10-Q/A 1 mpr10qa1qtr2007.htm FIRST QUARTER 10Q/A FYE2007 First Quarter 10Q/A FYE2007
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q/A
Amendment No. 1


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

For the quarter ended: April 30, 2006
 
or

[     ] 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 [ X ] No [    ]
 
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 [    ] Accelerated filer [ X ] Non-accelerated filer [    ]
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [    ] No [ X ]
 
As of April 30, 2006 the Registrant had 11,204,577 Common Shares, par value of $.10 per share, issued and outstanding.

 
MET-PRO CORPORATION
 
Explanatory Note

The purpose of this Amendment No. 1 (this “Amendment”) on Form 10-Q/A to the Quarterly Report of Form 10-Q of Met-Pro Corporation (the “Company”) for the fiscal quarter ended April 30, 2006 is to (i) correct and restate the Business Segment Data (the “restatement”) and (ii) reclassify certain gains/(losses) on sale of property and equipment from other income, net, to general and administrative expenses (the “reclassification”) as described in Note 1. In addition to these changes in the consolidated financial statements, this Amendment makes corresponding changes in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Neither the restatement nor the reclassification make any change in the Company’s previously reported net sales, net income, earnings per share, total assets, liabilities or shareholders’ equity. The reclassification changes the Company’s previously reported income from operations by amounts that the Company considers immaterial.

The changes made by this Amendment arise out of what the Company believes is a routine comment letter process with the Securities and Exchange Commission (“SEC”).

The only changes in this Form 10-Q/A to the original Form 10-Q filed on May 31, 2006 are those affected by the restatement and the reclassification. This Form 10-Q/A continues to speak as of the date of our original Form 10-Q and we have not updated the disclosures to speak as of a later date or to reflect subsequent results, events or developments, and information in the original Form 10-Q not affected by the foregoing is unchanged and reflects the disclosures made at the time of the filing of the original Form 10-Q. Accordingly, this Form 10-Q/A should be read in conjunction with our SEC filings made subsequent to the May 31, 2006 filing of the original Form 10-Q, including any amendments to those filings. The following items have been amended as a result of the restatement and are included in this Form 10-Q/A:

·      Part I - Item 1 - Financial Statements
 
·      Part I - Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
·      Part I - Item 4 - Controls and Procedures
 
·      Part II - Item 6 - Exhibits
 
Pursuant to the applicable rules, Item 6 of Part II has been amended to contain the currently dated certifications from our principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our principal executive officer and principal financial officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively.






 









1
MET-PRO CORPORATION

 


 
 
 

 
2
MET-PRO CORPORATION
 

(unaudited)

PART I - FINANCIAL INFORMATION
        
         
Item 1.  Financial Statements
        
         
 
April 30,    
 
January 31,
 
ASSETS
2006       
 
2006      
 
Current assets
        
      Cash and cash equivalents
$19,560,802
  
$17,683,305
 
      Accounts receivable, net of allowance for doubtful
        
          accounts of approximately $168,000 and
        
          $247,000, respectively
16,341,831
  
17,909,727
 
      Inventories
17,644,386
  
16,438,481
  
      Prepaid expenses, deposits and other current assets
1,305,853
  
1,381,900
  
      Deferred income taxes
620,164
  
591,534
  
                Total current assets
55,473,036
  
54,004,947
  
         
Property, plant and equipment, net
15,803,718
  
13,838,221
 
Costs in excess of net assets of businesses acquired, net
20,798,913
  
20,798,913
  
Other assets
1,015,440
  
1,020,844
  
                Total assets
$93,091,107
  
$89,662,925
 
         
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Current liabilities
        
      Current portion of long-term debt
$1,876,433
  
$1,689,413
 
      Accounts payable
4,957,722
  
5,900,281
 
      Accrued salaries, wages and expenses
7,123,857
  
7,150,142
 
      Dividend payable
700,286
  
699,819
  
      Customers' advances
1,965,611
  
1,703,092
  
                Total current liabilities
16,623,909
  
17,142,747
  
         
Long-term debt
5,723,812
  
2,723,586
 
Other non-current liabilities
43,760
  
43,211
 
Deferred income taxes
2,257,704
  
2,215,143
  
                Total liabilities
24,649,185
  
22,124,687
 
         
Shareholders' equity
        
      Common shares, $.10 par value; 18,000,000 shares
        
          authorized, 12,846,608 shares issued,
       
          of which 1,642,031 and 1,649,498 shares were reacquired
       
          and held in treasury at the respective dates
1,284,661
  
1,284,661
 
      Additional paid-in capital
7,648,569
  
7,564,180
 
      Retained earnings
71,152,878
  
70,645,717
  
      Accumulated other comprehensive loss
(62,329
)
(321,821
)
      Treasury shares, at cost
(11,581,857
)
(11,634,499
)
                Total shareholders' equity
68,441,922
  
67,538,238
  
                Total liabilities and shareholders' equity
$93,091,107
  
$89,662,925
 
See accompanying notes to consolidated financial statements.
      
 
3
MET-PRO CORPORATION


 (unaudited)

 
 Three Months Ended
 
April 30,
 
2006      
 
2005      
 
Net sales
$19,779,041
  
$17,927,612
  
Cost of goods sold
13,923,682
  
11,973,337
  
Gross profit
5,855,359
  
5,954,275
  
 
        
Operating expenses
        
   Selling
1,896,179
  
1,954,263
  
   General and administrative
2,358,513
  
2,105,656
  
 
4,254,692
  
4,059,919
  
         
Income from operations
1,600,667
  
1,894,356
  
         
Interest expense
(59,805
)
(66,052
)
Other income, net
234,798
  
139,187
  
Income before taxes
1,775,660
  
1,967,491
  
         
Provision for taxes
568,212
  
649,273
  
Net income
$1,207,448
  
$1,318,218
  
Earnings per share, basic (1) (2)
$.11
  
$.12
  
         
Earnings per share, diluted (1) (3)
$.11
  
$.12
  
         
Cash dividend per share - declared (1) (4)
$.0625
  
$.0581
  
         
Cash dividend per share - paid (1) (4)
$.0625
  
$.0581
  
 
(1)
On October 10, 2005, the Board of Directors declared a four-for-three stock split which was paid on November 15, 2005 to shareholders of record on November 1, 2005. All references in the financial statements to per share amounts and numbers of shares outstanding have been restated to reflect the effect of the stock split.
   
(2)
Basic earnings per share are based upon the weighted average number of shares outstanding of 11,199,599 and 11,175,641 for the three-month periods ended April 30, 2006 and 2005, respectively.
   
(3)
Diluted earnings per share are based upon the weighted average number of shares outstanding of 11,439,813 and 11,286,592 for the three-month periods ended April 30, 2006 and 2005, respectively. 
   
(4)
The Board of Directors declared quarterly dividends of $.0625 per share payable on March 9, 2006 and June 7, 2006 to shareholders of record as of February 24, 2006 and May 26, 2006, respectively. Quarterly dividends of $.0581 per share were paid on March 8, 2005 and June 8, 2005 to shareholders of record as of February 25, 2005 and May 27, 2005, respectively.
   
See accompanying notes to consolidated financial statements.

4
MET-PRO CORPORATION
 

(unaudited)

 
 
            
       
Accumulated     
     
   
Additional
  
Other           
     
 
Common
Paid-in
Retained
Comprehensive 
Treasury      
    
 
Shares
Capital
Earnings
Income/(Loss)  
Shares        
Total       
  
Balances, January 31, 2006
$1,284,661
$7,564,180
  
$70,645,717
  
($321,821
)
($11,634,499
)
$67,538,238
  
                       
Comprehensive income:
                      
   Net income
-
-
  
1,207,448
  
-
  
-
      
   Cumulative translation adjustment
-
-
  
-
  
169,659
  
-
      
   Interest rate swap,
 
 
  
 
      
 
      
      net of tax of $43,114
-
-
  
-
  
89,833
  
-
      
         Total comprehensive income
                  
1,466,940
  
                       
Dividends declared, $.0625 per
                     
      Share
-
-
  
(700,287
)
-
  
-
  
(700,287
)
Stock-based compensation
-
81,800
  
-
  
-
  
-
  
81,800
  
Stock option transactions
-
2,589
  
-
  
-
  
52,642
  
55,231
  
Balances, April 30, 2006
$1,284,661
$7,648,569
  
$71,152,878
  
($62,329
)
($11,581,857
)
$68,441,922
  
 
 
 
            
       
Accumulated     
     
   
Additional
  
Other           
     
 
Common
Paid-in
Retained
Comprehensive 
Treasury      
    
 
Shares
Capital
Earnings
Income/(Loss)  
Shares        
Total       
  
Balances, January 31, 2005
$963,496
$7,930,646
  
$66,032,446
  
$100,635
  
($11,862,032
)
$63,165,191
  
 
 
                    
Comprehensive income:
                      
   Net income
-
-
  
1,318,218
  
-
  
-
     
   Cumulative translation adjustment
-
-
  
-
  
(79,432
)
-
     
   Interest rate swap,
 
 
  
 
  
 
  
 
      
      net of tax of ($15,292)
  -
-
  
-
  
26,834
  
-
      
         Total comprehensive income
                  
1,265,620
  
                       
Dividends declared, $.0581 per
 
 
  
 
 
 
  
  
  
 
 
      Share
  -
-
  
(650,258
 ) 
-
  
-
  
(650,258
 ) 
Stock option transactions
-
(8,043
)
-
  
-
  
192,189
  
184,146
  
Balances, April 30, 2005
$963,496
$7,922,603
  
$66,700,406
  
$48,037
  
($11,669,843
)
$63,964,699
  
See accompanying notes to consolidated financial statements.
        
 

 
5
MET-PRO CORPORATION
 

(unaudited)
       
     
Three Months Ended
     
April 30,
     
2006       
 
2005       
 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities
            
   Net income
    
$1,207,448
  
$1,318,218
  
   Adjustments to reconcile net income to net
            
            cash provided by (used in) operating activities:
            
        Depreciation and amortization
   
370,964
  
374,519
 
        Deferred income taxes
    
(553
)
(589
)
        (Gain) loss on sale of property and equipment, net
    
(4,410
)
12,198
  
        Stock-based compensation
    
81,800
  
-
  
        Allowance for doubtful accounts
   
(79,003
)
23,066
  
        (Increase) decrease in operating assets:
            
            Accounts receivable
   
1,740,117
  
206,313
  
            Inventories
    
(1,147,983
)
(2,402,889
)
            Prepaid expenses, deposits and other current assets
   
86,777
  
57,228
  
            Other assets
    
(2,250
)
(1,950
)
        Increase (decrease) in operating liabilities:
            
            Accounts payable and accrued expenses
   
(1,072,742
)
(264,409
)
            Customers’ advances
    
262,518
  
623,810
  
            Other non-current liabilities
    
549
  
549
  
         Net cash provided by (used in) operating activities
    
1,443,232
  
(53,936
)
             
             
Cash flows from investing activities
            
   Proceeds from sale of property and equipment
    
4,410
  
12,330
  
   Acquisitions of property and equipment
    
(2,227,748
)
(261,596
)
         Net cash (used in) investing activities
    
(2,223,338
)
(249,266
)
             
Cash flows from financing activities
            
   Proceeds from new borrowings
    
3,602,921
  
-
  
   Reduction of debt
    
(330,508
)
(300,910
)
   Exercise of stock options
    
55,232
  
184,146
  
   Payment of dividends
    
(699,820
)
(648,524
)
         Net cash provided by (used in) financing activities
    
2,627,825
  
(765,288
)
Effect of exchange rate changes on cash
    
29,778
  
(13,122
)
             
Net increase (decrease) in cash and cash equivalents
    
1,877,497
  
(1,081,612
)
             
Cash and cash equivalents at February 1
    
17,683,305
  
20,889,476
  
Cash and cash equivalents at April 30
    
$19,560,802
  
$19,807,864
  
See accompanying notes to consolidated financial statements.
        
 
6
MET-PRO CORPORATION
 


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)

Restatement: As noted in the Explanatory Note at the outset of this Amendment, the filing of this amended Form 10-Q/A arises out of a comment letter process with the Securities and Exchange Commission (“SEC”) which included a comment on the Company’s segment reporting. The Company has analyzed its segment reporting in accordance with the criteria outlined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and based upon changes beginning in February 2006 in the manner in which management manages the Company, as well as the current economic characteristics of its operating segments, management has determined that a revision of the aggregation of operating segments is appropriate. The Company has identified six operating segments and has aggregated those segments into two reportable segments as follows: Product Recovery/Pollution Control Equipment and Fluid Handling Equipment, and one other segment (Filtration and Purification). The Filtration and Purification segment is comprised of four operating segments that do not meet the criteria for aggregation outlined in SFAS No. 131, but which can be combined due to certain quantitative thresholds listed in SFAS No. 131. The disclosures in the Business Segment Data in Note 10 have been restated to reflect two reportable segments and one other segment.

This restatement has no effect upon the Company’s consolidated statement of operations, consolidated balance sheet, consolidated statement of shareholders’ equity or consolidated statement of cash flows for any of the affected periods. Accordingly, the Company’s previously reported net sales, net income, earnings per share, total assets, liabilities and shareholders’ equity are unchanged.

Reclassification: This Amendment also gives effect to a reclassification identified in the comment letter process with the SEC. The Company has realized gains/(losses) on sale of property and equipment in the amounts of $4,410 and ($12,198) for the three-month periods ended April 30, 2006 and 2005, respectively. In this Amendment, the Company has reclassified these gains/(losses) from other income, net (Note 8) to general and administrative expense on the consolidated statement of operations, which results in changes in previously reported income from operations. This reclassification has no effect on the Company’s previously reported net sales, net income, earnings per share, total assets, liabilities and shareholders’ equity.

Recent Accounting Pronouncements: In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, "Inventory Costs". The new Statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current period charges and requires that allocation of fixed production overheads to the cost of conversion be based on the normal capacity of the production facilities. This Statement is effective for fiscal years beginning after June 15, 2005. SFAS No. 151 has not had a material impact on our financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement replaces SFAS No. 123 and supersedes Accounting Principles Board Opinion (“APB”) No. 25. SFAS No. 123(R) requires the fair value of all stock option awards issued to employees to be recorded as an expense over the related vesting period. The Statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. Prior to the adoption of SFAS No. 123(R) on February 1, 2006, the Company, as permitted by SFAS No. 123, provided pro forma disclosure of its compensation costs associated with the fair value of stock options that had been granted, and accordingly, no compensation costs were recognized in its consolidated financial statements. The Company adopted SFAS No. 123(R) using the modified prospective method, and accordingly, the financial statement amounts for the prior periods presented in this Quarterly Report on Form 10-Q have not been restated to reflect the fair value method of expensing share-based compensation. During the three-month period ended April 30, 2006, the adoption of SFAS No. 123(R) lowered net income by $55,624 and increased general and administrative expense by $81,800. The after-tax impact of adopting SFAS No. 123(R) is expected to approximate $223,000 during the fiscal year ending January 31, 2007. The adoption of this standard had no material impact on the Company's overall financial position and no impact on cash flow. See Note 4 for further information and the required disclosures under SFAS No. 123(R).


7
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,” which addresses the measurement of exchanges of non-monetary assets. SFAS No. 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets, which was previously provided by APB No. 29, “Accounting for Non-monetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. SFAS No. 153 has not had a material impact on our financial condition or results of operations.

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

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which replaces APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS No. 154 changes the requirements for accounting and reporting a change in accounting principle, and applies to all voluntary changes in accounting principles, as well as changes required by an accounting pronouncement in the unusual instance it does not include specific transition provisions. Specifically, SFAS No. 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine the period specific effects or the cumulative effect of the change. When it is impracticable to determine the effects of the change, the new accounting principle must be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and a corresponding adjustment must be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of the change, the new principle must be applied as if it were adopted prospectively from the earliest date practicable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS No. 154 does not change the transition provisions of any existing pronouncements. SFAS No. 154 has not had a material impact on our financial condition or results of operations.

Stock Split: On October 10, 2005, the Company’s Board of Directors declared a four-for-three stock split, effective in the form of a stock distribution, payable on November 15, 2005 to shareholders of record on November 1, 2005. The Company retained the current par value of $.10 per share for all common shares. All references in the financial statements and notes to the number of shares outstanding, per share amounts, and stock option data of the Company’s common shares have been restated to reflect the effect of the stock split for all periods presented.

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


NOTE 2 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Met-Pro Corporation (“Met-Pro” or the “Company”) and its wholly-owned subsidiaries, Mefiag B.V., Flex-Kleen Canada Inc., Strobic Air Corporation, MPC Inc., Pristine Water Solutions Inc., Mefiag (Guangzhou) Filter Systems Ltd. and Met-Pro (Hong Kong) Limited Company. Significant intercompany accounts and transactions have been eliminated.


8
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position of the Company as of April 30, 2006 and the results of operations, changes in shareholders’ equity and cash flows for the three-month periods ended April 30, 2006 and 2005. The results of operations for the three-month periods ended April 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2006.


NOTE 4 - STOCK-BASED COMPENSATION

Stock Options: Effective February 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment," which revised SFAS No. 123, "Accounting for Stock-Based Compensation," and superseded APB No. 25, "Accounting for Stock Issued to Employees". Prior to February 1, 2006, the Company accounted for stock-based compensation under the provisions of APB No. 25 and related interpretations. Accordingly, no compensation expense related to granting of stock options had been recognized in the financial statements prior to adoption of SFAS No. 123(R) for stock options that were granted, as the grant price equaled the market price on the date of grant.
 
The Company has adopted SFAS No. 123(R) using the modified prospective method, and accordingly the financial statement amounts for the prior periods presented in this Quarterly Report on Form 10-Q have not been restated to reflect the fair value method of expensing share-based compensation. Under this transition method, compensation cost recognized in the three-month period ended April 30, 2006 includes compensation cost for all share-based payments granted prior to, but not vested as of February 1, 2006 and shared-based payments granted after February 1, 2006.

For the three-month period ended April 30, 2006, the impact of the adoption of SFAS No. 123(R) as compared to if the Company had continued to account for share-based compensation under APB Opinion No. 25 is as follows: an increase in general and administrative expense by $81,800; a reduction in net income by $55,624; and had a de minimis effect on basic and diluted earnings per share. SFAS No. 123(R) requires the Company to estimate forfeitures in calculating the compensation expense instead of recognizing these forfeitures and the resulting reduction in compensation expense as they occur. As of February 1, 2006, the cumulative after-tax effect of this change in accounting for forfeitures reduced stock-based compensation by $4,335. The estimate of forfeitures will be adjusted over the vesting period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. The adoption of this standard had no impact on net cash flows and results in the reclassification on the consolidated cash flow statement of related tax benefits from cash flows from operating activities to cash flows from financing activities to the extent these tax benefits exceeded the associated compensation cost recognized in the income statement.
 
At this time, the Company’s practice is to grant options one-third which are exercisable as of the date of grant, with the remaining two-thirds vesting over a two year period; provided, however, in the event of a “change of control”, any unvested portion of the option shall become immediately exercisable. The Company’s present practice is that the duration of options is for up to ten years from the date of grant, subject to earlier termination under various conditions. The fair value of each option is amortized into compensation expense on a straight-line basis over their respective vesting period, net of estimated forfeitures. The fair value of options was estimated at the grant date using the Black-Scholes option valuation model. The per share weighted-average fair value at the date of grant for stock options granted during the fiscal year ended January 31, 2006 was $2.76 per option. The application of this valuation model relies on the following assumptions that are judgmental and sensitive in the determination of the compensation expense:

 
9
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
Three Months Ended
 
April 30,
 
2006
  
2005
 
      
Expected term (years)
5.0
  
5.0
Risk-free interest rate
3.63% - 4.58%
  
3.11% - 4.58%
Expected volatility
30% - 32%
  
30% - 32%
Dividend yield
2.26% - 3.39%
  
2.26% - 3.73%

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 three-month period ended April 30, 2006:

 
 
Shares     
Weighted      Average     
Exercise Price
Weighted    Average     Remaining 
 Life (years)
Aggregate     Intrinsic Value
Options:
        
 
Outstanding at February 1, 2006
810,742
$9.8071
7.68
  
 
Granted
-
-
    
 
Forfeited
-
-
  
 
 
Expired
-
-
    
 
Exercised
7,467
7.3969
    
 
Outstanding at April 30, 2006
803,275
$9.8295
7.61
$4,346,119
           
 
Exercisable at April 30, 2006
630,155
$9.4137
7.61
$3,671,472

The aggregate intrinsic value of options exercised during the three-month periods ended April 30, 2006 and 2005 was $43,332 and $90,670, respectively. 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.

The following table summarizes information about the options outstanding and options exercisable as of April 30, 2006:

 
Options Outstanding   
 
Options Exercisable   
 
Shares       
Weighted Average Remaining
Life (years)
Weighted Average   
 Exercise Price       
 
Shares       
Weighted Average  
   Exercise Price      
Range of prices:
            
$5.48 - 5.99
32,980
3.70
$5.5533
  
32,980
$5.5533
$6.00 - 6.99
64,716
4.84
6.8063
  
64,716
6.8063
$7.00 - 8.99
210,565
5.90
7.3735
  
210,565
7.3735
$9.00 - 11.99
169,340
8.84
9.8813
  
112,892
9.8813
$12.00 - 12.99
325,674
8.85
12.4242
  
209,002
12.6331
 
803,275
7.61
$9.8295
  
630,155
$9.4137
 
10
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of April 30, 2006, there was $538,782 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average period of 1.8 years.
 
The following table provides the pro forma net income and earnings per share for the three-month period ended April 30, 2005 as if compensation cost for stock-based employee compensation was determined as of the grant date under the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148.

Net income, as reported:
$1,318,218
  
Add:
stock-based employee compensation expense included in reported net income, net of tax
-
  
Less:
pro forma expense related to stock options granted, net of tax effects
(41,690
)
Pro forma
$1,276,528
  
Earnings per share, basic:
    
 
As reported
$.12
  
 
Pro forma
.11
  
Earnings per share, diluted:
    
 
As reported
$.12
  
 
Pro forma
.11
  

For the purposes of this pro forma disclosure, the fair value of the options at the date of grant was estimated using the Black-Scholes option-pricing model.


NOTE 5 - INVENTORIES

Inventories consisted of the following:

 
April 30,   
 
January 31, 
 
2006      
 
2006       
Raw materials
$9,704,412
  
$9,116,168
Work in progress
2,470,214
  
2,334,589
Finished goods
5,469,760
  
4,987,724
 
$17,644,386
  
$16,438,481


NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION

Net cash flows from operating activities reflect cash payments for interest and income taxes as follows:
 
 
Three Months Ended
 
April 30,
 
2006      
 
2005       
Cash paid during the period for:
      
  Interest
$59,277
  
$62,796
  Income taxes
360,475
  
45,812





11
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - DEBT

Short-term debt:

The Company has available both domestic and foreign unsecured lines of credit totaling $5,000,000 which can be used for working capital. As of April 30, 2006, the Company’s Mefiag B.V. operating segment borrowed $378,480 (300,000 Euro) from their available line of credit.

Long-term debt:

Long-term debt consisted of the following:

 
April 30,  
 
January 31,
 
2006      
 
2006      
Note payable, bank, payable in
      
    quarterly installments of $300,000,
      
    plus interest at a fixed rate swap of
      
    5.98%, maturing October, 2008.
$3,300,000
  
$3,600,000
       
Note payable, bank, payable in
      
    quarterly installments of $31,540
     
    (25,000 Euro), plus interest at a
      
    fixed rate of 3.82%, maturing
     
    January, 2016.
985,659
  
379,387
       
Line of credit, $378,480 (300,000 Euro),
      
    payable upon demand, plus
     
    interest at a rate of 70 basis points
      
    over the thirty day EURIBOR rate
      
    (effective interest rate of 3.37% at
      
    April 30, 2006).
378,480
  
364,559
       
Bond payable, bank, payable in
      
    quarterly installments of $50,833,
      
    plus interest at a fixed rate swap
      
    of 4.71%, maturing April, 2021.
3,050,000
  
50,000
       
 
7,714,139
  
4,393,946
Less current portion
1,876,433
  
1,689,413
 
5,837,706
  
2,704,533
Fair market value of interest rate
      
    swap liability
(113,894
)
19,053
Long-term portion
$5,723,812
  
$2,723,586

The note payables and bond payable are subject to certain covenants, including maintenance of prescribed amounts of leverage and fixed charge coverage ratios.
 


12
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Maturities of long-term debt are as follows:
 
Year Ending
    
January 31,
    
2007
$1,876,433
 
2008
1,529,493
  
2009
1,529,493
  
2010
329,493
  
2011
329,493
  
Thereafter
2,119,734
  
 
$7,714,139
  
 
Interest expense was $59,805 and $66,052 for the three-month periods ended April 30, 2006 and 2005, respectively.


NOTE 8 - OTHER INCOME, NET (RESTATED)

Other income, net was comprised of the following:

 
Three Months Ended
 
 
April 30,
  
 
2006       
 
2005       
 
Interest income
$245,091
  
$122,019
  
Other miscellaneous income/(expense)
(10,293
)
17,168
  
 
$234,798
  
$139,187
  


NOTE 9 - EMPLOYEE BENEFIT PLANS

Pension Plans: The Company has several defined benefit pension plans covering eligible employees in the United States. The net periodic benefit cost is based on estimated values provided by independent actuaries. The following tables provide the components of net periodic benefit costs:

 
Pension Cost
  
 
Three Months Ended
  
 
April 30,
  
 
2006       
 
2005       
 
Service cost
$177,062
  
$155,016
  
Interest cost
267,907
  
257,496
  
Expected return on plan assets
(292,465
)
(256,900
)
Amortization of transition asset
(4,029
)
(2,629
)
Amortization of prior service cost
24,703
  
25,296
  
Recognized net actuarial loss
25,839
  
6,909
  
Net periodic benefit cost
$199,017
  
$185,188
  

The Company contributed $24,868 to the pension plans during the three-month period ended April 30, 2006 and expects an additional contribution of $107,238 during the nine month period ending January 31, 2007.
 
13
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - BUSINESS SEGMENT DATA (RESTATED)

During the fiscal quarter ended October 31, 2006, management reviewed operating segment aggregation in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and based upon changes beginning in February 2006 in the manner in which management manages the Company, as well as the current economic characteristics of its operating segments, management has determined that a revision of the aggregation of operating segments is appropriate. Therefore, the segment discussion outlined below represents the adjusted segment structure as determined by management in accordance with SFAS No. 131. All prior year amounts related to these reporting segments have been restated to conform to the new reporting segment structure.

The Company has identified six operating segments and has aggregated those segments into two reportable segments as follows: Product Recovery/Pollution Control Equipment and Fluid Handling Equipment and one other segment (Filtration and Purification). The Filtration and Purification segment is comprised of four operating segments that do not presently meet the criteria for aggregation outlined in SFAS No. 131. However, the Company’s analysis is that SFAS No. 131 permits the aggregation of operating segments if, individually, each operating segment does not meet any of the following quantitative thresholds: (i) reported revenue is 10 percent or more of combined revenue of all reported operating segments, (ii) the absolute amount of reported profit or loss is 10 percent or more of the greater, in absolute amounts, of either the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss, and (iii) its assets are 10 percent or more of the combined assets of all operating segments. Since none of the operating segments included in the Filtration and Purification segment meets these criteria, and at least 75 percent of total consolidated revenue is included in the Product Recovery/Pollution Control Equipment and Fluid Handling Equipment reporting segments, the Company has determined the aggregation of these operating segments into this other segment is appropriate under SFAS No. 131. The disclosures in the Business Segment Data have been restated to reflect two reportable segments and one other segment.

The following is a description of each segment:

Product Recovery/Pollution Control Equipment: This reportable segment consists of one operating segment that manufactures products for the purification of air or liquids. Many of these products are custom designed and engineered to solve a customer’s pollution control or product recovery issues. The products are sold worldwide through Company sales personnel and a network of manufacturer’s representatives. This reporting segment is comprised of the Duall, Systems, Flex-Kleen and Strobic Air business units.

Fluid Handling Equipment: This reportable segment consists of one operating segment that manufactures high quality centrifugal pumps that are applied on difficult applications including pumping of acids, brines, caustics, bleaches, seawater, high temperature liquids and a wide variety of waste liquids. A variety of pump configurations make these products adaptable to almost any pumping application. These products are sold worldwide through an extensive network of distributors. This reporting segment is comprised of the Dean Pump, Fybroc and Sethco business units.

Filtration and Purification: This other segment consists of four operating segments that produce the following products: proprietary chemicals for the treatment of municipal drinking water systems and boiler and cooling tower systems; cartridges and filter housings; filtration products for difficult industrial air and liquid applications; and filter systems using horizontal disc technology. This other segment is comprised of the Keystone Filter, Pristine Water Solutions, Mefiag and Mefiag B.V. operating segments.

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 inter-company 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.
 
14
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Financial information for two reporting segments and one other segment is shown below:


 
Three Months Ended
 
April 30,
 
2006      
 
2005      
 
Net sales
        
     Product recovery/pollution control equipment
$9,298,349
  
$7,587,631
  
     Fluid handling equipment
5,917,494
  
5,589,770
  
     Filtration and purification
4,563,198
  
4,750,211
  
 
$19,779,041
  
$17,927,612
  
         
Income from operations
        
     Product recovery/pollution control equipment
$566,714
  
$660,066
  
     Fluid handling equipment
695,544
  
757,728
  
     Filtration and purification
338,409
  
476,562
  
 
$1,600,667
  
$1,894,356
  


 
April 30,   
 
January 31,
 
2006      
 
2006      
Identifiable assets
      
     Product recovery/pollution control equipment
$33,266,199
  
$34,173,031
     Fluid handling equipment
17,361,132
  
17,008,765
     Filtration and purification
18,262,600
  
17,653,316
 
68,889,931
  
68,835,112
     Corporate
24,201,176
  
20,827,813
 
$93,091,107
  
$89,662,925


NOTE 11 - ACCOUNTANTS’ 10-Q REVIEW

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

 
15
MET-PRO CORPORATION
 

 
To the Board of Directors
Met-Pro Corporation
Harleysville, Pennsylvania

We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of April 30, 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for the three-month periods ended April 30, 2006 and 2005. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements in order for them to be in conformity with U.S. generally accepted accounting principles.
 
As discussed in Notes 1 and 10, the accompanying consolidated financial statements have been restated to revise the Company’s segment disclosures, and as discussed in Notes 1 and 8, the Company has reclassified certain losses and gains from the sale of property and equipment.

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, 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2006, 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, 2006 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.





 
/s/ Margolis & Company P.C.
 
Certified Public Accountants
 



Bala Cynwyd, Pennsylvania
May 19, 2006, except for Notes 1, 8 and 10
for which the date is November 30, 2006
 
 
 
 

16
MET-PRO CORPORATION
 
 

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q/A. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in “Item 1A: Risk Factors” of our Annual Report on Form 10-K for the year ended January 31, 2006.

Results of Operations:

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

   
Three Months Ended 
  
   
April 30,           
 
   
2006
  
2005
  
Net sales
  
100.0
 %
100.0
 %
Cost of goods sold
  
70.4
 %
66.8
 %
Gross profit
  
29.6
 %
33.2
 %
           
Selling expenses
  
9.6
 %
10.9
 %
General and administrative expenses
  
11.9
 %
11.7
 %
Income from operations
  
8.1
 %
10.6
 %
           
Interest expense
  
(.3
%)
(.4
%)
Other income, net
  
1.2
 %
.8
 %
Income before taxes
  
9.0
 %
11.0
 %
           
Provision for taxes
  
2.9
 %
3.6
 %
Net income
  
6.1
 %
7.4
 %
 
 
Three Months Ended April 30, 2006 vs. Three Months Ended April 30, 2005

Net sales for the three-month period ended April 30, 2006 were $19,779,041 compared with $17,927,612 for the three-month period ended April 30, 2005, an increase of $1,851,429 or 10.3%. Sales in the Product Recovery/Pollution Control Equipment reporting segment were $9,298,349, or $1,710,718 higher than the $7,587,631 of sales for the three-month period ended April 30, 2005, an increase of 22.5%. The sales increase in the Product Recovery/Pollution Control Equipment reporting segment was due primarily to increased demand for our particulate collection equipment, fume and odor control equipment, and thermal oxidizer equipment. Sales in the Fluid Handling Equipment reporting segment totaled $5,917,494, or $327,724 higher than the $5,589,770 of sales for the three-month period ended April 30, 2005, an increase of 5.9%. The sales increase in the Fluid Handling Equipment reporting segment was due primarily to increased demand for our centrifugal pumps that handle corrosive, abrasive and high temperature liquids. Sales in the Filtration and Purification segment were $4,563,198, or $187,013 lower than the $4,750,211 of sales for the three-month period ended April 30, 2005, a decrease of 3.9%. This decrease was due to lower demand for our horizontal disc filter systems which are utilized in the metal finishing and plating industry.

The dollar amount of the Company’s backlog of orders totaled $21,505,842 and $18,261,846 as of April 30, 2006 and 2005, respectively. The Company expects that substantially all of the backlog that existed as of April 30, 2006 will be shipped during the current fiscal year.

Income from operations for the three-month period ended April 30, 2006 was $1,600,667 compared with $1,894,356 for the three-month period ended April 30, 2005, a decrease of $293,689 or 15.5%.
17
MET-PRO CORPORATION
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated) continued…

Income from operations in the Product Recovery/Pollution Control Equipment reporting segment was $566,714, or $93,352 lower than the $660,066 for the three-month period ended April 30, 2005, a decrease of 14.1%. The decrease in income from operations in the Product Recovery/Pollution Control Equipment reporting segment was principally related to (i) reduced gross margins due to product mix and higher material costs, and (ii) the allocation of a non-cash charge for stock options, both offset by higher net sales.
 
Income from operations in the Fluid Handling Equipment reporting segment totaled $695,544, or $62,184 lower than the $757,728 for the three-month period ended April 30, 2005, a decrease of 8.2%. The decrease in income from operations in the Fluid Handling Equipment reporting segment was principally related to (i) reduced gross margins due to product mix and higher material costs, (ii) non-recurring and non-capitalized expenses incurred from the relocation of the Company’s Sethco business unit and the expansion of the Company’s Telford, Pennsylvania facility, which reduced income from operations by approximately $267,000, and (iii) the allocation of a non-cash charge for stock options, all offset by higher net sales.
 
Income from operations in the Filtration and Purification segment was $338,409, or $138,153 lower than the $476,562 for the three-month period ended April 30, 2005, a decrease 29.0%. This decrease was principally related to (i) non-recurring and non-capitalized expenses incurred from the relocation of the Company’s Mefiag business unit and the expansion of the Company’s Netherlands facility, which reduced income from operations by approximately $90,000, (ii) the allocation of a non-cash charge for stock options and (iii) lower net sales.

Net income for the three-month period ended April 30, 2006 was $1,207,448 compared with $1,318,218 for the three-month period ended April 30, 2005, a decrease of $110,770 or 8.4%. The decrease in net income was principally due to (i) non-recurring and non-capitalized expenses resulting from the relocation of the Company’s Sethco and Mefiag business units and the expansion of the Company’s Netherlands and Telford, Pennsylvania facilities, which reduced net income by approximately $243,000, (ii) a non-cash charge for stock options amounting to approximately $56,000 and (iii) lower gross margins due to product mix and higher material costs in the Product Recovery/Pollution Control Equipment and Fluid Handling Equipment reporting segments.

The gross margin for the three-month period ended April 30, 2006 was 29.6% versus 33.2% for the same period in the prior year. This decrease in gross margin was due to product mix and higher material costs in the Product Recovery/Pollution Control Equipment and Fluid Handling Equipment reporting segments. The Company has taken certain measures, including selected price increases and improved purchasing practices, which are expected to favorably impact gross margins over the course of the current fiscal year.

Selling expense decreased $58,084 during the three-month period ended April 30, 2006 compared with the same period last year. Selling expense as a percentage of net sales was 9.6% for the three-month period ended April 30, 2006 compared with 10.9% for the same period last year.

General and administrative expense was $2,358,513 for the three-month period ended April 30, 2006 compared with $2,105,656 for the same period last year, an increase of $252,857. This increase was principally related to non-recurring and non-capitalized expenses resulting from the relocation of our Company’s Sethco and Mefiag business units and the expansion of the Company’s Netherlands and Telford, Pennsylvania facilities, combined with the impact of expensing stock options. General and administrative expense as a percentage of net sales was 11.9% for the three-month period ended April 30, 2006 compared with 11.7% for the same period last year.

Interest expense was $59,805 for the three-month period ended April 30, 2006 compared with $66,052 for the same period in the prior year, a decrease of $6,247.

Other income, net, was $234,798 for the three-month period ended April 30, 2006 compared with $139,187 for the same period in the prior year. This change is related to higher interest income earned on cash on hand.

The effective tax rates for the three-month periods ended April 30, 2006 and April 30, 2005 were 32% and 33%, respectively.
 
Liquidity:

The Company’s cash and cash equivalents were $19,560,802 on April 30, 2006 compared with $17,683,305 on January 31, 2006, an increase of $1,877,497. This increase is the net result of the positive cash flows provided by operating activities
18
MET-PRO CORPORATION
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated) continued…
 
of $1,443,232 and the proceeds from new borrowings (as discussed in the Capital Resources and Requirements section below) amounting to $3,633,172, offset by payment of the quarterly cash dividend amounting to $699,820, payments on long-term debt totaling $312,980 and investment in property and equipment amounting to $2,227,748. The Company’s cash flows from operating activities are 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.
 
Accounts receivable (net) amounted to $16,341,831 on April 30, 2006 compared with $17,909,727 on January 31, 2006, which represents a decrease of $1,567,896. In addition to changes in sales volume, the timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Equipment reporting segment, will, among other factors, influence accounts receivable balances at any point in time.

Inventories were $17,644,386 on April 30, 2006 compared with $16,438,481 on January 31, 2006, an increase of $1,205,905. This increase is primarily due to inventory purchased in the three-month period ended April 30, 2006 for projects which are expected to ship in the fiscal year ended January 31, 2007. Inventory balances fluctuate depending on market demand and on the timing and size of shipments, especially when major systems and contracts are involved.

Current liabilities amounted to $16,623,909 on April 30, 2006 compared with $17,142,747 on January 31, 2006, a decrease of $518,838. A decrease in accounts payable, offset partially by an increase in the current portion of long-term debt and customer advances, accounted for this decrease.

The Company has consistently maintained a high current ratio and maintains a domestic and foreign line of credit totaling $5.0 million, which are available for working capital purposes. As of April 30, 2006, the Company’s Mefiag B.V. operating segment borrowed $378,480 (300,000 EURO) on a low interest foreign line of credit to finance an expansion and renovation of its Mefiag B.V. facility. Cash flows, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. As of April 30, 2006 and January 31, 2006, working capital was $38,849,127 and $36,862,200, respectively, and the current ratio was 3.3 and 3.2, respectively.

Capital Resources and Requirements:

Cash flows provided by operating activities during the three-month period ended April 30, 2006 amounted to $1,443,232 compared with $53,936 of cash flows used in the three-month period ended April 30, 2005. This increase in cash flows from operating activities was due principally to (i) the decrease in accounts receivable, (ii) reduction in the increase in inventory, offset by (iii) decreases in accounts payable and accrued expenses.

Cash flows used in investing activities during the three-month period ended April 30, 2006 amounted to $2,223,338 compared with $249,266 for the three-month period ended April 30, 2005, an increase of $1,974,072.  The increase in investing activities is partially due to capital expenses incurred in connection with an expansion of the Company’s Telford, Pennsylvania facility, as to which the Company has incurred costs of $1,260,700 for the three-month period ended April 30, 2006 out of an expected total project cost of $3.5 million.  This expansion is required to accommodate the relocation of the Sethco business unit from Hauppauge, New York to the Telford, Pennsylvania facility. In addition, the increase in investing activities was due to an expansion and renovation of our Mefiag B.V. facility in The Netherlands, in which the Company has incurred costs of $505,571 for the three-month period ended April 30, 2006 out of an expected total project cost of $1.7 million. This expansion is required to maintain the increased growth of Mefiag B.V. The balance of the increase is due to the Company’s planned capital expenditures in the two reporting segments and one other segment during the year.

The Company presently expects to sell a 30,000 square foot building located on four acres in Hauppauge, Long Island, New York, previously occupied by our Sethco business unit, although the timing on this has not yet been determined.

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

Financing activities during the three-month period ended April 30, 2006 provided $2,627,825 of available resources compared with $765,288 utilized during the three-month period ended April 30, 2005. The 2006 activity is the result of the proceeds from new borrowings of $3,602,921, offset by the reduction of debt of $330,508 and payment of dividends amounting to $699,820. On April 17, 2006, the Company borrowed $3,000,000 through an Industrial Revenue Bond, for a term of fifteen
19
MET-PRO CORPORATION
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated) continued… 

years, at a fixed rate swap of 4.71% to finance the expansion of the Telford, Pennsylvania facility. In addition, during the three-month period ended April 30, 2006, the Company borrowed $602,921 (494,076 EURO) for the expansion of the Mefiag B.V. facility for a term of ten years, at a fixed interest rate of 3.82%.

The Board of Directors declared quarterly dividends of $.0625 payable on March 9, 2006 and June 7, 2006 to shareholders of record as of February 24, 2006 and May 26, 2006, respectively.
 
On October 10, 2005, the Board of Directors declared a four-for-three stock split which was paid on November 15, 2005 to shareholders of record on November 1, 2005.

Critical Accounting Policies and Estimates:

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

The Company’s revenues are generally recognized when products are shipped to unaffiliated customers. The Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 104.

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

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

Cautionary Statement Concerning Forward-Looking Statements:

Our prospects are subject to certain uncertainties and risk. This Quarterly Report on Form 10-Q also contains certain forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements may be identified by words describing our belief or expectation, such as where we say that we “believe”, “expect” or “anticipate”, or where we characterize something in a manner in which there is an express or implicit reference to the future, such as “non-recurring” or “unusual,” or where we express that our view is based upon the “current status” of a given matter, or upon facts as we know them as of the date of the statement. The content and/or context of other statements that we make may indicate that the statement is “forward-looking”. We claim the “safe harbor” provided by The Private Securities Reform Act of 1995 for all forward-looking statements.

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, including but not limited to those set forth below, other one time events, other important factors disclosed previously and from time to time in Met-Pro’s other filings with the Securities and Exchange Commission.

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MET-PRO CORPORATION

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated) continued… 
 
The following important factors, along with those discussed elsewhere in this Quarterly Report on Form 10-Q, could affect our future financial condition and results of operations, and could cause our future financial condition and results of operations to differ materially from those expressed in our SEC filings and in our forward-looking statements:

·     
the write-down of costs in excess of net assets of businesses acquired (goodwill), as a result of the determination that the acquired business is impaired. Our Flex-Kleen reporting unit, which initially performed well after being acquired by Met-Pro, thereafter had several years of declining performance which we attributed primarily to a general weakness in its served markets, followed by improved performance in the fiscal years ended January 31, 2006 and 2005. During the fiscal year ended January 31, 2006, we performed an impairment analysis of the $11.1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment had occurred. Flex-Kleen’s performance needs to continue to improve in order for us not to be required to write-off some or all of its goodwill;
·     
materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;
·     
material changes in available technology;
·     
adverse developments in the asbestos cases that have been filed against the Company, including without limitation the exhaustion of insurance coverage, the imposition of punitive damages or other adverse developments in the availability of insurance coverage;
·     
changes in accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;
·     
the cost of compliance with Sarbanes-Oxley and other applicable legal and listing requirements, and the unanticipated possibility that Met-Pro may not meet these requirements;
·     
unexpected results in our product development activities;
·     
loss of key customers;
·     
changes in product mix and the cost of materials, with effect on margins;
·     
changes in our existing management;
·     
exchange rate fluctuations;
·     
changes in federal laws, state laws and regulations;
·     
lower than anticipated return on investments in the Company’s defined benefit plans, which could affect the amount of the Company’s pension liabilities;
·     
the assertion of litigation claims that the Company’s products, including products produced by companies acquired by the Company, infringe third party patents or have caused injury, loss or damage;
·     
the effect of acquisitions and other strategic ventures;
·     
failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;
·     
the cancellation or delay of purchase orders or shipments;
·     
losses related to international sales; and/or
·     
failure in execution of acquisition strategy.



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



(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, are designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules
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MET-PRO CORPORATION


Item 4.  Controls and Procedures (Restated) continued… 

and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
As described in Note 1 to the Consolidated Financial Statements, we have restated Note 10 to reflect two reportable segments and one other segment, and have restated Note 8 to reflect the reclassification of certain gains/losses on sale of property and equipment. Our management, including our Chief Executive Officer and our Chief Financial Officer, have re-evaluated our disclosure controls and procedures as of the end of the period covered by this Report to determine whether these changes affect their prior conclusion, and have determined that it does not change their conclusion that, as of April 30, 2006, our disclosure controls and procedures were effective. Management believes that these changes represent changes in judgment as to the application of certain accounting standards. These changes have no impact upon net sales, net income, earnings per share, total assets, liabilities, or shareholders’ equity, and the change in income from operations in connection with the reclassification is considered by management not to be material.  

(b) Changes in Internal Control over Financial Reporting

As required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and our Chief Financial Officer, also re-evaluated our internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), in order to determine whether any changes occurred in the fiscal quarter ended April 30, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this re-evaluation, it continues to be management’s assessment that no such change occurred during the fiscal quarter.
 
Management has re-evaluated its assessment regarding the effectiveness of our internal control over financial reporting as a result of the changes described in Notes 1, 8 and 10 to the Consolidated Financial Statements to reflect two reportable segments and one other segment and the reclassification of certain gains/losses on sale of property and equipment. Management has concluded that its prior assessment that our internal control over financial reporting was effective at April 30, 2006 continues to be correct. Management believes that these changes effected by the Amendment represent changes in judgment as to the application of certain accounting standards. These changes have no impact upon net sales, net income, earnings per share, total assets, liabilities, or shareholders’ equity, and the change in income from operations in connection with the reclassification is considered by management not to be material.




Certain of the statements made in this Item 1 (and elsewhere in this Report) are “forward-looking” statements which are subject to the considerations set forth in “Cautionary Statement Regarding Forward-Looking Statements” located in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, and we refer you to these considerations.

Beginning in 2002, the Company and/or one of its divisions began to be named as one of many defendants in asbestos-related lawsuits filed predominantly in Mississippi on a mass basis by large numbers of plaintiffs against a large number of industrial companies including in particular those in the pump and fluid handling industries. More recently, the Company and/or this division have been named as one of many pump and fluid handling defendants in asbestos-related lawsuits filed in New York and Maryland by individual plaintiffs, sometimes husband and wife. To a lesser extent, the Company and/or this division have also been named together with many other pump and fluid handling defendants in these type of cases in other states as well. The complaints filed against the Company and/or this division have been vague, general and speculative, alleging that the Company, and/or the division, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries and loss to the plaintiffs. The Company believes that it and/or the division have meritorious defenses to the cases which have been filed and that none of its and/or the division’s products were a cause of any injury or loss to any of the plaintiffs. The Company’s insurers have hired attorneys who together with the Company are vigorously defending these cases. The Company and/or the division have been dismissed from or settled a number of these cases. Most of these cases have not advanced beyond the early stages of discovery, although several cases in different jurisdictions are on schedules leading to trial. The Company presently believes that these proceedings will not have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.
 
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MET-PRO CORPORATION

 
Item 1.  Legal Proceedings continued

The Company is also party to a small number of other legal proceedings arising out of the ordinary course of business or other proceedings that the Company does not presently believe will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.


 
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 for the year ended January 31, 2006 as filed with the Securities and Exchange Commission on April 13, 2006, which could materially affect our business, financial condition, financial results or future performance. Reference is made to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Statement Concerning Forward-Looking Statements” of this report which is incorporated herein by reference.



(a)
During the first quarter ended April 30, 2006, we did not sell any of our equity securities that were not registered under the Securities Act of 1933.
   
(b)
Not applicable
   
(c)
The following table summarizes Met-Pro’s purchases of its Common Shares for the quarter ended April 30, 2006:

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)
                   
February 1-28, 2006
  
0
  
$ -
  
0
  
270,918
  
March 1-31, 2006
  
0
  
-
 
0
  
270,918
  
April 1-30, 2006
  
0
  
-
  
0
  
270,918
  
Total
  
0
 
$ -
  
0
  
270,918
  

(1)
On December 15, 2000, our Board of Directors authorized a Common Share repurchase program that was publicly announced on December 19, 2000, for up to 533,333 (adjusted for stock split) shares. The program has no fixed expiration date.



None
 
23
MET-PRO CORPORATION



None
 
   

None



 
* Filed herewith.






















24
MET-PRO CORPORATION
 


 
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 13, 2006  
/s/ Raymond J. De Hont
 
Raymond J. De Hont
 
Chairman, President and Chief Executive
 
Officer
   
   
   
   
December 13, 2006   
/s/ Gary J. Morgan
 
Gary J. Morgan
 
Senior Vice President of Finance,
 
Secretary and Treasurer, Chief
 
Financial Officer, Chief Accounting
 
Officer and Director
 
 
 
 

 














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