NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations:

The Company manufactures and sells product recovery and pollution control equipment for purification of air and liquids, fluid handling equipment for corrosive, abrasive and high temperature liquids, and filtration and purification products. The Company markets and sells its products through its own personnel, distributors, representatives and agents. The Company's products are sold worldwide primarily in industrial markets.

Basis of presentation:

The 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. Significant intercompany accounts and transactions have been eliminated.

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign currency translation:

Assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a component of accumulated other comprehensive income in the consolidated statements of shareholders' equity.

Comprehensive income (loss):

Comprehensive income includes all changes to shareholders' equity during a period, except those resulting from investment by and distributions to shareholders. Components of comprehensive income include net income, foreign currency transaction adjustment, minimum pension liability adjustment, net of tax and interest rate swap, net of tax.

Fair Value of Financial Instruments:

Under the accounting for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

We use the following valuation techniques to measure fair value for our assets and liabilities:

Level 1

Quoted market prices in active markets for identical assets or liabilities;

Level 2

Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and

Level 3

Unobservable inputs for the asset or liability, which are valued based on management's estimates of assumptions that market participants would use in pricing the asset or liability.

The amounts reported on the consolidated balance sheets for cash and cash equivalents, short-term investments, accounts receivable, other assets and short-term debt approximate fair value due to the short-term nature of these instruments.

Inventories:

Inventories are stated at the lower of cost (principally first-in, first-out) or market, except for the inventory in the Met-Pro Global Pump Solutions business unit (Dean Pump product brand) which is determined on the last-in, first-out basis (see Note 5).

Property, plant and equipment:

Property, plant and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized (see Note 6). Upon sale or disposal of property, plant and equipment, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts, and the net amount, less any proceeds from sale, is recorded in income. For financial reporting purposes, provisions for depreciation are calculated on a straight-line basis over the following estimated useful lives of the assets:

	Years
Buildings and improvements		10-39
Machinery and equipment		5-10
Furniture and fixtures		5-7
Automotive equipment		3

The carrying amounts of all long-lived assets are evaluated periodically to determine if an adjustment to the depreciation period or the non-depreciated balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property, plant and equipment exists as of January 31, 2013.

Goodwill:

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.

No impairment was present upon performing the annual impairment testing in the fiscal year ended January 31, 2013, as the result of such testing was that the fair value of each reporting unit exceeded its carrying value, including goodwill. At January 31, 2013, the goodwill associated with the Company's three reporting segments and one other segment totaled $20,798,913.

The carrying amount of goodwill, by the three reporting segments and one other segment for the fiscal year ended January 31, 2013, is as follows:

	Product Recovery/ Pollution Control Technologies		Fluid Handling Technologies		Mefiag Filtration Technologies		Filtration/ Purification Technologies		Total
Balance as of February 1, 2012	$	15,706,667	$	11,542	$	1,732,482	$	3,348,222	$	20,798,913
Goodwill acquired during the period		-		-		-		-		-
Balance as of January 31, 2013	$	15,706,667	$	11,542	$	1,732,482	$	3,348,222	$	20,798,913

There was no change in the carrying amount of goodwill for the fiscal year ended January 31, 2012.

Other intangible assets:

The Company maintains intangible assets with finite and indefinite lives. The following is a summary of the Company's components of other intangible assets, which are reported in other assets on the consolidated balance sheets.

	January 31, 2013					January 31, 2012
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
Amortized intangible assets	Amount		Amortization			Amount		Amortization
Patents	$	791,194	$	(197,855	)	$	761,821	$	(131,665	)
Customer lists		384,000		(288,167	)		384,000		(275,667	)
Intellectual property		195,886		(195,886	)		195,886		(195,886	)
Other		181,337		(134,656	)		181,337		(110,753	)
	$	1,552,417	$	(816,564	)	$	1,523,044	$	(713,971	)

Unamortized intangible assets
Trademarks	$	11,963	$	0		$	11,963	$	0

The following is a summary of the amortization expense related to the Company's components of other intangible assets:

Amortization expense for the year ended
January 31, 2011	$	52,017
January 31, 2012		107,851
January 31, 2013		102,593

Estimated amortization expense for the year ending
January 31, 2014	$	82,117
January 31, 2015		81,671
January 31, 2016		80,724
January 31, 2017		79,057
January 31, 2018		75,724
Thereafter		336,560
	$	735,853

For financial reporting purposes, provisions for amortization are calculated on a straight-line basis over the following estimated useful lives for the identified intangible assets:

	Years
Patents	6-20
Customer lists	10
Intellectual property	10
Other	2-20

Asset Available for Sale:

The Company maintains a vacant plot of land available for sale in Heerenveen, the Netherlands amounting to $567,459 and $546,771 as of January 31, 2013 and 2012, respectively. This asset available for sale is reported in other assets on the consolidated balance sheets.

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; and the selling price is fixed or determinable and collectability is reasonably assured. FASB ASC Topic 605, "Revenue Recognition" ("ASC Topic 605"), provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. Revenue from contracts related to the Company's subsidiary Bio-Reaction Industries Inc., representing less than 5% 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. The Company has concluded that its revenue recognition policy is appropriate and in accordance with ASC Topic 605.

Advertising:

Advertising costs are charged to operations in the year incurred and were $1,354,995, $1,258,220, and $988,217 for the years ended January 31, 2013, 2012, and 2011, respectively.

Research and development:

Research and development costs are charged to operations in the year incurred and were $2,155,025, $2,512,923, and $2,242,052 for the years ended January 31, 2013, 2012, and 2011, respectively.

Stock-based compensation:

The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, "Compensation – Stock Compensation", which requires the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for FASB ASC Topic 718, stock-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The Company uses the Black-Scholes valuation model to estimate fair value of stock-based awards, which requires various assumptions including estimating stock price volatility, forfeiture rates and expected life.

Income Taxes:

Income taxes are determined using the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, "Income Taxes". Under ASC Topic 740, tax expense includes U.S. and international income taxes plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Tax credits and other incentives reduce tax expense in the year the credits are claimed. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported in deferred income taxes. Deferred tax assets are recognized if it is more likely than not that the assets will be realized in future years. The Company establishes a valuation allowance for deferred tax assets for which realization is not more likely than not.

Income tax contingencies are accounted for in accordance with FASB ASC Topic 740-10-20, "Income Taxes". Significant judgment is required in determining the Company's worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is less than certain. The Company is examined by various Federal, State, and foreign tax authorities. The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and records any necessary adjustments in the period in which the facts that give rise to a revision become known.

The Company recognizes interest accrued related to unrecognized tax liabilities in interest expense and penalties in general and administrative expenses. No such interest and penalties were recognized during the years ended January 31, 2013, 2012 and 2011.

Earnings per share:

Basic earnings per share are computed based on the weighted average number of common shares outstanding during each year.

Diluted earnings per share are computed based on the weighted average number of shares outstanding plus all potential dilutive common shares outstanding (stock options) and awards of restricted stock units during each year.

Dividends payable:

On December 20, 2012, the Board of Directors declared a $0.0725 per share quarterly cash dividend payable on March 15, 2013 to shareholders of record at the close of business on March 1, 2013, amounting to an aggregate of $1,068,862.

Concentrations of credit risk:

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents (see Note 3) and trade accounts receivable. The Company believes concentrations of accounts receivable credit risk are limited due to the number of customers and dispersion among the operating segments and geographic areas. It is the policy of management to review the outstanding accounts receivable balance at the end of each reporting period, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts.

Supplemental cash flow information:

	2013		2012		2011
Cash paid during the year for:
Interest	$	167,619	$	192,971	$	210,497
Income taxes		3,258,500		2,394,238		2,096,789

Subsequent events:

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.