UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

S  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended: October 31, 2012

or

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes S     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes S     No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.     Large accelerated filer o Accelerated filer S Non-accelerated filer o Smaller reporting company o

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

As of December 6, 2012 the Registrant had 14,687,013 Common Shares, par value of $.10 per share, issued and outstanding.

MET-PRO CORPORATION AND SUBSIDIARIES

INDEX

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets
	as of October 31, 2012 and January 31, 2012	2
	Consolidated Statements of Income
	for the nine-month and three-month periods ended October 31, 2012 and 2011	3
	Consolidated Statements of Comprehensive Income
	for the nine-month and three-month periods ended October 31, 2012 and 2011	4
	Consolidated Statements of Shareholders’ Equity
	for the nine-month periods ended October 31, 2012 and 2011	5
	Consolidated Statements of Cash Flows
	for the nine-month periods ended October 31, 2012 and 2011	6
	Notes to Consolidated Financial Statements	7
	Report of Independent Registered Public Accounting Firm	16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Qualitative and Quantitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	25
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
SIGNATURES		29

1

MET-PRO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
	October 31,			January 31,
ASSETS	2012			2012
Current assets	(unaudited)
Cash and cash equivalents	$	31,842,244		$	34,581,394
Short-term investments		1,022,266			764,061
Accounts receivable, net of allowance for
doubtful accounts of approximately
$232,000 and $491,000, respectively		20,895,152			17,373,121
Inventories		18,898,950			17,847,143
Prepaid expenses, deposits and other current assets		1,863,546			1,683,486
Deferred income taxes		167,399			186,329
Total current assets		74,689,557			72,435,534
Property, plant and equipment, net		18,896,612			19,322,436
Goodwill		20,798,913			20,798,913
Other assets		2,654,974			2,952,332
Total assets	$	117,040,056		$	115,509,215
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of debt	$	379,592		$	657,216
Accounts payable		8,134,747			7,684,739
Accrued salaries, wages and benefits		2,173,138			1,827,603
Other accrued expenses		3,991,571			2,357,929
Dividend payable		1,067,028			1,042,297
Customers’ advances		1,188,423			3,232,600
Total current liabilities		16,934,499			16,802,384
Long-term debt		2,381,432			2,687,971
Accrued pension retirement benefits		9,307,757			10,618,047
Other non-current liabilities		58,039			56,391
Deferred income taxes		1,322,075			1,522,451
Total liabilities		30,003,802			31,687,244
Commitments and contingencies
Shareholders’ equity
Common shares, $.10 par value; 36,000,000 shares
authorized, 15,928,679 shares issued, of which
1,241,666 and 1,250,051 shares were reacquired and held in
treasury		1,592,868			1,592,868
Additional paid-in capital		4,736,738			4,058,735
Retained earnings		98,745,132			96,228,764
Accumulated other comprehensive loss		(7,768,315	)		(7,718,883	)
Treasury shares, at cost		(10,270,169	)		(10,339,513	)
Total shareholders’ equity		87,036,254			83,821,971
Total liabilities and shareholders’ equity	$	117,040,056		$	115,509,215
See accompanying notes to consolidated financial statements.

2

MET-PRO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Nine Months Ended						Three Months Ended
	October 31,						October 31,
	2012			2011			2012			2011
Net sales	$	82,965,659		$	71,764,377		$	29,761,356		$	25,245,131
Cost of goods sold		54,652,514			46,234,343			19,096,841			15,910,283
Gross profit		28,313,145			25,530,034			10,664,515			9,334,848
Operating expenses
Selling		9,160,574			8,784,207			3,071,621			2,944,019
General and administrative		10,735,827			9,437,146			3,343,147			3,387,617
Total selling, general and administrative		19,896,401			18,221,353			6,414,768			6,331,636
Income from operations		8,416,744			7,308,681			4,249,747			3,003,212
Interest expense		(125,868	)		(145,862	)		(41,470	)		(47,153	)
Other income		115,782			389,647			20,110			198,317
Income before taxes		8,406,658			7,552,466			4,228,387			3,154,376
Provision for taxes		2,737,226			2,567,839			1,437,652			1,072,490
Net income	$	5,669,432		$	4,984,627		$	2,790,735		$	2,081,886
Earnings per share, basic	$	.39		$	.34		$	.19		$	.14
Earnings per share, diluted	$	.38		$	.34		$	.19		$	.14
Cash dividend per share – declared	$	.2145		$	.203		$	.0725		$	.071
Cash dividend per share – paid	$	.213		$	.198		$	.071		$	.066

See accompanying notes to consolidated financial statements.

3

MET-PRO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Nine Months Ended						Three Months Ended
	October 31,						October 31,
	2012			2011			2012		2011
Net income	$	5,669,432		$	4,984,627		$	2,790,735	$	2,081,886
Other comprehensive (loss) income net of tax:
Foreign currency translation adjustment		(68,473	)		80,375			263,103		(266,545	)
Interest rate swap, net of tax of  ($11,182), $22,656, ($7,808)  and $6,369, respectively		19,041			(38,576	)		13,296		(10,843	)
Other comprehensive (loss) income, net of tax		(49,432	)		41,799			276,399		(277,388	)
Total comprehensive income	$	5,620,000		$	5,026,426		$	3,067,134	$	1,804,498

See accompanying notes to consolidated financial statements.

4

MET-PRO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

									Accumulated
			Additional						Other
	Common		Paid-in			Retained			Comprehensive			Treasury
	Shares		Capital			Earnings			(Loss)			Shares			Total
Balances, January 31, 2012	$	1,592,868	$	4,058,735		$	96,228,764		$	(7,718,883	)	$	(10,339,513	)	$	83,821,971
Net income		-		-			5,669,432			-			-			5,669,432
Other comprehensive (loss), net of tax		-		-			-			(49,432	)		-			(49,432	)
Dividends		-		-			(3,153,064	)		-			-			(3,153,064	)
Stock-based compensation		-		747,347			-			-			-			747,347
RSU transactions		-		(69,344	)		-			-			69,344			-
Balances, October 31, 2012	$	1,592,868	$	4,736,738		$	98,745,132		$	(7,768,315	)	$	(10,270,169	)	$	87,036,254

								Accumulated
			Additional					Other
	Common		Paid-in		Retained			Comprehensive			Treasury
	Shares		Capital		Earnings			(Loss) Income			Shares			Total
Balances, January 31, 2011	$	1,592,868	$	3,448,249	$	93,113,247		$	(3,201,767	)	$	(10,479,673	)	$	84,472,924
Net income		-		-		4,984,627			-			-			4,984,627
Other comprehensive income, net of tax		-		-		-			41,799			-			41,799
Dividends		-		-		(2,975,887	)		-			-			(2,975,887	)
Stock-based compensation		-		539,478		-			-			-			539,478
Stock option transactions		-		1,500		-			-			41,300			42,800
Purchase of 3,717 treasury shares		-		-		-			-			(42,800	)		(42,800	)
Balances, October 31, 2011	$	1,592,868	$	3,989,227	$	95,121,987		$	(3,159,968	)	$	(10,481,173	)	$	87,062,941

See accompanying notes to consolidated financial statements.

5

MET-PRO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	October 31,
	2012			2011
Cash flows from operating activities
Net income	$	5,669,432		$	4,984,627
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,498,255			1,433,018
Stock-based compensation		747,347			539,478
Deferred income taxes		(191,247	)		(4,646	)
Loss/(gain) on sale of property and equipment, net		1,080			(26,003	)
Allowance for doubtful accounts		(258,714	)		53,654
Changes in operating assets and liabilities:
Accounts receivable		(3,272,233	)		(839,188	)
Inventories		(1,063,228	)		(2,138,267	)
Prepaid expenses, deposits and other assets		(459,659	)		(246,406	)
Accounts payable and accrued expenses		2,395,460			2,028,062
Customers’ advances		(2,045,097	)		2,451,901
Accrued pension retirement benefits		(1,310,290	)		(2,747,053	)
Other non-current liabilities		1,647			1,647
Net cash provided by operating activities		1,712,753			5,490,824
Cash flows from investing activities
Proceeds from sale of property and equipment		-			33,848
Acquisitions of property and equipment		(1,016,028	)		(1,636,866	)
Purchases of investments		(1,022,266	)		(1,010,534	)
Proceeds from maturities of investments		1,258,598			497,155
Net cash used in investing activities		(779,696	)		(2,116,397	)
Cash flows from financing activities
Proceeds from new borrowings		222,778			426,802
Reduction of debt		(766,686	)		(625,413	)
Exercise of stock options		-			42,800
Payment of dividends		(3,128,334	)		(2,902,505	)
Purchase of treasury shares		-			(42,800	)
Net cash used in financing activities		(3,672,242	)		(3,101,116	)
Effect of exchange rate changes on cash		35			34
Net (decrease) increase in cash and cash equivalents		(2,739,150	)		273,345
Cash and cash equivalents at February 1		34,581,394			32,400,814
Cash and cash equivalents at October 31	$	31,842,244		$	32,674,159
Supplemental disclosure of cash flow information:
Cash paid for interest	$	127,046		$	146,586
Cash paid for income taxes		1,831,206			1,822,681
See accompanying notes to consolidated financial statements.

6

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation:

The accompanying unaudited consolidated financial statements include the accounts of Met-Pro Corporation (“Met-Pro” or the “Company”) and its direct and indirect wholly-owned subsidiaries: Mefiag B.V., Met-Pro Product Recovery/Pollution Control Technologies Inc., Strobic Air Corporation, MPC Inc., Pristine Water Solutions Inc., Mefiag (Guangzhou) Filter Systems Ltd., Met-Pro (Hong Kong) Company Limited, Met-Pro Industrial Services Inc., Bio-Reaction Industries Inc., Met-Pro Holdings LLC and Met-Pro Chile Limitada. All significant intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts disclosed in the financial statements and accompanying notes.  Estimates, by their nature, are based on judgment and available information.  Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, legal contingencies and assumptions used in the calculations of income taxes.

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  All adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company as of October 31, 2012 and the results of operations for the nine-month and three-month periods ended October 31, 2012 and 2011, and changes in shareholders’ equity and cash flows for the nine-month periods then ended, have been included. The results of operations for the nine-month and three-month periods ended October 31, 2012 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/A for the year ended January 31, 2012.  In addition, the January 31, 2012 Balance Sheet data, presented herein, was derived from the audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

Recent Accounting Pronouncements:

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” This ASU simplifies how entities test indefinite-lived intangible assets for impairment which improves consistency in impairment testing requirements among long-lived asset categories. This amended standard permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

7

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 2 – FAIR VALUE DISCLOSURES

Cash and cash equivalents:

Cash and cash equivalents at October 31, 2012 and January 31, 2012 amounted to $31,842,244 and $34,581,394, respectively. The cash and cash equivalents balance at October 31, 2012 was comprised of the following: (i) cash amounting to $9,847,228 and (ii) cash equivalents consisting of money market funds amounting to $21,995,016.  The Company places its cash deposits and temporary cash investments with financial institutions, that at times, may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.  At October 31, 2012, the Company’s cash and cash equivalents were held at 20 financial institutions.

Short-term investments:

Short-term investments at October 31, 2012 and January 31, 2012 amounted to $1,022,266 and $764,061, respectively.  The short-term investment balance at October 31, 2012 was comprised of four certificates of deposit with twelve month maturity dates. The short-term investment balance at January 31, 2012 was comprised of two certificates of deposit with nine month maturity dates and one certificate of deposit with a twelve month maturity date.

Long-term investments:

Long-term investments at October 31, 2012 and January 31, 2012 amounted to $0 and $494,537, respectively, which are reported in other assets on the consolidated balance sheets.  The long-term investment balance at January 31, 2012 was comprised of two certificates of deposit with fourteen and fifteen month maturity dates.

The Company evaluates the creditworthiness of the financial institutions and financial instruments in which it invests.  The Company’s financial instruments are not held for trading purposes.

Debt:

The estimated fair value and carrying amount of debt were as follows:

	October 31,		January 31,
	2012		2012
Fair value	$	3,139,492	$	3,747,061
Carrying amount		2,761,024		3,345,187

Valuations for debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities.

The Company uses an interest rate swap (see Note 7) to minimize its exposure to fluctuations in interest rates.  The interest rate differential to be paid or received under these agreements is recognized over the term of the loan and is included in interest expense.

Fair value measurements:

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, provides guidance for measuring fair value and requires certain disclosures.  This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

8

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following tables summarize the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the consolidated balance sheets.

				Quoted Prices
				in Active
				Markets for		Significant			Significant
				Identical		Observable			Unobservable
	Balance at			Assets		Inputs			Inputs
	October 31, 2012			(Level 1)		(Level 2)			(Level 3)
Cash and cash equivalents	$	31,842,244		$	31,842,244	$	-		$	-
Short-term investments		1,022,266			1,022,266		-			-
Cash surrender value -  life insurance policies		1,350,158			-		1,350,158			-
Interest rate swap agreement		(336,063	)		-		(336,063	)		-
	$	33,878,605		$	32,864,510	$	1,014,095		$	-

				Quoted Prices
				in Active
				Markets for		Significant			Significant
				Identical		Observable			Unobservable
	Balance at			Assets		Inputs			Inputs
	January 31, 2012			(Level 1)		(Level 2)			(Level 3)
Cash and cash equivalents	$	34,581,394		$	34,581,394	$	-		$	-
Short-term investments		764,061			764,061		-			-
Long-term investments		494,537			494,537		-			-
Cash surrender value -  life insurance policies		1,089,989			-		1,089,989			-
Interest rate swap agreement		(366,286	)		-		(366,286	)		-
	$	36,563,695		$	35,839,992	$	723,703		$	-

There were no transfers of assets or liabilities between Level 1 and Level 2 in the nine-month period ended October 31, 2012 or the fiscal year ended January 31, 2012.

The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.  The Company’s cash surrender value of life insurance policies (which are reported in other assets on the consolidated balance sheets) and the interest rate swap agreement are valued using Level 2 measurements.

9

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3 – EARNINGS PER SHARE COMPUTATIONS

Basic earnings per share is based on the weighted average number of common shares outstanding.  Diluted earnings per share is based on the weighted average number of common shares outstanding and potentially dilutive shares. The dilutive effect of employee and non-employee director stock options and awards of restricted stock units are included in the computation of diluted earnings per share. The dilutive effect of stock options is calculated using the treasury stock method and expected proceeds upon exercise of the stock options. The following table summarizes the shares used in computing basic and diluted net income per common share:

	Nine Months Ended				Three Months Ended
	October 31,				October 31,
	2012		2011		2012		2011
Numerator:
Net income	$	5,669,432	$	4,984,627	$	2,790,735	$	2,081,886
Denominator:
Weighted average common shares outstanding during the period for basic computation		14,683,286		14,659,402		14,682,776		14,659,383
Dilutive effect of stock-based compensation plans		50,178		129,091		51,476		140,431
Weighted average common shares outstanding during the period for diluted computation		14,733,464		14,788,493		14,734,252		14,799,814
Earnings per share, basic	$	.39	$	.34	$	.19	$	.14
Earnings per share, diluted	$	.38	$	.34	$	.19	$	.14

For the nine and three months ended October 31, 2012, employee and non-employee director stock options to purchase 1,092,447 common shares were excluded from the calculations of diluted earnings per share, as the calculated proceeds from the options’ exercises were greater than the market price of the Company’s common shares at October 31, 2012.  For the nine and three months ended October 31, 2011, employee and non-employee director stock options to purchase 1,086,929 common shares were excluded from the calculations of diluted earnings per share, as the calculated proceeds from the options’ exercises were greater than the market price of the Company’s common shares at October 31, 2011.

NOTE 4 – STOCK-BASED COMPENSATION

The Company grants equity awards to its senior executives and non-employee Directors.  Historically, this has consisted of stock option awards.  In December 2010, the Company’s Board of Directors approved a change in practice to begin awarding non-employee Directors restricted stock units (“RSUs”).

Stock options:

On June 6, 2012, April 2, 2012, and February 27, 2012, the Company granted 3,300, 54,625, and 97,299 stock options, respectively, to its senior executives, with one-third exercisable one year from the grant date and the remaining two-thirds vesting two and three years from grant date, respectively.   In the event of a “change of control”, certain unvested options may become immediately exercisable.  Typically, the duration of options is for up to ten years from the date of grant, subject to early termination conditions.  The fair value of options granted is amortized into compensation expense on a straight-line basis over the respective vesting period, net of estimated forfeitures. The fair value of the options is estimated as of the grant date using the Black-Scholes option valuation model.  The per share fair value weighted-averages at the date of grant for stock options granted in the months of June 2012, April 2012 and February 2012, were $2.91, $3.18 and $2.96, respectively.  As of October 31, 2012, there was $522,356 of total unrecognized compensation expense related to non-vested stock option awards.

10

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The application of this valuation model relies on the following assumptions that are judgmental and sensitive in the determination of the compensation expense:

	Nine Months Ended
	October 31,
	2012		2011
Expected term (years)		5.0		-
Risk-free interest rate		0.88%		-
Expected volatility		44%		-
Dividend yield		2.88% - 2.93%		-

Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury Bill rates in effect at the time of grant for the expected term of the option.

The following table summarizes stock option transactions for the nine-month period ended October 31, 2012:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Shares			Exercise Price		Life (years)		Intrinsic Value
Options:
Outstanding at February 1, 2012		1,223,292		$	10.2437		5.52
Granted		155,224			10.0439
Forfeited		(9,703	)		10.7849
Expired		(9,956	)		5.5476
Exercised		-			-
Outstanding at October 31, 2012		1,358,857		$	10.2514		5.07	$	235,773
Exercisable at October 31, 2012		1,077,427		$	10.1935		4.16	$	235,773

The intrinsic value of stock options is the amount by which the market price of the stock on a given date, such as at the end of the period or on the day of exercise, exceeded the market price of stock on the date of grant.

In connection with the Separation Agreement between the Company and its former Chief Financial Officer, the Company agreed to accelerate the vesting date and extend the exercise date of certain stock options.  This was considered a stock option modification resulting in additional stock compensation expense of approximately $250,000, which was recorded in the three-month period ended April 30, 2012.

Restricted Stock Units:

On June 6, 2012 and December 16, 2011, the Company awarded an aggregate of 15,465 RSUs and 8,385 RSUs, respectively, to its five non-employee Directors.  Each RSU entitles the grantee to receive, from the Company, one common share at the vesting date in accordance with the terms of the award agreement.  All of the awards granted on December 16, 2011 were issued upon vesting at the Annual Meeting of Shareholders on June 6, 2012.  The awards granted on the date of the 2012 Annual Meeting of Shareholders on June 6, 2012 are scheduled to vest at the 2013 Annual Meeting of Shareholders.  The award agreements provide for accelerated vesting in certain instances such as a “change in control” or death, and for pro-rata vesting in the event of a non-cause departure from the Board of Directors prior to the one year anniversary of the award. The weighted average grant fair value per unit for awards granted on June 6, 2012 was $9.70 (which is the average of the high and low price of the Company’s common shares on the NYSE that day).  As of October 31, 2012 there was a total of $87,506 of unrecognized compensation expense related to the non-vested RSU awards.

11

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes RSU transactions for the nine months ended October 31, 2012:

	Units
Non-vested at February 1, 2012		8,385
Granted		15,465
Vested		(8,385	)
Forfeited		-
Non-vested at October 31, 2012		15,465

NOTE 5 – INVENTORIES

Inventories consisted of the following:

	October 31, 2012		January 31,  2012
Raw materials	$	14,650,885	$	12,673,210
Work in progress		2,618,133		2,808,747
Finished goods		1,629,932		2,365,186
	$	18,898,950	$	17,847,143

NOTE 6 – INCOME TAXES

The Company utilizes the expected annual effective tax rate in determining its income tax provisions for interim periods.  The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

As of the fiscal year ended January 31, 2012, the Company had an unrecognized tax benefit of $49,000 to account for state tax matters in the United States as a result of changes in tax positions with relevant tax authorities.  As of April 30, 2012, the Company filed returns with the relevant state tax authorities upon which the $49,000 unrecognized tax benefit was determined, and has concluded that it did not have an unrecognized tax benefit as of April 30, 2012.  The Company has determined that there have been no additional changes in its tax positions in the nine-months ended October 31, 2012.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	2012
Balance at February 1, 2012	$	49,000
Increases in tax positions for prior years		-
Decreases in tax positions for prior years		(49,000	)
Increases in tax positions for current year		-
Balance at October 31, 2012	$	-

The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for the years before 2008.

12

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 7 – DEBT

The Company and its subsidiaries have domestic and foreign uncommitted, unsecured lines of credit totaling $4,388,740 which can be used for working capital, of which $600,596 has been committed to standby letters of credit as of October 31, 2012.  The standby letters of credit have expiration dates during the fiscal year ending January 31, 2014.  Of the total lines of credit available, the foreign unsecured line of credit totals $388,740 (300,000 Euro).  As of October 31, 2012 and January 31, 2012 the Company had zero outstanding borrowings from its domestic line of credit other than the amounts committed to standby letters of credit.  The Company’s Mefiag B.V. subsidiary’s line of credit, which is with a bank in The Netherlands, had outstanding borrowings of $16,171 or 12,479 Euro as of October 31, 2012 and $265,581, or 202,997 Euro, as of January 31, 2012.

The Company’s long-term debt is subject to certain covenants, including maintenance of prescribed amounts of leverage and fixed charge coverage ratios.  The Company was in compliance with all applicable covenants as of October 31, 2012.

The Company has an interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates.  Effective April 3, 2006, the Company entered into a fifteen-year interest rate swap agreement for a notional amount equal to the balance on the bond payable maturing April 2021.  The Company swapped the ninety-day LIBOR for a fixed rate of 4.87%.  As of October 31, 2012, the effective interest rate was 6.91% as a result of the swap agreement plus the interest rate floor provision of 250 basis points.  The interest rate swap agreement is accounted for as a cash flow hedge that qualifies for treatment under the short-cut method of measuring effectiveness.  There was no hedge ineffectiveness as of October 31, 2012.  The fair value of the interest rate swap agreement resulted in a decrease in equity of $211,719 (net of tax) as of October 31, 2012 and a decrease in equity of $230,760 (net of tax) as of January 31, 2012.  These results are recorded in the accumulated other comprehensive loss section of shareholders’ equity.

NOTE 8 – EMPLOYEE BENEFIT PLANS

The Company has several defined benefit pension plans covering eligible employees in the United States.  Effective December 31, 2006, the Company amended its defined benefit pension plans to freeze the accrual of future benefits for all its salaried and non-union hourly employees. Effective December 31, 2008, the Company amended its defined benefit pension plan to freeze the accrual of future benefits for union hourly employees.  The net periodic pension cost is based on estimated values provided by the Company’s independent actuary.

The following table provides the components of net periodic pension (income) cost:

	Nine Months Ended						Three Months Ended
	October 31,						October 31,
	2012			2011			2012			2011
Service cost	$	168,105		$	154,284		$	56,035		$	51,442
Interest cost		816,654			841,128			272,218			280,364
Expected return on plan assets		(914,466	)		(1,051,462	)		(304,822	)		(350,481	)
Recognized net actuarial loss		329,973			157,386			109,991			52,443
Net periodic benefit cost	$	400,266		$	101,336		$	133,422		$	33,768

The Company elected to contribute $1,650,683 to its pension and defined contribution plans during the nine-month period ended October 31, 2012.  The Company expects to make an additional contribution of $23,561 during the three-month period ending January 31, 2013.  The Company contributed $2,974,850 to its pension and defined benefit plans during the nine-month period ended October 31, 2011.

13

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 9 – BUSINESS SEGMENT DATA

The Company has five operating segments which are aggregated into three reportable segments: Product Recovery/Pollution Control Technologies, Fluid Handling Technologies and Mefiag Filtration Technologies, and one other segment (Filtration/Purification Technologies). The Filtration/Purification Technologies segment is comprised of two operating segments that meet the criteria for aggregation.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies. The Company evaluates the performance of these segments based on many factors including sales, sales trends, margins and operating performance.

No significant intercompany revenue is realized in these reporting segments. 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.

The Company follows the practice of allocating general corporate expenses, including depreciation and amortization expense, among the reporting segments based upon a percentage of sales.

The financial segmentation information is presented in the following table:

	Nine Months Ended				Three Months Ended
	October 31,				October 31,
	2012		2011		2012		2011
Net sales
Product Recovery/Pollution Control Technologies	$	37,298,932	$	29,851,166	$	13,604,696	$	11,893,296
Fluid Handling Technologies		28,349,511		24,307,152		10,634,005		7,346,897
Mefiag Filtration Technologies		9,412,344		9,630,925		3,037,013		3,286,624
Filtration/Purification Technologies		7,904,872		7,975,134		2,485,642		2,718,314
	$	82,965,659	$	71,764,377	$	29,761,356	$	25,245,131
Income from operations
Product Recovery/Pollution Control Technologies	$	21,586	$	534,986	$	933,815	$	1,064,314
Fluid Handling Technologies		7,864,387		5,890,077		3,116,729		1,747,678
Mefiag Filtration Technologies		419,338		517,572		123,525		127,022
Filtration/Purification Technologies		111,433		366,046		75,678		64,198
	$	8,416,744	$	7,308,681	$	4,249,747	$	3,003,212
	October 31,		January 31,
	2012		2012
Identifiable assets
Product Recovery/Pollution Control Technologies	$	41,305,110	$	36,444,763
Fluid Handling Technologies		20,220,234		19,290,035
Mefiag Filtration Technologies		14,995,354		14,017,572
Filtration/Purification Technologies		8,071,433		8,368,652
		84,592,131		78,121,022
Corporate		32,447,925		37,388,193
	$	117,040,056	$	115,509,215

14

MET-PRO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 10 – CONTINGENCIES AND COMMITTMENTS

Beginning in 2002, the Company began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that the Company, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs.  Counsel has advised that more recent cases typically allege more serious claims of mesothelioma.  The Company believes that it has meritorious defenses to the cases which have been filed 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 has been dismissed from or settled a large number of these cases.  The sum total of all payments through October 31, 2012 to settle cases involving asbestos-related claims was $725,000, all of which has been paid by the Company’s insurers including legal expenses, except for corporate counsel expenses, with an average cost per settled claim, excluding legal fees, of approximately $25,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of 157 cases pending against the Company as of October 31, 2012 (with Connecticut, New York, Pennsylvania and West Virginia having the largest number of cases), as compared with approximately 130 cases that were pending as of March 22, 2012.  Subsequent to January 31, 2012, 43 new cases were filed against the Company, and the Company was dismissed from 18 cases and settled three cases.  Most of the pending cases have not advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial. The Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts; however, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage.  The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

At any given time, the Company is typically also party to a small number of other legal proceedings arising in the ordinary course of business. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based upon the present information, including the Company’s assessment of the facts of each particular claim as well as accruals, the Company believes that no pending proceeding will have a material adverse impact upon the Company’s results of operations, liquidity, or financial condition.

NOTE 11 – ACCOUNTANTS’ 10-Q REVIEW

Marcum LLP, the Company’s independent registered public accountants, performed a limited review of the financial information included herein. Their report on such review accompanies this filing.

15

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the Board of Directors

and Shareholders of Met-Pro Corporation

We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of October 31, 2012, and the related consolidated statements of income and comprehensive income for the nine-month and three-month periods ended October 31, 2012 and 2011, and the consolidated statements of shareholders’ equity and cash flows for the nine-month periods ended October 31, 2012 and 2011.  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 accounting principles generally accepted in the United States of America.

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, 2012, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 22, 2012, 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, 2012 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

/s/ Marcum LLP

Marcum LLP

Bala Cynwyd, Pennsylvania

December 6, 2012

16

MET-PRO CORPORATION AND SUBSIDIARIES

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

Cautionary Statement Concerning Forward-Looking Statements:

Our prospects are subject to certain uncertainties and risk.  In addition to the other information set forth in this report, you should carefully consider the factors which could materially affect our business, financial condition, financial results or future performance, as discussed in Part I, “Item 1A. Risk Factors” and Part II, “Item 7. Forward-Looking Statements; Factors That May Affect Future Results” in our Annual Report on Form 10-K/A for the fiscal year ended January 31, 2012.  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.

Results may differ materially from our current results and actual results could differ materially from those suggested in the forward-looking statements as a result of certain risk factors, other one-time events, other important factors disclosed previously and from time to time in the Company’s other filings with the Securities and Exchange Commission.

Introduction:

The following discussion and analysis should be read in conjunction with Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q, in addition to Item 8 “Financial Statements and Supplementary Data” in  the Company’s Annual Report on Form 10-K/A for the fiscal year ended January 31, 2012.

Results of Operations:

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

	Nine Months Ended						Three Months Ended
	October 31,						October 31,
	2012			2011			2012			2011
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		65.9	%		64.4	%		64.2	%		63.0	%
Gross profit		34.1	%		35.6	%		35.8	%		37.0	%
Selling expenses		11.1	%		12.2	%		10.3	%		11.7	%
General and administrative expenses		12.9	%		13.2	%		11.2	%		13.4	%
Total selling, general and administrative expenses		24.0	%		25.4	%		21.5	%		25.1	%
Income from operations		10.1	%		10.2	%		14.3	%		11.9	%
Interest expense		(0.1	% )		(0.2	% )		(0.1	% )		(0.2	% )
Other income		0.1	%		0.5	%		0.0	%		0.8	%
Income before taxes		10.1	%		10.5	%		14.2	%		12.5	%
Provision for taxes		3.3	%		3.6	%		4.8	%		4.2	%
Net income		6.8	%		6.9	%		9.4	%		8.3	%

17

MET-PRO CORPORATION AND SUBSIDIARIES

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

Nine Months Ended October 31, 2012 vs. Nine Months Ended October 31, 2011:

Net sales for the nine-month period ended October 31, 2012 were $82,965,659 compared with $71,764,377 for the nine-month period ended October 31, 2011, an increase of $11,201,282 or 15.6%.

Sales in the Product Recovery/Pollution Control Technologies reporting segment were $37,298,932 or $7,447,766 higher than the $29,851,166 of sales for the nine-month period ended October 31, 2011, an increase of 24.9%. The sales increase in the Product Recovery/Pollution Control Technologies reporting segment was driven by higher sales in both the Met-Pro Environmental Air Solutions and Strobic Air business units, with the Met-Pro Environmental Air Solutions business unit contributing a higher percentage of the overall sales increase of the reporting segment, in part due to sales of the Bio-Reaction product line which was acquired in October 2010.

Sales in the Fluid Handling Technologies reporting segment totaled $28,349,511, or $4,042,359 higher than the $24,307,152 of sales for the nine-month period ended October 31, 2011, an increase of 16.6%.  Sales in the Fluid Handling Technologies reporting segment were higher as compared with the same period last year due to higher sales for all the product brands within this reporting segment.

Sales in the Mefiag Filtration Technologies reporting segment were $9,412,344, or $218,581 lower than the $9,630,925 of sales for the nine-month period ended October 31, 2011, a decrease of 2.3%.  The sales decline in the Mefiag Filtration Technologies reporting segment was primarily attributable to a decrease in sales in our European operation, which was partially offset by a sales increase in our North America operation, compared with the same period last year.

Sales in the Filtration/Purification Technologies segment were $7,904,872, or $70,262 lower than the $7,975,134 of sales for the nine-month period ended October 31, 2011, a decrease of 0.9%.  Sales in the Keystone Filter and Pristine Water Solutions business units were both essentially flat compared with the same period last year.
 

The Company’s backlog of orders totaled $28,564,256 and $28,641,981 as of October 31, 2012 and 2011, respectively.  The rate of the Company’s bookings of new orders varies from period to period.  Orders have varying delivery schedules, and as of any particular date, the Company’s backlog may not be predictive of actual revenues for any succeeding specific period, in part due to potential customer requested delays in delivery, the extent and duration of which may vary widely from period to period.  Additionally, the Company’s customers typically have the right to cancel a given order, although the Company has historically experienced a very low rate of cancellation.  The Company expects a majority of the backlog that existed as of October 31, 2012 will be shipped during the current fiscal year.

The gross profit margin for the nine-month period ended October 31, 2012 was 34.1% compared with 35.6% for the nine-month period ended October 31, 2011.  The primary factor for this decrease was the lower gross profit margin in the Product Recovery/Pollution Control Technologies reporting segment, which substantially offset the higher gross profit margin in the Fluid Handling Technologies reporting segment, as compared with the same period last year.

Income from operations for the nine-month period ended October 31, 2012 was $8,416,744 compared with $7,308,681 for the nine-month period ended October 31, 2011, an increase of $1,108,063 or 15.2%.

Income from operations in the Product Recovery/Pollution Control Technologies reporting segment was $21,586, or $513,400 lower than the $534,986 for the nine-month period ended October 31, 2011, a decrease of 96.0%.   As previously disclosed in the three-months ended July 31, 2012, the decrease in income from operations in this reporting segment was primarily related to three large contracts in the Met-Pro Environmental Air Solutions business unit which were at an aggregate negative gross profit margin, and higher general and administrative  expense.  These adverse factors from the three-months ended July 31, 2012, more than offset the higher gross profit margins in the Strobic Air business unit and Bio-reaction product line for the nine-month period ended October 31, 2012, compared with the same period last year.

18

MET-PRO CORPORATION AND SUBSIDIARIES

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

Income from operations in the Fluid Handling Technologies reporting segment totaled $7,864,387, or $1,974,310 higher than the $5,890,077 for the nine-month period ended October 31, 2011, an increase of 33.5%.  The increase in income from operations in the Fluid Handling Technologies reporting segment was principally related to increased sales, as well as higher gross profit margins, within this reporting segment.

Income from operations in the Mefiag Filtration Technologies reporting segment totaled $419,338, or $98,234 lower than the income of $517,572 for the nine-month period ended October 31, 2011, a decrease of 19.0%.  The decrease in income from operations in the Mefiag Filtration Technologies reporting segment resulted from a 2.3% decrease in sales, and lower gross profit margins.

Income from operations in the Filtration/Purification Technologies segment was $111,433 or $254,613 lower than the $366,046 for the nine-month period ended October 31, 2011, a decrease of 69.6%.  The decrease in income from operations was related to decreased sales and lower gross margins in the Pristine Water Solutions business unit, which more than offset the higher gross margin in the Keystone Filter business unit.

Net income for the nine-month period ended October 31, 2012 was $5,669,432 compared with $4,984,627 for the nine-month period ended October 31, 2011, an increase of $684,805 or 13.7%.

Selling expense was $9,160,574 for the nine-month period ended October 31, 2012 compared with $8,784,207 for the same period last year, an increase of $376,367.  The increase in selling expense was primarily due to increased advertising as well as higher commissions.  Selling expense as a percentage of net sales was 11.1% for the nine-month period ended October 31, 2012 compared with 12.2% for the same period last year.

General and administrative expense was $10,735,827 for the nine-month period ended October 31, 2012 compared with $9,437,146 for the same period last year, an increase of $1,298,681.  This increase was due primarily to: (i) higher healthcare and pension expenses incurred in the nine-month period ended October 31, 2012 compared with  the same period last year and (ii) costs of approximately $695,000 related to separation expenses, which included salary continuation, stock option modification and transition expenses, associated with the Company’s change in its Chief Financial Officer, which was recorded in the three-months ended April 30, 2012.  The Company incurred $300,000 of severance expense in the Product Recovery/Pollution Control Technologies reporting segment during the six months ended July 31, 2011.  General and administrative expense as a percentage of net sales was 12.9% for the nine-month period ended October 31, 2012, compared with 13.2% for the same period last year.

Interest expense was $125,868 for the nine-month period ended October 31, 2012, compared with $145,862 for the same period in the prior year, a decrease of $19,994.  This decrease was due principally to the reduction of debt in the current year period.

Other income was $115,782 for the nine-month period ended October 31, 2012 compared with $389,647 for the same period last year, a decrease of $273,865.  The decrease in other income is primarily related to a reduction in foreign currency exchange gains compared with the same period last year.

The effective tax rates for the nine-month period ended October 31, 2012 and 2011 were 32.6% and 34.0%,  respectively.   The reduction in the effective rate on a year-over-year basis was primarily the result of a one-time benefit recorded in the three-months ended April 30, 2012 that was attributable to deductible stock compensation expense resulting from a change in the status of outstanding stock options. An analysis of the current tax position led the Company to continue using a 34.0% rate for fiscal year 2013, before the aforementioned benefit.  The Company will continue to analyze its tax position in future quarters, and could increase or decrease the effective tax rate, depending upon the analysis at that time.

19

MET-PRO CORPORATION AND SUBSIDIARIES

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

Three Months Ended October 31, 2012 vs. Three Months Ended October 31, 2011:

Net sales for the three-month period ended October 31, 2012 were $29,761,356 compared with $25,245,131 for the three-month period ended October 31, 2011, an increase of $4,516,225 or 17.9%.

Sales in the Product Recovery/Pollution Control Technologies reporting segment were $13,604,696 compared with $11,893,296 for the three-month period ended October 31, 2011, an increase of $1,711,400 or 14.4%.  The sales increase in the Product Recovery/Pollution Control Technologies reporting segment was driven by higher sales in both the Met-Pro Environmental Air Solutions and Strobic Air business units, with the Met-Pro Environmental Air Solutions business unit contributing a higher percentage of the overall sales increase of the reporting segment, in part due to sales of the Bio-Reaction product line which was acquired in October 2010.

Sales in the Fluid Handling Technologies reporting segment were $10,634,005 compared with $7,346,897 for the three-month period ended October 31, 2011, an increase of $3,287,108 or 44.7%.  The sales increase in the Fluid Handling Technologies reporting segment was due to an increase in demand for most product brands within this reporting segment.

Sales in the Mefiag Filtration Technologies reporting segment were $3,037,013 or $249,611 lower than the $3,286,624 of sales for the three-month period ended October 31, 2011, a decrease of 7.6%.  The sales decline in the Mefiag Filtration Technologies reporting segment was primarily attributable to a decrease in sales in our European operations which was partially offset by a sales increase in our North America operation, compared with the same period last year.

Sales in the Filtration/Purification Technologies segment were $2,485,642, or $232,672 lower than the $2,718,314 of sales for the three-month period ended October 31, 2011, a decrease of 8.6%.  This decrease was due to lower demand in the Keystone Filter and Pristine Water product lines, compared with the same period last year.

The gross profit margin for the three-month period ended October 31, 2012 was 35.8% versus 37.0% for the three-month period ended October 31, 2011.  The primary factor for this decrease was the lower gross profit margin in the Product Recovery/Pollution Control Technologies reporting segment, which substantially offset the higher gross profit margin in the Fluid Handling Technologies reporting segment, as compared with the same period last year.

Income from operations for the three-month period ended October 31, 2012 was $4,249,747 compared with $3,003,212 for the three-month period ended October 31, 2011, an increase of $1,246,535 or 41.5%.

Income from operations in the Product Recovery/Pollution Control Technologies reporting segment was $933,815, or $130,499 lower than the $1,064,314 for the three-month period ended October 31, 2011, a decrease of 12.3%.  The decrease in income from operations in the Product Recovery/Pollution Control Technologies reporting segment was due to lower gross profit margins in the Met-Pro Environmental Air Solutions business unit compared with the same period last year.

Income from operations in the Fluid Handling Technologies reporting segment totaled $3,116,729, or $1,369,051 higher than the $1,747,678 for the three-month period ended October 31, 2011, an increase of 78.3%.  The increase in income from operations in the Fluid Handling Technologies reporting segment was primarily related to the increase in sales and higher gross profit margins within this reporting segment.

Income from operations in the Mefiag Filtration Technologies reporting segment totaled $123,525, or $3,497 lower than the $127,022 for the three-month period ended October 31, 2011, a decrease of 2.8%.  The decrease in income from operations in the Mefiag Filtration Technologies reporting segment resulted from a 7.6% decrease in sales, and lower gross profit margins.

Income from operations in the Filtration/Purification Technologies segment was $75,678 or $11,480 higher than the $64,198 for the three-month period ended October 31, 2011, an increase of 17.9%.  The increase in income from operations is primarily attributable to lower general and administrative expense compared with the same period last year.

20

MET-PRO CORPORATION AND SUBSIDIARIES

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

Net income for the three-month period ended October 31, 2012 was $2,790,735 compared with $2,081,886 for the three-month period ended October 31, 2011, an increase of $708,849 or 34.0%.

Selling expense was $3,071,621 for the three-month period ended October 31, 2012, an increase of $127,602 compared with the same period last year.  The increase in selling expense was primarily due to increased advertising as well as higher commissions. As a percentage of net sales, selling expenses were 10.3% for the three-month period ended October 31, 2012 compared with 11.7% for the three-month period ended October 31, 2011.

General and administrative expense was $3,343,147 for the three-month period ended October 31, 2012, essentially flat when compared with $3,387,617 for the same period last year.  General and administrative expense as a percentage of net sales was 11.2% for the three-month period ended October 31, 2012, compared with 13.4% of net sales for the same period last year.

Interest expense was $41,470 for the three-month period ended October 31, 2012 compared with $47,153 for the same period in the prior year, a decrease of $5,683.

Other income was $20,110 for the three-month period ended October 31, 2012 compared with $198,317 for the same period in the prior year, a decrease of $178,207. The decrease in other income is primarily related to a reduction in foreign currency exchange gains compared with the same period last year.

The effective tax rates for both the three-month periods ended October 31, 2012 and 2011 were 34.0%.  An analysis of the current tax position led the Company to continue using 34.0% as its effective tax rate for the third quarter of the fiscal year 2013.  The Company will continue to analyze its tax position in future quarters, and could increase or decrease the effective tax rate depending upon analysis at that time.

Liquidity and Capital Resources:

The Company’s principal sources of liquidity are cash flows from operations, borrowings under existing lines of credit and access to credit markets.  The Company’s principal uses of cash are operating expenses, capital expenditures, working capital requirements, dividends and debt service.  Management expects that the Company’s current cash and cash equivalent balances, cash generated from operations and unused borrowing capacity will be sufficient to support the Company’s planned operating and capital requirements for the foreseeable future and at least the next twelve months.

The Company’s cash and cash equivalents were $31,842,244 on October 31, 2012 compared with $34,581,394 on January 31, 2012, a decrease of $2,739,150.  The decrease in the Company’s cash and cash equivalents is primarily the net result of quarterly cash dividend payments of $3,128,334, investment in property and equipment of $1,016,028 and payments on debt totaling $766,686, offset partially by net cash provided by operating activities amounting to $1,712,753.  The Company’s cash flows from operating activities are also influenced, in part, 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 receivable balances.

Cash flows provided by operating activities during the nine-month period ended October 31, 2012 amounted to $1,712,753 compared with $5,490,824 in the nine-month period ended October 31, 2011, a decrease of $3,778,071.  The decrease in cash flows from operating activities, as compared with the same period last year, was due principally to the following: (i) a decrease in customers’ advances of $2,045,097 compared with an increase in customers’ advances of $2,451,901 for the same period last year, or a period-to-period cash outflow of $4,496,998, and (ii) an increase in accounts receivable of $3,272,233 compared with an increase in accounts receivable of $839,188 for the same period last year, or a period-to-period cash outflow of $2,433,045.  These cash outflows were partially offset by the following: (i) an decrease in accrued pension retirement benefits of $1,310,290 compared with a decrease in accrued pension benefits of $2,747,053 for the same period last year, or a period-to-period cash inflow of $1,436,763, (ii) an increase in inventories of $1,063,228 compared with an increase in inventories of $2,138,267, or a period-to-period cash inflow of $1,075,039 and (iii) net income increasing $684,805 from the same period last year.

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MET-PRO CORPORATION AND SUBSIDIARIES

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

Cash flows used in investing activities during the nine-month period ended October 31, 2012 amounted to $779,696 compared with cash flows used in investing activities of $2,116,397 for the nine-month period ended October 31, 2011, a decrease of $1,336,701.  The decrease in cash flows used in investing activities is principally due to the following:  (i) the proceeds from maturities of investments of $1,258,598 compared with proceeds from maturities of investments of $497,155 for the same period last year, or a period-to-period cash inflow of $761,443 and (ii) purchases of property and equipment of $1,016,028 compared with purchases of property and equipment of $1,636,866 for the same period last year, or a period-to-period cash inflow of $620,838.

Financing activities during the nine-month period ended October 31, 2012 utilized $3,672,242 of available resources, compared with $3,101,116 utilized during the nine-month period ended October 31, 2011.  The increase in cash utilized amounting to $571,126 is principally due to the decrease in proceeds received from the Company’s Mefiag B.V. subsidiary’s line of credit and increases in payments of dividends and debt payments, compared with  the same period last year.

The Company and its subsidiaries also have access to $4,388,740 of uncommitted, unsecured domestic and foreign lines of credit, subject to terms thereof, of which $600,596 has been committed for standby letters of credit as of October 31, 2012.  The existing domestic credit agreements include two financial covenants: a liability/tangible net worth ratio and a fixed charge coverage ratio. At October 31, 2012 the Company was in compliance with both financial covenants.

The Board of Directors declared quarterly dividends of $0.071 per share payable on March 16, 2012, June 15, 2012 and September 14, 2012 to shareholders of record at the close of business on March 2, 2012, June 1, 2012 and August 31, 2012, respectively. On October 23, 2012 the Board of Directors declared and increased the quarterly dividend by 2.1%, to $0.0725 per share, payable on December 17, 2012 to shareholders of record at the close of business on December 3, 2012.

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MET-PRO CORPORATION AND SUBSIDIARIES

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

Critical Accounting Policies and Estimates:

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP.  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:

Revenue Recognition:

The Company recognizes a majority of its revenues from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.  Revenue from contracts related to the Company’s subsidiary Bio-Reaction Industries Inc., representing the minority of revenues, are recognized on the percentage of completion method, measured by the percentage of contract costs incurred to date, compared with the estimated total contract costs for each contract.  This method is used because management considers contract costs to be the best available measure of progress on these contracts related to Bio-Reaction Industries Inc.

Depreciation and Amortization:

Property, plant and equipment, finite lived intangible assets and certain other long-lived assets are depreciated or amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue.  Property, plant and equipment, as well as intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill:

The Company assesses the qualitative and quantitative factors which could affect the fair value of goodwill carried in its reporting units on an annual basis or more frequently when an indicator of impairment exists. Quantitative impairment testing involves significant judgment in estimating projections of fair value generated through future performance of each of the reporting units, which comprise our operating segments.  In calculating the fair value of the reporting units using the present value of estimated future cash flows method, we rely on a number of assumptions including sales and related gross margin projections, operating margins, anticipated working capital requirements and market rate of returns used in discounting projected cash flows.  These assumptions are based upon market and industry forecasts, our business plans and historical data.  Inherent uncertainties exist in determining and applying such factors.  The discount rate used in the projection of fair value represents a weighted average cost of capital available to the Company.  

During the fiscal year ended January 31, 2012, we performed a quantitative impairment analysis on each of the Company’s reporting units that carry goodwill on their balance sheets.  In each case, the fair value exceeded the carrying amount, including goodwill, by a significant amount, except for Flex-Kleen and Pristine Water Solutions which represents 69.6% of the total Company-wide goodwill.  

For Flex-Kleen, the carrying value as of January 31, 2012 and 2011 amounted to $9.3 million and $9.1 million, respectively.  The fair value of Flex-Kleen as of January 31, 2012 and 2011 totaled $13.2 million and $12.3 million, respectively.   As a result, the fair value exceeded the carrying amount, including goodwill, by $3.9 million and $3.2 million at January 31, 2012 and 2011, respectively.  Therefore, as of January 31, 2012, Flex-Kleen’s goodwill was not impaired.

Flex-Kleen, which initially performed well after being acquired in 1998, 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 years ended January 31, 2007, 2008 and 2009.  In the fiscal years ended January 31, 2007, 2008 and 2009, actual results exceeded the projected results used in our impairment model. During the fiscal year ended January 31, 2010, Flex-Kleen’s net sales and operating profit were below the projections in our impairment model, which we believe was a reflection of the downturn in global business and economic conditions during this period of time and was not due to any new development specific to Flex-Kleen.   In the fiscal year ended January 31, 2011, Flex-Kleen’s net sales were below the projections but operating profit was slightly above the projections in our impairment model.  In the fiscal year ended January 31, 2012, Flex-Kleen’s net sales and operating profit exceeded the projections in our impairment model.  Our impairment model requires that Flex-Kleen’s sales and operating profit improve during each of the next several fiscal years in order for us to avoid a potential impairment charge.

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MET-PRO CORPORATION AND SUBSIDIARIES

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

Because of market conditions and/or potential changes in strategy and product portfolio, it is possible that forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.  Based on current projections, a one percent decrease in revenue growth, a one percent decrease in gross margin or a one percent increase in the weighted average cost of capital would reduce the fair value for Flex-Kleen by $1.9 million, $1.1 million, and $0.9 million, respectively.  Additionally, the Company cannot predict the occurrence of unknown events that might adversely affect the reportable value of Flex-Kleen’s goodwill.

For Pristine Water Solutions, the carrying value as of January 31, 2012 and 2011 amounted to $4.6 million at both dates.  The fair value of Pristine Water Solutions as of January 31, 2012 and 2011 totaled $5.9 million and $9.8 million, respectively.   As a result, the fair value exceeded the carrying amount, including goodwill, by $1.3 million and $5.2 million at January 31, 2012 and 2011, respectively.  Therefore, as of January 31, 2012, Pristine Water Solutions’ goodwill was not impaired.

During the fiscal year 2012, there was a decline in net sales and operating profit of our Pristine Water Solutions business unit that we attribute to a number of factors including raw material price increases, increased price competition, product mix, continued weaknesses in Pristine Water Solutions’ principal market, the municipal market, and inclement weather in certain geographic areas which affected product demand.  Our impairment model requires that Pristine Water Solutions’ sales and operating profit improve during each of the next several fiscal years in order for us to avoid a potential impairment charge.

Because of market conditions and/or potential changes in strategy and product portfolio, it is possible that forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.  Based on current projections, a one percent decrease in revenue growth, a one percent decrease in gross margin or a one percent increase in the weighted average cost of capital would reduce the fair value for Pristine Water Solutions by $0.7 million, $0.5 million, and $0.4 million, respectively.  Additionally, the Company cannot predict the occurrence of unknown events that might adversely affect the reportable value of goodwill related to Pristine Water Solutions.

Pension Obligations:

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.  Those assumptions are described in Note 13 of the January 31, 2012 consolidated financial statements included in Form 10-K/A and include, among others, the discount rate and the expected long-term rate of return on plan assets.  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 AND SUBSIDIARIES

Item 3.  Qualitative and Quantitative Disclosures About Market Risk

We are exposed to certain market risks, primarily changes in interest rates.  There have been no significant changes in our exposure to market risks since January 31, 2012.  Refer to “Item 7A. Quantitative and Qualitative Disclosure About Market Risks” of the Company’s Annual Report on Form 10-K/A for the fiscal year ended January 31, 2012 for additional information.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, under the supervision of the Company’s Disclosure Committee, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were effective as of October 31, 2012.

(b) Changes in Internal Control Over Financial Reporting

During the nine months ended October 31, 2012, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(c) Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

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MET-PRO CORPORATION AND SUBSIDIARIES

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 “Forward-Looking Statements; Factors That May Affect Future Results” 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.

Beginning in 2002, the Company began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that the Company, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs.  Counsel has advised that more recent cases typically allege more serious claims of mesothelioma.  The Company believes that it has meritorious defenses to the cases which have been filed 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 has been dismissed from or settled a large number of these cases.  The sum total of all payments through October 31, 2012 to settle cases involving asbestos-related claims was $725,000, all of which has been paid by the Company’s insurers including legal expenses, except for corporate counsel expenses, with an average cost per settled claim, excluding legal fees, of approximately $25,000.

Based upon the most recent information available to the Company regarding such claims, there were a total of 157 cases pending against the Company as of October 31, 2012 (with Connecticut, New York, Pennsylvania and West Virginia having the largest number of cases), as compared with approximately 130 cases that were pending as of March 22, 2012.  Subsequent to January 31, 2012, 43 new cases were filed against the Company, and the Company was dismissed from 18 cases and settled three cases.  Most of the pending cases have not advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial. The Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts; however, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage.  The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

At any given time, the Company is typically also party to a small number of other legal proceedings arising in the ordinary course of business. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based upon the present information, including the Company’s assessment of the facts of each particular claim as well as accruals, the Company believes that no pending proceeding will have a material adverse impact upon the Company’s results of operations, liquidity, or financial condition.

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MET-PRO CORPORATION AND SUBSIDIARIES

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K/A for the year ended January 31, 2012 as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition, financial results or future performance.

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

(a) During the nine months ended October 31, 2012, 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 three months ended October 31, 2012:

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, 2012		-	$	-		-		170,496
September 1-30, 2012		-		-		-		170,496
October 1-31, 2012		-		-		-		170,496
Total		-	$	-		-		170,496

(1) On November 3, 2008, our Board of Directors authorized a common share repurchase program that was publicly announced on November 5, 2008, for up to 300,000 shares.  The program has no fixed expiration date.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

None.

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MET-PRO CORPORATION AND SUBSIDIARIES

Item 6.   Exhibits

(a)	Exhibits Required by Item 601 of Regulation S-K
	Exhibit No.	Description
	(31.1)	Certification of the Chief Executive Officer
		Pursuant to Section 302 of the
		Sarbanes-Oxley Act of 2002.*
	(31.2)	Certification of the Chief Financial Officer
		Pursuant to Section 302 of the
		Sarbanes-Oxley Act of 2002.*
	(32.1)	Certification of the Chief Executive Officer
		Pursuant to 18 U.S.C. Section 1350, as adopted
		Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*
	(32.2)	Certification of the Chief Financial Officer
		Pursuant to 18 U.S.C. Section 1350, as adopted
		Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*
	(101.INS)	XBRL Instance*
	(101.SCH)	XBRL Taxonomy Extension Schema*
	(101.CAL)	XBRL Taxonomy Extension Calculation*
	(101.LAB)	XBRL Taxonomy Extension Labels*
	(101.PRE)	XBRL Taxonomy Extension Presentation*
	(101.DEF)	XBRL Taxonomy Extension Definition*
*  Filed herewith.

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MET-PRO CORPORATION AND SUBSIDIARIES

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 6, 2012	/s/ Raymond J. De Hont
	Raymond J. De Hont
	Chief Executive Officer and President
	(Duly Authorized Officer and Principal Executive Officer)
December 6, 2012	/s/ Neal E. Murphy
	Neal E. Murphy
	Vice President-Finance,
	Chief Financial Officer, Secretary and Treasurer
	(Duly Authorized Officer and Principal Financial Officer)

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