Met Pro (MPR) 10-Q 2005 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

or

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended: October 31, 2004 Commission file number: 001-07763

MET-PRO CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	23-1683282
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
160 Cassell Road, P.O. Box 144
Harleysville, Pennsylvania	19438
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 723-6751

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 and (2) has been subject to such filing requirements for the past 90 days.         Yes   X      No     

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   X      No     

As of October 31, 2004 the Registrant had 8,366,206 Common Shares, par value of $.10 per share, issued and outstanding.

MET-PRO CORPORATION

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements

Consolidated balance sheet as of           October 31, 2004 and January 31, 2004	2
Consolidated statement of operations for the nine-month and three-month           periods ended October 31, 2004 and 2003	3
Consolidated statement of shareholders’ equity for the           nine-month periods ended October 31, 2004 and 2003	4
Consolidated statement of cash flows for the nine-month          periods ended October 31, 2004 and 2003	5
Notes to consolidated financial statements	6
Report of independent accountants	10

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	11
Item 3.	Qualitative and Quantitative Disclosures about Market Risks	16
Item 4.	Controls and Procedures	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
SIGNATURES		19

1

MET-PRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
	October 31,		January 31,
ASSETS	2004		2004
Current assets
Cash and cash equivalents	$17,587,019		$16,996,253
Accounts receivable, net of allowance for doubtful
accounts of approximately $285,000 and
$208,000, respectively	14,937,212		16,608,344
Inventories	13,898,907		12,755,011
Prepaid expenses, deposits and other current assets	1,134,156		1,209,395
Deferred income taxes	604,426		604,426
Total current assets	48,161,720		48,173,429
Property, plant and equipment, net	11,198,917		11,514,199
Costs in excess of net assets of businesses acquired, net	20,798,913		20,798,913
Other assets	643,468		649,016
Total assets	$80,803,018		$81,135,557
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt	$1,507,585		$1,533,866
Accounts payable	4,655,607		5,073,554
Accrued salaries, wages and expenses	6,313,854		6,542,306
Dividend payable	648,381		602,755
Customers' advances	192,142		476,982
Total current liabilities	13,317,569		14,229,463
Long-term debt	4,115,998		5,447,869
Other non-current liabilities	40,465		38,818
Deferred income taxes	1,191,179		1,148,673
Total liabilities	18,665,211		20,864,823
Shareholders' equity
Common shares, $.10 par value; 18,000,000 shares
authorized, 9,634,956 shares issued,
of which 1,268,750 and 1,311,679 shares were reacquired
and held in treasury at the respective dates	963,496		963,496
Additional paid-in capital	7,929,993		7,955,459
Retained earnings	65,270,486		63,727,425
Accumulated other comprehensive loss	(164,789	)	(328,616	)
Treasury shares, at cost	(11,861,379	)	(12,047,030	)
Total shareholders' equity	62,137,807		60,270,734
Total liabilities and shareholders' equity	$80,803,018		$81,135,557
See accompanying notes to consolidated financial statements.

	2
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

	Nine Months Ended October 31,				Three Months Ended October 31,
	2004		2003		2004		2003
Net sales	$53,390,830		$55,440,022		$17,406,160		$19,811,544
Cost of goods sold	36,586,442		35,606,780		12,065,367		12,861,737
Gross profit	16,804,388		19,833,242		5,340,793		6,949,807
Operating expenses
Selling	5,759,178		5,903,475		1,862,739		2,093,009
General and administrative	5,725,878		6,036,950		1,976,615		1,902,429
	11,485,056		11,940,425		3,839,354		3,995,438
Income from operations	5,319,332		7,892,817		1,501,439		2,954,369
Interest expense	(273,098	)	(336,868	)	(86,156	)	(109,071	)
Other income/(expense), net	111,850		(626,168	)	69,061		(336,922	)
Income before taxes	5,158,084		6,929,781		1,484,344		2,508,376
Provision for taxes	1,753,747		2,356,125		504,673		852,847
Net income	$3,404,337		$4,573,656		$979,671		$1,655,529
Earnings per share, basic(1) (2)	$.41		$.55		$.12		$.20
Earnings per share, diluted(1) (3)	$.40		$.55		$.12		$.20
Cash dividend per share - declared(1) (4)	$.2225		$.2075		$.0775		$.0725
Cash dividend per share - paid(1)(4)	$.2175		$.2025		$.0725		$.0675

⁽¹⁾    On September 17, 2003, the Board of Directors declared a four-for-three stock split which was effective on October 15, 2003 to shareholders of record on October 1, 2003. All references in the financial statements to per share amounts and number of shares outstanding have been restated to reflect the effect of the stock split.

⁽²⁾    Basic earnings per share are based upon the weighted average number of shares outstanding of 8,356,903 and 8,291,748 in the nine-month periods ended October 31, 2004 and 2003, respectively, and 8,355,629 and 8,290,133 in the three-month periods ended October 31, 2004 and 2003, respectively.

⁽³⁾    Diluted earnings per share are based upon the weighted average number of shares outstanding of 8,467,680 and 8,371,848 in the nine-month periods ended October 31, 2004 and 2003, respectively, and 8,469,833 and 8,363,065 in the three-month periods ended October 31, 2004 and 2003, respectively.

⁽⁴⁾   The Board of Directors declared quarterly dividends of $.0725 per share payable on March 10, 2004, June 9, 2004 and September 9, 2004 to shareholders of record as of February 27, 2004, May 28, 2004 and August 27, 2004, respectively, and a quarterly dividend of $.0775 per share payable on December 9, 2004 to shareholders of record on November 26, 2004. Quarterly dividends of $.0675 per share were payable on March 10, 2003, June 9, 2003 and September 9, 2003 to shareholders of record as of February 21, 2003, May 23, 2003 and August 27, 2003, respectively.

See accompanying notes to consolidated financial statements.

	3
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(unaudited)

			Accumulated
	Additional		Other
Common	Paid-in	Retained	Comprehensive	Treasury
Shares	Capital	Earnings	Income/(Loss)	Shares	Total

Balances, January 31, 2004	$963,496	$7,955,459		$63,727,425		($328,616	)	($12,047,030	)	$60,270,734
Comprehensive income:
Net income	-	-		3,404,337		-		-
Cumulative translation adjustment	-	-		-		77,393		-
Interest rate swap,
net of tax of($44,527)	-	-		-		86,434		-
Total comprehensive income										3,568,164
Dividends paid, $.1450 per share	-	-		(1,212,895	)	-		-		(1,212,895	)
Dividends declared, $.0775 per
share	-	-		(648,381	)	-		-		(648,381	)
Stock option transactions	-	(25,466	)	-		-		667,338		641,872
Purchase of 28,717 shares of
treasury stock	-	-		-		-		(481,687	)	(481,687	)
Balances, October 31, 2004	$963,496	$7,929,993		$65,270,486		($164,789	)	($11,861,379	)	$62,137,807

			Accumulated
	Additional		Other
Common	Paid-in	Retained	Comprehensive	Treasury
Shares	Capital	Earnings	Income/(Loss)	Shares	Total

Balances, January 31, 2003	$722,630	$8,196,782		$59,705,267		($541,959	)	($12,036,835	)	$56,045,885
Comprehensive income:
Net income	-	-		4,573,656		-		-
Cumulative translation adjustment	-	-		-		215,274		-
Interest rate swap,
net of tax of ($46,198)	-	-		-		68,623		-
Total comprehensive income										4,857,553
Stock split four-for-three	240,866	(240,866	)	-		-		-		-
Cash in lieu of fractional shares	-	(1,421	)	-		-		-		(1,421	)
Dividends paid, $.1350 per share	-	-		(1,119,253	)	-		-		(1,119,253	)
Dividends declared, $.0725 per
share	-	-		(604,091	)	-		-		(604,091	)
Stock option transactions	-	(25,452	)	-		-		423,457		398,005
Purchase of 31,768 shares of
treasury stock	-	-		-		-		(398,005	)	(398,005	)
Balances, October 31, 2003	$963,496	$7,929,043		$62,555,579		($258,062	)	($12,011,383	)	$59,178,673
See accompanying notes to consolidated financial statements.

	4
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

Nine Months Ended
October 31,
2004	2003

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities
Net Income	$3,404,337		$4,573,656
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization	1,105,463		1,175,381
Deferred income taxes	(2,021	)	(7,736	)
(Gain) loss on sale of property and equipment, net	(1,650	)	21,909
Allowance for doubtful accounts	76,914		45,170
(Increase) decrease in operating assets:
Accounts receivable	1,665,238		(2,575,609	)
Inventories	(1,031,531	)	243,050
Prepaid expenses, deposits and other current assets	79,159		(97,549	)
Other assets	(19,502	)	(6,564	)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses	(750,110	)	3,261,231
Customers’ advances	(287,805	)	471,058
Other non-current liabilities	1,648		1,648
Net cash provided by operating activities	4,240,140		7,105,645
Cash flows from investing activities
Proceeds from sale of equipment	1,650		-
Acquisitions of property and equipment	(734,576	)	(1,101,598	)
Net cash (used in) investing activities	(732,926	)	(1,101,598	)
Cash flows from financing activities
Reduction of debt	(1,227,190	)	(1,227,695	)
Exercise of stock options	641,872		398,005
Payment of dividends	(1,815,651	)	(1,678,421	)
Purchase of treasury shares	(481,687	)	(398,005	)
Cash in lieu of fractional shares	-		(1,421	)
Net cash (used in) financing activities	(2,882,656	)	(2,907,537	)
Effect of exchange rate changes on cash	(33,792	)	51,980
Net increase in cash and cash equivalents	590,766		3,148,490
Cash and cash equivalents at February 1	16,996,253		13,429,367
Cash and cash equivalents at October 31	$17,587,019		$16,577,857
See accompanying notes to consolidated financial statements.

	5
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stock Options:The Company accounts for stock options under the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Accounting for the issuance of stock options under the provisions of APB No. 25 typically does not result in compensation expense for the Company since the exercise price of options is normally established at the market price of the Company’s Common Shares on the date granted. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", provides that the related expense may be recorded in the basic financial statements or the pro forma effect on earnings may be disclosed in the financial statements.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which requires that the information be determined as if we had accounted for our stock options under the fair-value method. The fair value for these options was established at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rates ranging from 3.1% to 3.6%, dividend yield ranging from 1.9% to 3.7%, expected volatility of the market price of the Company’s Common Stock of 32%, and an expected option life of five years.

The risk-free interest rates are based on the five-year treasury bill rates. For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting periods.

The pro forma information compared to reported information for the nine-month and three-month periods ended October 31, 2004 and 2003 is presented in the following table (adjusted for four-for-three stock split):

	Nine Months Ended		Three Months Ended
	October 31,		October 31,
	2004	2003	2004	2003
Net Income:
As reported	$3,404,337	$4,573,656	$979,671	$1,655,529
Pro forma	3,246,525	4,457,538	927,067	1,616,824
Basic earnings per share:
As reported	$.41	$.55	$.12	$.20
Pro forma	$.39	$.54	$.11	$.20
Diluted earnings per share:
As reported	$.40	$.55	$.12	$.20
Pro forma	$.38	$.53	$.11	$.19

The pro forma effects of applying SFAS No. 123 to the nine-month and three-month periods ended October 31, 2004 and 2003, may not be representative of the pro forma effects in future years. Based on the vesting schedule of the Company’s stock option grants, the pro forma effects on earnings are most pronounced in the early years following each grant. The timing and magnitude of any future grants are at the discretion of the Company’s Board of Directors and cannot be assured.

Non-employee directors of the Company are eligible to receive stock options for Common Shares. These stock options are accounted for the same as stock options granted to employees.

Recent Accounting Pronouncements: In January 2003, the Financial Accounting Standards Board ("FASB") issued Finance Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements". In October 2003, the FASB issued FASB Staff Position FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities", deferring the effective date for applying the provisions of FIN 46 for public entities’ interests in variable interest entities or potential variable interest entities created before February 1, 2003 for financial statements of interim or annual periods that end after December 15, 2003. FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. The Company has no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of this interpretation did not have any impact on its financial condition or results of operations.

	6
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued...

Reclassifications:Certain reclassifications have been made to the financial statements for the three-month and nine-month periods ended October 31, 2003 to conform with the presentation of the financial statements for the three-month and nine-month periods ended October 31, 2004. Such reclassifications did not have any impact on shareholders’ equity and net income as of and for the three-month and nine-month periods ended October 31, 2003.

Stock Splits:On September 17, 2003, the Company’s Board of Directors declared a four-for-three stock split, effective in the form of a stock distribution on October 15, 2003 to shareholders of record on October 1, 2003. The Company retained the current par value of $.10 per share for all common shares. All references in the financial statements and notes to the number of shares outstanding, per share amounts, and stock option data of the Company’s common shares have been restated to reflect the effect of the stock split for all periods presented.

Shareholders’ equity reflects the stock split by reclassifying from "Additional paid-in capital" to "Common shares" an amount equal to the par value of the additional shares arising from the split.

NOTE 2 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Met-Pro Corporation ("Met-Pro" or the "Company") and its wholly-owned subsidiaries, Mefiag B.V., Flex-Kleen Canada Inc., Strobic Air Corporation, MPC Inc. and Pristine Hydrochemical Inc. Significant intercompany accounts and transactions have been eliminated.

NOTE 3 - BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position as of October 31, 2004 and the results of operations for the nine-month and three-month periods ended October 31, 2004 and 2003, and changes in shareholders’ equity and cash flows for the nine-month periods then ended. The results of operations for the nine-month and three-month periods ended October 31, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.

	7
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INVENTORIES

Inventories consisted of the following:

	October 31,	January 31,
	2004	2004
Raw materials	$7,703,343	$7,069,349
Work in progress	1,293,341	1,186,898
Finished goods	4,902,223	4,498,764
	$13,898,907	$12,755,011

NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION

Net cash flows from operating activities reflect cash payments for interest and income taxes as follows:

	Nine Months Ended October 31,
	2004	2003
Cash paid during the period for:
Interest	$256,991	$303,996
Income taxes	1,536,352	2,018,428

NOTE 6 - OTHER INCOME/(EXPENSE), NET

Other income/(expense), net was comprised of the following:

	Nine Months Ended				Three Months Ended
	October 31,				October 31,
	2004		2003		2004		2003
(Loss)/gain on sale of property and
equipment	$1,650		($21,909	)	$1,650		$0
Other, primarily interest income	226,742		175,015		86,161		21,385
Unusual charge - patent litigation	(116,542	)	(779,274	)	(18,750	)	(358,307	)
	$111,850		($626,168	)	$69,061		($336,922	)

	8
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - BUSINESS SEGMENT DATA

The Company’s operations are conducted in two business segments as follows: the manufacture and sale of product recovery/pollution control equipment, and the manufacture and sale of fluid handling equipment.

No significant intercompany revenue is realized by either business segment. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measureof segment operating profit reviewed by management.

Financial information by business segment is shown below:

	Nine Months Ended		Three Months Ended
	October 31,		October 31,
	2004	2003	2004	2003
Net sales
Product recovery/pollution control equipment	$31,556,277	$37,257,235	$9,900,395	$13,499,144
Fluid handling equipment	21,834,553	18,182,787	7,505,765	6,312,400
	$53,390,830	$55,440,022	$17,406,160	$19,811,544
Income from operations
Product recovery/pollution control equipment	$2,522,779	$5,689,106	$571,279	$2,215,560
Fluid handling equipment	2,796,553	2,203,711	930,160	738,809
	$5,319,332	$7,892,817	$1,501,439	$2,954,369

	October 31,	January 31,
	2004	2004
Identifiable assets
Product recovery/pollution control equipment	$42,865,280	$44,613,967
Fluid handling equipment	19,885,789	19,313,159
	62,751,069	63,927,126
Corporate	18,051,949	17,208,431
	$80,803,018	$81,135,557

NOTE 8 - ACCOUNTANTS’ 10-Q REVIEW

Margolis & Company P.C., the Company’s independent accountants, has performed a limited review of the financial information included herein. Their report on such review accompanies this filing.

	9
MET-PRO CORPORATION

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors

Met-Pro Corporation

Harleysville, Pennsylvania

We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of October 31, 2004, and the related consolidated statements of operations for the nine-month and three-month periods ended October 31, 2004 and 2003 and shareholders’ equity and cash flows for the nine-month periods ended October 31, 2004 and 2003. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2004, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 2004, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

/s/ Margolis & Company P.C.

Certified Public Accountants

Bala Cynwyd, Pennsylvania

November 18, 2004

	10
MET-PRO CORPORATION

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

Results of Operations:

The following table sets forth, for the nine-month and three-month periods indicated, certain financial information derived from the Company’s consolidated statement of operations expressed as a percentage of net sales.

	Nine Months Ended				Three Months Ended
	October 31,				October 31,
	2004		2003		2004		��2003
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	68.5	%	64.2	%	69.3	%	64.9	%
Gross profit	31.5	%	35.8	%	30.7	%	35.1	%
Selling expenses	10.8	%	10.7	%	10.7	%	10.6	%
General and administrative expenses	10.7	%	10.9	%	11.4	%	9.6	%
Income from operations	10.0	%	14.2	%	8.6	%	14.9	%
Interest expense	(.5	%)	(.6	%)	(.5	%)	(.5	%)
Other income/(expense), net	.2	%	(1.1	%)	.4	%	(1.7	%)
Income before taxes	9.7	%	12.5	%	8.5	%	12.7	%
Provision for taxes	3.3	%	4.3	%	2.9	%	4.3	%
Net income	6.4	%	8.2	%	5.6	%	8.4	%

Nine Months Ended October 31, 2004 vs Nine Months Ended October 31, 2003

Net sales for the nine-month period ended October 31, 2004 were $53,390,830 compared to $55,440,022 for the nine-month period ended October 31, 2003, a decrease of $2,049,192 or 3.7%. Sales in the Fluid Handling Equipment segment were $21,834,553 or 20.1% higher than the nine-month period ended October 31, 2003. Sales in the Product Recovery/Pollution Control Equipment segment were $31,556,277 or 15.3% lower than the nine-month period ended October 31, 2003. The decreased sales in the Product Recovery/Pollution Control Equipment segment have been, and continue to be, adversely impacted by an overall softness in the higher dollar capital equipment and systems markets, combined with unusual customer delays in issuing expected purchase orders for several large dollar projects. Purchase orders for several of these projects, totaling approximately $5.5 million ($3.1 million is currently in backlog while the remaining $2.4 million of these purchase orders are awaiting engineering drawing approval), were received during the third quarter; however, none of these projects are scheduled to ship until our next fiscal year.

Backlog at October 31, 2004 totaled $11,698,164 compared to $10,606,653 at October 31, 2003. In addition, at October 31, 2004, the Company had orders of $6,485,255 compared to $5,488,629 at October 31, 2003, which are not included in our backlog due to the Company’s long-standing policy of not including these orders in backlog until engineering drawings are approved.

Net income for the nine-month period ended October 31, 2004 was $3,404,337 compared to $4,573,656 for the nine-month period ended October 31, 2003, a decrease of $1,169,319 or 25.6%. The decrease in net income was primarily impacted by a continued slowness in the purchase of higher dollar value capital equipment and systems, as well as atypical customer delays in issuing expected purchase orders for a number of large projects in our Product Recovery/Pollution Control Equipment segment. In addition, net income was adversely impacted by product mix, competitive pricing pressures, and higher raw material and in-bound freight costs in both operating segments, combined with an unusual profit erosion sustained on a Product Recovery/Pollution Control Equipment segment project which reduced our net income by approximate ly $260,000.

	11
MET-PRO CORPORATION

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

The gross margin for the nine-month period ended October 31, 2004 was 31.5% compared to 35.8% for the same period in the prior year due to lower gross margins experienced in both operating segments . The decrease in gross margin is principally due to product mix, competitive pricing pressures, and higher raw material and in-bound freight costs, combined with the profit erosion sustained on the Product Recovery/Pollution Control project previously mentioned which accounted for a 0.7% reduction in the gross margin for the nine-month period.

Selling expense decreased $144,297 during the nine-month period ended October 31, 2004 compared to the same period last year. Selling expense as a percentage of net sales was 10.8% for the nine-month period ended October 31, 2004 compared to 10.7% for the same period last year.

General and administrative expense was $5,725,878 for the nine-month period ended October 31, 2004 compared to $6,036,950 fo r the same period last year, a decrease of $311,072. General and administrative expense as a percentage of net sales was 10.7% for the nine-month period ended October 31, 2004 compared to 10.9% for the same period last year. This decrease is related in part to decreases in payroll and accruals for our management incentive program.

Interest expense was $273,098 for the nine-month period ended October 31, 2004 compared to $336,868 for the same period in the prior year, a decrease of $63,770. This decrease was due principally to a reduction of existing long-term debt.

Other income, net, was $111,850 for the nine-month period ended October 31, 2004 compared to other expense, net, of $626,168 in the same period in the prior year. This change is principally related to a reduction in legal expenses incurred in defe nding against allegations that products sold by one of the Company’s divisions infringed a competitor’s intellectual property rights. We settled this case in February 2004. Neither the settlement nor the legal fees incurred after January 31, 2004 are expected to be material in the fiscal year ending January 31, 2005.

The effective tax rate for the nine-month periods ended October 31, 2004 and October 31, 2003 was 34.0%.

Three Months Ended October 31, 2004 vs Three Months Ended October 31, 2003

Net sales for the three-month period ended October 31, 2004 were $17,406,160 compared to $19,811,544 for the three-month period ended October 31, 2003, a decrease of $2,405,384 or 12.1%. Sales i n the Fluid Handling Equipment segment were $7,505,765 or 18.9% higher compared to the three-month period ended October 31, 2003. Sales in the Product Recovery/Pollution Control Equipment segment were $9,900,395 or 26.7% lower than the three-month period ended October 31, 2003. The decreased sales in the Product Recovery/Pollution Control Equipment segment have been, and continue to be, adversely impacted by an overall softness in the higher dollar capital equipment and systems markets, combined with unusual customer delays in issuing expected purchase orders for several large dollar projects. Purchase orders for several of these projects, totaling approximately $5.5 million ($3.1 million is currently in backlog while the remaining $2.4 million of these purchase orders are awaiting engineering drawing approval), were received during the third quarter; however, none of these projects are scheduled to ship until our next fiscal year.

Net income for the three-month period ended October 31, 2004 was $979,671 compared to $1,655,529 for the three-month period ended October 31, 2003, a decrease of $675,858. The decrease in net income was primarily impacted by a continued slowness in the purchase of higher dollar value capital equipment and systems, as well as atypical customer delays in issuing expected purchase orders for a number of large projects in our Product Recovery/Pollution Control Equipment segment. In addition, net income was adversely impacted by product mix, competitive pricing pressures, and higher raw material and in-bound freight costs in both operating segments, combined with the profit erosion sustained on a Product Recovery/Pollution Control Equipment segment project which reduced our net income by approximately $260,000.

The gross margin for the three-month period ended October 31, 2004 was 30.7% compared to 35.1% for the same period last year, due to lower gross margins experienced in both operating segments. The decrease in gross margin is principally due to product mix, competitive pricing pressures, and higher raw material and in-bound freight costs, combined with an unusual profit erosion sustained on the Product Recovery/Pollution Control project previously mentioned which accounted for a 2.3% reduction in the gross margin for the three-month period.

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MET-PRO CORPORATION

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operationscontinued...

Selling expenses decreased $230,270 during the three-month period ended October 31, 2004 compared to the same period last year. As a percentage of net sales, selling expenses were 10.7% for the three-month period ended October 31, 2004 compared to 10.6% for the same period last year. This decrease is related in part to decreases in salesmen commissions and advertising costs.

General and administrative expense was $1,976,615 for the three-month period ended October 31, 2004 compared to $1,902,429 for the three-month period ended October 31, 2003, an increase of $74,186. General and administrative expense for the three-month period ended October 31, 2004 was 11.4% of net sales, compared to 9.6% of net sales for the same period last year.

Interest expense was $86,156 for the three-month period ended October 31, 2004 compared to $109,071 for the same period in the prior year, a decrease of 21.0%. This decrease was due principally to a reduction of existing long-term debt.

Other income, net, was $69,061 for the three-month period ended October 31, 2004 compared to other expense, net, of $336,922 in the same period in the prior year. This change is principally related to a reduction in legal expenses incurred in defending against allegations that products sold by one of the Company’s divisions infringed a competitor’s intellectual property rights. We settled this case in February 2004. Neither the settlement nor the legal fees incurred after January 31, 2004 are expected to be material in the fiscal year ending January 31, 2005.

The effective tax rate for the three-month periods ended October 31, 2004 and October 31, 2003 was 34.0%.

Liquidity:

The Company’s cash and cash equivalents were $17,587,019 on October 31, 2004 compared to $16,996,253 on January 31, 2004, an increase of $590,766. This increase is the net result of the positive cash flows provided by operating activities of $4,240,140, the exercise of stock options amounting to $641,872 and the proceeds from the sale of equipment totaling $1,650, offset by payments of the quarterly cash dividends amounting to $1,815,651, purchase of treasury shares amounting to $481,687, payments on long-term debt totaling $1,227,190, exchange rate changes of $33,792 and investment in property and equipment amounting to $734,576. The Company’s cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.

Accounts receivable (net) amounted to $14,937,212 on October 31, 2004 compared to $16,608,344 on January 31, 2004, which represents a decrease of $1,671,132. The timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Equipment segment, will influence accounts receivable balances at any point in time.

Inventories were $13,898,907 on October 31, 2004 compared to $12,755,011 on January 31, 2004, an increase of $1,143,896. Inventory balances fluctuate depending on the size and shipment of orders, and market demand, especially when major systems and contracts are involved.

Current liabilities amounted to $13,317,569 on October 31, 2004 compared to $14,229,463 on January 31, 2004, a decrease of $911,894. A decrease in accounts payable, accrued expenses and customers’ advances accounted for this decrease.

The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit together totaling $5 million, which are available for working capital purposes. Cash flows, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. As of October 31, 2004 and January 31, 2004, working capital was $34,844,151 and $33,943,966, respectively, and the current ratio was 3.6 and 3.4, respectively.

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MET-PRO CORPORATION

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operationscontinued...

Capital Resources and Requirements:

Cash flows provided by operating activities during the nine-month period ended October 31, 2004 amounted to $4,240,140 compared with $7,105,645 in the nine-month period ended October 31, 2003, a decrease of $2,865,505. This decrease in cash flows from operating activities was due principally to (i) the increase in inventory and (ii) the decrease in net income, accounts payable and accrued expenses, and customers’ advances, which were offset by the decrease in accounts receivable.

Cash flows used in investing activities during the nine-month period ended October 31, 2004 amounted to $732,926 compared with $1,101,598 for the nine-month period ended October 31, 2003. The Company’s investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments during both years.

Consistent with past practices, the Company intends to continue to invest in new product development programs and to make capital expenditures to support the ongoing operations during the coming year. The Company expects to finance all routine capital expenditure requirements through cash flows generated from operations.

Financing activities during the nine-month period ended October 31, 2004 utilized $2,882,656 of available resources compared to $2,907,537 for the nine-month period ended October 31, 2003. The 2004 activity is the result of the payments of the quarterly cash dividends amounting to $1,815,651, the purchase of treasury shares amounting to $481,687 and the reduction of long-term debt totaling $1,227,190, offset by the exercise of stock options amounting to $641,872.

The Board of Directors declared quarterly dividends of $.0725 per share payable on March 10, 2004, June 9, 2004 and September 9, 2004 to shareholders of record as of February 27, 2004, May 28, 2004 and August 27, 2004, respectively, and a quarterly dividend of $.0775 per share payable on December 9, 2004 to shareholders of record as of November 26, 2004.

Critical Accounting Policies and Estimates:

Management’s discussion and analysis of financial position and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

The Company’s revenues are generally recognized when products are shipped to unaffiliated customers. The Securities and Exchange Commission’s Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.

Property, plant and equipment, intangible and certain other long-lived assets are depreciated and amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not berecoverable. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", which supersedes Accounting Principles Board ("APB") No. 17, "Intangible Assets", effective February 1, 2002, the Company’s unamortized goodwill balance is not being amortized over its estimated useful life; rather, it is being assessed at least annually for impairment.

The determination of our obligation and expense for pension benefits is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expense and recorded obligation in such future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligations and our future expense.

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MET-PRO CORPORATION

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operationscontinued...

Cautionary Statement Concerning Forward-Looking Statements:

Our prospects are subject to certain uncertainties and risk. This Quarterly Report on Form 10-Q also contains certain forward-looking statements within the meaning of the Federal securities laws. These forward looking statements may be identified by words describing our beliefs or expectations, such as where we say that we "believe", "expect" or "anticipate", or where we characterize something in a manner in which there is an express or implicit reference to the future, such as "non-recurring" or "unusual". The content of the o ther statements may indicate that the statement is "forward-looking". We claim the "safe harbor" provided by The Private Securities Reform Act of 1995 for forward-looking statements.

Our future financial condition and results of operations may differ materially from our current financial condition and results of operations, and actual financial condition and results of operations could differ materially from those suggested in the forward-looking statements as a result of certain risk factors, including but not limited to those set forth below, other one time events, other important factors disclosed previously and from time to time in Met-Pro’s other filings with the Securities and Exchange Commission. Additionally, there are certain risks associated with the ownership of our stock, such as its limited trading volume and liquidity, which we believe results in certain price volatility and fluctuation.

The following important factors, along with those discussed elsewhere in this Quarterly Report on Form 10-Q, could affect our future financial condition and results of operations, and could cause our future financial condition and results of operations to differ materially from those expressed in our SEC filings and in our forward-looking statements:

· the write-down of costs in excess of net assets of businesses acquired (goodwill), as a result of the determination that the acquired business is impaired. Our Flex-Kleen Division, which initially performed well after being acquired by Met-Pro, has experienced declining performance during the last several years due primarily to a general weakness in its served markets. During the fiscal year ended January 31, 2004, we performed an impairment analysis of the $11.1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment has occurred. However, if Flex-Kleen’s performance does not improve sufficiently in the current fiscal year, we may be required to write off some or all of the goodwill;

· materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;

· material changes in available technology;

· adverse developments in the asbestos cases that have been filed against the Company, including without limitation the exhaustion of insurance coverage, the imposition of punitive damages or other adverse developments in the availability of insurance coverage;

· changes in accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;

· the cost of compliance with Sarbanes-Oxley and other applicable legal and listing requirements, and the unanticipated possibility that Met-Pro may not meet these requirements;

· unexpected results in our product development activities;

· loss of key customers;

· changes in product mix and the cost of materials, with effect on margins;

· changes in our existing management;

· exchange rate fluctuations;

· changes in federal laws, state laws and regulations;

· lower than anticipated return on investments in the Company’s defined benefit plans, which could affect the amount of the Company’s pension liabilities;

· the assertion of litigation claims that the Company’s products, including products produced by companies acquired by the Company, infringe third party patents or have caused injury, loss or damage;

· the effect of acquisitions and other strategic ventures;

·  failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;

· the cancellation or delay of purchase orders or shipments;

· losses related to international sales; and/or

· failure in execution of acquisition strategy.

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MET-PRO CORPORATION

Item 3.   Qualitative and Quantitative Disclosures about Market Risk

We have no disclosure to make with respect to this Item.

Item 4.   Controls and Procedures

With the participation of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a - 15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 31, 2004.

There were no changes in our internal controls over financial reporting (as defined in Rule 13a - 15(f) under the Securities Exchange Act of 1934) during the second quarter of fiscal 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

Certain of the statements made in this Item 1 (and elsewhere in this Report) are "forward-looking" statements which are subject to the considerations set forth in "Cautionary Statement Regarding Forward-Looking Statements" elsewhere in this Report.

There appears to have been a significant increase during the last several years in asbestos-related litigation claims filed in particular states on both a single plaintiff and on a mass basis by large numbers of plaintiffs against a large number of industrial companies including those in the pump and fluid handling industries, and beginning in 2002 and continuing through the date of this Report, the Company and/or one of its divisions began to be named as one of many defendants in a number of such cases, predominantly in Mississippi. The allegations against the Company and/or this division are vague, general and speculative, but in general allege that the Company, or the division, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which c aused injuries and loss to the plaintiffs. The Company believes that these cases are without merit and that none of its products were a cause of any injury or loss to any of the plaintiffs. The Company’s insurers have hired attorneys who together with the Company are vigorously defending these cases. The Company and/or the division has resolved and been dismissed from a number of these cases. Most of these cases have not advanced beyond the early stages of discovery, although several cases have been scheduled for trial. Given the current status of these cases, the Company does not presently believe that these proceedings will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

The Company is also party to a small number of other legal proceedings arising out of the ordinary course of business or other proceedings that the Company does not presently believe will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition. After the end of the fiscal year on January 31, 2004, the Company settled a case in which the costs of defending the case were material to the fiscal year ended January 31, 2004. Neither the legal fees incurred after January 31, 2004 nor the settlement will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition during the fiscal year ending January 31, 2005.

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MET-PRO CORPORATION

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

(a)	None
(b)	Not Applicable
(c)	The following table summarizes Met-Pro’s purchases of its Common Shares for the quarter ended October 31, 2004:

Issuer Purchases of

Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under the Plan or Programs	(1)
August 1-31, 2004	0	$ -	0	216,763
September 1-30, 2004	0	-	0	216,763
October 1-31, 2004	0	-	0	216,763
Total	0	$ -	0	216,763

(1)   On December 15, 2000, our Board of Directors authorized a Common Share repurchase program that was publicly announced on December 19, 2000, for up to 400,000 (adjusted for stock split) shares. The program has no fixed expiration date.

Item 3.   Defaults Upon Senior Securities

None

Item 4.   Submission of Matters to a Vote of Security Holders

None

Item 5.   Other Information

None

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MET-PRO CORPORATION

Item 6.  Exhibits

(a)	Exhibits Required by Item 601 of Regulation S-K
	Exhibit No.	Description
	31.1	Certification of Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.*
	31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*
	32.1	Certification of Chief Executive Officer, Pursuant 18 U.S.C. Section 1350.*
	32.2	Certification of Chief Financial Officer, Pursuant 18 U.S.C. Section 1350.*

* Filed herewith.

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MET-PRO CORPORATION

SIGNATURES

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

Met-Pro Corporation

      (Registrant)

December 8, 2004	/s/ Raymond J. De Hont
	Raymond J. De Hont
	Chairman, President and Chief Executive
	Officer

December 8, 2004	/s/ Gary J. Morgan
	Gary J. Morgan
	Vice President of Finance,
	Secretary and Treasurer, Chief
	Financial Officer, Chief Accounting
	Officer and Director

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