 5 million (approximately $0.7 million) available line of credit of which no amount was outstanding as of December 31, 2016 and 2015. Outstanding borrowings are charged interest at a fixed rate of 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.     

F-26

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

As of December 31, 2016, the future minimum principal payments of the long-term notes payable for each fiscal year thereafter is as follows (expressed in thousands):

2017	$	83
2018		59
2019		21
Total	$	163

(15)    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 based on the authoritative guidance. 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. There were no significant intersegment revenue for the years ended December 31, 2016, 2015 and 2014.

F-27

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

Segment information for the years ended December 31, 2016, 2015 and 2014 are as follows (expressed in thousands):

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
December 31, 2016:
Revenue	$	30,257		23,039		10,015		$	-		$	63,311
Gross profit		17,229		13,902		4,526			-			35,657
Operating income		4,310		4,059		(1,171	)		(903	)		6,295
December 31, 2015:
Revenue	$	26,583	$	24,599	$	9,572		$	-		$	60,754
Gross profit		14,445		14,415		4,364			-			33,224
Operating income		2,792		4,342		(1,719	)		(1,049	)		4,366
December 31, 2014:
Revenue	$	28,071	$	23,380	$	13,024		$	-		$	64,475
Gross profit		13,850		14,985		7,279			-			36,114
Operating income		1,699		4,418		818			(3,171	)		3,764

Property, Plant and Equipment, net of accumulated depreciation, by geographic location as of December 31, 2016, 2015 and 2014 is as follows (expressed in thousands): 

	2016		2015		2014
United States	$	3,882	$	4,232	$	4,010
Foreign countries:
Germany		225		285		336
Denmark		1,123		1,353		1,020
Other European counties		227		125		196
Total foreign countries		1,575		1,763		1,552
Consolidated total	$	5,457	$	5,995	$	5,562

F-28

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016, 2015 and 2014

The following table summarizes total revenue, based upon the region to which revenue to external customers were made for fiscal years 2016, 2015 and 2014 (expressed in thousands).

	Years Ended December 31,
	2016		2015		2014
Domestic revenue	$	21,660	$	20,872	$	19,836
Foreign revenue:
Europe		26,190		23,203		26,324
Asia		12,790		12,762		14,166
Other		2,671		3,917		4,149
Total foreign revenue		41,651		39,882		44,639
Total revenue	$	63,311	$	60,754	$	64,475

Our products are marketed outside of North America through our offices in foreign locations and various independent representatives.

F-29

MOCON, INC.

EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2016

Exhibit No.	Exhibit	Method of Filing
3.1	Restated Articles of Incorporation of MOCON, Inc.	Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No. 000-09273)
3.2	Third Restated Bylaws of MOCON, Inc.	Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (File No. 000-09273)
10.1	Office/Warehouse Lease, dated March 9, 2010, by and between MOCON, Inc. and Minnesota Industrial Properties Limited Partnership	Incorporated by reference to Exhibit 10.4 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 000-09273)
10.2	MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 1, 2011 (File No. 000-09273)
10.3	Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)
10.4	Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)
10.5	MOCON, Inc. 2015 Equity Incentive Plan	Filed herewith
10.6	MOCON, Inc. 2015 Employee Stock Purchase Plan	Filed herewith
10.7	Form of Executive Severance Agreement	Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 000-09273)
10.8	MOCON Inc. Annual Incentive Plan	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 3, 2017 (File No. 000-09273)
10.9	MOCON, Inc. Executive Special Performance Bonus Plan	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 3, 2017 (File No. 000-09273)

F-30

Exhibit No.	Exhibit	Method of Filing
10.10	Description of Non-Employee Director Retirement Plan	Incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 000-09273)
10.11	Subscription and Shareholders Agreement dated December 21, 2009 among MOCON, Inc., Luxcel Biosciences, Enterprise Ireland, Glanbia Enterprise Fund, and certain other parties named therein	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed December 23, 2009 (File No. 000-09273)
10.12	Credit Agreement dated as of March 28, 2012 by and between MOCON, Inc. and Wells Fargo Bank, National Association.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 3, 2012 (File No. 000-09273)
10.13	Security Agreement: Equipment dated as of March 28, 2012 executed by MOCON, Inc. in favor of Wells Fargo Bank, National Association.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on April 3, 2012 (File No. 000-09273)
10.14	Continuing Security Agreement: Rights to Payment and Inventory dated as of March 28, 2012 executed by MOCON, Inc. in favor of Wells Fargo Bank, National Association.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on April 3, 2012 (File No. 000-09273)
10.15	Amendment No. 2 to the Credit Agreement dated March 28, 2012, by and between MOCON, Inc., and Wells Fargo Bank, National Association.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 3, 2014 (File No. 000-09273)
10.16	Amendment No. 3 to the Credit Agreement dated March 28, 2012, by and between MOCON, Inc., and Wells Fargo Bank, National Association.	10.1 to our Current Report on Form 8-K filed on January 14, 2015 (File No. 000-0973)
10.17	Amendment No. 4 to the Credit Agreement dated March 28, 2012, by and between MOCON, Inc., and Wells Fargo Bank, National Association.	10.1 to our Current Report on Form 8-K filed on August 26, 2015 (File No. 000-0973)
10.18	Amended and restated Asset Purchase Agreement between Mocon, Inc. and Volatile Analysis Corporation dated as of May 18, 2006	Incorporated by reference to Exhibit 10.1 to our Quarterly Report on form 10-Q for the quarter ended June 30, 2016 (file No. 000-0973)
10.19	Offer Letter between MOCON, Inc. and Elissa Lindsoe,	Incorporated by reference to Exhibit10.2 to our Current Report on Form 8-K filed on September 10, 2014 (File No. 000-09273)

F-31

Exhibit No.	Exhibit	Method of Filing
10.20	Amendment to Executive Severance Agreement	Incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (File No 000-0927)
10.21	Description of Executive Officer Compensation Arrangements	Filed herewith
10.22	Description of Non-Employee Director Compensation Arrangements	Filed herewith
10.23	Offer Letter between MOCON, Inc. and Maurice Janssen	Filed herewith
10.24	Executive Severance Agreement with Donald N. DeMorett	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 10, 2016 (File No. 000-09273)
10.25	First Amendment to MOCON, Inc. 2015 Employee Stock Purchase Plan	Filed herewith
10.26	Lease Agreement for commercial premises between SZ-VTM and MOCON GmbH dated September 5, 2016	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 8, 2016 (File No. 000-09273)
21.1	Subsidiaries of MOCON, Inc.	Filed herewith
23.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
23.2	Consent of Independent Registered Public Accounting Firm	Filed herewith
31.1	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)	Filed herewith
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

F-32

Financial Statement Schedule:

II - Valuation and Qualifying Accounts

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

Description	Balance at Beginning of Year		Charged to Costs and Expenses			Charged to Other Accounts		Deductions			Balance at End of Year
Year ended December 31, 2016:
Allowance for doubtful accounts and returns	$	141		39			-		-		$	180
Year ended December 31, 2015:
Allowance for doubtful accounts and returns	$	181		(28	)		-		(12	)	$	141
Year ended December 31, 2014:
Allowance for doubtful accounts and returns	$	316		(85	)		-		(50	)	$	181

S-1

EX-10.5

Exhibit 10.5

MOCON, INC.

2015 EQUITY INCENTIVE PLAN

1. Purpose of Plan.

The purpose of the MOCON, Inc. 2015 Equity Incentive Plan (this “Plan”) is to advance the interests of MOCON, Inc. (the “Company”) and its shareholders by enabling the Company and its Subsidiaries to attract and retain qualified individuals to perform services for the Company and its Subsidiaries, providing incentive compensation for such individuals that is linked to the growth and profitability of the Company and increases in shareholder value, and aligning the interests of such individuals with the interests of its shareholder through opportunities for equity participation in the Company.

2. Definitions.

The following terms will have the meanings set forth below, unless the context clearly otherwise requires. Terms defined elsewhere in the Plan will have the same meaning throughout the Plan.

2.1      “Board” means the Board of Directors of the Company.

2.2     “Broker Exercise Notice” means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares of Common Stock or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver shares of Common Stock to be issued upon such exercise directly to such broker or dealer or their nominee.

2.3     “Cause” means “cause” as defined in any employment or other agreement or policy applicable to the Participant, or if no such agreement or policy exists, will mean (a) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (b) any unlawful or criminal activity of a serious nature, (c) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties, (d) any material breach by a Participant of any employment, service, consulting, confidentiality, assignment of inventions, non-compete or non-solicitation agreement entered into with the Company or any Subsidiary, or (e) any action by a Participant that the Committee, in its sole discretion, determines to be injurious, detrimental, prejudicial or adverse to the interests of the Company or any Subsidiary, including: (i) disclosing confidential information of the Company or any Subsidiary to any person not authorized by the Company or Subsidiary to receive it, (ii) engaging, directly or indirectly, in any commercial activity that in the judgment of the Committee competes with the business of the Company or any Subsidiary or (iii) interfering with the relationships of the Company or any Subsidiary and their respective employees, independent contractors, customers, prospective customers and vendors.

2.4     “Change in Control” means an event described in Section 15.1 of the Plan; provided, however, if payment under an Incentive Award that is subject to Section 409A of the Code is triggered by a Change in Control, the term Change in Control will mean a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as such term is defined in Section 409A of the Code.

2.5     “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code in the Plan will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Code.

2.6     “Committee” means the group of individuals administering the Plan, as provided in Section 3 of the Plan.

2.7     “Common Stock” means the common stock of the Company, par value $0.10 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan.

2.8     “Company” means MOCON, Inc., a Minnesota corporation, and any successor thereto as provided in Section 21.6 of the Plan.

2.9     “Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to the Company or any Subsidiary that: (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.

2.10     “Director” means a member of the Board.

2.11     “Disability” means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code; provided, however, that if distribution of an Incentive Award subject to Section 409A of the Code is triggered by an Eligible Recipient’s Disability, such term will mean that the Eligible Recipient is disabled as defined by Section 409A of the Code and the regulations and rulings issued thereunder.

2.12      “Effective Date” means May 27, 2015 or such later date as the Plan is initially approved by the Company’s shareholders.

2.13     “Eligible Recipients” means (a) for the purposes of granting Incentive Stock Options, all Employees and (b) for the purposes of granting Non-Statutory Stock Options and other Incentive Awards, means all Employees, Directors and Consultants.

2.14     “Employee” means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or a Subsidiary on the payroll records thereof. An Employee will not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant, or any employee of an employment, consulting or temporary agency or any other entity other than the Company or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified as a common-law employee of the Company or Subsidiary during such period. An individual will not cease to be an Employee in the case of: (a) any leave of absence approved by the Company, or (b) transfers between locations of the Company or between the Company or any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company or a Subsidiary, as applicable, is not so guaranteed, then three (3) months following the ninety-first (91st) day of such leave, any Incentive Stock Option held by a Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Non-Statutory Stock Option. Neither service as a Director nor payment of a Director’s fee by the Company will be sufficient to constitute “employment” by the Company.

2.15     “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a section of the Exchange Act in the Plan will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Exchange Act.

2.16     “Fair Market Value” means, with respect to the Common Stock, as of any date: (a) the closing sale price of the Common Stock as of such date at the end of the regular trading session, as reported by The NASDAQ Stock Market, The New York Stock Exchange, The American Stock Exchange or any national securities exchange on which the Common Stock is then listed (or, if no shares were traded on such date, as of the next preceding date on which there was such a trade); or (b) if the Common Stock is not so listed, admitted to unlisted trading privileges, or reported on any national securities exchange, the closing sale price as of such date at the end of the regular trading session, as reported by OTC Bulletin Board or the OTC Markets Group Inc. or other comparable service (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote); or (c) if the Common Stock is not so listed or reported, such price as the Committee determines in good faith, in the exercise of its reasonable discretion, and consistent with the definition of “fair market value” under Section 409A of the Code. If determined by the Committee, such determination will be final, conclusive and binding for all purposes and on all persons, including the Company, the shareholders of the Company, the Participants and their respective heirs and other successors-in-interest. No member of the Committee will be liable for any determination regarding the fair market value of the Common Stock that is made in good faith.

2.17     “Good Reason,” unless otherwise defined in an agreement evidencing an Incentive Award, means the occurrence of any of the following in connection with a Change in Control: (i) a material diminution in the Participant’s authority, duties or responsibilities as in effect prior to the Change in Control, (ii) a material diminution by the Company in the Participant’s base compensation, or a material adverse change in the form or timing of the payment thereof, as in effect immediately prior to the Change in Control or as thereafter increased, or (iii) the Company’s requiring the Participant to be based at any office or location that is more than fifty (50) miles further from the office or location thereof immediately preceding the Change in Control; provided, however, Good Reason shall not include any of the circumstances or events described above unless (A) the Participant has first provided written notice of such circumstance or event to the Company or its successor within 90 days of the occurrence of such circumstance or event and the Company or such successor has not corrected such circumstance or event within thirty (30) days thereafter; and (B) the Participant has not otherwise consented to the occurrence in writing.

2.18     “Grant Date” means the date an Incentive Award is granted to a Participant pursuant to the Plan and as determined pursuant to Section 5 of the Plan.

2.19     “Incentive Award” means an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Performance Award, Stock Bonus or Other Stock-Based Award granted to an Eligible Recipient pursuant to the Plan.

2.20     “Incentive Award Agreement” means either: (a) a written or electronic (as provided in Section 21.8) agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Incentive Award granted under the Plan, including any amendment or modification thereof, or (b) a written or electronic (as provided in Section 21.8) statement issued by the Company to a Participant describing the terms and provisions of such an Incentive Award, including any amendment or modification thereof. The Committee may provide for the use of electronic, internet or other non-paper Incentive Award Agreements, and the use of electronic, internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant.

2.21     “Incentive Stock Option” means a right to purchase shares of Common Stock granted to an Employee pursuant to Section 6 of the Plan that is designated as and is intended to meet the requirements of an “incentive stock option” within the meaning of Section 422 of the Code.

2.22     “Non-Statutory Stock Option” means a right to purchase shares of Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that is not intended to meet the requirements of or does not qualify as an Incentive Stock Option.

2.23     “Option” means an Incentive Stock Option or a Non-Statutory Stock Option.

2.24     “Other Stock-Based Award” means an equity-based or equity-related Incentive Award not otherwise described by the terms of the Plan, granted pursuant to Section 11 of the Plan.

2.25     “Participant” means an Eligible Recipient who receives one or more Incentive Awards under the Plan.

2.26     “Performance Award” means a right granted to an Eligible Recipient pursuant to Section 9 of the Plan to receive an amount of cash, a number of shares of Common Stock, or a combination of both, contingent upon and the value of which at the time it is payable is determined as a function of the extent of the achievement of specified performance objectives during a specified period. A Performance Award is also commonly referred to as a “performance unit” or “performance share.”

2.27     “Previously Acquired Shares” means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued to the Participant upon the grant, exercise, vesting or settlement of such Incentive Award.

2.28     “Restricted Stock Award” means an award of shares of Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan that is subject to restrictions on transferability and a risk of forfeiture.

2.29     “Restricted Stock Unit” means an award denominated in shares of Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan to receive an amount of cash, a number of shares of Common Stock, or a combination of both, contingent upon the achievement of specified performance objectives or that the Participant remain in the continuous employment or service with the Company for a certain period or other conditions.

2.30     “Retirement” means unless otherwise defined in the Incentive Award Agreement or in a written employment, services or other agreement between the Participant and the Company or a Subsidiary, means “Retirement” as defined from time to time for purposes of the Plan by the Committee or by the Company’s chief human resources officer or other person performing that function or, if not so defined, means voluntary termination of employment or service by the Participant on or after the date the Participant reaches age fifty-five (55) with the present intention to leave the Company’s industry or to leave the general workforce and completion of at least ten (10) years of continuous service with the Company or a Subsidiary.

2.31     “Securities Act” means the Securities Act of 1933, as amended. Any reference to a section of the Securities Act in the Plan will be deemed to include a reference to any applicable rules and regulations thereunder and any successor or amended section of the Securities Act.

2.32     “Stock Appreciation Right” means a right granted to an Eligible Recipient pursuant to Section 7 of the Plan to receive a payment from the Company, in the form of shares of Common Stock, cash or a combination of both, equal to the difference between the Fair Market Value of one or more shares of Common Stock and a specified exercise price of such shares.

2.33     “Stock Bonus” means an award of shares of Common Stock granted to an Eligible Recipient pursuant to Section 10 of the Plan.

2.34     “Subsidiary” means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee, provided the Company has a “controlling interest” in the Subsidiary as defined in Treas. Reg. Sec. 1.409A-1(b)(5)(iii)(E)(1).

2.35     “Tax Date” means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award.

3. Plan Administration.

3.1     The Committee. The Plan will be administered by the Board or by a committee of the Board. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, any committee administering the Plan will consist solely of two or more members of the Board who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and who are “independent directors” as required by the Listing Rules of The NASDAQ Stock Market (or other applicable exchange or market on which the Company’s Common Stock may be traded or quoted). Such a committee, if established, will act by majority approval of the members (but may also take action by the written consent of a majority of the members of such committee), and a majority of the members of such a committee will constitute a quorum. As used in the Plan, “Committee” will refer to the Board or to such a committee, if established.

3.2     Authority of the Committee. In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (a) the Eligible Recipients to be selected as Participants; (b) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of Incentive Award Agreement; (c) the time or times when Incentive Awards will be granted; (d) the duration of each Incentive Award; and (e) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject; provided, however, that notwithstanding any other provision of the Plan other than Section 15.2: (A) any Incentive Award other than an Option or Stock Appreciation Right will not vest or become payable over a period of less than three (3) years from the date of grant, if vesting or payment is based solely upon the passage of time, and will have a performance measurement period of not less than one (1) year, if vesting or payment is based upon satisfaction of specified objectives; (B) all Incentive Awards granted to non-employee directors shall be granted pursuant to bona fide formulas or policies established by the Committee from time to time for the compensation of such directors, as a group, in respect of service as a non-employee director, a member of a committee of the Board or chair of the Board or a committee of the Board, and the Committee shall not discriminate among individual non-employee directors in granting or establishing the terms of Incentive Awards (except to the extent such formulas or policies may be modified from time to time) and (C) no Incentive Award will vest over a period of less than one (1) year. In addition, the Committee will have the authority to: (i) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Incentive Award granted under, the Plan; (ii) establish, amend, suspend or waive any rules and regulations and appoint such agents as the Committee may deem appropriate for the proper administration of the Plan; and (iii) make any other determination and take any other action that the Committee may deem necessary or desirable for the administration of the Plan. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both. The Committee may exercise its duties, power and authority under the Plan in its sole discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. The Committee will not be obligated to treat Participants or Eligible Recipients uniformly, and determinations made under the Plan may be made by the Committee selectively among Participants or Eligible Recipients, whether or not such Participants and Eligible Recipients are similarly situated. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be final, conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan.

3.3     Delegation. Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing and to the extent consistent with the applicable corporate law of the Company’s jurisdiction of incorporation, the Committee may, by resolution, authorize one or more Directors or one or more officers of the Company to do one or both of the following on the same basis as can the Committee: (a) designate Eligible Recipients to be recipients of Incentive Awards pursuant to the Plan; and (b) determine the size of any such Incentive Awards; provided, however, that (x) the Committee will not delegate such responsibilities to any such Director(s) or officer(s) for any Incentive Awards granted to an Eligible Recipient who is subject to the reporting and liability provisions of Section 16 under the Exchange Act or whose compensation in the fiscal year in which the Incentive Award is expected to be deductible may be subject to the limits on deductible compensation pursuant to Section 162(m) of the Code; (y) the resolution providing such authorization will set forth the type of Incentive Awards and total number of each type of Incentive Awards such Director(s) or officer(s) may grant; and (z) such Director(s) or officer(s) will report periodically to the Committee regarding the nature and scope of the Incentive Awards granted pursuant to the authority delegated.

3.4     No Re-Pricing. Notwithstanding any other provision of this Plan other than Section 4.3, the Committee may not, without prior approval of the Company’s shareholders, seek to effect any re-pricing of any previously granted, “underwater” Option or Stock Appreciation Right by: (a) amending or modifying the terms of the Option or Stock Appreciation Right to lower the exercise price; (b) canceling the underwater Option or Stock Appreciation Right in exchange for (i) cash; (ii) replacement Options or Stock Appreciation Rights having a lower exercise price; or (iii) other Incentive Awards; or (c) repurchasing the underwater Options or Stock Appreciation Rights and granting new Incentive Awards under this Plan. For purposes of this Section 3.4, Options and Stock Appreciation Rights will be deemed to be “underwater” at any time when the Fair Market Value of the Common Stock is less than the exercise price of the Option or Stock Appreciation Right.

3.5     Participants Based Outside the United States. In addition to the authority of the Committee under Section 3.2 of the Plan and notwithstanding any other provision of the Plan, the Committee may, in its sole discretion, amend the terms of the Plan or Incentive Awards with respect to Participants resident outside of the United States or employed by a non-U.S. Subsidiary in order to comply with local legal requirements, to otherwise protect the Company’s or Subsidiary’s interests, or to meet objectives of the Plan, and may, where appropriate, establish one or more sub-plans (including the adoption of any required rules and regulations) for the purposes of qualifying for preferred tax treatment under foreign tax laws. The Committee shall have no authority, however, to take action pursuant to this Section 3.5: (a) to reserve shares or grant Incentive Awards in excess of the limitations provided in Section 4.1 of the Plan; (b) to effect any re-pricing in violation of Section 3.4 of the Plan; (c) to grant Options or Stock Appreciation Rights having an exercise price less than 100% of the Fair Market Value of one share of Common Stock on the Grant Date in violation of Section 6.3 or 7.3 of the Plan, as the case may be; or (d) for which shareholder approval would then be required pursuant to Section 422 of the Code or the Listing Rules of The NASDAQ Stock Market (or other applicable exchange or market on which the Company’s Common Stock may be traded or quoted).

4. Shares Available for Issuance.

4.1     Maximum Number of Shares Available; Certain Restrictions on Awards. Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be the sum of:

(a)     550,000;

(b)     the number of shares issued or Incentive Awards granted under the Plan in connection with the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of the Company and/or any Subsidiary(ies) acquiring, merging or consolidating with another entity; and

(c)     the number of shares that are unallocated and available for grant under a stock plan assumed by the Company or any Subsidiary(ies) in connection with the merger, consolidation, or acquisition of another entity by the Company and/or any of its Subsidiaries, based on the applicable exchange ratio and other transaction terms, but only to the extent that such shares may be utilized by the Company or its Subsidiaries following the transaction pursuant to the rules and regulations of The NASDAQ Stock Market (or other applicable exchange or market on which the Company’s Common Stock may be traded or quoted).

Notwithstanding any other provisions of the Plan to the contrary, (i) no more than 550,000 shares of Common Stock may be issued pursuant to the exercise of Incentive Stock Options granted under the Plan; and (ii) no more than 300,000 shares of Common Stock may be issued or issuable under the Plan in connection with the grant of Incentive Awards, other than Options or Stock Appreciation Rights. All of the foregoing share limits are subject, in each case, to adjustment as provided in Section 4.3 of the Plan. Incentive Stock Options issued as a result of the Company’s assumption or substitution of like awards issued by any acquired, merged or consolidated entity pursuant to applicable provisions of the Code will not count towards the limit in clause (i).

4.2     Accounting for Incentive Awards. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. All shares so subtracted from the amount available under the Plan with respect to an Incentive Award that lapses, expires, is forfeited (including issued shares forfeited under a Restricted Stock Award) or for any reason is terminated unexercised or unvested or is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan; provided, however, that the full number of shares of Common Stock subject to a Stock Appreciation Right granted that is settled by the issuance of shares of Common Stock will be counted against the shares of Common Stock authorized for issuance under the Plan, regardless of the number of shares actually issued upon settlement of such Stock Appreciation Right. Furthermore, any shares of Common Stock withheld to satisfy tax withholding obligations on Incentive Awards issued under the Plan, any shares of Common Stock withheld to pay the exercise price of Incentive Awards under the Plan and any shares of Common Stock not issued or delivered as a result of the “net exercise” of an outstanding Option pursuant to Section 6.5 of the Plan or settlement of a Stock Appreciation Right in shares of Common Stock pursuant to Section 7.7 of the Plan will be counted against the shares of Common Stock authorized for issuance under the Plan and will not be available again for grant under the Plan. Any shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Incentive Award will not increase the number of shares available for future grant of Incentive Awards. Any shares of Common Stock related to Incentive Awards under the Plan that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of shares of Common Stock, or are settled in cash in lieu of shares, or are exchanged with the Committee’s permission, prior to the issuance of shares, for Incentive Awards not involving shares, will be available again for grant under the Plan.

4.3     Annual Award Limit. The maximum aggregate number of shares of Common Stock subject to the grant of Options and Stock Appreciation Rights granted to any one Participant in any one calendar year will be 100,000 shares, with such limit to be adjusted pursuant to Section 4.4, unless the Committee specifically determines at the time of the grant that the Incentive Award is not intended to qualify as “performance based compensation” under Section 162(m) of the Code. The maximum aggregate number of shares of Common Stock subject to a non-employee Director Incentive Award to any one non-employee Director in any one calendar year may not exceed 10,000; provided, however, that such limit shall not apply to any election of a non-employee Director to receive shares of Common Stock in lieu of all or a portion of any annual Board, chair and other retainers and any meeting fees otherwise payable in cash.

4.4     Adjustments to Shares and Incentive Awards.

(a)     In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other similar change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan, including the sub-limits set forth in Section 4.1 of the Plan and, in order to prevent dilution or enlargement of the rights of Participants, (a) the number and kind of securities or other property (including cash) subject to outstanding Incentive Awards, and (b) the exercise price of outstanding Incentive Awards. The determination of the Committee as to the foregoing adjustments, if any, will be final, conclusive and binding on Participants under the Plan.

(b)     Notwithstanding anything else in the Plan to the contrary, without affecting the number of shares of Common Stock reserved or available under the Plan, including the sub-limits in Section 4.1 of the Plan, the Committee may authorize the issuance or assumption of benefits under the Plan in connection with any merger, consolidation, acquisition of property or stock or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with the rules under Sections 422 and 424 of the Code, as and where applicable.

5. Participation.

Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the Grant Date of any related Incentive Award Agreement with the Participant.

6. Options.

6.1     Grant. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. An Option will be an Incentive Stock Option only if the Eligible Recipient receiving the Option is an Employee. To the extent that any Incentive Stock Option (or portion thereof) granted under the Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such Incentive Stock Option (or portion thereof) will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option. Options may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute “service recipient stock” within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(iii).

6.2     Incentive Award Agreement. Each Option grant will be evidenced by an Incentive Award Agreement that will specify the exercise price of the Option, the maximum duration of the Option, the number of shares of Common Stock to which the Option pertains, the conditions upon which an Option will become vested and exercisable, and such other provisions as the Committee will determine which are not inconsistent with the terms of the Plan. The Incentive Award Agreement also will specify whether the Option is intended to be an Incentive Stock Option or a Non-Statutory Stock Option.

6.3     Exercise Price. The per share price to be paid by a Participant upon exercise of an Option granted pursuant to this Section 6 will be determined by the Committee in its sole discretion at the time of the Option grant; provided, however, that such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant (or 110% of the Fair Market Value of one share of Common Stock on the date of grant of an Incentive Stock Option if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding the foregoing, to the extent that Options are granted under the Plan as a result of the Company’s assumption or substitution of options issued by any acquired, merged or consolidated entity, the exercise price for such Options will be the price determined by the Committee pursuant to the conversion terms applicable to the transaction.

6.4     Exercisability and Duration. An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant, including (a) the achievement of one or more specified performance objectives; and/or that (b) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period; provided, however, that no Option may be exercisable after ten (10) years from the Grant Date (five years from the Grant Date in the case of an Incentive Stock Option if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company). Notwithstanding the foregoing, if the Option (other than in the case of an Incentive Stock Option) would expire at a time when trading in the shares of Common Stock is prohibited by the Company’s insider trading policy (or Company-imposed “blackout period”), then the term of the Option will be automatically extended until the thirtieth (30^th) day following the expiration of such prohibition or if the exercise of an Option that is exercisable in accordance with its terms is otherwise prevented by the provisions of Section 17 of the Plan, then the Option will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Option.

6.5     Payment of Exercise Price.

(a)     The total purchase price of the shares of Common Stock to be purchased upon exercise of an Option must be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by (i) tender of a Broker Exercise Notice; (ii) tender, either by actual delivery or attestation as to ownership, of Previously Acquired Shares that are acceptable to the Committee; (iii) a “net exercise” of the Option (as further described in paragraph (b), below); (iv) a combination of such methods; or (v) any other method approved or accepted by the Committee in its sole discretion.

(b)     In the case of a “net exercise” of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value on the exercise date that does not exceed the aggregate exercise price for the shares exercised under this method. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the “net exercise,” (ii) shares actually delivered to the Participant as a result of such exercise and (iii) any shares withheld for purposes of tax withholding pursuant to Section 14.1 of the Plan.

(c)     Previously Acquired Shares tendered or covered by an attestation as payment of an Option exercise price will be valued at their Fair Market Value on the exercise date of the Option.

6.6     Manner of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the Incentive Award Agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its principal executive office in Minneapolis, Minnesota (or to the Company’s designee as may be established from time to time by the Company and communicated to Participants) and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.5 of the Plan.

7. Stock Appreciation Rights.

7.1     Grant. An Eligible Recipient may be granted one or more Stock Appreciation Rights under the Plan, and such Stock Appreciation Rights will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee will have the sole discretion to determine the form in which payment of the economic value of Stock Appreciation Rights will be made to a Participant (i.e., cash, shares of Common Stock or any combination thereof) or to consent to or disapprove the election by a Participant of the form of such payment. Stock Appreciation Rights may be granted to an Eligible Recipient for services provided to a Subsidiary only if, with respect to such Eligible Recipient, the underlying shares of Common Stock constitute “service recipient stock” within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(iii).

7.2     Incentive Award Agreement. Each Stock Appreciation Right will be evidenced by an Incentive Award Agreement that will specify the exercise price of the Stock Appreciation Right, the term of the Stock Appreciation Right, and such other provisions as the Committee will determine which are not inconsistent with the terms of the Plan.

7.3     Exercise Price. The exercise price of a Stock Appreciation Right will be determined by the Committee, in its sole discretion, at the Grant Date; provided, however, that such price may not be less than 100% of the Fair Market Value of one share of Common Stock on the Grant Date. Notwithstanding the foregoing, to the extent that Stock Appreciation Rights are granted under the Plan as a result of the Company’s assumption or substitution of stock appreciation rights issued by any acquired, merged or consolidated entity, the exercise price for such Stock Appreciation Rights will be the price determined by the Committee pursuant to the conversion terms applicable to the transaction.

7.4     Exercisability and Duration. A Stock Appreciation Right will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Stock Appreciation Right may be exercisable after ten (10) years from its Grant Date. Notwithstanding the foregoing, if the Stock Appreciation Right would expire at a time when trading in the shares of Common Stock is prohibited by the Company’s insider trading policy (or Company-imposed “blackout period”), then the term of the Stock Appreciation Right will be automatically extended until the thirtieth (30th) day following the expiration of such prohibition or if the exercise of a Stock Appreciation Right that is exercisable in accordance with its terms is otherwise prevented by the provisions of Section 17 of the Plan, the Stock Appreciation Right will remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the expiration date of such Stock Appreciation Right.

7.5     Manner of Exercise. A Stock Appreciation Right will be exercised by giving notice in the same manner as for Options, as set forth in Section 6.6 of the Plan, subject to any other terms and conditions consistent with the other provisions of the Plan as may be determined by the Committee in its sole discretion.

7.6     Settlement. Upon the exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

(a)     The excess of the Fair Market Value of a share of Common Stock on the date of exercise over the per share exercise price; by

(b)     The number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised.

7.7     Form of Payment. Payment, if any, with respect to a Stock Appreciation Right settled in accordance with Section 7.6 of the Plan will be made in accordance with the terms of the applicable Incentive Award Agreement, in cash, shares of Common Stock or a combination thereof, as the Committee determines in its sole discretion.

8. Restricted Stock Awards and Restricted Stock Units.

8.1     Grant. An Eligible Recipient may be granted one or more Restricted Stock Awards or Restricted Stock Units under the Plan, and such awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. Restricted Stock Units will be similar to Restricted Stock Awards except that no shares of Common Stock are actually awarded to the Participant on the Grant Date of the Restricted Stock Units. Restricted Stock Units will be denominated in shares of Common Stock but paid in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Committee, in its sole discretion, will determine, and as provided in the Incentive Award Agreement.

8.2     Incentive Award Agreement. Each Restricted Stock Award or Restricted Stock Unit will be evidenced by an Incentive Award Agreement that will specify the type of Incentive Award, the period(s) of restriction, the number of shares of restricted Common Stock, or the number of Restricted Stock Units granted, and such other provisions as the Committee will determine which are not inconsistent with the terms of the Plan.

8.3     Vesting Requirements and Restrictions. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards or Restricted Stock Units as it deems appropriate, including, without limitation, (a) the achievement of one or more specified performance objectives; or that (b) the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period. If any vesting requirements of a Restricted Stock Award or Restricted Stock Unit are not satisfied, the Restricted Stock Award or Restricted Stock Unit will be forfeited and the shares of Common Stock subject to the Restricted Stock Award will be returned to the Company and no shares of Common Stock or other consideration will be issued with respect to the forfeited Restricted Stock Unit. If the Participant paid any purchase price with respect to such forfeited shares, unless otherwise provided by the Committee in the Incentive Award Agreement evidencing the Restricted Stock Award, the Company will refund to the Participant the lesser of (x) such purchase price and (y) the Fair Market Value of such shares on the date of forfeiture. Restricted Stock Awards may in the sole discretion of the Committee be granted without any restrictions or conditions.

8.4     Rights as a Shareholder. Except as provided in Sections 8.1, 8.5 and 8.6 of the Plan, upon a Participant becoming the holder of record of shares of Common Stock issued under a Restricted Stock Award pursuant to this Section 8, the Participant will have all voting, dividend, liquidation and other rights with respect to such shares (other than the right to sell or transfer such shares) as if such Participant were a holder of record of shares of unrestricted Common Stock. A Participant will have no voting, dividend, liquidation and other rights with respect to any shares of Common Stock underlying any Restricted Stock Units granted hereunder unless and until the shares of Common Stock are issued under the terms thereof and the Participant becomes the holder of record of such shares.

8.5     Dividends and Distributions. Unless the Committee determines otherwise in its sole discretion (either in the Incentive Award Agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (including regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. The Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions.

8.6     Enforcement of Restrictions. To enforce the restrictions referred to in this Section 8, the Committee may place a legend on the stock certificates or book-entry notation representing Restricted Stock Awards referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep any stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company’s transfer agent. Alternatively, Restricted Stock Awards may be held in non-certificated form pursuant to such terms and conditions as the Company may establish with its registrar and transfer agent or any third-party administrator designated by the Company to hold Restricted Stock Awards on behalf of Participants.

8.7     Lapse of Restrictions; Settlement. Except as otherwise provided in this Section 8, shares of Common Stock underlying a Restricted Stock Award will become freely transferable by the Participant after all conditions and restrictions applicable to such shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations). Upon the vesting of a Restricted Stock Unit, the Restricted Stock Unit will be settled, subject to the terms and conditions of the applicable Incentive Award Agreement, (a) in cash, based upon the Fair Market Value of the vested underlying shares of Common Stock, (b) in shares of Common Stock or (c) a combination thereof, as provided in the Incentive Award Agreement, except to the extent that a Participant has properly elected to defer income that may be attributable to a Restricted Stock Unit under a Company deferred compensation plan or arrangement.

8.8     Section 83(b) Election for Restricted Stock Award. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant must file, within thirty (30) days following the Grant Date of the Restricted Stock Award, a copy of such election with the Company and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in the Incentive Award Agreement that the Restricted Stock Award is conditioned upon the Participant’s making or refraining from making an election with respect to the award under Section 83(b) of the Code.

9. Performance Awards.

9.1     Grant. An Eligible Recipient may be granted one or more Performance Awards under the Plan, and such awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion, including, but not limited to, the achievement of one or more specified performance objectives.

9.2     Incentive Award Agreement. Each Performance Award will be evidenced by an Incentive Award Agreement that will specify the amount of cash, shares of Common Stock or combination of both to be received by the Participant upon payout of the Performance Award, any performance objectives upon which the Performance Award is subject, any performance period during which any such performance objectives must be achieved and such other provisions as the Committee will determine which are not inconsistent with the terms of the Plan.

9.3     Vesting. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Performance Awards as it deems appropriate, including the achievement of one or more specified performance objectives.

9.4     Form and Timing of Performance Award Payment. Subject to the terms of the Plan, after the applicable performance period has ended, the holder of Performance Awards will be entitled to receive payment on the value and number of Performance Awards earned by the Participant over the performance period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved. Payment of earned Performance Awards will be as determined by the Committee and as evidenced in the Incentive Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Awards in the form of cash or in shares of Common Stock (or in a combination thereof) equal to the value of the earned Performance Awards at the close of the applicable performance period. Payment of any Performance Award will be made as soon as practicable after the Committee has determined the extent to which the applicable performance objectives have been achieved and not later than the March 15th immediately following the end of the performance period, or earlier than the January 1st preceding such March 15, except to the extent that a Participant has properly elected to defer payment that may be attributable to a Performance Award under a Company deferred compensation plan or arrangement. The determination of the Committee with respect to the form of payment of Performance Awards will be set forth in the Incentive Award Agreement pertaining to the grant of the award. Any shares of Common Stock issued in payment of earned Performance Awards may be granted subject to any restrictions deemed appropriate by the Committee, including that the Participant remain in the continuous employment or service with the Company or a Subsidiary for a certain period.

10. Stock Bonuses.

An Eligible Recipient may be granted one or more Stock Bonuses under the Plan, and such Stock Bonuses will be subject to such terms and conditions, if any, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion, including, but not limited to, the achievement of one or more specified objectives; provided, however, that in all cases payment of the Stock Bonus will be made within two and one-half months following the end of the Eligible Recipient’s tax year during which receipt of the Stock Bonus is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the Code, unless otherwise determined by the Committee pursuant to Section 3.2 of the Plan and except to the extent that a Participant has properly elected to defer payment that may be attributable to a Stock Bonus under a Company deferred compensation plan or arrangement.

11. Other Stock-Based Awards.

11.1     Other Stock-Based Awards. Subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion, the Committee may grant Other Stock-Based Awards not otherwise described by the terms of the Plan in such amounts and subject to such terms and conditions as the Committee will determine. Such Incentive Awards may involve the transfer of actual shares of Common Stock to Participants or payment in cash or otherwise of amounts based on the value of shares of Common Stock, and may include Incentive Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.

11.2     Value of Other Stock-Based Awards. Each Other Stock-Based Award will be expressed in terms of shares of Common Stock or units based on shares of Common Stock, as determined by the Committee. The Committee may establish performance objectives in its sole discretion for any Other Stock-Based Award. If the Committee exercises its discretion to establish performance objectives for any such Incentive Awards, the number or value of Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the specified performance objectives are met.

11.3     Payment of Other Stock-Based Awards. Payment, if any, with respect to an Other Stock-Based Award will be made in accordance with the terms of the Incentive Award and in cash or shares of Common Stock, as the Committee determines, except to the extent that a Participant has properly elected to defer payment that may be attributable to an Other Stock-Based Award under a Company deferred compensation plan or arrangement.

12. Dividend Equivalents.

Any Participant selected by the Committee may be granted dividend equivalents based on the dividends declared on shares of Common Stock that are subject to any Incentive Award, to be credited as of dividend payment dates, during the period between the Grant Date of the Incentive Award and the date the Incentive Award is exercised, vests, is settled or expires, as determined by the Committee. Such dividend equivalents will be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Notwithstanding the foregoing, the Committee may not grant dividend equivalents based on the dividends declared on shares of Common Stock that are subject to an Option or Stock Appreciation Right and further, no dividend or dividend equivalents will be paid out with respect to any unvested Incentive Awards, the vesting of which is based on the achievement of performance objectives.

13. Effect of Termination of Employment or Other Service.

13.1     Termination Due to Death, Disability or Retirement. Unless otherwise expressly provided by the Committee in its sole discretion in an Incentive Award Agreement, and subject to Sections 13.3, 13.4, 13.5 and 13.6 of the Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of death, Disability or Retirement:

(a)     All outstanding Options and Stock Appreciation Rights then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of twelve months after such termination (but in no event after the expiration date of any such Option or Stock Appreciation Right). Options and Stock Appreciation Rights not exercisable as of such termination will be forfeited and terminate.

(b)     All Restricted Stock Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

(c)     All outstanding but unpaid Restricted Stock Units, Performance Awards, Stock Bonuses and Other Stock-Based Awards then held by the Participant will be terminated and forfeited; provided, however, that with respect to any such Incentive Awards the vesting of which is based on the achievement of specified performance objectives, if a Participant’s employment or other service with the Company or any Subsidiary, as the case may be, is terminated by reason of death or Disability prior to the end of the performance period of such Incentive Award, but after the conclusion of a portion of the performance period (but in no event less than one year), the Committee may, in its sole discretion, cause shares of Common Stock to be delivered or payment made with respect to the Participant’s Incentive Award, but only if otherwise earned for the entire performance period and only with respect to the portion of the applicable performance period completed at the date of such event, with proration based on full fiscal years only and no shares to be delivered for partial fiscal years. The Committee will consider the provisions of Sections 13.6 and 13.7 of the Plan and will have the discretion to consider any other fact or circumstance in making its decision as to whether to deliver such shares of Common Stock or other payment, including whether the Participant again becomes employed.

13.2     Termination for Reasons Other than Death, Disability or Retirement. Unless otherwise expressly provided by the Committee in its sole discretion in an Incentive Award Agreement, and subject to Sections 13.3, 13.4, 13.5 and 13.6 of the Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, or a Participant is in the employment or service with a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employment or service with the Company or another Subsidiary):

(a)     All outstanding Options and Stock Appreciation Rights then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three months after such termination (but in no event after the expiration date of any such Option or Stock Appreciation Right). Options and Stock Appreciation Rights not exercisable as of such termination will be forfeited and terminate;

(b)     All Restricted Stock Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

(c)     All outstanding but unpaid Restricted Stock Unit, Performance Awards, Stock Bonuses and Other Stock-Based Awards then held by the Participant will be terminated and forfeited.

13.3     Modification of Rights Upon Termination. Notwithstanding the other provisions of this Section 13, upon a Participant’s termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the Grant Date, including following such termination), except as provided below, cause Options or Stock Appreciation Rights (or any part thereof) then held by such Participant to terminate, become or continue to become exercisable and/or remain exercisable following such termination of employment or service, and Restricted Stock Awards, Restricted Stock Units, Performance Awards, Stock Bonuses or Other Stock-Based Awards then held by such Participant to terminate, vest, settle or become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee; provided, however, that no Option or Stock Appreciation Right may remain exercisable beyond its expiration date and any such action adversely affecting any outstanding Incentive Award will not be effective without the consent of the affected Participant (subject to the right of the Committee to take whatever action it deems appropriate under Sections 4.3, 13.5, 13.6 and 15 of the Plan).

13.4     Determination of Termination of Employment or Other Service.

(a)     The change in a Participant’s status from that of an Employee to that of a Consultant will, for purposes of the Plan, be deemed to result in a termination of such Participant’s employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion.

(b)     The change in a Participant’s status from that of a Consultant to that of an Employee will not, for purposes of the Plan, be deemed to result in a termination of such Participant’s service as a Consultant, and such Participant will thereafter be deemed to be an Employee, in which event such Participant will be governed by the provisions of the Plan relating to termination of employment or service (subject to paragraph (a) above).

(c)     Unless the Committee otherwise determines in its sole discretion, a Participant’s employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records.

(d)     Notwithstanding the foregoing, if payment of an Incentive Award that is subject to Section 409A of the Code is triggered by a termination of a Participant’s employment or other service, such termination must also constitute a “separation from service” within the meaning of Section 409A of the Code, and any change in employment status that constitutes a “separation from service” under Section 409A of the Code will be treated as a termination of employment or service, as the case may be.

13.5     Effect of Actions Constituting Cause . Notwithstanding anything in the Plan to the contrary and in addition to the other rights of the Committee under this Section 13, if a Participant is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute Cause during or after the termination of employment or other service with the Company or a Subsidiary, irrespective of whether such action or the Committee’s determination occurs before or after termination of such Participant’s employment or other service with the Company or any Subsidiary and irrespective of whether or not the Participant was terminated as a result of such Cause , (a) all rights of the Participant under the Plan and any Incentive Award Agreements evidencing an Incentive Award then held by the Participant will terminate and be forfeited without notice of any kind, and (b) the Committee in its sole discretion will have the authority to rescind the exercise, vesting, settlement or issuance of, or payment in respect of, any Incentive Awards of the Participant that were exercised, vested, settled or issued, or as to which such payment was made, and to require the Participant to pay to the Company, within ten (10) days of receipt from the Company of notice of such rescission, any amount received or the amount of any gain realized as a result of such rescinded exercise, vesting, settlement, issuance or payment (including any dividends paid or other distributions made with respect to any shares of Common Stock subject to any Incentive Award). The Company may defer the exercise of any Option or Stock Appreciation Right for a period of up to two (2) months after receipt of the Participant’s written notice of exercise or the issuance of share certificates upon the vesting of any Incentive Award for a period of up to two (2) months after the date of such vesting in order for the Committee to make any determination as to the existence of Cause . The Company will be entitled to withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations. Unless otherwise provided by the Committee in an applicable Incentive Award Agreement, this Section 13.5 will not apply to any Participant following a Change in Control.

13.6     Clawback/Forfeiture of Incentive Awards. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 will reimburse the Company for the amount of any Incentive Award received by such individual under the Plan during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. In addition, all Incentive Awards under the Plan will be subject to forfeiture or other penalties pursuant to any applicable law, rule or regulation and any clawback or forfeiture policy of the Company, as in effect from time to time, and such forfeiture and/or penalty conditions or provisions as determined by the Committee and set forth in the applicable Incentive Award Agreement.

14. Payment of Withholding Taxes.

14.1     General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, an amount the Company reasonably determines to be the minimum statutory amount necessary to satisfy any and all federal, foreign, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise, vesting or settlement of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option; (b) withhold cash paid or payable or shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with an Incentive Award; or (c) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock or paying any cash amounts, with respect to an Incentive Award. Shares of Common Stock issued or otherwise issuable to the Participant in connection with an Incentive Award that gives rise to the tax withholding obligation that are withheld for purposes of satisfying the Participant’s withholding or employment-related tax obligation, will be valued at their Fair Market Value on the Tax Date. When withholding for taxes is effected under the Plan, it will be withheld only up to the minimum required tax withholding rates or such other rate that will not trigger a negative accounting impact on the Company.

14.2     Special Rules. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 14.1 of the Plan by withholding shares of Common Stock underlying an Incentive Award, by electing to tender, or by attestation as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s withholding or employment-related tax obligation, shares of Common Stock withheld by the Company or Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the Tax Date.

15. Change in Control.

15.1     A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(a)     the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to a person or entity that is not controlled by the Company;

(b)     the approval by the shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company;

(c)     any person becomes after the effective date of the Plan the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (A) 20% or more, but not 50% or more, of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the Continuity Directors, or (B) 50% or more of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors);

(d)     a merger or consolidation to which the Company is a party if the shareholders of the Company immediately prior to effective date of such merger or consolidation have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (A) more than 50%, but less than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Continuity Directors (as defined below), or (B) 50% or less of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors);

(e)     the Continuity Directors cease for any reason to constitute at least a majority of the Board; or

(f)     any other change in control of the Company of a nature that would be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirements.

For purposes of this Section 15, “Continuity Directors” of the Company will mean any individuals who are members of the Board on the Effective Date and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Continuity Directors (either by specific vote or by approval of the Company’s proxy statement in which such individual is named as a nominee for director without objection to such nomination).

15.2     Acceleration of Vesting. Without limiting the authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, if approved by the Committee in its sole discretion either in the Incentive Award Agreement at the time of grant or at any time after the grant of an Incentive Award:

(a)     all Options and Stock Appreciation Rights will become immediately exercisable in full and will remain exercisable in accordance with their terms;

(b)     all restrictions and vesting requirements applicable to any Incentive Award based solely on the continued service of the Participant will terminate; and

(c)     all Incentive Awards the vesting or payment of which are based on specified performance objectives will vest as though such performance objectives were fully achieved at target and will become immediately payable; provided, however, that no Incentive Award that provides for a deferral of compensation within the meaning of Section 409A of the Code will be cashed out upon the occurrence of a Change in Control unless the event or circumstances constituting the Change in Control also constitute a “change in the ownership” of the Company, a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, in each case as determined under Section 409A of the Code.

The Committee may make any such acceleration subject to further conditions, including, but not limited to, conditions relating to (i) the failure of any successor to assume the Incentive Awards in connection with a Change in Control, or (ii) the Participant’s involuntary termination, other than for Cause, or voluntary termination for Good Reason, in each case within a specified period of time following a Change in Control.

The treatment of any other Incentive Awards in the event of a Change in Control will be as determined by the Committee in connection with the grant thereof, as reflected in the applicable Incentive Award Agreement.

15.3     Alternative Treatment of Incentive Awards. In connection with a Change in Control, the Committee in its sole discretion, either in an Incentive Award Agreement at the time of grant of an Incentive Award or at any time after the grant of such an Incentive Award, may determine that any or all outstanding Incentive Awards granted under the Plan, whether or not exercisable or vested, as the case may be, will be canceled and terminated and that in connection with such cancellation and termination the holder of such Incentive Award will receive for each share of Common Stock subject to such Incentive Award a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities with a fair market value (as determined by the Committee in good faith) equivalent to such cash payment) equal to the difference, if any, between the consideration received by shareholders of the Company in respect of a share of Common Stock in connection with such Change in Control and the purchase price per share, if any, under the Incentive Award, multiplied by the number of shares of Common Stock subject to such Incentive Award (or in which such Incentive Award is denominated); provided that if such product is zero ($0) or less or to the extent that the Incentive Award is not then exercisable, the Incentive Award may be canceled and terminated without payment therefor; provided, however, that no Incentive Award that provides for a deferral of compensation within the meaning of Section 409A of the Code will be cashed out upon the occurrence of a Change in Control unless payment was specified in the Incentive Award Agreement at the time of grant and the event or circumstances constituting the Change in Control also constitute a “change in the ownership” of the Company, a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, in each case as determined under Section 409A of the Code. If any portion of the consideration pursuant to a Change in Control may be received by holders of shares of Common Stock on a contingent or delayed basis, the Committee may, in its sole discretion, determine the fair market value per share of such consideration as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. Notwithstanding the foregoing, any shares of Common Stock issued pursuant to an Incentive Award that immediately prior to the effectiveness of the Change in Control are subject to no further restrictions pursuant to the Plan or an Incentive Award Agreement (other than pursuant to the securities laws) will be deemed to be outstanding shares of Common Stock and receive the same consideration as other outstanding shares of Common Stock in connection with the Change in Control.

15.4     Limitation on Change in Control Payments. Notwithstanding anything in Section 15.2 or 15.3 of the Plan to the contrary, if, with respect to a Participant, the acceleration of the vesting of an Incentive Award as provided in Section 15.2 of the Plan or the payment of cash in exchange for all or part of an Incentive Award as provided in Section 15.3 of the Plan (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” that such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participant pursuant to Section 15.2 or 15.3 of the Plan will be reduced (or acceleration of vesting eliminated) to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; provided, that such reduction will be made only if the aggregate amount of the payments after such reduction exceeds the difference between (a) the amount of such payments absent such reduction minus (b) the aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to any such excess parachute payments; and provided further that such payments will be reduced (or acceleration of vesting eliminated) in the following order: (i) options with an exercise price above fair market value that have a positive value for purposes of Section 280G of the Code, (ii) pro rata among Incentive Awards that constitute deferred compensation under Section 409A of the Code, and (iii) finally, among the Incentive Awards that are not subject to Section 409A of the Code. Notwithstanding the foregoing sentence, if a Participant is subject to a separate agreement with the Company or an Affiliate or Subsidiary that expressly addresses the potential application of Section 280G or 4999 of the Code, then this Section 15.4 will not apply and any “payments” to a Participant pursuant to Section 15.2 or 15.3 of the Plan will be treated as “payments” arising under such separate agreement; provided such separate agreement may not modify the time or form of payments under any Incentive Award that constitutes deferred compensation under Section 409A of the Code if the modification would cause such Incentive Award to become subject to the adverse tax consequences specified in Section 409A of the Code.

16. Rights of Eligible Recipients and Participants; Transferability.

16.1     Employment or Service. Nothing in the Plan or an Incentive Award Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employment or other service with the Company or any Subsidiary.

16.2     No Rights to Awards. No Participant or Eligible Individual will have any claim to be granted any Incentive Award under the Plan.

16.3     Rights as a Shareholder. As a holder of Incentive Awards (other than Restricted Stock Awards), a Participant will have no rights as a shareholder unless and until such Incentive Awards are exercised for, settled or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares.

16.4     Restrictions on Transfer.

(a)     Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Incentive Award prior to the exercise (in the case of Options or Stock Appreciation Rights) or vesting, settlement or issuance (in the case of other Incentive Awards) of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.

(b)     A Participant will be entitled to designate a beneficiary to receive an Incentive Award upon such Participant’s death, and in the event of such Participant’s death, payment of any amounts due under the Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 13 of the Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under the Plan will be made to, and exercise of any Options or Stock Appreciation Rights (to the extent permitted pursuant to Section 13 of the Plan) may be made by, the Participant’s legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under the Plan or exercise of all exercisable Options or Stock Appreciation Rights, then such payments will be made to, and the exercise of such Options or Stock Appreciation Rights may be made by, the legal representatives, heirs and legatees of the beneficiary.

(c)     Upon a Participant’s request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

16.5     Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.

17. Securities Law and Other Restrictions.

Notwithstanding any other provision of the Plan or any Incentive Award Agreement entered into pursuant to the Plan, the obligation of the Company to issue any shares of Common Stock under the Plan or settle Incentive Awards in shares of Common Stock or other consideration will be subject to all applicable law, rules and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding the generality of the foregoing and notwithstanding any other provision of the Plan or any Incentive Award Agreement entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under the Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company will be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.

18. Deferred Compensation; Performance-Based Compensation.

18.1     Deferred Compensation; Compliance with Section 409A. It is intended that all Incentive Awards issued under the Plan be administered in a manner that will comply with the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code and the Incentive Award Agreements and the Plan will be construed and administered in a manner that is consistent with and give effect to such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an exception from or to comply with the requirements of Section 409A of the Code (including any transition or grandfather rules relating thereto). Notwithstanding anything in this Section 18 or Section 19 to the contrary, with respect to any Incentive Award subject to Section 409A of the Code, no amendment to or payment under such Incentive Award will be made except and only to the extent permitted under Section 409A of the Code. If any amount is payable with respect to an Incentive Award that is subject to Section 409A of the Code as a result of the Participant’s “separation from service” at such time the Participant is a “specified employee” within the meaning of Section 409A of the Code, then no payment will be made, except as permitted under Section 409A of the Code, prior to the first business day after the earlier of (i) the date that is six months after the Participant’s separation from service or (ii) the Participant’s death.

18.2     Performance-Based Compensation Provisions. The Committee, when it is comprised solely of two or more outside directors meeting the requirements of Section 162(m) of the Code (“Section 162(m)”), in its sole discretion, may designate whether any Incentive Awards consisting of Options or Stock Appreciation Rights are intended to be “performance-based compensation” within the meaning of Section 162(m).  Any such Incentive Awards so designated will comply with the annual award limit specified in Section 4.3

19. Amendment, Modification and Termination.

19.1     Generally. Subject to other subsections of this Section 19 and Section 3.4 of the Plan, the Board at any time may suspend or terminate the Plan (or any portion thereof) or terminate any outstanding Incentive Award and the Committee, at any time and from time to time, may amend the Plan or amend or modify the terms of an outstanding Incentive Award and Incentive Award Agreement. The Committee’s power and authority to amend or modify the terms of an outstanding Incentive Award and Incentive Award Agreement includes the authority to modify the number of shares of Common Stock or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised, settled or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification.

19.2     Adjustment of Performance-Based Awards. The Committee may amend or modify the vesting criteria (including any performance objectives or performance periods) of any outstanding Incentive Awards based in whole or in part on the financial performance of the Company (or any Subsidiary or division, business unit or other sub-unit thereof) in recognition of unusual or nonrecurring events (including the events described in Section 4.3(a) of the Plan) affecting the Company or the financial statements of the Company or of changes in applicable law, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, will be final, conclusive and binding on Participants under the Plan.

19.3     Shareholder Approval. No amendments to the Plan will be effective without approval of the Company’s shareholders if: (a) shareholder approval of the amendment is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange or stock market on which the Common Stock is then traded, applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or regulations, and the applicable laws of any foreign country or jurisdiction where Incentive Awards are, or will be, granted under the Plan; or (b) such amendment would: (i) modify Section 3.4 of the Plan; (ii) materially increase benefits accruing to Participants; (iii) increase the aggregate number of shares of Common Stock issued or issuable under the Plan; (iv) increase any limitation set forth in the Plan on the number of shares of Common Stock which may be issued or the aggregate value of Incentive Awards which may be made, in respect of any type of Incentive Award; (v) modify the eligibility requirements for Participants in the Plan; or (vi) reduce the minimum exercise price as set forth in Sections 6.3 and 7.3 of the Plan.

19.4     Incentive Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.2, 4.3, 13, 15, 18 or 19.5 of the Plan.

19.5     Amendments to Conform to Law. Notwithstanding any other provision of the Plan to the contrary, the Committee may amend the Plan or an Incentive Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or an Incentive Award Agreement to any present or future law relating to plans of this or similar nature, and to the administrative regulations and rulings promulgated thereunder. By accepting an Incentive Award under the Plan, a Participant agrees to any amendment made pursuant to this Section 19.5 to any Incentive Award granted under the Plan without further consideration or action.

20. Effective Date and Duration of the Plan.

The Plan will be effective as of the Effective Date and will terminate at midnight on the day before the tenth (10th) anniversary of the Effective Date, and may be terminated prior to such time by Board action. No Incentive Award will be granted after termination of the Plan but Incentive Awards outstanding upon termination of the Plan will remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan.

21. Miscellaneous.

21.1     Usage. In the Plan, except where otherwise indicated by clear contrary intention, (a) any masculine term used in the Plan also will include the feminine, (b) the plural will include the singular, and the singular will include the plural, (c) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term, and (d) “or” is used in the inclusive sense of “and/or”.

21.2     Unfunded Plan. Participants will have no right, title or interest whatsoever in or to any investments that the Company or its Subsidiaries may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other individual. To the extent that any individual acquires a right to receive payments from the Company or any Subsidiary under the Plan, such right will be no greater than the right of an unsecured general creditor of the Company or the Subsidiary, as the case may be. All payments to be made hereunder will be paid from the general funds of the Company or the Subsidiary, as the case may be, and no special or separate fund will be established and no segregation of assets will be made to assure payment of such amounts except as expressly set forth in the Plan.

21.3     Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare, or benefit plan of the Company or any Subsidiary unless provided otherwise in such plan.

21.4     Fractional Shares. No fractional shares of Common Stock will be issued or delivered under the Plan or any Incentive Award. The Committee will determine whether cash, other Incentive Awards or other property will be issued or paid in lieu of fractional shares of Common Stock or whether such fractional shares of Common Stock or any rights thereto will be forfeited or otherwise eliminated by rounding up or down.

21.5     Governing Law; Venue. Except to the extent expressly provided in the Plan, the validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota, notwithstanding the conflicts of laws principles of any jurisdictions. Unless otherwise provided in an Incentive Award Agreement, recipients of an Incentive Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of the State of Minnesota to resolve any and all issues that may arise out of or relate to the Plan or any related Incentive Award Agreement.

21.6     Successors. All obligations of the Company under the Plan with respect to Incentive Awards granted hereunder will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.

21.7     Construction. Wherever possible, each provision of the Plan and any Incentive Award Agreement evidencing an Incentive Award granted under the Plan will be interpreted so that it is valid under the applicable law. If any provision of the Plan or any Incentive Award Agreement evidencing an Incentive Award granted under the Plan is to any extent invalid under the applicable law, that provision will still be effective to the extent it remains valid. The remainder of the Plan and the Incentive Award Agreement also will continue to be valid, and the entire Plan and Incentive Award Agreement will continue to be valid in other jurisdictions.

21.8     Delivery and Execution of Electronic Documents. To the extent permitted by applicable law, the Company may: (a) deliver by email or other electronic means (including posting on a Web site maintained by the Company or by a third party under contract with the Company) all documents relating to the Plan or any Incentive Award hereunder (including prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including annual reports and proxy statements), and (b) permit Participants to use electronic, internet or other non-paper means to execute applicable Plan documents (including Incentive Award Agreements) and take other actions under the Plan in a manner prescribed by the Committee.

EX-10.6

Exhibit 10.6

MOCON, INC.

2015 EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I.
PURPOSE, SCOPE and administration OF THE PLAN

1.1     Purpose and Scope. The purpose of the MOCON, Inc. 2015 Employee Stock Purchase Plan (the “Plan”) is to assist employees of MOCON, Inc. and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code and to help such employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiaries.

ARTICLE II.
Definitions

Whenever the following terms are used in the Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The singular pronoun shall include the plural where the context so indicates.

2.1     “Agent” means the brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.

2.2     “Administrator” shall mean the Committee, or such individuals to which authority to administer the Plan has been delegated under Section 7.1 hereof.

2.3     “Code” shall mean the Internal Revenue Code of 1986, as amended.

2.4     “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board or the Compensation Committee described in Article 7 hereof.

2.5     “Common Stock” shall mean shares of common stock, par value $0.10, of the Company.

2.6     “Company” shall mean MOCON, Inc., a Minnesota corporation.

2.7     “Compensation” of an Employee shall mean the regular straight-time earnings, base salary or quarterly or annual cash bonus paid to the Employee from the Company or any Designated Subsidiary on each Payday as compensation for services to the Company or any Designated Subsidiary, before deduction for any salary deferral contributions made by the Employee to any tax-qualified or nonqualified deferred compensation plan of the Company or any Designated Subsidiary, including prior week adjustments, but excluding vacation pay, holiday pay, jury duty pay, funeral leave pay, military pay, overtime, commissions, incentive compensation, one-time bonuses (e.g., retention or sign-on bonuses), fringe benefits, education or tuition reimbursements, imputed income arising under any Company or Designated Subsidiary group insurance or benefit program, travel expenses, business and moving reimbursements, income received in connection with any stock options, stock appreciation rights, restricted stock, restricted stock units or other compensatory equity awards and all contributions made by the Company or any Designated Subsidiary for the Employee’s benefit under any employee benefit plan now or hereafter established. Such Compensation shall be calculated before deduction of any income or employment tax withholdings, but shall be withheld from the Employee’s net income.

2.8     “Designated Subsidiary” shall mean the Subsidiaries that have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.

2.9     “Effective Date” shall mean May 27, 2015 or such later date on which tis Plan is initially approved by the shareholders of the Company.

2.10     “Eligible Employee” means an Employee of the Company or any Designated Subsidiary who does not, immediately after an Option is granted, own (directly or through attribution) stock possessing five percent or more of the total combined voting power or value of all classes of Stock or other stock of the Company, a Parent or Subsidiary (as determined under Section 423(b)(3) of the Code). For purposes of the foregoing, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as stock owned by the Employee. Notwithstanding the foregoing, the Committee may determine in its discretion, and if so determined, shall set forth in the terms of the applicable Offering, that an Employee of the Company or any Designated Subsidiary shall not be eligible to participate in such Offering if: (a) such Employee has been in the employ of the Company or any Designated Subsidiary for less than two years (or any shorter period); (b) such Employee’s customary employment with the Company or any Designated Subsidiary is twenty (20) hours or less per week and/or not more than five (5) months per calendar year (or any lesser number of hours per week or months per calendar year); (c) such Employee is a “highly compensated employee” of the Company or any Designated Subsidiary (within the meaning of Code Section 414(q)), or is such a “highly compensated employee” (i) with compensation above a specified level, (ii) who is an officer and/or (iii) is subject to the disclosure requirements of Section 16(a) of the Exchange Act; and/or (d) such employee is a citizen or resident of a foreign jurisdiction and the grant of an Option under the Plan or Offering is prohibited under the laws of such foreign jurisdiction, or compliance with the laws of such foreign jurisdiction would cause the Plan or Offering to violate the requirements of Code Section 423; provided, that any exclusion in clauses (a), (b), (c) and (d) shall be applied in an identical manner under each Offering to all employees of the Company and all Designated Subsidiaries, in accordance with Treasury Regulation Section 1.423-2(e).

2.11     “Employee” shall mean any person who renders services to the Company or a Designated Subsidiary in the status of an employee within the meaning of Section 3401(c) of the Code. “Employee” shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary in the status of an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on military leave, sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months, or such other period specified in Treasury Regulation Section 1.421-1(h)(2), and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period, or such other period specified in Treasury Regulation Section 1.421-1(h)(2).

2.12     “Enrollment Date” shall mean the first date of each Offering Period.

2.13     “Exercise Date” shall mean the last Trading Day of each Offering Period, except as provided in Section 5.2 hereof.

2.14     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

2.15     “Fair Market Value” shall mean, as of any date, the value of a share of Common Stock determined as follows:

(a)     If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(b)     If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(c)     If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

2.16      “Grant Date” shall mean the first Trading Day of an Offering Period.

2.17      “New Exercise Date” shall have such meaning as set forth in Section 5.2(b) hereof.

2.18     “Offering” shall mean each distinct offering of Options made under this Plan, within the meaning of Treasury Regulation 1.423-2(a).

2.19     “Offering Period” shall mean the period, which shall be set by the Committee, with respect to which Options are granted to Participants under an Offering; provided, that the duration of any Offering Period can be no more than twenty-seven months.

2.20     “Option” shall mean the right to purchase shares of Common Stock pursuant to the Plan during each Offering.

2.21     “Option Price” shall mean the purchase price of a share of Common Stock hereunder as provided in Section 4.2 hereof.

2.22     “Parent” means any entity that is a parent corporation of the Company within the meaning of Section 424 of the Code and the Treasury Regulations thereunder.

2.23     “Participant” shall mean any Eligible Employee who elects to participate in the Plan.

2.24     “Payday” shall mean the regular and recurring established day for payment of Compensation to an Employee of the Company or any Designated Subsidiary.

2.25     “Plan” shall mean this MOCON, Inc. 2015 Employee Stock Purchase Plan, as it may be amended from time to time.

2.26     “Plan Account” shall mean a bookkeeping account established and maintained by the Company in the name of each Participant.

2.27      “Section 423 Option” shall have such meaning as set forth in Section 3.1(b) hereof.

2.28     “Subsidiary” shall mean any entity that is a subsidiary corporation of the Company within the meaning of Section 424 of the Code and the Treasury Regulations thereunder. In addition, with respect to any sub-plans adopted under Section 7.1(d) hereof which are designed to be outside the scope of Section 423 of the Code, “Subsidiary” shall include any corporate or noncorporate entity in which the Company has a direct or indirect equity interest or significant business relationship.

2.29     “Trading Day” shall mean a day on which the principal securities exchange on which the Common Stock is listed is open for trading or, if the Common Stock is not listed on a securities exchange, shall mean a business day, as determined by the Administrator in good faith.

2.30     “Withdrawal Election” shall have such meaning as set forth in Section 6.1(a) hereof.

ARTICLE III.
PARTICIPATION

3.1     Eligibility.

(a)     Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering shall be eligible to participate in the Plan during the applicable Offering Period, subject to the requirements of Articles IV and V hereof, and the limitations imposed by Section 423(b) of the Code and the Treasury Regulations thereunder.

(b)     No Eligible Employee shall be granted an Option under the Plan which permits the Participant’s rights to purchase shares of Common Stock under the Plan, and to purchase stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to Section 423 of the Code (any such Option or other option, a “Section 423 Option”), to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time the Section 423 Option is granted) for each calendar year in which any Section 423 Option granted to the Participant is outstanding at any time. For purposes of the limitation imposed by this subsection,

(i)     the right to purchase stock under a Section 423 Option accrues when the Section 423 Option (or any portion thereof) first becomes exercisable during the calendar year;

(ii)     the right to purchase stock under a Section 423 Option accrues at the rate provided in the Section 423 Option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year; and

(iii)     a right to purchase stock which has accrued under a Section 423 Option may not be carried over to any other Section 423 Option; provided that Participants may carry forward amounts so accrued that represent a fractional share of stock and were withheld but not applied towards the purchase of Common Stock under an earlier Offering, and may apply such amounts towards the purchase of additional shares of Common Stock under a subsequent Offering.

The limitation under this Section 3.1(b) shall be applied in accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

3.2     Election to Participate; Payroll Deductions

(a)     Except as provided in Section 3.3 hereof, an Eligible Employee may become a Participant in the Plan only by means of payroll deduction. Each individual who is an Eligible Employee as of the Enrollment Date of the applicable Offering may elect to participate in such Offering and the Plan by delivering to the Company a payroll deduction authorization no later than the tenth (10^th) calendar day prior to the applicable Enrollment Date.

(b)     Subject to Section 3.1(b) hereof, payroll deductions with respect to an Offering (i) shall be equal to at least one percent (1%) of the Participant’s Compensation as of each Payday during the applicable Offering Period, but not more than twenty percent (20%) of the Participant’s Compensation as of each Payday during the applicable Offering Period and (ii) may be expressed either as (A) a whole number percentage or (B) a fixed dollar amount. Amounts deducted from a Participant’s Compensation with respect to an Offering Period pursuant to this Section 3.2 shall be deducted each Payday through payroll deduction and credited to the Participant’s Plan Account.

(c)     Following at least one (1) payroll deduction, a Participant may decrease (to as low as one percent (1%)) the amount deducted from such Participant’s Compensation during an Offering Period upon ten (10) calendar days’ prior written or electronic notice to the Company; provided, however, that a Participant may not decrease the amount deducted more than two (2) times per Offering. A Participant may not increase the amount deducted from such Participant’s Compensation during an Offering.

(d)     Notwithstanding the foregoing, upon the termination of an Offering, each Participant in such Offering shall automatically participate in the immediately following Offering at the same payroll deduction percentage as in effect at the termination of the prior Offering, unless such Participant delivers to the Company a different election with respect to the successive Offering in accordance with Section 3.1(a) hereof, or unless such Participant becomes ineligible for participation in the Plan.

3.3     Leave of Absence. During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, an individual shall be treated as an Employee of the Company or Designated Subsidiary that employs such individual immediately prior to such leave.

ARTICLE IV.
PURCHASE OF SHARES

4.1     Grant of Option. Each Participant shall be granted an Option with respect to an Offering on the applicable Grant Date. Subject to the limitations of Section 3.1(b) hereof, the number of shares of Common Stock subject to a Participant’s Option shall be determined by dividing (a) such Participant’s payroll deductions accumulated prior to the applicable Exercise Date and retained in the Participant’s Plan Account on such Exercise Date by (b) the applicable Option Price. The Administrator may, for future Offerings, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that a Participant may purchase during such future Offerings. Each Option shall expire on the Exercise Date for the applicable Offering immediately after the automatic exercise of the Option in accordance with Section 4.3 hereof, unless such Option terminates earlier in accordance with Article 6 hereof.

4.2     Option Price. The Option Price per share of Common Stock to be paid by a Participant upon exercise of the Participant’s Option on the applicable Exercise Date for an Offering shall be equal to 85% of the lesser of the Fair Market Value of a share of Common Stock on (a) the applicable Grant Date and (b) the applicable Exercise Date; provided that in no event shall the Option Price per share of Common Stock be less than the par value per share of the Common Stock.

4.3     Purchase of Shares.

(a)     On the applicable Exercise Date for an Offering, each Participant shall automatically and without any action on such Participant’s part be deemed to have exercised his or her Option to purchase at the applicable Option Price the largest number of whole shares of Common Stock which can be purchased with the amount in the Participant’s Plan Account, subject to Sections 4.1 and 5.3 hereof. The balance, if any, remaining in the Participant’s Plan Account (after exercise of such Participant’s Option) as of such Exercise Date shall be carried forward to the next Offering unless the Participant has elected to withdraw from the Plan pursuant to Section 6.1 hereof or, pursuant to Section 6.2 hereof, such Participant has ceased to be an Eligible Employee, in which case such balance will be returned to the Participant in one lump-sum payment in a subsequent payroll check as soon as practicable after such Exercise Date /.

(b)     As soon as practicable following the applicable Exercise Date, the number of shares of Common Stock purchased by such Participant pursuant to Section 4.3(a) hereof shall be delivered (either in share certificate or book entry form), in the Company’s sole discretion, to either (i) the Participant or (ii) an account established in the Participant’s name at a stock brokerage or other financial services firm designated by the Company. If the Company is required to obtain from any commission or agency authority to issue any such shares of Common Stock, the Company shall seek to obtain such authority. Inability of the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary for the lawful issuance of any such shares shall relieve the Company from liability to any Participant except to refund to the Participant such Participant’s Plan Account balance, without interest thereon.

4.4     Transferability of Rights. An Option granted under the Plan shall not be transferable, other than by will or the applicable laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by the Participant. No Option or interest or right to the Option shall be available to pay off any debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempt at disposition of the Option shall have no effect.

ARTICLE V.
PROVISIONS RELATING TO COMMON STOCK

5.1     Common Stock Reserved. Subject to adjustment as provided in Section 5.2 hereof, the maximum number of shares of Common Stock that shall be made available for sale under the Plan shall be [50,000].

5.2     Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.

(a)     Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under an Option, as well as the price per share and the number of shares of Common Stock covered by each Option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b)     Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation. The Administrator shall notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant’s Option has been changed to the New Exercise Date and that the Participant’s Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering as provided in Section 6.1(a)(i) hereof or the Participant has ceased to be an Eligible Employee as provided in Section 6.2 hereof.

(c)     Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, any Offerings then in progress shall be shortened by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company’s proposed sale or merger. The Administrator shall notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant’s Option has been changed to the New Exercise Date and that the Participant’s Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offerings as provided in Section 6.1(a)(i) hereof or the Participant has ceased to be an Eligible Employee as provided in Section 6.2 hereof.

5.3     Insufficient Shares. If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which Options are to be exercised may exceed the number of shares of Common Stock remaining available for sale under the Plan on such Exercise Date, the Administrator shall make a pro rata allocation of the shares of Common Stock available for issuance on such Exercise Date in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants exercising Options to purchase Common Stock on such Exercise Date, and unless additional shares are authorized for issuance under the Plan, no further Offerings shall take place and the Plan shall terminate pursuant to Section 7.5 hereof. If an Offering is so terminated, then the balance of the amount credited to the Participant’s Plan Account which has not been applied to the purchase of shares of Common Stock shall be paid to such Participant in one (1) lump sum in a subsequent payroll check as soon as practicable after such Exercise Date, without any interest thereon.

5.4     Rights as Shareholders. With respect to shares of Common Stock subject to an Option, a Participant shall not be deemed to be a shareholder of the Company and shall not have any of the rights or privileges of a shareholder. A Participant shall have the rights and privileges of a shareholder of the Company when, but not until, shares of Common Stock have been deposited in the designated brokerage account following exercise of his or her Option.

ARTICLE VI.
TERMINATION OF PARTICIPATION

6.1     Cessation of Contributions; Voluntary Withdrawal.

(a)     A Participant may cease payroll deductions during an Offering and elect to withdraw from the Plan by delivering written or electronic notice of such election (a “Withdrawal Election”) to the Company in such form as may be established by the Administrator and within seven (7) days prior to the Exercise Date for such Offering (or such other period of time as may be established by the Administrator). A Participant electing to withdraw from the Plan may elect to either (i) withdraw all of the funds then credited to the Participant’s Plan Account as of the date on which the Withdrawal Election is received by the Company, in which case amounts credited to such Plan Account shall be returned to the Participant in one (1) lump-sum payment in cash within thirty (30) days after such election is received by the Company, without any interest thereon, and the Participant shall cease to participate in the Plan and the Participant’s Option for such Offering shall terminate; or (ii) exercise the Option for the maximum number of whole shares of Common Stock on the applicable Exercise Date with any remaining Plan Account balance returned to the Participant in one lump-sum payment in cash within thirty (30) days after such Exercise Date, without any interest thereon, and after such exercise cease to participate in the Plan. As soon as practicable receipt of a notice of withdrawal from the Plan, the Participant’s payroll deduction authorization and his or her Option to purchase shares of Common Stock under the Plan shall terminate.

(b)     A Participant’s withdrawal from the Plan shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offerings which commence after the termination of the Offerings from which the Participant withdraws.

(c)     A Participant who ceases contributions to the Plan during any Offerings shall not be permitted to resume contributions to the Plan during such Offering.

6.2     Termination of Eligibility. Upon a Participant’s ceasing to be an Eligible Employee, for any reason, such Participant’s Option for the applicable Offering shall automatically terminate, he or she shall be deemed to have elected to withdraw from the Plan, and such Participant’s Plan Account shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto as set forth in an applicable beneficiary designation form (or, if there is no such applicable form, pursuant to applicable law), within thirty (30) days after such cessation of being an Eligible Employee, without any interest thereon.

ARTICLE VII.
GENERAL PROVISIONS

7.1     Administration.

(a)     The Plan shall be administered by the Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan), which, unless otherwise determined by the Board, shall consist solely of two or more members of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act and an “independent director” under the rules of any securities exchange or automated quotation system on which the shares of Common Stock are listed, quoted or traded, in each case, to the extent required under such provision. The Committee may delegate administrative tasks under the Plan to the services of an Agent and/or Employees to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant.

(b)     It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i)     To establish and terminate Offerings and Offering Periods;

(ii)     To determine when and how Options shall be granted and the provisions and terms of each Offering (which need not be identical);

(iii)     To select Designated Subsidiaries in accordance with Section 7.2 hereof; and

(iv)     To construe and interpret the Plan, the terms of any Offering and the terms of the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, any Offering or any Option, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective, subject to Section 423 of the Code and the Treasury Regulations thereunder.

(c)     The Administrator may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding handling of participation elections, payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

(d)     The Administrator may adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5.1 hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.

(e)     All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator may, with the approval of the Committee, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Board or Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Board or Administrator shall be fully protected by the Company in respect to any such action, determination or interpretation.

7.2     Designation of Subsidiary Corporations. The Board or Committee shall designate from among the Subsidiaries, as determined from time to time, the Subsidiary or Subsidiaries that shall constitute Designated Subsidiaries. The Board or Committee may designate a Subsidiary, or terminate the designation of a Subsidiary, without the approval of the shareholders of the Company.

7.3     Reports. Individual accounts shall be maintained for each Participant in the Plan. The Company shall provide each Participant whose Option is exercised with an information statement in accordance with Code Section 6039(a) and the regulations promulgated thereunder. The Company shall maintain a procedure for identifying certificates of shares of Stock sold upon the exercise of Options in accordance with Code Section 6039(b).

7.4     No Right to Employment. Nothing in the Plan shall be construed to give any person (including any Participant) the right to remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Participant) at any time, with or without cause, which right is expressly reserved.

7.5     Amendment, Suspension and Termination of the Plan

(a)     The Board may, in its sole discretion, amend, suspend or terminate the Plan at any time and from time to time; provided, however, that without approval of the Company’s shareholders given within twelve (12) months before or after action by the Board, the Plan may not be amended to increase the maximum number of shares of Common Stock subject to the Plan; and provided further that without approval of the Company’s shareholders, the Plan may not be amended in any manner that would cause the Plan to no longer be an “employee stock purchase plan” within the meaning of Section 423(b) of the Code (including without limitation extension of the term of the Plan). No Option may be granted during any period of suspension of the Plan or after termination of the Plan. Without shareholder consent and without regard to whether any Participant rights may be considered to have been “adversely affected,” the Board or the Committee, as applicable, shall be entitled to change the terms of the Offering, limit the frequency and/or number of changes in the amount withheld during an Offering, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Board or the Committee, as applicable, determines in its sole discretion advisable which are consistent with the Plan and Code Section 423.

(b)     In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, to the extent permitted under Section 423 of the Code, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i)     Altering the Option Price for any Offering including an Offering underway at the time of the change in Option Price;

(ii)     Shortening any Offering so that the Offering Period ends on a new Exercise Date, including an Offering underway at the time of the Administrator action; and

(iii)     Allocating shares of Common Stock.

Such modifications or amendments shall not require shareholder approval or the consent of any Participant.

(c)     Upon termination of the Plan, the balance in each Participant’s Plan Account shall be refunded as soon as practicable after such termination, without any interest thereon.

7.6     Use of Funds; No Interest Paid. All funds received by the Company by reason of purchase of Common Stock under the Plan shall be included in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose. No interest shall be paid to any Participant or credited under the Plan.

7.7     Term. The Plan shall terminate on midnight on the day before the tenth (10^th) anniversary of the date of the Effective Date, unless earlier terminated in accordance with Sections 5.3 or 7.5.

7.8     Effect Upon Other Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company, any Parent or any Subsidiary (a) to establish any other forms of incentives or compensation for Employees of the Company or any Parent or any Subsidiary or (b) to grant or assume Options otherwise than under the Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association.

7.9     Conformity to Securities Laws. Notwithstanding any other provision of the Plan, the Plan and the participation in the Plan by any individual who is then subject to Section 16 of the Exchange Act shall be subject to any additional limitations set forth in any applicable exemption rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

7.10     Notice of Disposition of Shares. Each Participant shall give the Company prompt notice of any disposition or other transfer of any shares of Common Stock acquired pursuant to the exercise of an Option if such disposition or transfer is made (a) within two (2) years after the applicable Grant Date or (b) within one (1) year after the transfer of such shares of Common Stock to such Participant upon exercise of such Option. The Company may direct that any certificates evidencing shares acquired pursuant to the Plan refer to such requirement.

7.11     Tax Withholding. The Company or any Parent or any Subsidiary shall be entitled to require payment in cash or deduction from other compensation payable to each Participant of any sums required by federal, state or local tax law to be withheld with respect to any purchase of shares of Common Stock under the Plan or any sale of such shares.

7.12     Governing Law. The Plan and all rights and obligations thereunder shall be construed and enforced in accordance with the laws of the State of Delaware.

7.13     Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof (including without limitation the Company’s stock plan administrator).

7.14     Conditions To Issuance of Shares.

(a)     Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing shares of Common Stock pursuant to the exercise of an Option by a Participant, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such shares of Common Stock is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any securities exchange or automated quotation system on which the shares of Common Stock are listed or traded, and the shares of Common Stock are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations or requirements.

(b)     All certificates for shares of Common Stock delivered pursuant to the Plan and all shares of Common Stock issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state or foreign securities or other laws, rules and regulations and the rules of any securities exchange or automated quotation system on which the shares of Common Stock are listed, quoted or traded. The Committee may place legends on any certificate or book entry evidencing shares of Common Stock to reference restrictions applicable to the shares of Common Stock.

(c)     The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Option, including a window-period limitation, as may be imposed in the sole discretion of the Committee.

(d)     Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company may, in lieu of delivering to any Participant certificates evidencing shares of Common Stock issued in connection with any Option, record the issuance of shares of Common Stock in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

7.15     Equal Rights and Privileges. Except with respect to sub-plans designed to be outside the scope of Section 423 of the Code, all Eligible Employees of the Company (or of any Designated Subsidiary) shall have equal rights and privileges under this Plan to the extent required under Section 423 of the Code or the regulations promulgated thereunder so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code or the Treasury Regulations thereunder. Any provision of this Plan that is inconsistent with Section 423 of the Code or the Treasury Regulations thereunder shall, without further act or amendment by the Company or the Board, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code or the Treasury Regulations thereunder.

* * * * * *

I hereby certify that the foregoing MOCON, Inc. Employee Stock Purchase Plan was duly approved by the Board of Directors of MOCON, Inc. on March 4, 2015.

I hereby certify that the foregoing MOCON, Inc. Employee Stock Purchase Plan was duly approved by the shareholders of MOCON, Inc. on May ________, 2015.

Executed on this ___ day of _______, 2015.

[Name]

[Title]

EX-10.21

Exhibit 10.21

MOCON, INC.

DESCRIPTION OF EXECUTIVE OFFICER

COMPENSATION ARRANGEMENTS

All of the employees of MOCON, Inc., including executive officers, are employed “at will” and do not have employment agreements with MOCON. MOCON has, however, entered into a written Executive Severance Agreement, a form of which was filed as an exhibit to our Annual Report on Form 10-K for our fiscal year ended December 31, 2007 as amended in January 2016, with four of our full-time officers, including each of our executive officers listed below. The following is a description of oral compensation arrangements for 2016 between MOCON, Inc. and our executive officers who are listed as “named executive officers” in our proxy statement relating to our 2016 annual meeting of shareholders:

Name of Executive Officer	Title	Base Salary	Bonus Arrangements	Stock Options	Other
Robert L. Demorest	●  Chairman, President and Chief Executive Officer	●   $397,000 per year	●  See footnotes (1) and (2) below	●     Stock options to purchase shares of MOCON common stock are granted from time to time in the sole discretion of the Compensation Committee of the MOCON board of directors	● Under the MOCON, Inc. Savings and Retirement Plan, participants, including executive officers, may voluntarily request that MOCON reduce pre-tax compensation by up to 75 percent (subject to certain special limitations) and contribute such amounts to a trust. MOCON contributed an amount equal to 50 percent of the first 6 percent of the amount that each participant contributed under this plan. MOCON provides an automobile or auto allowance for each of its full-time executive officers. Executive Officers generally receive 3-5 weeks of vacation per year. Executive officers are reimbursed for expenses incurred in the ordinary course of business.
					Executive officers receive other benefits received by other MOCON employees, including health, dental and life insurance benefits.

Name of Executive Officer	Title	Base Salary	Bonus Arrangements	Stock Options	Other
Elissa Lindsoe	●  Chief Financial Officer	●   $252,000 per year	●  See footnotes (1) and (2) below	●   See above	●   See above

(1) MOCON provides its executive officers and other employees a direct financial incentive to achieve MOCON’s current profit goals through the MOCON, Inc. Incentive Pay Plan, which was filed as an exhibit to MOCON’s annual report on Form 8-K filed on December 29, 2014. Under the Incentive Pay Plan, annual goals are measured by MOCON’s operating income, revenue growth and specified objectives for Messrs. Demorest  and Ms. Lindsoe, who have overall corporate responsibilities. The Incentive Pay Plan contemplates that each year the Compensation Committee will establish goal amounts for MOCON’s executive officers and will determine the percentage of salary at goal for MOCON’s executive officers and the weighting for each of the components. The Compensation Committee, has established the goal amounts, objectives and weighting for 2015 and determined these percentages. Although the goal amounts are confidential, the 2016 percentages of salary at goal range from fifty percent to sixty-five percent of 2016 base salary earned, at goal, with the actual incentive paid based on the percentage of goal achieved, up to a maximum of one hundred seventy percent. The fiscal 2016 goals and percentages of salary were set forth in resolutions approved by the Compensation Committee and are not otherwise set forth in any written agreements between MOCON and the executive officers. The following are the amounts paid to each of MOCON’s executive officers under the Incentive Pay Plan with respect to fiscal 2015: Mr. Demorest: $168,767, Ms. Lindsoe: $80,177. These amounts are to be paid in March 2016.

(2) For fiscal 2016, the Compensation Committee established individual special performance related bonus arrangements for Mr. Demorest and Ms. Lindsoe to further motivate these individuals to attain certain company-related performance goals in addition to the profitability performance-related goals covered under MOCON’s Incentive Pay Plan. While the specific performance goals remain confidential, the bonuses if paid will be in the form of an extra week of paid vacation and an all-expense paid trip for two, up to maximum amounts ranging from $15,000 to $20,000. The terms of the fiscal 2016 special performance related bonuses were set forth in resolutions approved by the Compensation Committee and are not otherwise set forth in any written agreements between MOCON and the executive officers.

EX-10.22

Exhibit 10.22

MOCON, INC.

DESCRIPTION OF NON-EMPLOYEE DIRECTOR
COMPENSATION ARRANGEMENTS

        Retainer and Meeting Fees.    Each of the non-employee directors of MOCON, Inc. receives an annual retainer fee of $16,000, paid in equal quarterly installments, without regard to the number of board of directors or committee meetings held or attended by such director, along with an additional $1,000 for each board meeting or committee meeting attended in person or via telephone. The Chairman of the Audit Committee receives an additional annual retainer fee of $4,000, while each of the Chairmen of the Compensation Committee and Nominating Committee receive an additional $2,000 each year.

        Stock Options.    Non-employee directors are granted options to purchase shares of MOCON common stock from time to time in the sole discretion of the board of directors.

        Director Retirement Plan.    Pursuant to the MOCON, Inc. Director Retirement Plan, a non-employee director who has served on the board of directors of MOCON for at least five years will, upon retirement, receive an amount equal to the annual retainer fee such director would have been entitled to receive during the fiscal year in which such director's retirement occurs. This payment, however, will not be made to a director who, following his or her retirement, continues to serve as a consultant to MOCON or any of its subsidiaries. Any amount payable under this retirement plan will be paid as determined by the MOCON board of directors in its sole discretion following such director's retirement.

        Reimbursement of Expenses.    Non-employee directors are reimbursed for actual expenses incurred in attending board and committee meetings.

EX-10.23

Exhibit 10.23

OFFER LETTER TO MAURICE JANSSEN

November 23, 2016

Dear Mr. Janssen,

Congratulations! I’m very pleased to extend you an offer of employment from MOCON, Inc. (“MOCON” or the “Company”).

This letter confirms our offer for the position of Senior Vice President, Global Sales and Marketing reporting directly to the President and Chief Executive Officer of the Company. This offer is contingent upon successful completion of a background and reference check.

This is an exempt position, and your starting annual salary will be $215,000 which will be paid in accordance with the Company’s standard payroll practices and is subject to all withholdings reasonably determined by the Company to be required by law. Your annual salary will be reviewed on an annual basis. Due to the timing of our hire date, your first opportunity to participate in any merit review process will be at the end of 2017. We have mutually agreed that your start date will be January 3, 2017 depending on acceptance from your current employer. We realize and accept that the starting date may be later due to your current contractual obligation but shall be no later than March 1, 2017.

You will be eligible to participate in the Company’s Incentive Pay Plan beginning in 2017. Your payout at target will be set at 40% of your annual salary. In 2017, you will also be eligible to participate in the Company’s special performance related bonus arrangement where you can earn up to an additional $15,000 and one additional week of vacation if certain goals, as determined by the Compensation Committee, are achieved. Both of these plans are subject to amendment each year. The details of the Company’s 2016 plans can be found in our latest Proxy Statement. In consideration that you will not be eligible to participate in our 2016 Incentive Pay Plan and that your resignation may result in the loss of a portion of your 2016 bonus from your current employer, you will receive a one-time start bonus of $10,000 on the first payroll following your start date.

The Company will also recommend to the Compensation Committee that you be granted an option to purchase 15,000 shares of MOCON stock that will vest in full on December 31, 2017 when the Compensation Committee grants options to our executive officers at the end of 2016. All stock options will be subject to the Company’s Stock Incentive Plan from which they are granted and the strike price will be set at the fair value on the date for which they are granted.

You will be eligible for all company benefits in which the Company’s executive officers participate, subject to the terms and conditions of each program, and with respect to the Company’s policy on automobiles for executives, you will receive an auto allowance of $1,000 per month. You will be responsible for paying any taxes that are payable with respect to such allowance. You will also become a party to the Company’s Executive

Severance Agreement. In addition, you will accrue vacation time in accordance with the Company’s vacation policy except that you will start by earning four weeks of vacation per year and during your first year of employment, you may take such as four weeks of vacation at any time regardless of when earned. In addition to vacation, you are eligible for 48 hours of floating holidays per year as a full-time employee. The number of hours will be pro-rated based on employment start date. On or before your first day of employment, you will need to sign and return the Company’s standard form of Confidentiality and Assignment of Inventions Agreement.

As an employee of MOCON, you will be subject to its policies and procedures, as in effect from time to time. Either you or MOCON may end the employment relationship at any time, with or without cause or advance notice. MOCON is an at-will employer; therefore, this letter does not constitute an employment contract. Your employment is conditioned upon you acceptance of the terms in this offer letter.

This letter sets forth the complete terms of your proposed employment with MOCON and supersedes any prior discussions, or oral or written statements. If you agree with the terms in this letter, please accept this offer electronically no later than Monday, November 28, 2016.

Maurice, I’m very excited to invite you to join us here at MOCON. Our team members are talented, highly motivated professionals – the best in the business. We have a work environment that is governed by our core values: integrity, innovation, high quality, customer focus and respect.

I’ll look forward to receiving your acceptance and to welcoming you as one of the newest members of the MOCON leadership team!

Best regards,

MOCON, Inc.

  /s/ Robert Demorest                                      

Robert Demorest

President and Chief Executive Officer

Please acknowledge your acceptance of the offer by signing the space below:

Offer Acceptance:

  /s/ Maurice Janssen                                      

Maurice Janssen

EX-10.25

Exhibit 10.25

FIRST AMENDMENT TO

MOCON INC. 2015 EMPLOYEE STOCK PURCHASE PLAN

WHEREAS, MOCON, Inc. (the “Company”) maintains and operates the MOCON, Inc. 2015 Employee Stock Purchase Plan (the “Plan”); and

WHEREAS, the Company desires to amend the Plan to allow for issuance of fractional shares in order to lower the administrative costs of operating the Plan;

NOW, THEREFORE, pursuant to Section 7.5 of the Plan, the Plan be and it is hereby amended as follows:

1.     By inserting the phrase “and fractional” before the words “shares” in the first sentence of Section 4.3(a) such that the sentence now reads in its entirety as follows:

“On the applicable Exercise Date for an Offering, each Participant shall automatically and without any action on such Participant’s part be deemed to have exercised his or her Option to purchase at the applicable Option Price the largest number of whole and fractional shares of Common Stock which can be purchased with the amount in the Participant’s Plan Account, subject to Sections 4.1 and 5.3 hereof.”

2.     By inserting the phrase “and fractional” before the words “shares” in clause (ii) of Section 6.1(a) such that the clause now reads in its entirety as follows:

“(ii) exercise the Option for the maximum number of whole and fractional shares of Common Stock on the applicable Exercise Date with any remaining Plan Account balance returned to the Participant in one lump-sum payment in cash within thirty (30) days after such Exercise Date”

3.     By deleting the proviso in clause (iii) of Section 3.1(b) such that this clause now ends with “other Section 423 Option”.

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF MOCON

The following are wholly-owned subsidiaries of MOCON, Inc.:

Name of Entity	Jurisdiction of Organization
MOCON (Shanghai) Trading Co., Ltd.	China
Dansensor A/S	Denmark
MOCON Europe SARL	Luxembourg

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statements (Nos. 333-206212, 333-206211, 333-175004, and 333-134413) on Form S-8 of MOCON, Inc. and subsidiaries of our reports dated March 9, 2017, relating to our audit of the consolidated financial statements, the financial statement schedule and internal control over financial reporting, which appear in the Annual Report on Form 10-K of MOCON, Inc. for the year ended December 31, 2016.

/s/ RSM US LLP

Minneapolis, Minnesota

March 9, 2017

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

MOCON, Inc.:

We consent to the incorporation by reference in this Registration Statements (No. 333-206212 and No. 333-206211) on Form S-8 of MOCON, Inc. and subsidiaries (MOCON) of our report dated March 12, 2015, with respect to the consolidated statements of income of MOCON for the year ended December 31, 2014, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, cash flows and financial statement schedule II for the year then ended, which report appears in the December 31, 2016 annual report on Form 10-K of MOCON.

/s/ KPMG LLP

Minneapolis, Minnesota

March 9, 2017

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 Annual Report on Form 10-K 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 fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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: March 9, 2017

/s/ Robert L. Demorest

Robert L. Demorest

Chief Executive Officer and President

(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 Annual Report on Form 10-K 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 fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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: March 9, 2017

/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 Annual Report of MOCON, Inc. on Form 10-K for the fiscal year ended December 31, 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: March 9, 2017
	/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 Annual Report of MOCON, Inc. on Form 10-K for the fiscal year ended December 31, 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: March 9, 2017
	/s/ Elissa Lindsoe
	Elissa Lindsoe
	Chief Financial Officer

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Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 03, 2017	Jun. 30, 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)		5,854,761
Entity Public Float			$ 76,782,697
Document Type	10-K
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Amendment Flag	false

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 8,313	$ 6,344
Trade accounts receivable, less allowance for doubtful accounts of $180 in 2016 and $141 in 2015	10,726	8,786
Other receivables	21	326
Inventories	6,728	7,790
Prepaid income taxes	498	559
Prepaid expenses, other	876	897
Total current assets	27,162	24,702
Property, plant, and equipment, net of accumulated depreciation of $8,537 in 2016 and $8,154 in 2015	5,457	5,995
Goodwill	7,180	7,437
Intangible assets, net	7,831	8,986
Other assets	118	88
Deferred income taxes	700	211
Total assets	48,448	47,419
Current liabilities:
Current maturities of long-term notes payable	83	65
Accounts payable	2,905	3,033
Accrued compensation and related expenses	3,948	3,969
Other accrued expenses	947	811
Accrued product warranties	209	223
Accrued income taxes	999
Dividends payable	644	637
Deferred revenue	980	862
Total current liabilities	10,715	9,600
Line of credit		2,793
Notes payable	80	93
Obligations to former employees		34
Deferred income taxes	1,068	1,227
Accrued income taxes	134	201
Total noncurrent liabilities	1,282	4,348
Total liabilities	11,997	13,948
Commitments and contingencies (Note 7)
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 5,854,413 shares in 2016 and 5,792,126 shares in 2015	585	579
Additional paid-in capital	8,617	7,412
Retained earnings	33,144	30,700
Accumulated other comprehensive loss	(5,895)	(5,220)
Total shareholders’ equity	36,451	33,471
Total liabilities and shareholders' equity	$ 48,448	$ 47,419

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Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Trade accounts receivable, allowance for doubtful accounts	$ 180	$ 141
Property, plant and equipment, accumulated depreciation	$ 8,537	$ 8,154
Captial 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, shares authorized (in shares)	22,000,000	22,000,000
Common stock, shares issued (in shares)	5,854,413	5,792,126
Common stock, shares outstanding (in shares)	5,854,413	5,792,126

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenue:
Products	$ 49,506	$ 47,832	$ 50,694
Services	11,674	9,956	10,658
Consulting	2,131	2,966	3,123
Total revenue	63,311	60,754	64,475
Cost of revenue:
Products	21,198	21,308	22,174
Services	4,793	4,205	4,188
Consulting	1,663	2,017	1,999
Total cost of revenue	27,654	27,530	28,361
Gross profit	35,657	33,224	36,114
Selling, general and administrative expenses	23,615	23,468	24,988
Research and development expenses	4,844	4,341	4,191
Realignment expenses	903	1,049
Impairment of investment in affiliated company			3,171
Operating income	6,295	4,366	3,764
Other income (expense), net	371	93	(306)
Income before income taxes	6,666	4,459	3,458
Income taxes	1,666	1,487	1,922
Net income	$ 5,000	$ 2,972	$ 1,536
Net income per common share:
Basic (in dollars per share)	$ 0.86	$ 0.52	$ 0.27
Diluted (in dollars per share)	$ 0.86	$ 0.51	$ 0.27
Basic (in shares)	5,802	5,753	5,665
Diluted (in shares)	5,835	5,818	5,754
Dividends declared, per share (in dollars per share)	$ 0.44	$ 0.44	$ 0.44

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Net income	$ 5,000	$ 2,972	$ 1,536
Other comprehensive income (loss):
Cumulative translation adjustment	(674)	(2,429)	(3,405)
Comprehensive income (loss)	$ 4,326	$ 543	$ (1,869)

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Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2013	5,630,197
Balance at Dec. 31, 2013	$ 563	$ 5,064	$ 31,229	$ 613	$ 37,469
Stock options exercised, net of surrendered shares (in shares)	102,308				175,800
Stock options exercised, net of surrendered shares	$ 10	692			$ 702
Dividends declared			(2,500)		(2,500)
Share-based compensation expense		591			591
Tax benefit on stock plans		80			80
Net income			1,536		1,536
Cumulative translation adjustment				(3,405)	(3,405)
Balance (in shares) at Dec. 31, 2014	5,732,505
Balance at Dec. 31, 2014	$ 573	6,427	30,265	(2,792)	$ 34,473
Stock issued under share-based equity plans (in shares)	102,308				175,800
Stock options exercised, net of surrendered shares (in shares)	59,621				115,922
Stock options exercised, net of surrendered shares	$ 6	309			$ 315
Dividends declared			(2,536)		(2,536)
Share-based compensation expense		668			668
Tax benefit on stock plans		8			8
Net income			2,972		2,972
Cumulative translation adjustment				(2,429)	$ (2,429)
Balance (in shares) at Dec. 31, 2015	5,792,126				5,792,126
Balance at Dec. 31, 2015	$ 579	7,412	30,701	(5,221)	$ 33,471
Stock issued under share-based equity plans (in shares)	59,621				115,922
Stock options exercised, net of surrendered shares (in shares)	62,287				124,291
Stock options exercised, net of surrendered shares	$ 6	444			$ 450
Dividends declared			(2,557)		(2,557)
Share-based compensation expense		750			750
Tax benefit on stock plans		11			11
Net income			5,000		5,000
Cumulative translation adjustment				(674)	$ (674)
Balance (in shares) at Dec. 31, 2016	5,854,413				5,854,413
Balance at Dec. 31, 2016	$ 585	$ 8,617	$ 33,144	$ (5,895)	$ 36,451
Stock issued under share-based equity plans (in shares)	62,287				124,291

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Consolidated Statements of Shareholders' Equity (Parentheticals) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Retained Earnings [Member]
Dividends declared, per share (in dollars per share)	$ 0.44	$ 0.44	$ 0.44
Dividends declared, per share (in dollars per share)	$ 0.44	$ 0.44	$ 0.44

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net income	$ 5,000	$ 2,972	$ 1,536
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	750	668	591
Change in other receivable		(3)	186
Loss on disposition of long-term assets	67	16	34
Gain on sale of business	(553)
Depreciation and amortization	2,551	2,460	2,555
Impairment of investment in affiliated company			3,171
Deferred income taxes	(801)	457	(147)
Excess tax benefit from employee stock plans	11	(8)	(80)
Changes in operating assets and liabilities:
Trade accounts receivable	(1,589)	615	1,727
Other receivables	309	(194)	(68)
Inventories	1,264	725	(1,557)
Prepaid income taxes	(21)	162	(279)
Prepaid expenses	64	61	296
Accounts payable	(811)	(1,349)	519
Accrued compensation and related expenses	(359)	71	625
Other accrued expenses	163	84	(18)
Accrued product warranties	(13)	(49)	(32)
Accrued income taxes	1,152	(205)	211
Deferred revenue	123	(111)	400
Net cash provided by operating activities	7,307	6,372	9,670
Cash flows from investing activities:
Proceeds from sale of business	701
Purchases of property, plant and equipment	(907)	(1,617)	(1,349)
Proceeds from sale of property and equipment	52	56	154
Cash paid for intangible assets	(179)	(218)	(540)
Proceeds from maturities of marketable securities			205
Other	58	96	(3)
Net cash used in investing activities	(275)	(1,683)	(1,533)
Cash flows from financing activities:
Payments on notes payable and seller financed note payable	(62)	(704)	(2,709)
Proceeds from the line of credit	2,750	21,974	23,552
Payments on the line of credit	(5,543)	(23,065)	(24,507)
Proceeds from the exercise of stock options	406	315	702
Excess tax benefit from employee stock plans	(11)	8	80
Proceeds from ESPP	44
Dividends paid	(2,551)	(2,530)	(2,489)
Net cash used in financing activities	(4,967)	(4,002)	(5,371)
Effect of exchange rate changes on cash and cash equivalents	96	675	567
Net increase in cash and cash equivalents	1,969	12	2,199
Beginning of year	6,344	6,332	4,133
End of year	8,313	6,344	6,332
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes	1,365	1,256	2,184
Cash paid during the year for interest	94	124	206
Supplemental schedule of noncash investing and financing activities:
Dividends accrued	644	637	631
Purchases of prepaid expenses, fixed assets and intangibles in accounts payable	(124)	(109)	(204)
Transfer of inventory to fixed assets	123	130	18
Purchases of fixed assets in notes payable	68	162
Transfer of notes payable balance to line of credit		$ 585

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Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

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

(

1

) 

Summary of Significant Accounting Policies

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

We report our operating segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

280,

Segment Reporting

. Our operating segments are Permeation Products and Services (“Permeation”), Package Testing Products and Services (“Package Testing”), and Industrial Analyzer Products and Services and Other (“Industrial Analyzers and Other”) for financial reporting purposes.

Revision to previously issued financial information

The Company discovered the elimination of intercompany revenue and the related gross profit related to our Permeation Products and Services reporting segment was incorrectly recognized for the

three

months ended

September

30,

2015.

We assessed the impact of the error and concluded that it was not material to any of our previously issued financial statements; however, we had chosen to correct the misstatement by revising our previously issued unaudited

three

months ended

September

30,

2015

Consolidated Statement of Operations. The revision had no impact to gross profit, operating income, earnings per share, Consolidated Balance Sheet or Consolidated Statement of Cash Flows. The impact of the misstatement of previously reported revenue and cost of sales was

$470,000.

The following table represents the effects of the revisions for the year ended

December

31,

2015

(expressed in thousands).

	As previously reported		Effect of Revision			As Revised
Year ended December 31, 2015
Revenue:
Products	$	48,302	$	(470	)	$	47,832
Services		9,956		-			9,956
Consulting		2,966		-			2,966
Total revenue	$	61,224	$	(470	)	$	60,754
Cost of Revenue:
Products	$	21,778	$	(470	)	$	21,308
Services		4,205		-			4,205
Consulting		2,017		-			2,017
Total cost of revenue		28,000		(470	)		27,530
Gross profit	$	33,224	$	-		$	33,224

The following is a summary of the significant accounting policies used in the preparation of our consolidated financial statements.

(a) 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.

(b) Foreign Currency Translation

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

(c) Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of

three

months or less to be cash equivalents. Cash equivalents consist of short-term investments which are readily convertible to cash.

(d) Trade Accounts Receivable

Credit is granted to customers in the normal course of business. Receivables are recorded at original carrying value, which approximates fair value, less reserves for estimated uncollectible amounts and sales returns. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. When facts and circumstances dictate, we

may

need to adjust our estimates and assumptions.

(e) Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the

first

-in,

first

-out (FIFO) method, and market represents the lower of replacement cost or estimated net realizable value. We record an estimate for excess and obsolete inventory which is based on historical usage and sales history.

(f) Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation and amortization are typically computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred and significant renewals and betterments are capitalized. The present value of capital lease obligations are classified as long-term debt and the related assets are included in property, plant and equipment. Amortization of equipment under capital leases is included in depreciation expense.

(g) Goodwill and Other Intangible Assets

As of

December

31,

2016

and

2015,

we have recorded approximately

$7.2

million and

$7.4

million of goodwill, respectively. We test goodwill at least annually for impairment. We completed our annual impairment test of goodwill and concluded that no impairment existed as of

December

31,

2016

and

2015.

Intangible assets consist of developed technology, customer relationships, patents, trademarks and other intangibles. Developed technology, patents, trademarks and other intangibles are carried at cost less accumulated amortization. Costs incurred in connection with applications for new patents are deferred until a final determination, with respect to the application, is made by appropriate regulatory agencies. Costs of patents abandoned are charged to income in the period of abandonment. Developed technologies are amortized over

10

years or less. Patent costs, trademarks and trade names are amortized over the lesser of

17

 years or their estimated useful lives using the straight-line method. Other intangibles are amortized over

3

to

5

years.

(h) Software Development Costs

We capitalize certain software development costs related to software that is essential to the hardware within certain instruments we sell. Capitalized software development costs consist primarily of purchased materials and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of revenue over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Our capitalized software development costs are included in intangible assets on the consolidated balance sheets and are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. As of

December

31,

2016

and

2015

 approximately

$1.1

million of software development costs are being amortized over

7

to

10

years. Amortization expense was approximately

$108,000,

$108,000

and

$46,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

The Company capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of

five

years and are reported as a component of property, plant and equipment on the consolidated balance sheets. Depreciation expense was approximately

$398,000,

$221,000

and

$213,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

We review our long-lived assets and certain identifiable intangibles for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and

third

-party independent appraisals. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During

2014

we identified an impairment indicator related to our investment in affiliated company, Luxcel Biosciences Limited (Luxcel) and concluded that the carrying value of Luxcel exceeded its fair value. The impairment was determined to be other-than-temporary. As a result, an impairment of

$3.2

million, or

100

percent of the carrying value, was recognized within operating expenses of the consolidated statements of income in

2014.

The investment in Luxcel has been reported in our unallocated-corporate reporting segment. Likewise, the impairment loss is allocated therein as well.

(j) Warranty

We have a liability recorded for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting claim, new product introductions and other factors. In the event we determine that its current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made.

(k) Use of Estimates

The preparation of the consolidated financial statements, in accordance with generally accepted principles in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property, valuation of plant and equipment, valuation of investment in affiliated company, goodwill and intangible assets, inventory reserves, allowance for doubtful accounts, uncertain tax positions and warranty reserves. Actual results could differ from those estimates

.

(l) Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. 

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates.  For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than

50

percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

(m) Fair Value of Financial Instruments

Our financial instruments are recorded in the consolidated balance sheets. The carrying amount for cash and cash equivalents, accounts receivable, line of credit, accounts payable and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments.

There are

three

levels within the fair value hierarchy that

may

be used to measure fair value:

Level

1:

Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level

2:

Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.

Level

3:

Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

(n) Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

Revenue for service arrangements such as maintenance, repair, and technical support are recognized either as the service is provided or ratably over the defined contractual period for service maintenance as noted in the paragraph below. Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts. Unearned revenue related to these contracts is recorded in current liabilities in the consolidated balance sheets.

We periodically have shipments of products to customers in which revenue is recognized under the accounting guidance related to multiple element arrangements. We allocate the overall arrangement fee to each element (both delivered and undelivered items) based on their relative selling price, as demonstrated by vendor – specific evidence (VSOE) or

third

–party evidence (TPE). Where VSOE or TPE is not available, revenue is allocated using an estimated selling price.

Shipping and handling fees billed to customers are reported within revenue in the consolidated statements of income, and the related costs are included in cost of revenue in the consolidated statements of income.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities in the consolidated balance sheets.

(o) Advertising Costs

We incur advertising costs associated with trade shows, print advertising and brochures. Such costs are charged to expense as incurred. Advertising expense was approximately

$501,000,

$646,000

and

$845,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

(p) Research and Development Costs

Research and development costs associated with new products or enhancements are charged to expenses from operations as incurred.

(q) Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average of common and potential dilutive common shares outstanding during the year.

(r) Share-Based Compensation

The Company recognizes share-based compensation expense for its related compensation programs, which include stock incentive plans and the Employee Stock Purchase Plan (ESPP).

Share-based compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related share-based reward. We generally provide for the vesting of stock options in equal annual installments over a

four

-year period commencing on the

one

-year anniversary of the date of grant, or on

one

installment commencing on the

one

-year anniversary.

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. We base our estimate of expected volatility for awards granted in

2016,

2015

and

2014

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 estimated the expected term consistent with historical exercise and cancellation activity of our previous share-based grants with a

seven

-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior

four

quarters as a percent of the average share price for that period. See Note

10

for additional information on share-based compensation.

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Note 2 - Sale of Business

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

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

(

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 our 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.

During the year we received proceeds of

$701,000

resulting in a realized gain of

$553,000,

which is included in other income (expense), net on the Consolidated Statement of Income. The remaining

$599,000

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.

XML

Note 3 - Inventories

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

(

3

)       

Inventories

The major components of inventories at

December

31,

2016

and

2015

were as follows (expressed in thousands):

	2016		2015
Finished products	$	1,252	$	1,366
Work-in-process		1,991		2,375
Raw materials		3,485		4,049
Total Inventory	$	6,728	$	7,790

XML

Note 4 - Property, Plant and Equipment

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

(

4

)       Property, Plant and Equipment

Property, plant and equipment at

December

31,

2016

and

2015

consisted of the following (dollar amounts expressed in thousands):

	2016			2015			Estimated useful lives (years)
Land	$	200		$	200			—
Buildings		786			786			27
Machinery and equipment		4,975			5,178		3	to	10
Office equipment		5,607			5,436		2	to	15
Leasehold improvements		2,121			2,125		1	to	15
Vehicles		305			424		3	to	5
Total property, plant and equipment		13,994			14,149
Less accumulated depreciation		(8,537	)		(8,154	)
Net property, plant and equipment	$	5,457		$	5,995

Depreciation of property, plant and equipment was approximately

$1.5

million,

$1.3

million and

$1.3

million for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

XML

Note 5 - Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

(

5

)       Goodwill and Other Intangible Assets

Goodwill

As of

December

31,

2016

and

2015

, goodwill amounted to approximately

$7.2

million and

$7.4

million, respectively. We test goodwill for impairment annually at the reporting unit level using a fair value approach, in accordance with the provisions of ASC

350,

Goodwill and Other

. We completed our annual impairment tests during the

fourth

quarter

2016

and

2015

and determined there was

no

impairment.

The changes in the carrying amount of goodwill for the year ended

December

31,

2016

is as follows (expressed in thousands):

	Package Testing			Permeation			Industrial  Analyzers & Other		Total
Balance as of December 31, 2014	$	5,508		$	2,029		$	610	$	8,147
Foreign currency translation		(541	)		(169	)		-		(710	)
Balance as of December 31, 2015		4,967			1,860			610		7,437
Sale of business (see Note 2)		-			(57	)		-		(57	)
Foreign currency translation		(148	)		(52	)		-		(200	)
Balance as of December 31, 2016	$	4,819		$	1,751		$	610	$	7,180

Other Intangible Assets

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

	As of December 31, 2016
	Cost		Accumulated Amortization			Net
Patents	$	2,021	$	(508	)	$	1,513
Trademarks and trade names		3,219		(886	)		2,333
Developed technology		5,923		(3,125	)		2,798
Customer relationships		693		(366	)		327
Internally developed software		1,085		(263	)		822
Other intangibles		214		(176	)		38
	$	13,155	$	(5,324	)	$	7,831

	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

Amortization expense was approximately

$1.1

million,

$1.2

million and

$1.3

million for the years ended

December

31,

2016,

2015

and

2014,

respectively.

Estimated amortization expense for the fiscal years ending

December

31,

2017

to

2021,

and thereafter is approximately

$1.1

million,

$1.1

million,

$1.1

million,

$1.1

million,

$0.5

million and

$2.3

million, respectively.

XML

Note 6 - Warranties

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

(

6

)       Warrant

ies

We provide warranties for most of our products. Warranties are for periods ranging from

ninety

days to

one

year, and cover parts and labor for non-maintenance repairs, at our location. Operator abuse, improper use, alteration, damage resulting from accident, or failure to follow manufacturer’s directions are excluded from warranty coverage.

Warranty expense is accrued at the time of sale based on historical claims experience. 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 years ended

December

31,

2016,

2015

and

2014

were as follows (expressed in thousands):

Description	Balance at Beginning of Year		Warranty Provisions		Warranty Claims		Balance at End of Year
Year ended December 31, 2016:
Allowance for product warranties	$	223		331		345	$	209
Year ended December 31, 2015:
Allowance for product warranties	$	285		288		350	$	223
Year ended December 31, 2014:
Allowance for product warranties	$	336		297		348	$	285

XML

Note 7 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(

7

)       Commitments and Contingencies

(a) Leases

We lease our facilities and certain equipment pursuant to operating and capital leases. The facility leases expire at various times through

June

2028

and require us to pay operating costs, including real estate taxes. Equipment under capital lease consists of service vehicles, a phone system, and servers net of accumulated depreciation totaling approximately

$211,000

and

$195,000

for the years ended

December

 

31,

2016

and

2015,

respectively.

Rental expense for operating leases, including charges for operating costs, were approximately

$1.1

million,

$1.1

million and

$1.2

million for years ended

December

 

31,

2016,

2015

and

2014,

respectively.

The following is a schedule of future minimum lease payments, excluding charges for operating costs, as of

December

 

31,

2016

(expressed in thousands):

Year Ending December 31:
	Operating Leases		Capital Leases
2017	$	1,058	$	85
2018		900		60
2019		807		21
2020		741		-
2021		1,947		-
Thereafter		1,922		-
	$	7,375		166
Less amounts representing interest				3
Present value of minimum lease commitments			$	163

(b) Severance Agreements

We have severance agreements with our

four

executive officers and

two

vice presidents which provides for the payment to the officer of a lump sum amount upon the occurrence of certain termination events.

On

September

9,

2014,

we entered into a Confidential Separation and Release Agreement (“Separation Agreement”) with former Chief Financial Officer at that time.  In connection with the Separation Agreement, we recognized approximately

$107,000

in expense during the year ended

December

31,

2014

related to severance costs.  As of

December

31,

2014,

approximately

$72,000

was included in accrued compensation and related expenses on the consolidated balance sheets. This balance was paid in full in

2015.

On

August

5,

2016,

MOCON entered into a Separation Agreement and General Release “(the “Separation Agreement”) with former Chief Operating Officer at that time. In connection with the Separation Agreement, we recognized approximately

$305,000

in expense during the year ended

December

31,

2016

related to severance costs, which is included in realignment expense on the Consolidated Statement of Income. As of

December

31,

2016,

$191,000

is included in accrued compensation .

(c) Inventory Purchase Obligations

At

December

31,

2016,

we had approximately

$5.6

million of purchase order commitments to our suppliers for delivery of inventory primarily during

2017.

XML

Note 8 - Realignment Expenses

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

(

8

)       Realignment Expenses

During

2016,

management concluded to eliminate the chief operating officer position and a divisional executive position in addition to other personnel changes. As a result,

$903,000

of realignment expense was recognized during

2016.

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. The realignment expenses incurred in

2015

were

$1.0

million. Realignment Plan activities completed during

2015

included:

● The elimination of approximately 10 positions across all areas

● Costs associated with legal and professional fees of $414,000

● Separation costs of $635,000

These expenses were recognized in the Consolidated Statement of Incomes as Realignment expenses during the year ended

December

31,

2015.

These expenses were paid in full during

2016.

Amounts accrued, realignment expenses and cash payments for the year ended

December

31,

2016

and

2015

were as follows (expressed in thousands):

	Year ending December 31,
	2016			2015
Beginning Balance	$	620		$	-
Realignment Expense		903			1,049
Cash Payments		(976	)		(429	)
Ending Balance	$	547		$	620

XML

Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(

9

)       Income Taxes

Income before income taxes was as follows (expressed in thousands):

	2016		2015		2014
Income before income taxes:
Domestic	$	1,635	$	2,314	$	968
Foreign		5,031		2,145		2,490
Total	$	6,666	$	4,459	$	3,458

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

	2016			2015			2014
Current tax expense:
Federal	$	787		$	1,208		$	1,076
State		71			48			95
Foreign		1,456			1,009			893
Total current expense		2,314			2,265			2,064
Deferred tax expense (benefit):
Federal		(539	)		(508	)		171
State		(10	)		(15	)		(27	)
Foreign		(99	)		(255	)		(286	)
Total deferred expense (benefit)		(648	)		(778	)		(142	)
Provision for income taxes	$	1,666		$	1,487		$	1,922

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

	Percentage of pretax income
	for years ended December 31,
	2016			2015			2014
Tax at statutory federal income tax rate		34.0	%		34.0	%		34.0	%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit		0.6			0.8			0.4
Change in valuation allowance		1.0			0.9			32.8
Domestic manufacturing deduction		(1.5	)		(1.8	)		(3.5	)
Effect of foreign operations		(5.3	)		(2.3	)		(7.0	)
Foreign dividend income		27.5			-			-
Unremitted earnings		(10.0	)		-			-
Foreign tax credit		(18.5	)		-			-
Changes in unrecognized tax benefits		(0.8	)		(2.6	)		0.0
Stock option compensation		1.1			2.9			3.0
Research credit		(3.4	)		(4.7	)		(4.3	)
Other, including provision to return adjustments		0.3			6.3			0.2
Effective income tax rate		25.0	%		33.5	%		55.6	%

The tax effect of significant temporary differences representing deferred tax assets and liabilities at

December

31,

2016

and

2015

were as follows (expressed in thousands):

	2016			2015
Deferred tax assets:
Allowance for doubtful accounts	$	18		$	3
Inventory items		530			576
Reserves and accruals		226			413
Compensation expense - stock options		348			274
Foreign tax credit carryover		-			170
Unremitted Earnings		665			-
R&D credit carryover		237			171
Impairment		1,127			1,123
Other		209			220
Subtotal		3,360			2,950
Less: Valuation allowance		(1,363	)		(1,294	)
Total deferred tax assets		1,997			1,656
Deferred tax liabilities:
Fixed assets		(979	)		(1,071	)
Intangibles		(1,386	)		(1,601	)
Total deferred tax liabilities		(2,365	)		(2,672	)
Net deferred tax liability	$	(368	)	$	(1,016	)

As of

December

31,

2016,

we have established a valuation allowance of

$1.4

million against the deferred tax assets associated with the capital loss related to the impairment of investment in an affiliated company and from the carry-forward of state R&D tax credits, as these will not be realized through generating future income of appropriate character. However, we believe it is more likely than not that the remainder of our deferred tax assets at

December

31,

2016

will be realized primarily through carryback potential, reversing taxable temporary differences, and generating future income.

As of

December

31,

2016,

there was approximately

$3.4

million of accumulated undistributed earnings remaining at our foreign subsidiaries. During the

fourth

quarter of

2016,

we changed our assertion related to unremitted earnings of foreign subsidiaries and are no longer asserting permanent reinvestment of unremitted earnings.  The remittance of these earnings is expected in the foreseeable future, defined within

one

year, and will result in a benefit from excess foreign tax credits. We have a repatriation plan to remit earnings and associated tax pools during

2017.

As such, the Company has recorded the related deferred tax asset related to repatriation.  The Company expects to realize the benefit of excess foreign tax credits through carryback potential and generating future foreign source income.    As a result of the change in assertion, we will accrue applicable deferred tax for these unremitted earnings going forward.    

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (expressed in thousands):

	2016			2015			2014
Balance at January 1	$	187		$	302		$	264
Additions based on tax positions related to the current year		-			-			61
Additions based on tax positions related to the prior year		-			-			-
Reductions due to closing of statute of limitations		(62	)		(25	)		(23	)
Reductions based on tax positions related to the prior year		-			(90	)		-
Balance at December 31	$	125		$	187		$	302

Included in the balance of total unrecognized tax benefits at

December

31,

2016

are potential benefits of approximately

$99,000

that if recognized would affect the effective tax rate on income before income taxes. The difference between this amount and the corresponding amount of gross unrecognized tax benefits related primarily to the deferred federal benefit for state income tax related amounts.

The gross unrecognized tax benefit is expected to decrease due to statute closures in the next

twelve

months. Absent the decrease of the unrecognized tax benefit as a result of statute close we do not anticipate that the total amount of unrecognized tax benefits will change significantly in the next

twelve

months.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to approximately

$8,000

and

$13,000

on a gross basis at

December

31,

2016

and

2015,

respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above.

We file income tax returns in the U.S. federal jurisdiction, several state jurisdictions, China, France, Germany, Denmark, Italy, Luxembourg, Spain and the Netherlands. With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before

2012.

  

XML

Note 10 - Share-based Compensation

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

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

(

10

)     Share-Based Compensation

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The Purchase Plan consists of a

6

-month offering period whereby employees can purchase shares at a price equal to

85

percent of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The

15

percent discount is expensed over the offering period as share-based compensation expense. A maximum of

50,000

common shares can be purchased through the ESPP. During the year ended

December

31,

2016,

3,585

shares were purchased under the ESPP. As of the year ended

December

31,

2016,

the Company had

46,415

shares of common stock available for future purchases under the ESPP. The weighted average grant date fair value of the Company’s ESPP purchase right was

$2.35.

Stock Incentive

Plan

s

As of

December

 

31,

2016,

we have reserved

180,500

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

814,544

shares for options that have been granted under either our

2006

or

2015

stock incentive plans but have not yet been exercised. We issue new shares of common stock upon exercise of stock options.

Under our share-based incentive plans, option exercise prices are

100

percent of the market value of the common stock at the date of grant, except if incentive options granted under the

2006

and

2015

plans were granted to persons owning more than

10

percent of our stock, in which case the option price would be

110

percent of the market value. Exercise periods are generally for

seven

years. The plans allow for the granting of nonqualified stock options. Upon the exercise of these nonqualified options, we

may

realize a compensation deduction allowable for income tax purposes. The after-tax effect of these tax deductions is included in the accompanying consolidated financial statements as an addition to additional paid-in capital.

Share-based compensation expense recognized in the consolidated financial statements for

2016,

2015

and

2014

was as shown below (expressed in thousands):

	Years Ended December 31,
	2016		2015			2014
Cost of share-based compensation - stock incentive plans	$	733	$	668		$	591
Cost of share-based compensation - ESPP		17		-			-
Amount of income tax benefit recognized in earnings		11		(39	)		(104	)
Amount charged against net income	$	761	$	629		$	487

The following assumptions were used to estimate the fair value of options granted during

2016,

2015

and

2014

using the Black-Scholes model:

	2016			2015			2014
Dividend yield		2.7	%		2.8	%		3.4	%
Expected volatility		25	%		32	%		37	%
Risk-free interest rate		1.6	%		1.6	%		1.7	%
Expected lives (in years)		5.9			6.8			6.4

Information regarding our stock option plans for

2014,

2015

and

2016

is as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in thousands)
Options outstanding, December 31, 2013		622,300		$	12.34		3.7	$	2,175
Granted		298,500			16.60
Exercised		(175,800	)		10.97
Cancelled or expired		(22,325	)		15.04
Options outstanding, December 31, 2014		722,675			14.35		4.6		2,555
Granted		206,300			14.30
Exercised		(115,922	)		10.24
Cancelled or expired		(15,675	)		15.51
Options outstanding, December 31, 2015		797,378			14.91		4.7	$	453
Granted		187,200			18.51
Exercised		(124,291	)		12.89
Cancelled or expired		(45,743	)		15.27
Options outstanding, December 31, 2016		814,544		$	16.04		4.6	$	2,820
Options exercisable, December 31, 2016		575,469		$	15.20		3.8	$	2,472

The weighted average grant date fair value based on the Black-Scholes model for options granted in

2016,

2015

and

2014

was

$4.11,

$3.40

and

$4.28,

respectively. The total intrinsic value of options exercised was

$550,000,

$585,000

and

$979,000

during the years ended

December

31,

2016,

2015

and

2014,

respectively. The aggregate intrinsic values are based upon the closing price of our common stock on the last day of the respective fiscal year.

A summary of the status of our unvested option shares as of

December

31,

2016

is as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Unvested at December 31, 2015		289,400		$	3.43
Options granted		187,200			4.11
Options cancelled		(31,925	)		3.22
Options vested		(205,600	)		3.37
Unvested at December 31, 2016		239,075		$	4.05

As of

December

31,

2016,

there was

$938,000

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

1.6

years. The total fair value of option shares vested during the years

2016,

2015

and

2014

was

$692,000,

$630,000

and

$550,000,

respectively.

XML

Note 11 - Other Income (Expense), Net

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Other Income and Other Expense Disclosure [Text Block]

( 11 ) Other Income (Expense), net

Other income (expense), net for

2016,

2015

and

2014

was as follows (expressed in thousands):

	Years Ended December 31,
	2016			2015			2014
Interest income	$	-		$	2		$	3
Interest expense		(56	)		(119	)		(186	)
Foreign currency exchange gain (loss)		(116	)		209			(136	)
Other		(10	)		1			13
Gain on sale of business		553			-			-
Total other income (expense), net	$	371		$	93		$	(306	)

XML

Note 12 - Net Income Per Common Share

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

(1

2

)    

Net Income per Common Share

The following table presents a reconciliation of the denominators used in the computation of net income per common share – basic and net income per common share – diluted for the years ended

December

 

31,

2016,

2015

and

2014

(expressed in thousands):

	Years Ended December 31,
	2016		2015		2014
Weighted shares of common stock outstanding - basic		5,802		5,753		5,665
Dilutive impact of share-based awards		33		65		89
Weighted shares of common stock outstanding - diluted		5,835		5,818		5,754

Outstanding stock options totaling

662,700,

610,153

and

147,100

options for years ended

December

 

31,

2016,

2015

and

2014,

respectively, were excluded from the net income per common share – diluted calculation because the shares would be anti-dilutive.

XML

Note 13 - Savings and Retirement Plan

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

(1

3

)     

Savings and Retirement Plan

We have a

401(k)

Savings and Retirement Plan covering our U.S. employees and several defined contribution pension plans covering certain employees outside of the U.S. We provide matching contributions in accordance with the plans. Our contributions to these plans in

2016,

2015

and

2014

were approximately

$964,000,

$925,000

and

$882,000,

respectively.

XML

Note 14 - Debt

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

(14

)    

Debt

Long-term notes payable consists of the following (expressed in thousands):

	December 31, 2016		December 31, 2015
Capital leases (Note 7)	$	163	$	158
Total long-term notes payable		163		158
Less current portion of long-term notes payable		83		65
Total long-term notes payable	$	80	$	93

In the U.S., we have a

$10.0

million secured line of credit which was amended on

August

28,

2015

with a maturity date of

August

26,

2018.

As of

December

31,

2016

the outstanding balance is

zero.

The amendment increased the principal amount from

$6.0

million to

$10.0

million, modified the maturity date, decreased the interest rate from

1.75

basis plus

one

-month LIBOR to

1.50

basis plus

one

-month LIBOR and revised certain debt covenants. Interest is charged monthly at

one

-month LIBOR

(0.62

percent) plus

1.50

basis points which totaled

2.12

percent and

1.74

percent at

December

31,

2016

and

2015,

respectively. The line of credit is secured by our assets with the exception of the number of Dansensor shares of outstanding stock that exceeds

65

percent of the total shares outstanding. We had

$0

and

$2.8

million outstanding on the line of credit at

December

31,

2016

and

December

31,

2015,

respectively. Additionally, Dansensor has a DKK

5

million (approximately

$0.7

million) available line of credit of which no amount was outstanding as of

December

31,

2016

and

2015.

Outstanding borrowings are charged interest at a fixed rate of

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.     

As of

December

31,

2016,

the future minimum principal payments of the long-term notes payable for each fiscal year thereafter is as follows (expressed in thousands):

2017	$	83
2018		59
2019		21
Total	$	163

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Note 15 - Business Segments

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

(15)

    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 based on the authoritative guidance. 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.

There were

no

significant intersegment revenue for the years ended

December

31,

2016,

2015

and

2014.

Segment information for the years ended

December

31,

2016,

2015

and

2014

are as follows (expressed in thousands):

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
December 31, 2016:
Revenue	$	30,257		23,039		10,015		$	-		$	63,311
Gross profit		17,229		13,902		4,526			-			35,657
Operating income		4,310		4,059		(1,171	)		(903	)		6,295
December 31, 2015:
Revenue	$	26,583	$	24,599	$	9,572		$	-		$	60,754
Gross profit		14,445		14,415		4,364			-			33,224
Operating income		2,792		4,342		(1,719	)		(1,049	)		4,366
December 31, 2014:
Revenue	$	28,071	$	23,380	$	13,024		$	-		$	64,475
Gross profit		13,850		14,985		7,279			-			36,114
Operating income		1,699		4,418		818			(3,171	)		3,764

Property, Plant and Equipment, net of accumulated depreciation, by geographic location as of

December

31,

2016,

2015

and

2014

is as follows (expressed in thousands): 

	2016		2015		2014
United States	$	3,882	$	4,232	$	4,010
Foreign countries:
Germany		225		285		336
Denmark		1,123		1,353		1,020
Other European counties		227		125		196
Total foreign countries		1,575		1,763		1,552
Consolidated total	$	5,457	$	5,995	$	5,562

The following table summarizes total revenue, based upon the region to which revenue to external customers were made for fiscal years

2016,

2015

and

2014

(expressed in thousands).

	Years Ended December 31,
	2016		2015		2014
Domestic revenue	$	21,660	$	20,872	$	19,836
Foreign revenue:
Europe		26,190		23,203		26,324
Asia		12,790		12,762		14,166
Other		2,671		3,917		4,149
Total foreign revenue		41,651		39,882		44,639
Total revenue	$	63,311	$	60,754	$	64,475

Our products are marketed outside of North America through our offices in foreign locations and various independent representatives.

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Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

II - Valuation and Qualifying Accounts

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

Description	Balance at Beginning of Year		Charged to Costs and Expenses			Charged to Other Accounts		Deductions			Balance at End of Year
Year ended December 31, 2016:
Allowance for doubtful accounts and returns	$	141		39			-		-		$	180
Year ended December 31, 2015:
Allowance for doubtful accounts and returns	$	181		(28	)		-		(12	)	$	141
Year ended December 31, 2014:
Allowance for doubtful accounts and returns	$	316		(85	)		-		(50	)	$	181

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Error Corrections and Prior Period Adjustments [Policy Text Block]

Revision to previously issued financial information

The Company discovered the elimination of intercompany revenue and the related gross profit related to our Permeation Products and Services reporting segment was incorrectly recognized for the

three

months ended

September

30,

2015.

We assessed the impact of the error and concluded that it was not material to any of our previously issued financial statements; however, we had chosen to correct the misstatement by revising our previously issued unaudited

three

months ended

September

30,

2015

Consolidated Statement of Operations. The revision had no impact to gross profit, operating income, earnings per share, Consolidated Balance Sheet or Consolidated Statement of Cash Flows. The impact of the misstatement of previously reported revenue and cost of sales was

$470,000.

The following table represents the effects of the revisions for the year ended

December

31,

2015

(expressed in thousands).

	As previously reported		Effect of Revision			As Revised
Year ended December 31, 2015
Revenue:
Products	$	48,302	$	(470	)	$	47,832
Services		9,956		-			9,956
Consulting		2,966		-			2,966
Total revenue	$	61,224	$	(470	)	$	60,754
Cost of Revenue:
Products	$	21,778	$	(470	)	$	21,308
Services		4,205		-			4,205
Consulting		2,017		-			2,017
Total cost of revenue		28,000		(470	)		27,530
Gross profit	$	33,224	$	-		$	33,224

Consolidation, Policy [Policy Text Block]

(a) 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.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

(b) Foreign Currency Translation

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

Cash and Cash Equivalents, Policy [Policy Text Block]

(c) Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of

three

months or less to be cash equivalents. Cash equivalents consist of short-term investments which are readily convertible to cash.

Receivables, Policy [Policy Text Block]

(d) Trade Accounts Receivable

Credit is granted to customers in the normal course of business. Receivables are recorded at original carrying value, which approximates fair value, less reserves for estimated uncollectible amounts and sales returns. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. When facts and circumstances dictate, we

may

need to adjust our estimates and assumptions.

Inventory, Policy [Policy Text Block]

(e) Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the

first

-in,

first

-out (FIFO) method, and market represents the lower of replacement cost or estimated net realizable value. We record an estimate for excess and obsolete inventory which is based on historical usage and sales history.

Property, Plant and Equipment, Policy [Policy Text Block]

(f) Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation and amortization are typically computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred and significant renewals and betterments are capitalized. The present value of capital lease obligations are classified as long-term debt and the related assets are included in property, plant and equipment. Amortization of equipment under capital leases is included in depreciation expense.

Goodwill and Intangible Assets, Policy [Policy Text Block]

(g) Goodwill and Other Intangible Assets

As of

December

31,

2016

and

2015,

we have recorded approximately

$7.2

million and

$7.4

million of goodwill, respectively. We test goodwill at least annually for impairment. We completed our annual impairment test of goodwill and concluded that no impairment existed as of

December

31,

2016

and

2015.

Intangible assets consist of developed technology, customer relationships, patents, trademarks and other intangibles. Developed technology, patents, trademarks and other intangibles are carried at cost less accumulated amortization. Costs incurred in connection with applications for new patents are deferred until a final determination, with respect to the application, is made by appropriate regulatory agencies. Costs of patents abandoned are charged to income in the period of abandonment. Developed technologies are amortized over

10

years or less. Patent costs, trademarks and trade names are amortized over the lesser of

17

 years or their estimated useful lives using the straight-line method. Other intangibles are amortized over

3

to

5

years.

Software to be Sold, Leased, or Otherwise Marketed, Policy [Policy Text Block]

(h) Software Development Costs

We capitalize certain software development costs related to software that is essential to the hardware within certain instruments we sell. Capitalized software development costs consist primarily of purchased materials and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of revenue over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Our capitalized software development costs are included in intangible assets on the consolidated balance sheets and are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. As of

December

31,

2016

and

2015

 approximately

$1.1

million of software development costs are being amortized over

7

to

10

years. Amortization expense was approximately

$108,000,

$108,000

and

$46,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

The Company capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of

five

years and are reported as a component of property, plant and equipment on the consolidated balance sheets. Depreciation expense was approximately

$398,000,

$221,000

and

$213,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

We review our long-lived assets and certain identifiable intangibles for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and

third

-party independent appraisals. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During

2014

we identified an impairment indicator related to our investment in affiliated company, Luxcel Biosciences Limited (Luxcel) and concluded that the carrying value of Luxcel exceeded its fair value. The impairment was determined to be other-than-temporary. As a result, an impairment of

$3.2

million, or

100

percent of the carrying value, was recognized within operating expenses of the consolidated statements of income in

2014.

The investment in Luxcel has been reported in our unallocated-corporate reporting segment. Likewise, the impairment loss is allocated therein as well.

Standard Product Warranty, Policy [Policy Text Block]

(j) Warranty

We have a liability recorded for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting claim, new product introductions and other factors. In the event we determine that its current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made.

Use of Estimates, Policy [Policy Text Block]

(k) Use of Estimates

The preparation of the consolidated financial statements, in accordance with generally accepted principles in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property, valuation of plant and equipment, valuation of investment in affiliated company, goodwill and intangible assets, inventory reserves, allowance for doubtful accounts, uncertain tax positions and warranty reserves. Actual results could differ from those estimates

.

Income Tax, Policy [Policy Text Block]

(l) Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. 

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates.  For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than

50

percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

Fair Value of Financial Instruments, Policy [Policy Text Block]

(m) Fair Value of Financial Instruments

Our financial instruments are recorded in the consolidated balance sheets. The carrying amount for cash and cash equivalents, accounts receivable, line of credit, accounts payable and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments.

There are

three

levels within the fair value hierarchy that

may

be used to measure fair value:

Level

1:

Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level

2:

Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.

Level

3:

Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Advertising Costs, Policy [Policy Text Block]

(o) Advertising Costs

We incur advertising costs associated with trade shows, print advertising and brochures. Such costs are charged to expense as incurred. Advertising expense was approximately

$501,000,

$646,000

and

$845,000

for the years ended

December

 

31,

2016,

2015

and

2014,

respectively.

Research, Development, and Computer Software, Policy [Policy Text Block]

(p) Research and Development Costs

Research and development costs associated with new products or enhancements are charged to expenses from operations as incurred.

Earnings Per Share, Policy [Policy Text Block]

(q) Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average of common and potential dilutive common shares outstanding during the year.

Revenue Recognition, Policy [Policy Text Block]

(n) Revenue Recognition

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

Revenue for service arrangements such as maintenance, repair, and technical support are recognized either as the service is provided or ratably over the defined contractual period for service maintenance as noted in the paragraph below. Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts. Unearned revenue related to these contracts is recorded in current liabilities in the consolidated balance sheets.

We periodically have shipments of products to customers in which revenue is recognized under the accounting guidance related to multiple element arrangements. We allocate the overall arrangement fee to each element (both delivered and undelivered items) based on their relative selling price, as demonstrated by vendor – specific evidence (VSOE) or

third

–party evidence (TPE). Where VSOE or TPE is not available, revenue is allocated using an estimated selling price.

Shipping and handling fees billed to customers are reported within revenue in the consolidated statements of income, and the related costs are included in cost of revenue in the consolidated statements of income.

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities in the consolidated balance sheets.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

(r) Share-Based Compensation

The Company recognizes share-based compensation expense for its related compensation programs, which include stock incentive plans and the Employee Stock Purchase Plan (ESPP).

Share-based compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related share-based reward. We generally provide for the vesting of stock options in equal annual installments over a

four

-year period commencing on the

one

-year anniversary of the date of grant, or on

one

installment commencing on the

one

-year anniversary.

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. We base our estimate of expected volatility for awards granted in

2016,

2015

and

2014

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 estimated the expected term consistent with historical exercise and cancellation activity of our previous share-based grants with a

seven

-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior

four

quarters as a percent of the average share price for that period. See Note

10

for additional information on share-based compensation.

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Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Error Corrections and Prior Period Adjustments [Table Text Block]

	As previously reported		Effect of Revision			As Revised
Year ended December 31, 2015
Revenue:
Products	$	48,302	$	(470	)	$	47,832
Services		9,956		-			9,956
Consulting		2,966		-			2,966
Total revenue	$	61,224	$	(470	)	$	60,754
Cost of Revenue:
Products	$	21,778	$	(470	)	$	21,308
Services		4,205		-			4,205
Consulting		2,017		-			2,017
Total cost of revenue		28,000		(470	)		27,530
Gross profit	$	33,224	$	-		$	33,224

XML

Note 3 - Inventories (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	2016		2015
Finished products	$	1,252	$	1,366
Work-in-process		1,991		2,375
Raw materials		3,485		4,049
Total Inventory	$	6,728	$	7,790

XML

Note 4 - Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Property, Plant and Equipment [Table Text Block]

	2016			2015			Estimated useful lives (years)
Land	$	200		$	200			—
Buildings		786			786			27
Machinery and equipment		4,975			5,178		3	to	10
Office equipment		5,607			5,436		2	to	15
Leasehold improvements		2,121			2,125		1	to	15
Vehicles		305			424		3	to	5
Total property, plant and equipment		13,994			14,149
Less accumulated depreciation		(8,537	)		(8,154	)
Net property, plant and equipment	$	5,457		$	5,995

XML

Note 5 - Goodwill and Other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Goodwill [Table Text Block]

	Package Testing			Permeation			Industrial  Analyzers & Other		Total
Balance as of December 31, 2014	$	5,508		$	2,029		$	610	$	8,147
Foreign currency translation		(541	)		(169	)		-		(710	)
Balance as of December 31, 2015		4,967			1,860			610		7,437
Sale of business (see Note 2)		-			(57	)		-		(57	)
Foreign currency translation		(148	)		(52	)		-		(200	)
Balance as of December 31, 2016	$	4,819		$	1,751		$	610	$	7,180

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

	As of December 31, 2016
	Cost		Accumulated Amortization			Net
Patents	$	2,021	$	(508	)	$	1,513
Trademarks and trade names		3,219		(886	)		2,333
Developed technology		5,923		(3,125	)		2,798
Customer relationships		693		(366	)		327
Internally developed software		1,085		(263	)		822
Other intangibles		214		(176	)		38
	$	13,155	$	(5,324	)	$	7,831

	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

XML

Note 6 - Warranties (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

Description	Balance at Beginning of Year		Warranty Provisions		Warranty Claims		Balance at End of Year
Year ended December 31, 2016:
Allowance for product warranties	$	223		331		345	$	209
Year ended December 31, 2015:
Allowance for product warranties	$	285		288		350	$	223
Year ended December 31, 2014:
Allowance for product warranties	$	336		297		348	$	285

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Note 7 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Year Ending December 31:
	Operating Leases		Capital Leases
2017	$	1,058	$	85
2018		900		60
2019		807		21
2020		741		-
2021		1,947		-
Thereafter		1,922		-
	$	7,375		166
Less amounts representing interest				3
Present value of minimum lease commitments			$	163

XML

Note 8 - Realignment Expenses (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Year ending December 31,
	2016			2015
Beginning Balance	$	620		$	-
Realignment Expense		903			1,049
Cash Payments		(976	)		(429	)
Ending Balance	$	547		$	620

XML

Note 9 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

	2016		2015		2014
Income before income taxes:
Domestic	$	1,635	$	2,314	$	968
Foreign		5,031		2,145		2,490
Total	$	6,666	$	4,459	$	3,458

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	2016			2015			2014
Current tax expense:
Federal	$	787		$	1,208		$	1,076
State		71			48			95
Foreign		1,456			1,009			893
Total current expense		2,314			2,265			2,064
Deferred tax expense (benefit):
Federal		(539	)		(508	)		171
State		(10	)		(15	)		(27	)
Foreign		(99	)		(255	)		(286	)
Total deferred expense (benefit)		(648	)		(778	)		(142	)
Provision for income taxes	$	1,666		$	1,487		$	1,922

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Percentage of pretax income
	for years ended December 31,
	2016			2015			2014
Tax at statutory federal income tax rate		34.0	%		34.0	%		34.0	%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit		0.6			0.8			0.4
Change in valuation allowance		1.0			0.9			32.8
Domestic manufacturing deduction		(1.5	)		(1.8	)		(3.5	)
Effect of foreign operations		(5.3	)		(2.3	)		(7.0	)
Foreign dividend income		27.5			-			-
Unremitted earnings		(10.0	)		-			-
Foreign tax credit		(18.5	)		-			-
Changes in unrecognized tax benefits		(0.8	)		(2.6	)		0.0
Stock option compensation		1.1			2.9			3.0
Research credit		(3.4	)		(4.7	)		(4.3	)
Other, including provision to return adjustments		0.3			6.3			0.2
Effective income tax rate		25.0	%		33.5	%		55.6	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	2016			2015
Deferred tax assets:
Allowance for doubtful accounts	$	18		$	3
Inventory items		530			576
Reserves and accruals		226			413
Compensation expense - stock options		348			274
Foreign tax credit carryover		-			170
Unremitted Earnings		665			-
R&D credit carryover		237			171
Impairment		1,127			1,123
Other		209			220
Subtotal		3,360			2,950
Less: Valuation allowance		(1,363	)		(1,294	)
Total deferred tax assets		1,997			1,656
Deferred tax liabilities:
Fixed assets		(979	)		(1,071	)
Intangibles		(1,386	)		(1,601	)
Total deferred tax liabilities		(2,365	)		(2,672	)
Net deferred tax liability	$	(368	)	$	(1,016	)

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	2016			2015			2014
Balance at January 1	$	187		$	302		$	264
Additions based on tax positions related to the current year		-			-			61
Additions based on tax positions related to the prior year		-			-			-
Reductions due to closing of statute of limitations		(62	)		(25	)		(23	)
Reductions based on tax positions related to the prior year		-			(90	)		-
Balance at December 31	$	125		$	187		$	302

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Note 10 - Share-based Compensation (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

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

	Years Ended December 31,
	2016		2015			2014
Cost of share-based compensation - stock incentive plans	$	733	$	668		$	591
Cost of share-based compensation - ESPP		17		-			-
Amount of income tax benefit recognized in earnings		11		(39	)		(104	)
Amount charged against net income	$	761	$	629		$	487

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2016			2015			2014
Dividend yield		2.7	%		2.8	%		3.4	%
Expected volatility		25	%		32	%		37	%
Risk-free interest rate		1.6	%		1.6	%		1.7	%
Expected lives (in years)		5.9			6.8			6.4

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

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in thousands)
Options outstanding, December 31, 2013		622,300		$	12.34		3.7	$	2,175
Granted		298,500			16.60
Exercised		(175,800	)		10.97
Cancelled or expired		(22,325	)		15.04
Options outstanding, December 31, 2014		722,675			14.35		4.6		2,555
Granted		206,300			14.30
Exercised		(115,922	)		10.24
Cancelled or expired		(15,675	)		15.51
Options outstanding, December 31, 2015		797,378			14.91		4.7	$	453
Granted		187,200			18.51
Exercised		(124,291	)		12.89
Cancelled or expired		(45,743	)		15.27
Options outstanding, December 31, 2016		814,544		$	16.04		4.6	$	2,820
Options exercisable, December 31, 2016		575,469		$	15.20		3.8	$	2,472

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

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Unvested at December 31, 2015		289,400		$	3.43
Options granted		187,200			4.11
Options cancelled		(31,925	)		3.22
Options vested		(205,600	)		3.37
Unvested at December 31, 2016		239,075		$	4.05

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Note 11 - Other Income (Expense), Net (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Other Nonoperating Income (Expense) [Table Text Block]

	Years Ended December 31,
	2016			2015			2014
Interest income	$	-		$	2		$	3
Interest expense		(56	)		(119	)		(186	)
Foreign currency exchange gain (loss)		(116	)		209			(136	)
Other		(10	)		1			13
Gain on sale of business		553			-			-
Total other income (expense), net	$	371		$	93		$	(306	)

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Note 12 - Net Income Per Common Share (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

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

	Years Ended December 31,
	2016		2015		2014
Weighted shares of common stock outstanding - basic		5,802		5,753		5,665
Dilutive impact of share-based awards		33		65		89
Weighted shares of common stock outstanding - diluted		5,835		5,818		5,754

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Note 14 - Debt (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

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

	December 31, 2016		December 31, 2015
Capital leases (Note 7)	$	163	$	158
Total long-term notes payable		163		158
Less current portion of long-term notes payable		83		65
Total long-term notes payable	$	80	$	93

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

2017	$	83
2018		59
2019		21
Total	$	163

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Note 15 - Business Segments (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

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

	Package Testing		Permeation		Industrial Analyzers and Other			Unallocated - Corporate			Consolidated
December 31, 2016:
Revenue	$	30,257		23,039		10,015		$	-		$	63,311
Gross profit		17,229		13,902		4,526			-			35,657
Operating income		4,310		4,059		(1,171	)		(903	)		6,295
December 31, 2015:
Revenue	$	26,583	$	24,599	$	9,572		$	-		$	60,754
Gross profit		14,445		14,415		4,364			-			33,224
Operating income		2,792		4,342		(1,719	)		(1,049	)		4,366
December 31, 2014:
Revenue	$	28,071	$	23,380	$	13,024		$	-		$	64,475
Gross profit		13,850		14,985		7,279			-			36,114
Operating income		1,699		4,418		818			(3,171	)		3,764

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	2016		2015		2014
United States	$	3,882	$	4,232	$	4,010
Foreign countries:
Germany		225		285		336
Denmark		1,123		1,353		1,020
Other European counties		227		125		196
Total foreign countries		1,575		1,763		1,552
Consolidated total	$	5,457	$	5,995	$	5,562

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Years Ended December 31,
	2016		2015		2014
Domestic revenue	$	21,660	$	20,872	$	19,836
Foreign revenue:
Europe		26,190		23,203		26,324
Asia		12,790		12,762		14,166
Other		2,671		3,917		4,149
Total foreign revenue		41,651		39,882		44,639
Total revenue	$	63,311	$	60,754	$	64,475

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Schedule II - Valuation and Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2016

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

Description	Balance at Beginning of Year		Charged to Costs and Expenses			Charged to Other Accounts		Deductions			Balance at End of Year
Year ended December 31, 2016:
Allowance for doubtful accounts and returns	$	141		39			-		-		$	180
Year ended December 31, 2015:
Allowance for doubtful accounts and returns	$	181		(28	)		-		(12	)	$	141
Year ended December 31, 2014:
Allowance for doubtful accounts and returns	$	316		(85	)		-		(50	)	$	181

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Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenue, Net			$ 63,311,000	$ 60,754,000	$ 64,475,000
Goodwill		$ 8,147,000	7,180,000	7,437,000	8,147,000
Finite-Lived Intangible Assets, Gross			13,155,000	13,301,000
Amortization of Intangible Assets			1,100,000	1,200,000	1,300,000
Depreciation			1,500,000	1,300,000	1,300,000
Cost-method Investments, Other than Temporary Impairment					3,171,000
Advertising Expense			501,000	646,000	845,000
Cost of Revenue			27,654,000	27,530,000	28,361,000
Goodwill, Impairment Loss			0	0
Permeation Segment [Member]
Goodwill		2,029,000	$ 1,751,000	1,860,000	2,029,000
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award Fair Value Assumptions, Contractual Term			7 years
Employee Stock Option [Member] | Vesting over Four Years [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Operating Expense [Member] | Luxcel Biosciences Limited [Member]
Cost-method Investments, Other than Temporary Impairment		$ 3,200,000
Cost-method Investments, Other than Temporary Impairment, Percentage of Carrying Value		100.00%
Computer Software, Direct Costs of Materials and Services [Member]
Property, Plant and Equipment, Useful Life			5 years
Computer Software, Direct Costs of Materials and Services [Member] | Property, Plant and Equipment, Net [Member]
Depreciation			$ 398,000	221,000	213,000
Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life			10 years
Finite-Lived Intangible Assets, Gross			$ 5,923,000	6,121,000
Patents [Member]
Finite-Lived Intangible Assets, Gross			$ 2,021,000	1,844,000
Patents [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life			17 years
Other Intangible Assets [Member]
Finite-Lived Intangible Assets, Gross			$ 214,000	214,000
Other Intangible Assets [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life			5 years
Other Intangible Assets [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life			3 years
Computer Software, Software Development Costs, Intangible Asset [Member]
Finite-Lived Intangible Assets, Gross			$ 1,100,000	1,100,000
Amortization of Intangible Assets			$ 108,000	108,000	$ 46,000
Computer Software, Software Development Costs, Intangible Asset [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life			10 years
Computer Software, Software Development Costs, Intangible Asset [Member] | Minimum [Member]
Finite-Lived Intangible Asset, Useful Life			7 years
Restatement Adjustment [Member]
Revenue, Net				(470,000)
Cost of Revenue				$ (470,000)
Elimination of Intercompany Revenue [Member] | Permeation Segment [Member]
Cost of Revenue	$ (470,000)
Elimination of Intercompany Revenue [Member] | Restatement Adjustment [Member]
Revenue, Net	$ (470,000)

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Note 1 - Summary of Significant Accounting Policies - Effect of Misstatement Revisions (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Products	$ 49,506	$ 47,832	$ 50,694
Services	11,674	9,956	10,658
Consulting	2,131	2,966	3,123
Revenue, Net	63,311	60,754	64,475
Products	21,198	21,308	22,174
Services	4,793	4,205	4,188
Consulting	1,663	2,017	1,999
Cost of Revenue	27,654	27,530	28,361
Gross profit	$ 35,657	33,224	$ 36,114
Scenario, Previously Reported [Member]
Products		48,302
Services		9,956
Consulting		2,966
Revenue, Net		61,224
Products		21,778
Services		4,205
Consulting		2,017
Cost of Revenue		28,000
Gross profit		33,224
Restatement Adjustment [Member]
Products		(470)
Services
Consulting
Revenue, Net		(470)
Products		(470)
Services
Consulting
Cost of Revenue		(470)
Gross profit

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Note 2 - Sale of Business (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Proceeds from Divestiture of Businesses	$ 701,000
Gain (Loss) on Disposition of Business	553,000
Volatile Analysis Corporation [Member]
Proceeds from Divestiture of Businesses	701,000
Gain (Loss) on Disposition of Business	553,000
Sale of Business, Consideration Receivable	$ 599,000

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Note 3 - Inventories - Major Components of Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Finished products	$ 1,252	$ 1,366
Work-in-process	1,991	2,375
Raw materials	3,485	4,049
Total Inventory	$ 6,728	$ 7,790

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Note 4 - Property, Plant and Equipment (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Depreciation	$ 1.5	$ 1.3	$ 1.3

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Note 4 - Property, Plant and Equipment - Components of Property, Plant, and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, plant, and equipment	$ 13,994	$ 14,149
Less accumulated depreciation	(8,537)	(8,154)
Net property, plant and equipment	5,457	5,995	$ 5,562
Land [Member]
Property, plant, and equipment	200	200
Building [Member]
Property, plant, and equipment	$ 786	786
Estimated useful lives (Year)	27 years
Machinery and Equipment [Member]
Property, plant, and equipment	$ 4,975	5,178
Machinery and Equipment [Member] | Minimum [Member]
Estimated useful lives (Year)	3 years
Machinery and Equipment [Member] | Maximum [Member]
Estimated useful lives (Year)	10 years
Office Equipment [Member]
Property, plant, and equipment	$ 5,607	5,436
Office Equipment [Member] | Minimum [Member]
Estimated useful lives (Year)	2 years
Office Equipment [Member] | Maximum [Member]
Estimated useful lives (Year)	15 years
Leasehold Improvements [Member]
Property, plant, and equipment	$ 2,121	2,125
Leasehold Improvements [Member] | Minimum [Member]
Estimated useful lives (Year)	1 year
Leasehold Improvements [Member] | Maximum [Member]
Estimated useful lives (Year)	15 years
Vehicles [Member]
Property, plant, and equipment	$ 305	$ 424
Vehicles [Member] | Minimum [Member]
Estimated useful lives (Year)	3 years
Vehicles [Member] | Maximum [Member]
Estimated useful lives (Year)	5 years

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Note 5 - Goodwill and Other Intangible Assets (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Goodwill	$ 7,180,000	$ 7,437,000	$ 8,147,000
Amortization of Intangible Assets	1,100,000	1,200,000	$ 1,300,000
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	1,100,000
Finite-Lived Intangible Assets, Amortization Expense, Year Two	1,100,000
Finite-Lived Intangible Assets, Amortization Expense, Year Three	1,100,000
Finite-Lived Intangible Assets, Amortization Expense, Year Four	1,100,000
Finite-Lived Intangible Assets, Amortization Expense, Year Five	500,000
Finite-Lived Intangible Assets, Amortization Expense, after Year Five	2,300,000
Goodwill, Impairment Loss	$ 0	$ 0

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Note 5 - Goodwill and Other Intangible Assets - Changes in the Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Balance	$ 7,437	$ 8,147
Foreign currency translation	(200)	(710)
Balance	7,180	7,437
Sale of business (see Note 2)	(57)
Package Testing Segment [Member]
Balance	4,967	5,508
Foreign currency translation	(148)	(541)
Balance	4,819	4,967
Sale of business (see Note 2)
Permeation Segment [Member]
Balance	1,860	2,029
Foreign currency translation	(52)	(169)
Balance	1,751	1,860
Sale of business (see Note 2)	(57)
Industrial Analyzers and Other Segment [Member]
Balance	610	610
Foreign currency translation
Balance	610	$ 610
Sale of business (see Note 2)

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Note 5 - Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Cost	$ 13,155	$ 13,301
Accumulated amortization	(5,324)	(4,315)
Intangible assets, net	7,831	8,986
Patents [Member]
Cost	2,021	1,844
Accumulated amortization	(508)	(439)
Intangible assets, net	1,513	1,405
Trademarks and Trade Names [Member]
Cost	3,219	3,321
Accumulated amortization	(886)	(751)
Intangible assets, net	2,333	2,570
Developed Technology Rights [Member]
Cost	5,923	6,121
Accumulated amortization	(3,125)	(2,551)
Intangible assets, net	2,798	3,570
Customer Relationships [Member]
Cost	693	716
Accumulated amortization	(366)	(298)
Intangible assets, net	327	418
Internally Developed Software [Member]
Cost	1,085	1,085
Accumulated amortization	(263)	(154)
Intangible assets, net	822	931
Other Intangible Assets [Member]
Cost	214	214
Accumulated amortization	(176)	(122)
Intangible assets, net	$ 38	$ 92

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Note 6 - Warranties (Details Textual)	12 Months Ended
	Dec. 31, 2016
Product Warranty Period Low End of Range	90 years
Product Warranty Period High End of Range	1 year

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Note 6 - Warranties - Warranty Provisions and Claims (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Balance at beginning of year	$ 223	$ 285	$ 336
Warranty provisions	331	288	297
Warranty claims	345	350	348
Balance at end of year	$ 209	$ 223	$ 285

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Note 7 - Commitments and Contingencies (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Capital Leases, Balance Sheet, Assets by Major Class, Net	$ 211,000	$ 195,000
Operating Leases, Rent Expense, Net	1,100,000	$ 1,100,000	$ 1,200,000
Inventory Purchase Obligations [Member]
Purchase Commitment, Remaining Minimum Amount Committed	5,600,000
Accrued Compensation and Related Expenses [Member]
Severance Costs			72,000
Chief Financial Officer [Member]
Severance Costs			$ 107,000
Chief Operating Officer [Member] | Restructuring Charges [Member]
Severance Costs	305,000
Chief Operating Officer [Member] | Accrued Compensation [Member]
Severance Costs	$ 191,000

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Note 7 - Commitments and Contingencies - Future Minimum Lease Payments (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Operating leases, future minimum payments due, current	$ 1,058
Capital leases, future minimum payments due, current	85
Operating leases, future minimum payments due in year 2	900
Capital leases, future minimum payments due in year 2	60
Operating leases, future minimum payments due in year 3	807
Capital leases, future minimum payments due in year 3	21
Operating leases, future minimum payments due in year 4	741
Capital leases, future minimum payments due in year 4
Operating leases, future minimum payments due in year 5	1,947
Capital leases, future minimum payments due in year 5
Operating leases, future minimum payments due thereafter	1,922
Capital leases, future minimum payments due thereafter
Operating leases, future minimum payments due	7,375
Capital leases, future minimum payments due	166
Less amounts representing interest	3
Present value of minimum lease commitments	$ 163

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Note 8 - Realignment Expenses (Details Textual)	12 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Restructuring Charges	$ 903,000	$ 1,049,000
Realignment Plan [Member]
Restructuring Charges	$ 903,000	$ 1,000,000
Restructuring and Related Cost, Number of Positions Eliminated		10
Realignment Plan [Member] | Legal and Professional Fees [Member]
Restructuring Charges		$ 414,000
Realignment Plan [Member] | Employee Severance [Member]
Restructuring Charges		$ 635,000

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Note 8 - Realignment Expenses - Amounts Accrued, Realignment Expenses, and Cash Payments (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Beginning Balance	$ 620
Restructuring Charges	903	1,049
Cash Payments	(976)	(429)
Ending Balance	$ 547	$ 620

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Note 9 - Income Taxes (Details Textual) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Deferred Tax Assets, Valuation Allowance	$ 1,363,000	$ 1,294,000
Undistributed Earnings of Foreign Subsidiaries	3,400,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	99,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	$ 8,000	$ 13,000

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Note 9 - Income Taxes - Income Before Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Domestic	$ 1,635	$ 2,314	$ 968
Foreign	5,031	2,145	2,490
Income before income taxes	$ 6,666	$ 4,459	$ 3,458

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Note 9 - Income Taxes - Provision (Benefit) for Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current tax expense:
Federal	$ 787	$ 1,208	$ 1,076
State	71	48	95
Foreign	1,456	1,009	893
Total current expense	2,314	2,265	2,064
Deferred tax expense (benefit):
Federal	(539)	(508)	171
State	(10)	(15)	(27)
Foreign	(99)	(255)	(286)
Total deferred expense (benefit)	(648)	(778)	(142)
Provision for income taxes	$ 1,666	$ 1,487	$ 1,922

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Note 9 - Income Taxes - Effective Income Tax Rate Reconciliation (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Tax at statutory federal income tax rate	34.00%	34.00%	34.00%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit	0.60%	0.80%	0.40%
Change in valuation allowance	1.00%	0.90%	32.80%
Domestic manufacturing deduction	(1.50%)	(1.80%)	(3.50%)
Effect of foreign operations	(5.30%)	(2.30%)	(7.00%)
Foreign dividend income	27.50%
Unremitted earnings	(10.00%)
Foreign tax credit	(18.50%)
Changes in unrecognized tax benefits	(0.80%)	(2.60%)	0.00%
Stock option compensation	1.10%	2.90%	3.00%
Research credit	(3.40%)	(4.70%)	(4.30%)
Other, including provision to return adjustments	(0.30%)	(6.30%)	(0.20%)
Effective income tax rate	25.00%	33.50%	55.60%

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Note 9 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets:
Allowance for doubtful accounts	$ 18	$ 3
Inventory items	530	576
Reserves and accruals	226	413
Compensation expense - stock options	348	274
Foreign tax credit carryover		170
Unremitted Earnings	665
R&D credit carryover	237	171
Impairment	1,127	1,123
Other	209	220
Subtotal	3,360	2,950
Less: Valuation allowance	(1,363)	(1,294)
Total deferred tax assets	1,997	1,656
Deferred tax liabilities:
Fixed assets	(979)	(1,071)
Intangibles	(1,386)	(1,601)
Total deferred tax liabilities	(2,365)	(2,672)
Net deferred tax liability	$ (368)	$ (1,016)

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Note 9 - Income Taxes - Reconciliation of Gross Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Balance	$ 187	$ 302	$ 264
Additions based on tax positions related to the current year			61
Additions based on tax positions related to the prior year
Reductions due to closing of statute of limitations	(62)	(25)	(23)
Reductions based on tax positions related to the prior year		(90)
Balance	$ 125	$ 187	$ 302

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Note 10 - Share-based Compensation (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	814,544	797,378	722,675	622,300
Share-based Compensation Arrangement by Share-based Payment Award Options Exercise Period	7 years
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 4.11	$ 3.40	$ 4.28
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	$ 550,000	$ 585,000	$ 979,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 938,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 219 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 692,000	$ 630,000	$ 550,000
2015 Employee Stock Purchase Plan [Member]
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, Discount from Market Price, Offering Date	15.00%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	50,000
Stock Issued During Period, Shares, Employee Stock Purchase Plans	3,585
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	46,415
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 2.35
Stock Incentive Plan 2015 [Member]
Common Stock, Capital Shares Reserved for Future Issuance	180,500
Stock Incentive Plan 2006 and 2015 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	100.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	814,544
Stock Incentive Plans 2015, 2006 and 1998 [Member]
Share-based Compensation Arrangement by Share-based Payment Award Purchase Price of Common Stock Percentage for Grants to Persons Having More Than 10 Percent of Common Stock	110.00%

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Note 10 - Share-based Compensation - Share-based Compensation Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Amount of income tax benefit recognized in earnings	$ 11	$ (39)	$ (104)
Amount charged against net income	761	629	487
Stock Compensation Plan [Member]
Cost of share-based compensation	733	668	591
Employee Stock Purchase Plan [Member]
Cost of share-based compensation	$ 17

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Note 10 - Share-based Compensation - Valuation Assumptions (Details) - Employee Stock Option [Member]	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Dividend yield	2.70%	2.80%	3.40%
Expected volatility	25.00%	32.00%	37.00%
Risk-free interest rate	1.60%	1.60%	1.70%
Expected lives (in years) (Year)	5 years 328 days	6 years 292 days	6 years 146 days

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Note 10 - Share-based Compensation - Summary of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Options outstanding (in shares)	797,378	722,675	622,300
Options outstanding, Weighted Average Exercise Price (in dollars per share)	$ 14.91	$ 14.35	$ 12.34
Options outstanding, Weighted Average Remaining Contractual Term (Year)	4 years 219 days	4 years 255 days	4 years 219 days	3 years 255 days
Options outstanding, Aggregate Intrinsic Value	$ 2,820	$ 453	$ 2,555	$ 2,175
Options granted (in shares)	187,200	206,300	298,500
Granted, Weighted Average Exercise Price (in dollars per share)	$ 18.51	$ 14.30	$ 16.60
Options exercised (in shares)	(124,291)	(115,922)	(175,800)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 12.89	$ 10.24	$ 10.97
Options cancelled or expired (in shares)	(45,743)	(15,675)	(22,325)
Cancelled or expired, Weighted Average Exercise Price (in dollars per share)	$ 15.27	$ 15.51	$ 15.04
Options outstanding (in shares)	814,544	797,378	722,675	622,300
Options outstanding, Weighted Average Exercise Price (in dollars per share)	$ 16.04	$ 14.91	$ 14.35	$ 12.34
Options granted (in shares)	187,200	206,300	298,500
Options exercisable (in shares)	575,469
Options exercisable, Weighted Average Exercise Price (in dollars per share)	$ 15.20
Options exercisable, Weighted Average Remaining Contractual Term (Year)	3 years 292 days
Options exercisable, Aggregate Intrinsic Value	$ 2,472

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Note 10 - Share-based Compensation - Summary of Status Unvested Option Shares (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Options granted (in shares)	187,200	206,300	298,500
Employee Stock Option [Member]
Unvested (in shares)	289,400
Unvested, weighted average grant date fair value (in dollars per share)	$ 3.43
Options granted (in shares)	187,200
Options granted, weighted average grant date fair value (in dollars per share)	$ 4.11	$ 3.40	$ 4.28
Options cancelled (in shares)	(31,925)
Options vested, weighted average grant date fair value (in dollars per share) (in dollars per share)	$ 3.22
Options vested (in shares)	(205,600)
Options vested, weighted average grant date fair value (in dollars per share)	$ 3.37
Unvested (in shares)	239,075	289,400
Unvested, weighted average grant date fair value (in dollars per share)	$ 4.05	$ 3.43

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Note 11 - Other Income (Expense), Net - Other Income (Expense), Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest income		$ 2	$ 3
Interest expense	(56)	(119)	(186)
Foreign currency exchange gain (loss)	(116)	209	(136)
Other	(10)	1	13
Gain (Loss) on Disposition of Business	553
Total other income (expense), net	$ 371	$ 93	$ (306)

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Note 12 - Net Income Per Common Share (Details Textual) - shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	662,700	610,153	147,100

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Note 12 - Net Income Per Common Share - Reconciliation of the Denominators Used in the Computation of Net Income Per Common Share (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Basic (in shares)	5,802	5,753	5,665
Dilutive impact of share-based awards (in shares)	33	65	89
Weighted shares of common stock outstanding - diluted (in shares)	5,835	5,818	5,754

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Note 13 - Savings and Retirement Plan (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 964,000	$ 925,000	$ 882,000

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Note 14 - Debt (Details Textual) DKK in Millions	8 Months Ended	12 Months Ended		16 Months Ended
	Aug. 27, 2015 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2016 DKK	Aug. 28, 2015 USD ($)
Dansensor [Member]
Debt Instrument, Interest Rate, Stated Percentage			4.35%
Dansensor [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 700,000		$ 700,000	DKK 5
Long-term Line of Credit		$ 0	$ 0	$ 0
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 6,000,000					$ 10,000,000
London Interbank Offered Rate LIBOR		0.62%
Line of Credit Facility, Interest Rate at Period End		2.12%	1.74%	2.12%	2.12%
Debt Instrument Percentage of Common Stock Secured			65.00%
Long-term Line of Credit		$ 0	$ 2,800,000	$ 0
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	0.0175%			0.015%

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Note 14 - Debt - Long-term Notes Payable (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Capital leases (Note 7)	$ 163	$ 158
Total	163	158
Current maturities of long-term notes payable	83	65
Notes payable	$ 80	$ 93

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Note 14 - Debt - Future Minimum Principal Payments of Long-term Notes Payable (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
2019	$ 21
Total	163	$ 158
Notes Payable [Member]
2017	83
2018	59
Total	$ 163

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Note 15 - Business Segments (Details Textual)	12 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Number of Operating Segments	4
Number of Reportable Segments	3
Revenue, Net	$ 63,311,000	$ 60,754,000	$ 64,475,000
Intersegment Eliminations [Member]
Revenue, Net	$ 0	$ 0	$ 0

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Note 15 - Business Segments - Financial Information by Reportable Segment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenue, Net	$ 63,311	$ 60,754	$ 64,475
Gross profit	35,657	33,224	36,114
Operating income	6,295	4,366	3,764
Corporate, Non-Segment [Member]
Revenue, Net
Gross profit
Operating income	(903)	(1,049)	(3,171)
Package Testing Segment [Member] | Operating Segments [Member]
Revenue, Net	30,257	26,583	28,071
Gross profit	17,229	14,445	13,850
Operating income	4,310	2,792	1,699
Permeation Segment [Member] | Operating Segments [Member]
Revenue, Net	23,039	24,599	23,380
Gross profit	13,902	14,415	14,985
Operating income	4,059	4,342	4,418
Industrial Analyzers and Other Segment [Member] | Operating Segments [Member]
Revenue, Net	10,015	9,572	13,024
Gross profit	4,526	4,364	7,279
Operating income	$ (1,171)	$ (1,719)	$ 818

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Note 15 - Business Segments - Property, Plant and Equipment, Net of Accumulated Depreciation, by Geographic Location (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, plant, and equipment, net	$ 5,457	$ 5,995	$ 5,562
UNITED STATES
Property, plant, and equipment, net	3,882	4,232	4,010
GERMANY
Property, plant, and equipment, net	225	285	336
DENMARK
Property, plant, and equipment, net	1,123	1,353	1,020
Other European Countries [Member]
Property, plant, and equipment, net	227	125	196
Total Assets Foreign Countries [Member]
Property, plant, and equipment, net	$ 1,575	$ 1,763	$ 1,552

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Note 15 - Business Segments - Total Sales, Based Upon the Country to Which Sales to External Customers Were Made (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Sales revenue, net	$ 63,311	$ 60,754	$ 64,475
UNITED STATES
Sales revenue, net	21,660	20,872	19,836
Europe [Member]
Sales revenue, net	26,190	23,203	26,324
Asia [Member]
Sales revenue, net	12,790	12,762	14,166
Other Region [Member]
Sales revenue, net	2,671	3,917	4,149
Total Foreign Sales [Member]
Sales revenue, net	$ 41,651	$ 39,882	$ 44,639

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Schedule II - Valuation and Qualifying Accounts - Valuation Allowance (Details) - Allowance for Doubtful Accounts And Sales Returns [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Balance at beginning of year	$ 141	$ 181	$ 316
Charged to costs and expenses	39	(28)	(85)
Charged to other accounts
Deductions		(12)	(50)
Balance at end of year	$ 180	$ 141	$ 181