Met Pro (MPR) 10-Q 2006 Q2 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: July 31, 2005 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    

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

As of July 31, 2005 the Registrant had 8,388,575 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
	July 31, 2005 and January 31, 2005	2
	Consolidated Statement of Operations for the six-month and three-month
	periods ended July 31, 2005 and 2004	3
	Consolidated Statement of Shareholders’ Equity for the
	six-month periods ended July 31, 2005 and 2004	4
	Consolidated Statement of Cash Flows for the six-month
	periods ended July 31, 2005 and 2004	5
	Notes to Consolidated Financial Statements	6
	Report of Independent Registered Public Accounting Firm	10
Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	11
Item 3.	Qualitative and Quantitative Disclosures about Market Risk	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	18
Item 6.	Exhibits	18
SIGNATURES		19

1

MET-PRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
	July 31,		January 31,
ASSETS	2005		2005
Current assets
Cash and cash equivalents	$18,563,735		$20,889,476
Accounts receivable, net of allowance for doubtful
accounts of approximately $268,000 and
$213,000, respectively	15,665,312		13,637,599
Inventories	16,288,775		13,843,171
Prepaid expenses, deposits and other current assets	929,844		1,250,098
Deferred income taxes	650,151		650,151
Total current assets	52,097,817		50,270,495
Property, plant and equipment, net	10,922,814		11,287,253
Costs in excess of net assets of businesses acquired, net	20,798,913		20,798,913
Other assets	569,382		567,405
Total assets	$84,388,926		$82,924,066
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt	$1,200,000		$1,500,910
Accounts payable	5,010,739		5,028,074
Accrued salaries, wages and expenses	6,532,010		5,397,195
Dividend payable	650,115		648,381
Customers' advances	963,770		1,293,332
Total current liabilities	14,356,634		13,867,892
Long-term debt	3,062,232		4,039,068
Other non-current liabilities	42,113		41,015
Deferred income taxes	1,836,469		1,810,900
Total liabilities	19,297,448		19,758,875
Shareholders' equity
Common shares, $.10 par value; 18,000,000 shares
authorized, 9,634,956 shares issued,
of which 1,246,381 and 1,266,914 shares were reacquired
and held in treasury at the respective dates	963,496		963,496
Additional paid-in capital	7,922,603		7,930,646
Retained earnings	68,006,840		66,032,446
Accumulated other comprehensive income/(loss)	(131,618	)	100,635
Treasury shares, at cost	(11,669,843	)	(11,862,032	)
Total shareholders' equity	65,091,478		63,165,191
Total liabilities and shareholders' equity	$84,388,926		$82,924,066
See accompanying notes to consolidated financial statements.

2

MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

	Six Months Ended				Three Months Ended
	July 31,				July 31,
	2005		2004		2005		2004
Net sales	$40,574,132		$35,984,670		$22,646,520		$20,350,024
Cost of goods sold	27,557,134		24,521,075		15,583,797		13,948,861
Gross profit	13,016,998		11,463,595		7,062,723		6,401,163
Operating expenses
Selling	3,927,401		3,896,439		1,973,138		1,964,071
General and administrative	4,351,964		3,749,263		2,258,506		1,946,955
	8,279,365		7,645,702		4,231,644		3,911,026
Income from operations	4,737,633		3,817,893		2,831,079		2,490,137
Interest expense	(135,914	)	(186,942	)	(69,862	)	(90,095	)
Other income, net	285,993		42,789		159,004		39,985
Income before taxes	4,887,712		3,673,740		2,920,221		2,440,027
Provision for taxes	1,612,945		1,249,074		963,672		829,610
Net income	$3,274,767		$2,424,666		$1,956,549		$1,610,417
Earnings per share, basic (1)	$.39		$.29		$.23		$.19
Earnings per share, diluted (2)	$.39		$.29		$.23		$.19
Cash dividend per share - declared (3)	$.1550		$.1450		$.0775		$.0725
Cash dividend per share - paid (3)	$.1550		$.1450		$.0775		$.0725

(1)	Basic earnings per share are based upon the weighted average number of shares outstanding of 8,385,153 and 8,352,252 for the six-month periods ended July 31, 2005 and 2004, respectively and 8,384,354 and 8,348,996 for the three-month periods ended July 31, 2005 and 2004, respectively.
(2)	Diluted earnings per share are based upon the weighted average number of shares outstanding of 8,480,840 and 8,474,359 for the six-month periods ended July 31, 2005 and 2004, respectively and 8,476,717 and 8,476,042 for the three-month periods ended July 31, 2005 and 2004, respectively.
(3)	The Board of Directors declared quarterly dividends of $.0775 per share payable on March 8, 2005, June 8, 2005 and September 8, 2005 to shareholders of record as of February 25, 2005, May 27, 2005 and August 28, 2005, respectively. Quarterly dividends of $.0725 per share were paid 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.

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, 2005	$963,496	$7,930,646		$66,032,446		$100,635		($11,862,032	)	$63,165,191
Comprehensive income:
Net income	-	-		3,274,767		-		-
Cumulative translation adjustment	-	-		-		(282,343	)	-
Interest rate swap,
net of tax of ($26,746)	-	-		-		50,090		-
Total comprehensive income										3,042,514
Dividends paid, $.0775 per share	-	-		(650,258	)	-		-		(650,258	)
Dividends declared, $.0775 per
share	-	-		(650,115	)	-		-		(650,115	)
Stock option transactions	-	(8,043	)	-		-		192,189		184,146
Balances, July 31, 2005	$963,496	$7,922,603		$68,006,840		($131,618	)	($11,669,843	)	$65,091,478

						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	-	-		2,424,666		-		-
Cumulative translation adjustment	-	-		-		(112,416	)	-
Interest rate swap,
net of tax of ($46,880)	-	-		-		91,004		-
Total comprehensive income										2,403,254
Dividends paid, $.0725 per share	-	-		(606,345	)	-		-		(606,345	)
Dividends declared, $.0725 per
share	-	-		(606,550	)	-		-		(606,550	)
Stock option transactions	-	(25,466	)	-		-		667,338		641,872
Purchase of 28,717 shares of
treasury stock	-	-		-		-		(481,687	)	(481,687	)
Balances, July 31, 2004	$963,496	$7,929,993		$64,939,196		($350,028	)	($11,861,379	)	$61,621,278

See accompanying notes to consolidated financial statements.

4

MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

	Six Months Ended
	July 31,
	2005	2004
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities
Net Income	$3,274,767		$2,424,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization	742,600		730,184
Deferred income taxes	(1,177	)	(1,415	)
Loss on sale of property and equipment, net	8,591		-
Allowance for doubtful accounts	55,466		43,052
(Increase) decrease in operating assets:
Accounts receivable	(2,305,022	)	865,681
Inventories	(2,530,526	)	(691,701	)
Prepaid expenses, deposits and other current assets	303,086		343,568
Other assets	(17,394	)	(4,734	)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses	1,267,070		(1,175,236	)
Customers’ advances	(329,212	)	(355,780	)
Other non-current liabilities	1,098		(6,788	)
Net cash provided by operating activities	469,347		2,171,497
Cash flows from investing activities
Proceeds from sale of property and equipment	30,907		-
Acquisitions of property and equipment	(488,380	)	(504,055	)
Net cash (used in) investing activities	(457,473	)	(504,055	)
Cash flows from financing activities
Reduction of debt	(1,200,910	)	(918,463	)
Exercise of stock options	184,146		641,872
Payment of dividends	(1,298,639	)	(1,209,101	)
Purchase of treasury shares	-		(481,687	)
Net cash (used in) financing activities	(2,315,403	)	(1,967,379	)
Effect of exchange rate changes on cash	(22,212	)	(31,435	)
Net (decrease) in cash and cash equivalents	(2,325,741	)	(331,372	)
Cash and cash equivalents at February 1	20,889,476		16,996,253
Cash and cash equivalents at July 31	$18,563,735		$16,664,881
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 3.9%, dividend yield ranging from 2.3% 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 six-month and three-month periods ended July 31, 2005 and 2004 is presented in the following table:

	Six Months Ended July 31,		Three Months Ended July 31,
	2005	2004	2005	2004
Net Income:
As reported	$3,274,767	$2,424,666	$1,956,549	$1,610,417
Pro forma	3,191,387	2,319,458	1,914,859	1,557,813
Basic earnings per share:
As reported	$.39	$.29	$.23	$.19
Pro forma	$.38	$.28	$.23	$.19
Diluted earnings per share:
As reported	$.39	$.29	$.23	$.19
Pro forma	$.38	$.27	$.23	$.18

The pro forma effects of applying SFAS No. 123 to the six-month and three-month periods ended July 31, 2005 and 2004 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 in the same manner as stock options granted to employees.

Recent Accounting Pronouncements: In December 2003, the Financial Accounting Standards Board (“FASB”) issued Finance Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities”. FIN No. 46(R) addresses the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN No. 46(R) was effective for the Company on February 1, 2004 and had no impact on its financial condition or results of operations.

6

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". The new Statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current period charges and requires that allocation of fixed production overheads to the cost of conversion be based on the normal capacity of the production facilities. This statement is effective for fiscal years beginning after June 15, 2005, or in our case, beginning with our fiscal year ending January 31, 2007. We do not expect adoption of this Statement to have a material impact on our financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29." SFAS No. 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005, or in our case, beginning with our fiscal year ending January 31, 2007. We do not expect adoption of this Statement to have a material impact on our financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement replaces SFAS No. 123 and supersedes Accounting Principles Board (“APB”) No. 25. SFAS No. 123(R) will require the fair value of all stock option awards issued to employees to be recorded as an expense over the related vesting period. The Statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the APB No. 25 intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. In April 2005, the effective date for this standard was changed to require adoption of the standard at the beginning of the next fiscal year after June 15, 2005, or in our case, beginning with our fiscal year ending January 31, 2007. Had we adopted SFAS No. 123(R) in prior periods, the impact of that standard upon our current and our immediately prior fiscal years would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share on page 6. Accordingly, we expect the adoption of SFAS No. 123(R)’s fair value method to have an impact on the financial reporting of our results of operations based upon our current policies and practices with respect to the granting of stock options, although we do not expect it to have an impact on our overall financial position.

In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations”. FIN No. 47 requires an entity to recognize a liability for a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. The Interpretation also clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 is effective for the Company with its fiscal year ending January 31, 2006. We do not expect adoption of FIN No. 47 to have a material impact on our financial condition or results of operations.

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., Pristine Hydrochemical Inc., Mefiag (Guangzhou) Filter Systems Ltd. and Met-Pro (Hong Kong) Limited Company. Significant intercompany accounts and transactions have been eliminated.

7

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 July 31, 2005 and the results of operations for the six-month and three-month periods ended July 31, 2005 and 2004, and changes in shareholders’ equity and cash flows for the six-month periods then ended. The results of operations for the six-month and three-month periods ended July 31, 2005 and 2004 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, 2005.

NOTE 4 - INVENTORIES

Inventories consisted of the following:

	July 31,	January 31,
	2005	2005
Raw materials	$9,372,787	$7,965,553
Work in progress	1,979,610	1,682,391
Finished goods	4,936,378	4,195,227
	$16,288,775	$13,843,171

NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION

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

	Six Months Ended
	July 31,
	2005	2004
Cash paid during the period for:
Interest	$152,245	$211,226
Income taxes	869,244	1,144,297

NOTE 6 - OTHER INCOME, NET

Other income, net was comprised of the following:

	Six Months Ended July 31,				Three Months Ended July 31,
	2005		2004		2005	2004
(Loss)/gain on sale of property and equipment	($8,592	)	$ -		$3,606	$ -
Other, primarily interest income	294,585		140,581		155,398	60,116
Unusual charge - patent litigation	-		(97,792	)	-	(20,131	)
	$285,993		$42,789		$159,004	$39,985

8

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - BUSINESS SEGMENT DATA

The Company’s operations are conducted in two business segments: 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 measure of segment operating profit reviewed by management.

Financial information by business segment is shown below:

	Six Months Ended July 31,		Three Months Ended July 31,
	2005	2004		2005	2004
Net sales
Product recovery/pollution control equipment	$24,802,000	$21,655,882		$14,557,720	$12,404,350
Fluid handling equipment	15,772,132	14,328,788		8,088,800	7,945,674
	$40,574,132	$35,984,670		$22,646,520	$20,350,024
Income from operations
Product recovery/pollution control equipment	$2,396,036	$1,951,500		$1,466,044	$1,364,412
Fluid handling equipment	2,341,597	1,866,393		1,365,035	1,125,725
��	$4,737,633	$3,817,893		$2,831,079	$2,490,137

	July 31,	January 31,
	2005	2005
Identifiable assets
Product recovery/pollution control equipment	$44,135,698	$41,554,730
Fluid handling equipment	20,509,167	19,784,083
	64,644,865	61,338,813
Corporate	19,744,061	21,585,253
	$84,388,926	$82,924,066

NOTE 8 - ACCOUNTANTS’ 10-Q REVIEW

Margolis & Company P.C., the Company’s independent registered 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 REGISTERED PUBLIC ACCOUNTING FIRM

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 July 31, 2005 and the related consolidated statements of operations for the six-month and three-month periods ended July 31, 2005 and 2004 and shareholders’ equity and cash flows for the six-month periods ended July 31, 2005 and 2004. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 interim consolidated financial statements in order for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2005, 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 25, 2005, 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, 2005 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

August 18, 2005

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 six-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.

	Six Months Ended				Three Months Ended
	July 31,				July 31,
	2005		2004		2005		2004
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	67.9	%	68.1	%	68.8	%	68.5	%
Gross profit	32.1	%	31.9	%	31.2	%	31.5	%
Selling expenses	9.7	%	10.9	%	8.7	%	9.7	%
General and administrative expenses	10.7	%	10.4	%	10.0	%	9.6	%
Income from operations	11.7	%	10.6	%	12.5	%	12.2	%
Interest expense	(.3	%)	(.5	%)	(.3	%)	(.4	%)
Other income, net	.7	%	.1	%	.7	%	.2	%
Income before taxes	12.1	%	10.2	%	12.9	%	12.0	%
Provision for taxes	4.0	%	3.5	%	4.3	%	4.1	%
Net income	8.1	%	6.7	%	8.6	%	7.9	%

Six Months Ended July 31, 2005 vs Six Months Ended July 31, 2004

Net sales for the six-month period ended July 31, 2005 were $40,574,132 compared to $35,984,670 for the six-month period ended July 31, 2004, an increase of $4,589,462 or 12.8%. Sales in the Fluid Handling Equipment segment were $15,772,132 or 10.1% higher than the six-month period ended July 31, 2004. Sales in the Product Recovery/Pollution Control Equipment segment were $24,802,000 or 14.5% higher than the six-month period ended July 31, 2004.

Backlog at July 31, 2005 totaled $16,044,603 compared to $8,789,040 at July 31, 2004. In addition, at July 31, 2005, the Company had orders of $3,745,264, compared to $4,295,130 at July 31, 2004, 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 six-month period ended July 31, 2005 was $3,274,767 compared to $2,424,666 for the six-month period ended July 31, 2004, an increase of $850,101 or 35.1%. The increase in net income is principally related to higher sales volumes in both operating segments.

The gross margin for the six-month period ended July 31, 2005 was 32.1% versus 31.9% for the same period in the prior year.

Selling expense increased $30,962 during the six-month period ended July 31, 2005 compared to the same period last year. Selling expense as a percentage of net sales was 9.7% for the six-month period ended July 31, 2005 compared to 10.9% for the same period last year.

11

MET-PRO CORPORATION

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

General and administrative expense was $4,351,964 for the six-month period ended July 31, 2005 compared to $3,749,263 for the same period last year, an increase of $602,701. General and administrative expense as a percentage of net sales was 10.7% for the six-month period ended July 31, 2005 compared to 10.4% for the same period last year. This increase is related to higher health care costs combined with last year’s same period decrease in an accrual for the management incentive program.

Interest expense was $135,914 for the six-month period ended July 31, 2005 compared to $186,942 for the same period in the prior year, a decrease of $51,028. This decrease was due principally to a reduction of existing long-term debt.

Other income, net, was $285,993 for the six-month period ended July 31, 2005 compared to $42,789 for the same period in the prior year. This change is related to higher interest income earned on the cash on hand, combined with a reduction in charges incurred in defending and settling allegations that products sold by one of the Company’s divisions infringed a competitor’s intellectual property rights.

The effective tax rates for the six-month periods ended July 31, 2005 and July 31, 2004 were 33.0% and 34.0%, respectively.

Three Months Ended July 31, 2005 vs Three Months Ended July 31, 2004

Net sales for the three-month period ended July 31, 2005 were $22,646,520 compared to $20,350,024 for the three-month period ended July 31, 2004, an increase of $2,296,496 or 11.3%. Sales in the Product Recovery/Pollution Control Equipment segment were $14,557,720 or 17.4% higher than the three-month period ended July 31, 2004. Sales in the Fluid Handling Equipment segment were $8,088,800 or slightly higher compared to the three-month period ended July 31, 2004.

Net income for the three-month period ended July 31, 2005 was $1,956,549 compared to $1,610,417 for the three-month period ended July 31, 2004, an increase of $346,132 or 21.5%.

The gross margin for the three-month period ended July 31, 2005 was 31.2% compared to 31.5% for the same period last year, due to lower gross margins experienced in the Product Recovery/Pollution Control Equipment segment.

Selling expenses increased $9,067 during the three-month period ended July 31, 2005 compared to the same period last year. As a percentage of net sales, selling expenses were 8.7% for the three-month period ended July 31, 2005 compared to 9.7% for the same period last year.

General and administrative expense was $2,258,506 for the three-month period ended July 31, 2005 compared to $1,946,955 for the three-month period ended July 31, 2004, an increase of $311,551. General and administrative expense for the three-month period ended July 31, 2005 was 10.0% of net sales, compared to 9.6% of net sales for the same period last year. This increase in part is related to higher health care costs combined with last year’s same period decrease in an accrual for the management incentive program.

Interest expense was $69,862 for the three-month period ended July 31, 2005 compared to $90,095 for the same period in the prior year, a decrease of 22.5%. This decrease was due principally to a reduction of existing long-term debt.

Other income, net, was $159,004 for the three-month period ended July 31, 2005 compared to $39,985 for the same period in the prior year. This change is related to higher interest income earned on the cash on hand, combined with a reduction in charges incurred in defending and settling allegations that products sold by one of the Company’s divisions infringed a competitor’s intellectual property rights.

The effective tax rates for the three-month periods ended July 31, 2005 and July 31, 2004 were 33% and 34%, respectively.

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MET-PRO CORPORATION

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

Liquidity:

The Company’s cash and cash equivalents were $18,563,735 on July 31, 2005 compared to $20,889,476 on January 31, 2005, a decrease of $2,325,741. This decrease is the net result of the payments of the quarterly cash dividends amounting to $1,298,639, payments on long-term debt totaling $1,200,910, exchange rate charges of $22,212 and investment in property and equipment amounting to $488,380, offset by cash flows provided by operating activities totaling $469,347, exercise of stock options amounting to $184,146 and the proceeds from the sale of property and equipment totaling $30,907. 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, as well as other factors including changes in inventories and accounts receivables.

Accounts receivable (net) amounted to $15,665,312 on July 31, 2005 compared to $13,637,599 on January 31, 2005, which represents an increase of $2,027,713. In addition to changes in sales volume, 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 $16,288,775 on July 31, 2005 compared to $13,843,171 on January 31, 2005, an increase of $2,445,604. This increase is primarily due to inventory purchased in the six-month period ended July 31, 2005 for projects which are expected to ship in the third and fourth quarters of this fiscal year. Inventory balances fluctuate depending on market demand and on the timing and size of shipments, especially when major systems and contracts are involved.

Current liabilities amounted to $14,356,634 on July 31, 2005 compared to $13,867,892 on January 31, 2005, an increase of $488,742. An increase in accrued expenses, offset by a decrease in the current portion of long-term debt and customers’ advances accounted for this increase.

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 July 31, 2005 and January 31, 2005, working capital was $37,741,183 and $36,402,603, respectively, and the current ratio was 3.6 on both dates.

Capital Resources and Requirements:

Cash flows provided by operating activities during the six-month period ended July 31, 2005 amounted to $469,347 compared to $2,171,497 in the six-month period ended July 31, 2004. This decrease in cash flows from operating activities was due principally to (i) the increase in accounts receivable and inventory and (ii) the decrease in customers’ advances, which (iii) together were offset by the increase in net income and accounts payable.

Cash flows used in investing activities during the six-month period ended July 31, 2005 amounted to $457,473 compared with $504,055 for the six-month period ended July 31, 2004. 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 six-month period ended July 31, 2005 utilized $2,315,403 of available resources compared to $1,967,379 for the six-month period ended July 31, 2004. The 2005 activity is the result of the payments of the quarterly cash dividends amounting to $1,298,639 and the reduction of long-term debt totaling $1,200,910, offset by the exercise of stock options amounting to $184,146.

The Board of Directors declared quarterly dividends of $.0775 per share payable on March 8, 2005, June 8, 2005 and September 8, 2005 to shareholders of record as of February 25, 2005, May 27, 2005 and August 28, 2005, respectively.

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MET-PRO CORPORATION

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

Critical Accounting Policies and Estimates:

Management’s discussion and analysis of financial condition 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 be recoverable. 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 belief or expectation, 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,” or where we express that our view is based upon the “current status” of a given matter, or upon facts as we know them as of the date of the statement. The content and/or context of other statements that we make may indicate that the statement is “forward-looking”. We claim the “safe harbor” provided by The Private Securities Reform Act of 1995 for all forward-looking statements.

Our future results of operations and financial condition may differ materially from those suggested in forward-looking statements which we make in our Securities and Exchange Commission (“SEC”) filings and other public statements, as a result of events and occurrences relating to one or more of the factors set forth below, one time events or occurrences which are not reflected in the factors indicated below, or relating to factors disclosed previously or disclosed in the future in Met-Pro’s filings with the SEC.

The following important factors, along with those discussed elsewhere in this Quarterly Report on Form 10-Q and in our other SEC filings, 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, thereafter had several years of declining performance which we attributed primarily to a general weakness in its served markets, followed by improved performance in the fiscal year ended January 31, 2005 as compared to the prior year. During the fiscal year ended January 31, 2005, 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. Flex-Kleen’s performance needs to continue to improve in order for us not to be required to write-off some or all of its 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

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 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 the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is 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” located in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, and we refer you to these considerations.

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. Additionally, the Company and/or the division has also recently experienced an increase in the number of single plaintiff asbestos cases filed against us and numerous other industrial companies in two other states. The allegations against the Company and/or the division are vague, general and speculative, but in general allege that the Company, or division, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries and loss to the plaintiffs. Based upon the current status of these cases, 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 are on a schedule leading to 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.

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MET-PRO CORPORATION

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

(a)	During the second quarter ended July 31, 2005, we did not sell any of our equity securities that were not registered under the Securities Act of 1933.
(b)	Not applicable
(c)	The following table summarizes Met-Pro’s purchases of its Common Shares for the quarter ended July 31, 2005:

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)
May 1-31, 2005	0	$ -	0	212,599
June 1-30, 2005	0	-	0	212,599
July 1-31, 2005	0	-	0	212,599
Total	0	$ -	0	212,599

(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

An Annual Meeting of the Company’s shareholders was held on June 8, 2005. At that meeting, four proposals were submitted to a vote of the Company’s shareholders. Proposal 1 was a proposal to elect two Directors (with Michael J. Morris and Constantine N. Papadakis, Ph.D. being the nominees) to serve until the 2008 Annual Meeting of Shareholders. Proposal 2 was a proposal to adopt the 2005 Equity Incentive Plan. Proposal 3 was to ratify the election of Margolis & Company P.C. as independent certified public accountants for the Company’s fiscal year ending January 31, 2006. Proposal 4 was to consider and act upon a shareholder proposal pertaining to Board Diversity.

At the close of business on the record date for the meeting (which was April 13, 2005), there were 8,388,575 Common Shares outstanding and entitled to be voted at the meeting. Holders of 7,657,798 Common Shares (representing a like number of votes) were present at the meeting, either in person or by proxy.

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MET-PRO CORPORATION

The following table sets forth the results of the voting on each of the proposals:

	Number of Votes
			Abstain/
			Broker
Proposals	For	Against	Non Vote
Proposal 1 - Election of Directors
Michael J. Morris	7,127,465	530,333	-
Constantine N. Papadakis, Ph. D.	7,120,689	537,109	-
Proposal 2 - Adoption of 2005 Equity Incentive Plan	4,339,944	1,234,407	2,083,447
Proposal 3 - Selection of Margolis & Company P.C. as
Independent Registered Public	7,563,312	64,670	29,816
Accountants
Proposal 4 - Shareholder proposal pertaining to Board
Diversity	1,225,288	4,151,281	2,281,229

Consequently, all proposals, with the exception of Proposal 4, were adopted by the shareholders.

Item 5.  Other Information

None

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)
September 6, 2005	/s/ Raymond J. De Hont
	Raymond J. De Hont
	Chairman, President and Chief Executive
	Officer
September 6, 2005	/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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