SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




FORM 10-K





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


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





For fiscal year ended: January 31, 2004

Commission file number 001-07763





MET-PRO CORPORATION


(Exact name of registrant as specified in its charter)





**Pennsylvania**

23-1683282(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)160 Cassell Road, P.O. Box 144Harleysville, Pennsylvania

19438(Address of principal executive offices)

(Zip Code)





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


Securities registered pursuant to Section 12(b) of the Act:


**Name of each exchange on****Title of each class**

**which registered**Common Shares, par value $0.10 per share

New York Stock Exchange





Securities registered pursuant to Section 12(g) of the Act:





Common Shares, par value $0.10 per share(Title of Class)




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.   YesXNo  ___Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.  XIndicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).  Yes X   NoState the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average of the bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: $94,302,728The number of Registrants outstanding Common Shares was 8,349,940 as of April 13, 2004.








DOCUMENTS INCORPORATED BY REFERENCE


Form 10-K**Part Number**Portions of Registrants Definitive Proxy Statement filed pursuant to Regulation 14A in connection with Registrants Annual Meeting of Shareholders to be held on June 9, 2004.

III




















INDEX







PagePART IItem 1.
Business
1Executive Officers of Registrant
6Item 2.
Properties
7Item 3.
Legal Proceedings
8Item 4.
Submission of Matters to a Vote of Security Holders
8





PART IIItem 5.
Market for Registrants Common Equity and Related Shareholder Matters
9Item 6.
Selected Financial Data
10Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
11Item 7A.
Quantitative and Qualitative Disclosure About Market Risks
16Item 8.
Financial Statements and Supplementary Data
16Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
40Item 9A.
Controls and Procedures
40





PART IIIItem 10.
Directors and Executive Officers of the Registrant
40Item 11.
Executive Compensation
41Item 12.
Security Ownership of Certain Beneficial Owners and Management
41Item 13.
Certain Relationships and Related Transactions
41Item 14.
Principal Accountant Fees and Services
41





PART IVItem 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
41SIGNATURES

45








Index




**FACTORS THAT MAY AFFECT FUTURE RESULTS**Met-Pros prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal securities laws. Met-Pros future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors.Readers should pay particular attention to the considerations described in the section of this report entitled Managements Discussion and Analysis of Financial Condition and Results of Operations  Forward-Looking Statements; Factors that May Affect Future Results.Readers should also carefully review the risk factors described in the other documents Met-Pro files from time to time with the Securities and Exchange Commission.


PART I





Item 1.    *Business*:




General:


Met-Pro Corporation (Met-Pro or the Company), incorporated in the State of Delaware on March 30, 1966 and reincorporated in the State of Pennsylvania on July 31, 2003, manufactures and sells product recovery/pollution control equipment for purification of air and liquids, and fluid handling equipment for corrosive, abrasive and high temperature liquids. The Company, which operates through ten divisions and five wholly-owned subsidiaries, markets and sells its products through its own personnel, distributors, representatives and agents based on the division or subsidiary involved. The Companys products are sold worldwide primarily in industrial markets. The Company was taken public on April 6, 1967 and traded on the American Stock Exchange from July 25, 1978 until June 18, 1998, at which time the Companys Common Shares began trading on the New York Stock Exchange, where it currently trades under the symbol MPR.





The Companys principal executive offices are located at 160 Cassell Road, Harleysville, Pennsylvania and the telephone number at that location is (215) 723-6751. Our website address is www.met-pro.com.





Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our website at www.met-pro.comas reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (the SEC). Copies of our (i) Corporate Governance Guidelines, (ii) charters for the Audit Committee, Compensation and Stock Option Committee, and Corporate Governance and Nominating Committee, and (iii) Code of Business Conduct and Ethics are available at www.met-pro.com under the Investor Relations  Corporate Governance captions. Copies will also be provided to any shareholder upon written request to Secretary, Met-Pro Corporation, 160 Cassell Road, P.O. Box 144, Harleysville, Pennsylvania 19438.





Except where otherwise indicated by the context used herein, references to the Company, we, our and us refer to Met-Pro Corporation, its divisions and its wholly-owned subsidiaries.








Products, Services and Markets:





The Company operates in two segments, the Product Recovery/Pollution Control Equipment Segment and the Fluid Handling Equipment Segment. For financial information concerning the Companys industry segments, reference is made to Consolidated Business Segment Data contained within the Companys Consolidated Financial Statements that form a part of this Report on Form 10-K.  A narrative description of the Companys operations within these two segments is as follows:





Product Recovery/Pollution Control Equipment Segment





This segment is composed of the following seven divisions and/or subsidiaries of the Company: Flex-Kleen Division; Stiles-Kem Division; Pristine Hydrochemical Inc.; Sethco Division; Strobic Air Corporation; Duall Division; and Systems Division.













1Index




present, Flex-Kleens products are sold through 47 manufacturers representatives in 25 offices located across the United States and 12 manufacturers representatives located in four offices throughout Canada.





Stiles-Kem Division, located in Waukegan, Illinois, is a leading manufacturer of safe and reliable water treatment compounds which have been used in the public drinking water industry for 49 years. Stiles-Kem products are designed to eliminate problems created by high iron and manganese levels in municipal water systems and to reduce scaling and general corrosion tendencies within water distribution piping systems. These food grade products are NSF/ANSI approved for health considerations in municipal drinking water supplies and are certified to meet existing state and federal guidelines. The products are sold both directly through regional sales representatives and through a network of distributors located in the United States and Canada.





Pristine Hydrochemical Inc., located in Williston, North Dakota, sells the Pristine Polymer product line with its patented chlorine dioxide treatment program. This product line improves water clarity, reduces sludge volume and also helps customers reduce trihalomethane, as required by the EPA. In addition, Pristine sells boiler and water cooling chemicals and services to industrial and commercial markets allowing customers to maximize their heat transfer efficiency and save operating revenues through energy conservation. The products are sold directly through regional sales representatives located in the United States.





Sethco Division, located on Long Island, New York, designs, manufactures and sells corrosion resistant pumps, filter housings and filter systems with flow rates to about 250 gallons per minute. These products are used in wastewater treatment systems and fume scrubbers for pollution control. They are also widely used in the metal finishing, electronics and chemical processing industries. Sethcos products are sold through a network of non-exclusive distributors, as well as to catalog houses and original equipment manufacturers. Our products are sold internationally through our Mefiag B.V. subsidiary.





Strobic Air Corporation, located in Harleysville, Pennsylvania, designs, manufactures and holds patents on laboratory fume hood exhaust systems and specialty blowers and industrial fans for industrial applications including university laboratories, hospitals, semiconductor manufacturers, government laboratories, pharmaceutical, chemical, petrochemical plants and other testing laboratory facilities. Sales, engineering and customer service are provided through a network of 225 manufacturers representatives located in 74 offices worldwide.





Duall Division, located in Owosso, Michigan, is a leading manufacturer of industrial and municipal air and water quality control systems. The Divisions major products include chemical and biological odor control systems, fume and emergency gas scrubbers, Hydro-Lance, particulate collectors, air strippers and degasifiers for contaminated groundwater treatment, ducting and exhaust fans. All equipment is fabricated from corrosion resistant materials. Dualls support services include pilot studies, engineering, installation and performance testing. Duall products are sold both domestically and internationally to the metal finishing, wastewater treatment, composting, food processing, chemical, printed circuit, semiconductor, steel pickling, pharmaceutical, battery manufacturing and groundwater remediation markets. At present, 90 factory trained manufacturers representatives sell Dualls engineered systems to industrial and municipal clients.





Systems Division, located in Kulpsville, Pennsylvania, is a leader in the supply of custom designed and manufactured air and water pollution control equipment. Systems Divisions air pollution control capabilities include: carbon adsorption systems for the concentration and recovery of volatile solvents, thermal and catalytic oxidation systems, regenerative thermal oxidizers, enclosed flares and the supply of abatement catalysts. These systems are custom engineered for clients in the automotive, aerospace and furniture industries. Additional applications include painting, pharmaceutical, chemical, electronics, food processing and printing industries. Systems Division also offers a full range of catalyst products for the oxidation of pollutants, which include catalysts for the oxidation of chlorinated solvents, low temperature oxidation catalysts and a catalyst specially designed for regenerative catalytic oxidizer applications.





Fluid Handling Equipment Segment





This segment is composed of the following four divisions and/or subsidiaries of the Company: Mefiag; Keystone Filter Division; Dean Pump Division; and Fybroc Division.





Mefiag®, operating with the Companys wholly-owned subsidiary, Mefiag B.V., located in Heerenveen, Holland, and the Mefiag Division, located in Harleysville, Pennsylvania, designs and manufactures filter systems utilizing horizontal disc technology for superior performance, particularly in high efficiency and high-flow applications. Mefiag® filters are used in tough, corrosive applications in the plating, metal finishing and printing industries. Worldwide sales are accomplished through qualified, market-based distributors and original equipment manufacturers located throughout Europe, the United States, Asia and other major markets throughout the world.





Keystone Filter Division, located in Hatfield, Pennsylvania, is an established custom pleater and cartridge manufacturer in the United States. The Division provides custom designed and engineered products which are currently used in a diversity of applications such  as the  nuclear  power  industry, components  in medical  equipment  and  in  indoor  air  quality  equipment.  Keystone Filter  also


2Index
 
 provides standard filters for water purification and industrial applications. Sales and customer service are provided through a non-exclusive distributor network.





Dean Pump Division, located in Indianapolis, Indiana, designs and manufactures high quality pumps that handle a broad range of industrial applications. Users such as the chemical, petrochemical, refinery, pharmaceutical, plastics, pulp and paper, and food processing industries choose Dean Pump products particularly for their high temperature applications. The Divisions products are sold worldwide through an extensive network of distributors.





Fybroc Division, located in Telford, Pennsylvania, is a world leader in the manufacture of fiberglass reinforced plastic (FRP) centrifugal pumps. These pumps provide excellent corrosion resistance for tough applications including pumping of acids, brines, caustics, bleaches, seawater and a wide variety of waste liquids. Fybrocs second generation epoxy resin, EY-2, allows the Company to offer the first corrosion resistant and high temperature FRP thermoset pumps suitable for solvent applications. The EY-2 material also expands Fybrocs pumping capabilities to include certain acid applications such as high concentration sulfuric acid (75-98%). During the year, Fybroc continued to expand the FRP centrifugal magnetic drive pump line which now offers eight sizes available in both our standard vinyl ester resin and our EY-2 epoxy resin. We also have a metric version of this pump line to attract and expand our international product coverage. Fybroc pumps are sold to many markets including the chemical, steel, pulp and paper, electric utility, aquaculture, aquarium, and industrial and municipal waste treatment industries. Fybrocs EY-2 material is expected to allow it to enter new markets such as pharmaceutical, petrochemical, fertilizer and pesticides. A worldwide distributor network provides sales, engineering and customer service.







United States Sales versus Foreign Sales:





The following table sets forth certain data concerning total net sales to customers by geographic area in the past three years:




**Percentage of Net Sales****Fiscal Year Ended January 31,**
 **2004**

**2003**

**2002**United States
82.6%

84.7%

84.3%Foreign
17.4%

15.3%

15.7%Net Sales
100.0%

100.0%

100.0%

















Customers:





During each of the past three fiscal years, no single customer accounted for 10% or more of the total net sales of the Company in any year. The Company does not believe that it would be materially adversely affected by the loss of any single customer.








Seasonality:





The Company does not consider its business to be seasonal in nature.








Competition:





The Company experiences competition from a variety of sources with respect to virtually all of its products. The Company knows of no single entity that competes with it across the full range of its products and systems. The lines of business in which the Company is engaged are highly competitive. Competition in the markets served is based on a number of considerations, which may include price, technology, applications experience, know-how, reputation, product warranties, service and distribution.





With respect to the Fluid Handling Equipment segment, specifically the pump manufacturing operations, several companies, including Ingersoll-Dresser Pumps Co. (a subsidiary of Flowserve Corporation), Goulds Industrial Pumps, Inc. (a subsidiary of ITT Industries), and Durco Pumps, Inc. (a subsidiary of Flowserve Corporation), dominate the industry with several smaller companies, including Met-Pro, competing in selected product lines and niche markets.





With respect to the Product Recovery/Pollution Control Equipment segment, there are numerous competitors of both comparable and larger size which may have greater resources than the Company, but there are no companies that dominate the market.





The Company is unable to state with certainty its relative market position in all aspects of its businesses.





3Index





Research and Development:





The Company engages in research and development on an operational basis. Due to the wide range of the Companys products, the research and development effort is not centralized. Research is directed towards the development of new products related to current product lines, and the improvement and enhancement of existing products.





The principal goals of the Companys research programs are maintaining the Companys technological capabilities in the production of product recovery/pollution control equipment, and fluid handling equipment; developing new products; and providing technological support to the manufacturing operations.





Research and development expenses were $0.7 million, $0.6 million and $1.0 million for each of the years ended January 31, 2004, 2003 and 2002, respectively.








Patents and Trademarks:





The Company has a number of patents and trademarks. The Company considers these rights important to its business, although it considers no individual right material to its business.








Regulatory Matters:





The Company is subject to environmental laws and regulations concerning air emissions, discharges to water processing facilities, and the generation, handling, storage and disposal of waste materials in all operations. All of the Companys production and manufacturing facilities are controlled under permits issued by federal, state and local regulatory agencies. The Company believes it is presently in compliance in all material respects with these laws and regulations. To date, compliance with federal, state and local provisions relating to protection of the environment has had no material effect upon capital expenditures, earnings or the competitive position of the Company.








Backlog:





Generally, the Companys customers do not enter into long-term contracts, but rather issue purchase orders that are accepted by the Company. The rate of booking new orders varies from month to month. In addition, the orders have varying delivery schedules, and the Companys backlog as of any particular date may not be representative of actual revenues for any succeeding period. The dollar amount of the Companys backlog of orders, considered to be firm, totaled $7,332,386 and $7,375,383 as of January 31, 2004 and 2003, respectively. This does not include an additional $5,652,153 and $8,442,701 of orders in-house as of January 31, 2004 and 2003, respectively, which, according to our longstanding policy, are not included in the backlog until completed drawings have been approved. The Company expects that substantially all of the backlog that existed as of January 31, 2004 will be shipped during the ensuing fiscal year.








Raw Materials:





The Company procures its raw materials and supplies from various sources. The Company believes it could secure substitutes for the raw materials and supplies should they become unavailable, but there are no assurances that the substitutes would perform as well or be priced competitively. The Company has not experienced any significant difficulty in securing raw materials and supplies, and does not anticipate any significant difficulty in procurement in the coming year or foreseeable future.








Employees:





As of January 31, 2004, the Company employed 330 people, of whom 128 were involved in manufacturing, and 202 were engaged in administration, sales, engineering, supervision and clerical work. The Company has had no work stoppages during the past 20 years and considers its employee relations to be good.











4Index




Foreign Operations:





Most of the Companys operations and assets are located in the United States. The Company also owns a manufacturing operation in Heerenveen, Holland through its wholly-owned subsidiary, Mefiag B.V., and operates a sales office and warehouse in Barrie, Ontario, Canada through its wholly-owned subsidiary, Flex-Kleen Canada Inc.





Large export sales are typically made on the basis of confirmed irrevocable letters of credit or time drafts to selected customers in U.S. dollars. The Company believes that currency fluctuation and political and economic instability do not constitute substantial risks to its business.





For information concerning foreign net sales on a segment basis, reference is made to the Consolidated Business Segment Data contained on page 22.


































































































































5Index





Executive Officers of the Registrant:





The following table sets forth certain information regarding the Executive Officers of the Registrant:





Raymond J. De Hont, age 50, is Chairman of the Board, Chief Executive Officer and President of the Company. Mr. De Hont was elected Chairman of the Board in September 2003. He was elected President and Chief Executive Officer in March 2003 and a Director of the Company in February 2003. Mr. De Hont served as the Chief Operating Officer of the Company from June 2000 to March 2003 and Vice President and General Manager of the Companys Fybroc Division from June 1995 to December 2000. In October 1999, he also assumed the responsibilities of General Manager for the Companys Dean Pump Division. Prior to joining Met-Pro Corporation, Mr. De Honts management positions at Air and Water Technologies included Vice President and General Manager of Flex-Kleen Corporation, which is now a division of Met-Pro Corporation.





Gary J. Morgan, CPA, age 49, is Vice President-Finance, Chief Financial Officer, Secretary, Treasurer and a Director of the Company. He was appointed Vice President-Finance, Chief Financial Officer, Secretary and Treasurer in October 1997, and became a Director of the Company in February 1998. Mr. Morgan joined the Company in 1980 and served as the Companys Corporate Controller immediately prior to October 1997.





James G. Board, age 50, is Vice President of the Company and General Manager of Dean Pump and Fybroc Divisions, to which offices he was appointed in December 2000. For more than five years prior thereto, Mr. Board was employed by Tuthill Energy Systems, most recently as Director of Sales.





Thomas V. Edwards, age 50, is Vice President of the Company and General Manager of the Systems Division, to which offices he was appointed in December 1998. Mr. Edwards joined the Company in June 1995 and prior to his present position, held the position of Assistant to the President. For more than five years prior thereto, Mr. Edwards was employed by Lockheed Martin as Engineering Manager.





Hans J. D. Huizinga, age 53, is the Managing Director of Mefiag B.V., a wholly-owned subsidiary of the Company, located in Heerenveen, Holland, an office to which he was appointed in August 1993. He was employed for over five years before than as Managing Director for the predecessor of Mefiag B.V.





Gregory C. Kimmer, age 49, is Vice President of the Company and General Manager of the Duall Division, to which offices he was appointed in October 1989. For more than five years prior thereto, Mr. Kimmer was employed by the predecessor to our division in various capacities.





William F. Mersch, age 50, is Vice President of the Company, General Manager of the Stiles-Kem Division and Vice President and General Manager of Pristine Hydrochemical Inc., to which offices he was appointed in October 1996 and May 2002, respectively. He joined the Company in June 1995 as National Sales Manager. For more than five years prior thereto, Mr. Mersch was employed by ANCO Corporation, in which his last position was Vice President Sales and Marketing.





Robert P. Replogle, age 63, is Vice President of the Company and General Manager of Mefiag and Sethco Divisions, to which offices he was appointed in August 2003. He joined the Company in December 1973 and prior to his present position held the position of Director of the International Sales Division and Vice President and General Manager of Mefiag Division.





Paul A. Tetley, age 45, is Vice President of the Company and General Manager of Strobic Air Corporation, to which offices he was appointed in December 1999. Mr. Tetley joined the Company in 1996 in connection with the Companys acquisition of the predecessor company, and prior to his present position held the position of Director of Operations. For more than five years prior thereto, Mr. Tetley was employed by the predecessor entity as the Engineering/Production Manager.





Dennis M. Wierzbicki, age 46, is Vice President of the Company, General Manager of the Flex-Kleen Division and Vice President and General Manager of Flex-Kleen Canada Inc., to which offices he was appointed in February 2003 when he joined Flex-Kleen Division. For more than five years prior thereto, Mr. Wierzbicki was employed by American Air Filter, as Vice President and General Manager of its Air Quality Equipment Division since October 2000 until he joined Flex-Kleen Division, and as Vice President of Marketing and Sales of its Global Air Filtration Division from April 1996 until October 2000.





There are no family relationships between any of the Directors or Executive Officers of the Registrant. Each officer serves at the pleasure of the Board of Directors.








6Index





Item 2.   *Properties*:





The following manufacturing and production facilities were owned or leased by the Company as of the date of filing this report:





Name
Structure
Property/Location
StatusExecutive Offices,
73,000 square feet, cement
17 acres in Harleysville,
OwnedInternational Division,
building, with finestone facing,
PennsylvaniaMefiag Division and
built 1976Strobic Air CorporationSethco Division
30,000 square feet, cement
4 acres in Hauppauge,
Ownedblock with brick facing
Long Island, New Yorkbuilt 1982Fybroc Division
47,500 square feet, cement
8 acres in Telford,
Ownedbuilding with brick facing,
Pennsylvaniabuilt 1991Keystone Filter Division
31,000 square feet, cement
2.3 acres in Hatfield,
Ownedblock, built 1978
PennsylvaniaSystems Division
3,375 square feet,
Kulpsville, Pennsylvania
Leased(1)brick buildingDean Pump Division
66,000 square feet, metal
17.1 acres in
Ownedbuilding
Indianapolis, IndianaDuall Division
63,000 square feet, metal
7 acres in Owosso,
Ownedand masonry building
MichiganStiles-Kem Division
22,000 square feet, cement
2.55 acres in
Ownedblock building, built 1996
Waukegan, IllinoisPristine Hydrochemical Inc.
1,500 square feet office and
Williston, North Dakota
Leasedwarehouse facilityFlex-Kleen Division
13,760 square feet, brick
Itasca, Illinois
Leased(2)building37,320 square feet, metal
Sharpsburg, North Carolina
Leased(3)buildingMefiag B.V.
17,200 square feet, metal
1.1 acres in
Ownedand masonry building
Heerenveen, HollandVacant land
3 acres in Heerenveen, Holland
OwnedFlex-Kleen Canada Inc.
3,187 square feet, masonry
Barrie, Ontario, Canada
Leased(4)building





(1) Systems Divisions lease for the Sales and Engineering facility in Kulpsville, Pennsylvania expires on February 9, 2005.





(2)  Flex-Kleen Divisions lease for the operation in Itasca, Illinois expires on December 31, 2007.





(3)  Flex-Kleen Divisions lease for the warehouse in Sharpsburg, North Carolina expires on February 28, 2005.





(4)  Flex-Kleen Canada Inc.s lease for the sales and warehouse facility in Barrie, Ontario, Canada expires on February 28, 2007.








7Index





Item 3.   *Legal Proceedings:*





There appears to have been a significant increase during the last several years in asbestos-related litigation claims filed in particular states on a mass basis by large numbers of plaintiffs against a large number of industrial companies in the pump and fluid handling industries, and beginning in 2002, the Company began to be named as one of many defendants in a number of such cases, predominantly in Mississippi. The allegations against the Company are vague, general and speculative, but in general allege that the Company, along with the numerous other defendants, sold asbestos-containing products that caused injuries and loss to the plaintiffs. Most of these cases have not advanced beyond the early stages of discovery, and as of the date of the filing of this Report, none of the Companys products have been determined to be a cause of any alleged injuries. The Companys insurers have hired attorneys who together with the Company are vigorously defending these cases. The Company believes that these cases are without merit and that none of its products were a cause of any injury or loss to any of the plaintiffs. Given the current status of these cases, the Company does not presently believe that these proceedings will have a material adverse impact upon the Companys results of operations, liquidity or financial condition.





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








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





No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 2004.














8Index





PART II





Item 5. Market for Registrants Common Equity and Related Shareholder Matters:





Market Information





Quarter ended**Year ended January 31, 2004**
**April**
**July**
**October**
**January**Price range of common shares:**High**
**$10.58**
**$11.47**
**$14.50**
**$18.00****Low**
**9.53**
**9.98**
**11.44**
**14.06****Cash dividend paid**
**.0675**
**.0675**
**.0675**
**.0725****Year ended January 31, 2003**
**April**
**July**
**October**
**January**Price range of common shares:**High**
$11.66
$12.02
$10.73
$10.88**Low**
9.79
9.34
9.38
9.75**Cash dividend paid**
.0638
.0638
.0638
.0675





(b) Holders . There were 644 registered shareholders at January 31, 2004, and the Company estimates that there are approximately 2,000 additional shareholders with shares held in street name.





(c) Stock Split . On September 17, 2003, the Board of Directors declared a four-for-three stock split which was paid on October 15, 2003 to shareholders of record on October 1, 2003. All references to per share amounts, number of shares outstanding, and number of shares covered by stock option and other plans have been restated to reflect the effect of the stock split.





(d) Dividends . The Board of Directors declared quarterly dividends of $.0675 per share payable on March 10, 2003, June 9, 2003, and September 9, 2003 to shareholders of record at the close of business on February 21, 2003, May 23, 2003 and August 27, 2003, respectively. The Board of Directors declared quarterly dividends of $.0725 per share payable on December 10, 2003 and March 10, 2004 to shareholders of record as of November 28, 2003 and February 27, 2004, respectively.





We expect to continue to pay comparable dividends during at least the next fiscal year.





(e) Securities Authorized For Issuance under Equity Compensation Plans. Set forth below is information aggregated as of January 31, 2004 with respect to two equity compensation plans previously approved by the Companys shareholders, being the 1997 Stock Option Plan and 2001 Equity Incentive Plan. Also shown is information with respect to the Companys Year 2000 Employee Stock Purchase Plan. The data does not include any options under the 1992 Stock Option Plan, insofar as there were no options issued and outstanding as of January 31, 2004 nor were any options available for issuance as of such date.





Number of SecuritiesRemaining AvailableNumber of Securities

For Future Issuanceto be Issued Upon
Weighted-Average
Under EquityExercise of
Exercise Price of
Compensation PlansOutstanding Options,
Outstanding Options,
(Excluding SecuritiesPlan Category
Warrants and Rights
Warrants and Rights
Reflected in Column (A))****(A)
(B)
(C)Equity compensation plans approved bysecurity holders
356,831
$9.21
625,490Equity compensation plans not approvedby security holders
-
-
-











9Index




Recent Sales of Unregistered Securities.





Stock Repurchases.





Item 6. Selected Financial Data:





Years ended January 31,2004

2003

2002

2001

2000Selected Operating Statement DataNet sales
$75,058,929

$69,619,382

$70,088,446

$81,203,550

$78,449,992Income from operations
11,167,238

9,154,986

9,451,925

12,513,886

11,410,679Net income
6,346,579

5,888,379

6,189,317

7,773,720

7,072,642Earnings per share, basic (a)
.76

.71

.76

.95

.81Earnings per share, diluted (a)
.76

.71

.76

.94

.81Selected Balance Sheet DataCurrent assets
$48,173,429

$40,631,745

$37,411,679

$37,412,259

$35,722,971Current liabilities
14,229,463

9,750,309

10,151,149

12,957,995

13,681,578Working capital
33,943,966

30,881,436

27,260,530

24,454,264

22,041,393Current ratio
3.4

4.2

3.7

2.9

2.6Total assets
81,135,557

73,754,671

68,070,192

69,151,341

68,641,983Long-term obligations
5,447,869

7,111,995

7,125,195

8,100,000

9,933,014Total shareholders equity
60,270,734

56,045,885

50,279,394

47,061,366

44,206,333Total capitalization
65,718,603

63,157,880

57,404,589

55,161,366

54,139,347Return on average total assets, %
8.2

8.3

9.0

11.3

10.0Return on average shareholders equity, %
10.9

11.1

12.7

17.0

15.7Other Financial DataNet cash flows from operating activities
$8,232,851

$5,831,186

$8,301,567

$10,047,845

$10,204,749Capital expenditures
952,812

752,125

1,631,356

1,023,682

1,193,559Shareholders equity per share (a)
7.24

6.76

6.20

5.80

5.19Cash dividends paid per share (a) (b)
.275

.259

.255

.24

.36Average common shares, basic (a)
8,297,668

8,239,491

8,145,521

8,203,100

8,722,947Average common shares, diluted (a)
8,398,256

8,295,328

8,191,783

8,231,249

8,769,093Common shares outstanding (a)
8,323,277

8,288,492

8,110,896

8,120,207

8,521,656





10Index





Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations:





The following discussion should be read in conjunction with the Companys Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K together with Forward-Looking Statements; Factors that May Affect Future Results elsewhere in this Managements Discussion and Analysis of Financial Condition and Result of Operations.








Results of Operations:





The following table sets forth for the periods indicated the percentage of total net sales that such items represent in the Consolidated Statement of Operations.





Years ended January 31,2004

2003

2002Net sales
100.0
%
100.0
%
100.0
%Cost of goods sold
64.5
%
65.3
%
65.7
%Gross profit
35.5
%
34.7
%
34.3
%Selling, general and administrative expense
20.6
%
21.6
%
20.8
%Income from operations
14.9
%
13.1
%
13.5
%Interest expense
(.6
%)
(.7
%)
(.8
%)Other income/(expense), net
(1.5
%)
.4
%
1.2
%Income before taxes
12.8
%
12.8
%
13.9
%Provision for taxes
4.4
%
4.4
%
5.1
%Net income
8.4
%
8.4
%
8.8
%




FYE 2004 vs FYE 2003:





Net sales for the fiscal year ended January 31, 2004 were $75.1 million compared to $69.6 million for the fiscal year ended January 31, 2003, an increase of $5.5 million. Sales in the Product Recovery/Pollution Control Equipment segment increased to $50.8 million, 10.1% higher than the prior year due primarily to increased demand for laboratory fume hood exhaust systems. Sales in the Fluid Handling Equipment segment were $24.3 million, or 3.3% higher compared to the fiscal year ended January 31, 2003.





Foreign sales increased to $13.0 million for the fiscal year ended January 31, 2004, compared to $10.7 million for the same period last year, a 22.1% increase. Foreign sales increased 32.2% in the Fluid Handling Equipment segment from the prior fiscal year, and the Product Recovery/Pollution Control Equipment segment foreign sales were 9.6% higher than the prior fiscal year due to higher demand for our laboratory fume hood exhaust systems.





Net income for the fiscal year ended January 31, 2004 was $6.3 million compared to $5.9 million for the fiscal year ended January 31, 2003, an increase of $0.4 million. The increase in net income is principally related to higher sales and gross margin in the Product Recovery/Pollution Control Equipment segment during the current fiscal year.





The gross margin for the fiscal year ended January 31, 2004 increased to 35.5% versus 34.7% for the prior year. This increase can be attributed to higher gross margins experienced in the Product Recovery/Pollution Control Equipment segment.





Selling expense was $7.7 million for the fiscal year ended January 31, 2004, an increase of $0.5 million over the prior year. Selling expense as a percentage of net sales was 10.2% compared to 10.3% for the prior fiscal year.








11Index





General and administrative expense was $7.8 million for the fiscal year ended January 31, 2004 compared to $7.9 million in the prior fiscal year. General and administrative expense as a percentage of net sales was 10.4% for the fiscal year ended January 31, 2004 compared to 11.3% for the prior fiscal year.





Interest expense was $0.4 million for the fiscal year ended January 31, 2004 compared to $0.5 million in the prior fiscal year. This decrease was due primarily to a reduction of existing long-term debt.





Other expense, net, increased $1.4 million for the fiscal year ended January 31, 2004 compared to the prior fiscal year. This increase is principally related to an unusual charge for legal expenses incurred in defending allegations that products sold by one of the Companys divisions infringed on a competitors intellectual property rights. We settled this case in February 2004. Neither the settlement nor the legal fees incurred after January 31, 2004 are expected to be material in the fiscal year ending January 31, 2005.





The effective tax rate was 34.0% for the fiscal years ended January 31, 2004 and 2003.








FYE 2003 vs FYE 2002:





Net sales for the fiscal year ended January 31, 2003 were $69.6 million compared to $70.1 million for the fiscal year ended January 31, 2002, a decrease of $0.5 million. Sales in the Product Recovery/Pollution Control Equipment segment increased to $46.1 million, 3.6% higher than the prior year due primarily to increased demand for our fume and odor control equipment. Sales in the Fluid Handling Equipment segment were $23.5 million, 8.1% lower than the prior fiscal year due to decreased demand for our specialty pump equipment.





Foreign sales decreased to $10.7 million for the fiscal year ended January 31, 2003, compared to $11.0 million for the same period in the prior year, a 3.2% decrease. Foreign sales decreased 10.5% in the Fluid Handling Equipment segment from the prior fiscal year, and the Product Recovery/Pollution Control Equipment segment foreign sales were 7.7% higher than the prior fiscal year due to higher demand for our fume and odor control equipment.





Net income for the fiscal year ended January 31, 2003 was $5.9 million compared to $6.2 million for the fiscal year ended January 31, 2002, a decrease of $0.3 million. The decrease in net income is principally related to a $0.4 million net gain on the sale of property and equipment associated with the Systems Divisions operations during the fiscal year ended January 31, 2002, combined with lower sales in the Companys Fluid Handling Equipment segment during the current fiscal year.





The gross margin for the fiscal year ended January 31, 2003 increased to 34.7% versus 34.3% for the prior year. This increase can be attributed to higher gross margins experienced in the Product Recovery/Pollution Control Equipment segment.





Selling expense was $7.1 million for the fiscal year ended January 31, 2003 or an increase of $0.1 million over the prior year. Selling expense as a percentage of net sales was 10.3% compared to 10.0% for the prior fiscal year.





General and administrative expense was $7.9 million for the fiscal year ended January 31, 2003 compared to $7.6 million in the prior fiscal year. General and administrative expense as a percentage of net sales was 11.3% for the fiscal year ended January 31, 2003 compared to 10.8% for the prior fiscal year. This increase, in dollars, is principally related to increased pension and health care costs, offset by the reduction in amortization expense for goodwill that is no longer being amortized per Statement of Financial Accounting Standards (SFAS) No. 142.





Interest expense was $0.5 million for the fiscal year ended January 31, 2003 compared to $0.6 million in the prior fiscal year.





Other income, net was $0.3 million for the fiscal year ended January 31, 2003 compared to $0.9 million for the same period in the prior year, a decrease of $0.6 million. The reduction is the result of recording a $0.4 million net gain on the sale of property and equipment associated with the Systems Divisions operations in West Chester, Pennsylvania during the fiscal year ended January 31, 2002, combined with the reduction in interest rates on our short-term investments during the year ended January 31, 2003.





The effective tax rate decreased to 34.0% for the fiscal year ended January 31, 2003 from 36.5% for the prior year.











12Index




Liquidity:





Cash and cash equivalents were $17.0 million on January 31, 2004, an increase of $3.6 million over the previous year. This increase is the net result of the following occurring during the fiscal year: cash flows provided by operating activities of $8.2 million, proceeds received from the exercise of stock options totaling $0.9 million, exchange rate changes of $0.1 million, offset by the payment of quarterly cash dividends amounting to $2.3 million, payment of long-term debt totaling $1.5 million, purchases of treasury shares amounting to $0.9 million and investments in property, plant and equipment amounting to $1.0 million. The Companys cash flows for operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.





Accounts receivable were $16.6 million on January 31, 2004, an increase of $4.4 million compared to the prior year. The timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Equipment segment, will influence accounts receivable balances at any point in time.





Inventories totaled $12.8 million on January 31, 2004, a decrease of $0.6 million compared to the prior year. Inventory balances will fluctuate depending on the size and timing of orders and market demand, especially when major systems and contracts are involved.





Current liabilities amounted to $14.2 million on January 31, 2004 compared to $9.8 on January 31, 2003, an increase of $4.4 million. Increases in accounts payable, customers advances and accrued expense accounted for a substantial amount of the increase.





The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit totaling $5.0 million which are available for working capital purposes. Cash flows, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. As of January 31, 2004 and January 31, 2003, working capital was $33.9 million and $30.9 million, respectively, and the current ratio was 3.4 and 4.2, respectively.








Capital Resources and Requirements:





Cash flows provided by operating activities during the fiscal year ended January 31, 2004 amounted to $8.2 million compared to $5.8 million during the prior fiscal year, an increase of $2.4 million. This increase in cash flows from operating activities was principally related to an increase in net income, accounts payable, accrued expenses, customers advances and a decrease in inventories, offset by an increase in accounts receivable. Per share, our cash flows from operating activities increased to $.98 per share compared to $.70 per share for the prior year.





Cash flows used in investing activities during the fiscal year ended January 31, 2004 amounted to $1.0 million compared to $1.2 million during the fiscal year ended January 31, 2003. The Companys investing activities principally represent the acquisition of property, plant and equipment in the two operating segments during both years, and the acquisition of a business during the fiscal year ended January 31, 2003. The Company continues to invest in machinery and equipment, tooling, patterns and molds to improve efficiency and maintain our position as leaders in the markets that we serve.





Financing activities during the fiscal year ended January 31, 2004 used $3.8 million of available resources compared to $3.2 million during the prior fiscal year. The 2004 activity is the result of the payment of quarterly cash dividends amounting to $2.3 million, reduction of long-term debt totaling $1.5 million, and the purchase of treasury shares totaling $0.9 million, offset by proceeds received by the exercise of stock options amounting to $0.9 million.





The Company paid $1.5 million of scheduled debt during the current fiscal year. The percentage of long-term debt to equity at January 31, 2004 decreased to 9.0% compared to 12.7% at January 31, 2003.





During the fiscal year ended January 31, 2004, the Company repurchased an aggregate of 62,480 shares at a cost of $0.9 million under the 400,000 share stock repurchase program authorized by the Board of Directors on December 15, 2000.





The Board of Directors declared quarterly dividends of $.0675 per share payable on March 10, 2003, June 9, 2003 and September 9, 2003 to shareholders of record at the close of business on February 21, 2003, May 23, 2003 and August 27, 2003, respectively, and a quarterly dividend of $.0725 per share payable on December 10, 2003 to shareholders of record as of November 28, 2003. On December 15, 2003, the Board of Directors declared a quarterly dividend of $.0725 per share, which was paid on March 10, 2004 to shareholders of record at the close of business on February 27, 2004.





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





13Index


The Company accounts for its defined benefit plans in accordance with Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions. SFAS No. 87 requires a liability (minimum pension liability) be recorded when the accumulated benefit obligation exceeds the fair value of plan assets. The Company has experienced a decline in the fair market value of assets in the Companys non-contributory defined benefit pension plan trust. This decline is due, in large part, to the decline in the market value of investments during the fiscal year ended January 31, 2003 combined with a reduction in the discount rate from 7.00% to 6.25% in the fiscal year ended January 31, 2004. In connection with the decline in the fair market value of these assets, the Company recorded an after-tax charge to shareholders equity of $0.3 million during the fiscal year ended January 31, 2004.





As part of our commitment to the future, the Company expended $0.7 million and $0.6 million on research and development for the fiscal years ended January 31, 2004 and 2003, respectively.





The Company will continue to invest in new product development to maintain and enhance its competitive position in the markets in which we participate. Capital expenditures will be made to support operations and expand our capacity to meet market demands. The Company intends to finance capital expenditures in the coming year through cash flows from operations and will secure third party financing, when deemed appropriate.








Recent Accounting Pronouncements:





In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition Disclosure, which provides alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based employee compensation as prescribed in SFAS No. 123. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this Statement are effective for fiscal years ending after December 15, 2002. The adoption of this Statement did not have a material impact on the Companys financial condition or results of operations.





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





On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain pre-existing contracts. We adopted SFAS No. 149 on a prospective basis at its effective date July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.





In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003, except for mandatory redeemable financial instruments. Mandatory redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not entered into or modified any financial instruments subsequent to May 31, 2003 affected by this statement. The adoption of this statement did not have a material impact on our financial condition or results of operations.








Critical Accounting Policies and Estimates:





Managements discussion and analysis of its financial position and results of operations are based upon the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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:





14Index






















Forward-Looking Statements; Factors that May Affect Future Results:

















- the write-down of costs in excess of net assets of businesses acquired (goodwill), as a result of the determination that the acquired business is impaired. Our Flex-Kleen Division, which initially performed well after being acquired by Met-Pro, has experienced declining performance during the last several years due primarily to a general weakness in its served markets. During the fiscal year ended January 31, 2004 we performed an impairment analysis of the $11.1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment has occurred. However, if Flex-Kleens performance does not improve sufficiently in the current fiscal year, we may be required to write off some or all of the goodwill;
- materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;
- material changes in available technology;
- changes in our accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;
- unexpected results in our product development activities;
- loss of key customers;
- changes in product mix;
- changes in our existing management;
- exchange rate fluctuations;
- changes in federal, 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;
- adverse developments in the asbestos cases that have been filed against the Company, including without limitations adverse developments in the availability of insurance coverage in these cases;
- the effect of acquisitions and other strategic ventures;
- failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;



15Index


- losses related to international sales; and/or
- failure in execution of acquisition strategy.



Item 7A. Quantitative and Qualitative Disclosure About Market Risks:












Item 8. Financial Statements and Supplementary Data:














PageConsolidated Financial Statements:Independent Auditors Report
17Consolidated Statement of Operations
18Consolidated Balance Sheet
19Consolidated Statement of Cash Flows
20Consolidated Statement of Shareholders Equity
21Consolidated Business Segment Data
22Notes to Consolidated Financial Statements
23Supplementary Data:Quarterly Financial Data
40





16Index


INDEPENDENT AUDITORS REPORT








To the Board of Directors and Shareholders


Met-Pro Corporation


Harleysville, Pennsylvania





We have audited the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2004 and 2003, and the related consolidated statements of operations, shareholders equity, and cash flows for each of the three years in the period ended January 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2004 in conformity with accounting principles generally accepted in the United States of America.








/s/ Margolis & Company P.C.








Bala Cynwyd, Pennsylvania


February 20, 2004







17Index**MET-PRO CORPORATION**


CONSOLIDATED STATEMENT OF OPERATIONS








Years ended January 31,2004

2003

2002Net sales

$75,058,929

$69,619,382

$70,088,446Cost of goods sold

48,406,090

45,439,557

46,060,214Gross profit

26,652,839

24,179,825

24,028,232Operating expensesSelling

7,662,594

7,139,082

6,998,234General and administrative

7,823,007

7,885,757

7,578,07315,485,601

15,024,839

14,576,307Income from operations

11,167,238

9,154,986

9,451,925Interest expense

(441,704
)
(505,394
)
(557,855
)Other income/(expense), net

(1,109,506
)
278,126

852,885Income before taxes

9,616,028

8,927,718

9,746,955Provision for taxes

3,269,449

3,039,339

3,557,638Net income

$6,346,579

$5,888,379

$6,189,317Earnings per shareBasic (adjusted for stock split)

$.76

$ .71

$.76Diluted (adjusted for stock split)

$.76

$ .71

$.76Average number of common and
common equivalent shares outstandingBasic (adjusted for stock split)

8,297,668

8,239,491

8,145,521Diluted (adjusted for stock split)

8,398,256

8,295,328

8,191,783





















18Index**MET-PRO CORPORATION**


CONSOLIDATED BALANCE SHEET









January 31,ASSETS
2004

2003Current assetsCash and cash equivalents
$16,996,253

$13,429,367Accounts receivable, net of allowance fordoubtful accounts of approximately$208,000 and $263,000, respectively
16,608,344

12,217,315Inventories
12,755,011

13,374,128Prepaid expenses, deposits and other current assets
1,209,395

979,714Deferred income taxes
604,426

631,221Total current assets
48,173,429

40,631,745Property, plant and equipment, net
11,514,199

11,950,422Costs in excess of net assets of businesses acquired, net
20,798,913

20,798,913Other assets
649,016

373,591Total assets
$81,135,557

$73,754,671





LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
$1,533,866

$1,536,926Accounts payable
5,073,554

2,810,002Accrued salaries, wages and expenses
6,542,306

4,827,241Dividend payable
602,755

559,167Customers advances
476,982

16,973Total current liabilities
14,229,463

9,750,309Long-term debt
5,447,869

7,111,995Other non-current liabilities
38,818

36,621Deferred income taxes
1,148,673

809,861Total liabilities
20,864,823

17,708,786CommitmentsShareholders equityCommon shares, $.10 par value; 18,000,000 sharesauthorized, 9,634,956 and 9,635,071 shares issued,of which 1,311,679 and 1,346,579 shares were reacquiredand held in treasury at the respective dates
963,496

722,630Additional paid-in capital
7,955,459

8,196,782Retained earnings
63,727,425

59,705,267Accumulated other comprehensive loss
(328,616
)
(541,959
)Treasury shares, at cost
(12,047,030
)
(12,036,835
)Total shareholders equity
60,270,734

56,045,885Total liabilities and shareholders equity
$81,135,557

$73,754,671


The notes to consolidated financial statements are an integral part of the above statement.








19Index**MET-PRO CORPORATION**


CONSOLIDATED STATEMENT OF CASH FLOWS








**Years ended January 31,****2004**

**2003**

**2002**





INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS





**Cash flows from operating activities**Net income
$6,346,579

$5,888,379

$6,189,317Adjustments to reconcile net income to netcash provided by operating activities:Depreciation and amortization
1,571,482

1,559,357

2,046,007Deferred income taxes
471,652

379,874

155,419(Gain) loss on sales of property and equipment, net
24,906

(5,247
)
(472,895
)Allowance for doubtful accounts
(55,077
)
34,188

10,721(Increase) decrease in operating assets,net of acquisition of business:Accounts receivable
(4,156,402
)
(1,420,024
)
3,658,676Inventories
766,704

591,932

(687,317
)Prepaid expenses, deposits and other current assets
(214,988
)
(52,207
)
115,808Other assets
(336,490
)
(8,408
)
(8,092
)Increase (decrease) in operating liabilities,net of acquisition of business:Accounts payable and accrued expenses
3,352,279

(406,094
)
(2,933,944
)Customers advances
460,009

(732,761
)
140,289Other non-current liabilities
2,197

2,197

87,578Net cash provided by operating activities
8,232,851

5,831,186

8,301,567**Cash flows from investing activities**Proceeds from sale of property and equipment
-

19,347

1,095,456Acquisitions of property and equipment
(952,812
)
(752,125
)
(1,631,356
)Payment for acquisition of business
-

(465,673
)
-Net cash (used in) investing activities
(952,812
)
(1,198,451
)
(535,900
)**Cash flows from financing activities**Proceeds from new borrowing
-

16,373

-Reduction of debt
(1,536,927
)
(1,235,974
)
(1,741,711
)Exercise of stock options
884,339

353,229

1,092,253Payment of dividends
(2,280,833
)
(2,029,579
)
(1,934,132
)Purchase of treasury shares
(893,570
)
(289,218
)
(1,793,435
)Payment of cash in lieu of fractional shares
(1,421
)
-

-Net cash (used in) financing activities
(3,828,412
)
(3,185,169
)
(4,377,025
)Effect of exchange rate changes on cash
115,259

149,541

(66,427
)Net increase in cash and cash equivalents
3,566,886

1,597,107

3,322,215Cash and cash equivalents at beginning of year
13,429,367

11,832,260

8,510,045Cash and cash equivalents at end of year
$16,996,253

$13,429,367

$11,832,260









20Index**MET-PRO CORPORATION**


CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY




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




Balances, January 31, 2001
$720,658
$8,139,799

$51,880,800

($491,163
)
($13,188,728
)
$47,061,366Comprehensive income:Net income
-
-

6,189,317

-

-Cumulative translation adjustment
-
-

-

(231,570
)
-Interest rate swap, net of tax of $60,357
-
-

-

(105,004
)
-Total comprehensive income









5,852,743Dividends paid, $.255 per share
-
-

(1,562,968
)
-

-

(1,562,968
)Dividend declared, $.0638 per share
-
-

(517,070
)
-

-

(517,070
)Proceeds from issuance of commonshares under dividend reinvestmentplan (16,776 shares)
1,258
145,247

-

-

-

146,505Stock option transactions
-
(405,678
)
-

-

1,497,931

1,092,253Purchase of 194,120 treasury shares
-
-

-

-

(1,793,435
)
(1,793,435
)Balances, January 31, 2002
721,916
7,879,368

55,990,079

(827,737
)
(13,484,232
)
50,279,394Comprehensive income:Net income
-
-

5,888,379

-

-Cumulative translation adjustment
-
-

-

617,563

-Interest rate swap, net of tax of $109,056
-
-

-

(202,802
)
-Minimum pension liability adjustment,net of tax of $70,991
-
-

-

(128,983
)
-Total comprehensive income









6,174,157Issuance of treasury shares for acquisitionof business
-
250,782

-

-

1,349,218

1,600,000Dividends paid, $.2588 per share
-
-

(1,614,024
)
-

-

(1,614,024
)Dividend declared, $.0675 per share
-
-

(559,167
)
-

-

(559,167
)Proceeds from issuance of commonshares under dividend reinvestmentplan (9,517 shares)
714
100,801

-

-

-

101,515Stock option transactions
-
(34,169
)
-

-

387,397

353,228Purchase of 26,588 treasury shares
-
-

-

-

(289,218
)
(289,218
)Balances, January 31, 2003
722,630
8,196,782

59,705,267

(541,959
)
(12,036,835
)
56,045,885Comprehensive income:Net income
-
-

6,346,579

-

-Cumulative translation adjustment
-
-

-

449,074

-Interest rate swap, net of tax of ($51,447)
-
-

-

78,812

-Minimum pension liability adjustment,net of tax of $157,492
-
-

-

(314,543
)
-Total comprehensive income









6,559,922Stock split four-for-three
240,866
(240,866
)
-

-

-

-Cash in lieu of fractional shares
-
(1,421
)
-

-

-

(1,421
)Dividends paid, $.275 per share
-
-

(1,721,666
)
-

-

(1,721,666
)Dividend declared, $.0725 per share
-
-

(602,755
)
-

-

(602,755
)Stock option transactions
-
964

-

-

883,375

884,339Purchase of 62,480 treasury shares
-
-

-

-

(893,570
)
(893,570
)Balances, January 31, 2004
$963,496
$7,955,459

$63,727,425

($328,616
)
($12,047,030
)
$60,270,734


The notes to consolidated financial statements are an integral part of the above statement.








21Index**MET-PRO CORPORATION**CONSOLIDATED BUSINESS SEGMENT DATA







Years ended January 31,2004
2003
2002Net sales to unaffiliated customersProduct recovery/pollution control equipment
$50,746,995
$46,094,834
$44,498,316Fluid handling equipment
24,311,934
23,524,548
25,590,130$75,058,929
$69,619,382
$70,088,446Includes foreign sales of:Product recovery/pollution control equipment
$5,234,164
$4,777,495
$4,437,309Fluid handling equipment
7,811,469
5,907,012
6,598,746$13,045,633
$10,684,507
$11,036,055Income from operationsProduct recovery/pollution control equipment
$7,977,169
$6,039,173
$5,144,940Fluid handling equipment
3,190,069
3,115,813
4,306,985$11,167,238
$9,154,986
$9,451,925Depreciation and amortization expenseProduct recovery/pollution control equipment
$887,979
$859,590
$1,303,761Fluid handling equipment
683,503
699,767
742,246$1,571,482
$1,559,357
$2,046,007Capital expendituresProduct recovery/pollution control equipment
$443,884
$301,437
$675,435Fluid handling equipment
308,833
315,409
746,241752,717
616,846
1,421,676Corporate
200,095
135,279
209,680$952,812
$752,125
$1,631,356Identifiable assets at January 31Product recovery/pollution control equipment
$44,613,967
$41,396,626
$38,945,179Fluid handling equipment
19,313,159
18,417,187
18,209,15763,927,126
59,813,813
57,154,336Corporate
17,208,431
13,940,858
10,915,856$81,135,557
$73,754,671
$68,070,192






















22Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








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


Nature of operations:





The Company manufactures and sells product recovery/pollution control equipment for purification of air and liquids, and fluid handling equipment for corrosive, abrasive and high temperature liquids.





Basis of presentation:





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





Use of estimates:





The preparation of financial statements in conformity with generally accepted accounting principles 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 other comprehensive income in the Statement of Shareholders Equity.





Inventories:





Inventories are stated at the lower of cost (principally first-in, first-out) or market except for the inventory at the Dean Pump Division which is determined on the last-in, first-out basis (see Note 4).





Property, plant and equipment:





Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method over estimated useful lives. Expenditures for maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized (see Note 5).





Costs in excess of net assets of businesses acquired:





In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141, which was effective for business combinations completed after June 30, 2001, requires, among other things, that (1) the purchase method of accounting be used for all business combinations, (2) specific criteria be established for the recognition of intangible assets separately from goodwill and (3) additional information about acquired intangible assets be provided. SFAS No. 142, which became effective for the Company as of February 1, 2002, primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. Among other things it requires that goodwill not be amortized for financial statement purposes; instead, management is required to test goodwill for impairment at least annually. The Company performed its annual impairment test in the fourth quarter of the fiscal year ended January 31, 2004 using a fair value approach. No impairment was present upon performing this test. At January 31, 2004, costs in excess of net assets of businesses acquired associated with the Companys reportable business segments totaled $20,798,913. The Company cannot predict the occurrence of certain events that might adversely affect the reportable value of costs in excess of net assets of businesses acquired.







23Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002













January 31,2004

2003

2002Net income as reported
$6,346,579

$5,888,379

$6,189,317Add: amortization
-

-

314,775Adjusted net income
$6,346,579

$5,888,379

$6,504,092





Basic earnings per share as reported
$.76

$.71

$.76Add: amortization
-

-

.04Adjusted basic earnings per share
$.76

$.71

$.80





Diluted earnings per share as reported
$.76

$.71

$.76Add: amortization
-

-

.03Adjusted diluted earnings per share
$.76

$.71

$.79Adjusted for four-for-three stock split.





The changes in the carrying amount of costs in excess of net assets of businesses acquired by business segment for the fiscal year ended January 31, 2004 are as follows:





Product Recovery/Pollution Control
Fluid HandlingEquipment
Equipment
Total


Balance as of February 1, 2003
$19,066,431

$1,732,482

$20,798,913Goodwill acquired during the period
-

-

-Balance as of January 31, 2004
$19,066,431

$1,732,482

$20,798,913





Revenue recognition:





Revenues are generally recognized when products are shipped.





Advertising:





Advertising costs are charged to operations in the year incurred and were $1,340,929, $1,299,908 and $1,403,366 for the years ended January 31, 2004, 2003 and 2002, respectively.





Research and development:





Research and development costs are charged to operations in the year incurred and were $700,622, $624,098 and $979,813 for the years ended January 31, 2004, 2003 and 2002, respectively.





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) during each year.





Basic and diluted earnings per share have been restated to reflect the effect of the four-for-three stock split, which was effective October 15, 2003.







24Index**MET-PRO CORPORATION**




FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








Dividends:





On December 15, 2003, the Board of Directors declared a $.0725 per share quarterly cash dividend payable on March 10, 2004 to shareholders of record on February 27, 2004, amounting to an aggregate of $602,755.





Stock splits:





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





Shareholders equity reflects the stock split by reclassifying from Additional Paid-in Capital to Common Shares an amount equal to the par value of the additional shares arising from the split.





Stock options:





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





Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which requires that the information be determined as if we had accounted for our stock options under the fair-value method. The fair value for these options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rates ranging from 1.7% to 4.2%, dividend yield ranging from 1.7% to 3.9%, expected volatility of the market price of the Companys Common Shares ranging from 26% to 32%, and an expected option life of five years.





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





The pro forma information compared to reported information for the three years ended January 31 is presented in the following table:





2004
2003
2002Net income:As reported
$6,346,579
$5,888,379
$6,189,317Pro forma
6,182,008
5,788,478
6,097,825Basic earnings per share:As reported
$.76
$.71
$.76Pro forma
.75
.70
.75Diluted earnings per share:As reported
$.76
$.71
$.76Pro forma
.74
.70
.74




Adjusted for four-for-three stock split.










25Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002



















Concentrations of credit risk:










Supplemental cash flow information:


**2004**

**2003**

**2002**Cash paid during the year for:Interest
$395,494

$465,728

$560,697Income taxes
2,634,096

2,732,862

3,431,219





Recent accounting pronouncements:




























26Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002
















**NOTE 2:**
**FAIR VALUE OF FINANCIAL INSTRUMENTS**





Cash and cash equivalents:










Debt:









**January 31,****2004**

**2003**Fair value


$7,011,068

$8,693,870Carrying amount


6,981,735

8,648,921





Valuations for long-term 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 6) to minimize its exposure to fluctuations in interest rates. The interest rate differential to be paid or received under this agreement is recognized over the term of the loan and is included in interest expense.





The Companys financial instruments are not held for trading purposes.







27Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 3:**
**ACQUISITION OF BUSINESS**





Effective May 22, 2002, the Company, pursuant to an Agreement and Plan of Merger, acquired 100% of the Common Shares of Pristine Hydrochemical Inc. (Pristine) for a purchase price of approximately $3,200,000. The results of Pristines operations have been included in the consolidated financial statements since that date. The acquisition was accounted for as a purchase transaction. Pristine sells water treatment chemicals and services to municipal water utilities, and boiler and water cooling chemicals and services to industrial and commercial markets. It is expected that Pristine will complement the operations of the Companys Stiles-Kem Division.





The acquisition was completed by issuing Common Shares from the treasury valued at $1,600,000 (151,300 shares, adjusted for stock split), a cash payment of $400,000, promissory notes payable for $1,200,000, plus acquisition costs. The notes are payable over a four-year period in installments of $300,000 annually, plus interest at a fixed rate of 4.75% (see Note 6). Goodwill totaling approximately $3,018,000 was acquired.





The following unaudited pro forma summary presents the consolidated results of operations for the fiscal year ended January 31, as if the Company had acquired Pristine on February 1, 2002:


January 31,**2004**

**2003**Net sales
$75,058,929

$70,391,540Income before taxes
9,616,028

9,085,238Net income
6,346,579

5,996,257Earnings per share, basic
$.76

$.73Earnings per share, diluted
.76

.72Adjusted for four-for-three stock split.
















28Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 4:**
**INVENTORIES**





Inventories consisted of the following:





January 31,2004

2003Raw materials
$7,069,349

$7,066,298Work in process
1,186,898

1,366,127Finished goods
4,498,764

4,941,703$12,755,011

$13,374,128





At January 31, 2004 and 2003, inventories valued at the last-in, first-out method (LIFO) were $2,172,540 and $2,257,859, respectively. The LIFO value of inventories was lower than replacement cost by $926,888 and $942,516 at January 31, 2004 and 2003, respectively.





The book  basis of  LIFO  inventories  exceeded the  tax  basis by  approximately  $1,026,000  at both  January  31,  2004 and 2003 as a result of applying the provisions of Accounting Principles Board Opinion No. 16, Business Combinations, to an acquisition completed in a prior year.








**NOTE 5:**
**PROPERTY, PLANT AND EQUIPMENT**





Property, plant and equipment consisted of the following:





**January 31,**2004

2003Land
$2,131,045

$2,057,581Buildings and improvements
11,266,376

11,040,510Machinery and equipment
11,596,206

11,324,083Furniture and fixtures
4,716,192

4,485,052Automotive equipment
1,093,741

982,895Construction in progress
73,388

87,05930,876,948

29,977,180Less accumulated depreciation
19,362,749

18,026,758$11,514,199

$11,950,422
  Depreciation of property, plant and equipment charged to operations amounted to $1,510,417, $1,486,083 and $1,461,478 for the years ended in 2004, 2003 and 2002, respectively.








































29Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002





**NOTE 6:**
**DEBT**





Short-term debt:










Long-term debt:










**January 31,****2004**

**2003**Note payable, bank, payable inquarterly installments of $300,000,plus interest at a fixed rate swap of5.98%, maturing October, 2008
$5,700,000

$6,900,000Notes payable, payable in annualinstallments of $300,000, plusinterest at a fixed rate of 4.75%,maturing May, 2006
900,000

1,200,000Various equipment notes, payable in monthlyinstallments ranging from $455 to$1,074, maturing November2004 through March 2005, nointerest
34,776

71,7026,634,776

8,171,702Less current portion
1,533,866

1,536,9265,100,910

6,634,776Fair market value of interest rateswap liability
346,959

477,219Long-term portion
$5,447,869

$7,111,995











Year EndingJanuary 31,2005

$1,533,8662006

1,500,9102007

1,500,0002008

1,200,0002009

900,000Thereafter

-$6,634,776


Interest expense was $441,704, $505,394 and $557,855 for the years ended in 2004, 2003 and 2002, respectively.













30Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 7:**
**SHAREHOLDERS EQUITY**


On December 15, 2000, the Company announced a 400,000 (adjusted for stock split) share stock repurchase program, which began after the Companys February 21, 2000 stock repurchase program was completed. During the fiscal year ended January 31, 2004, the Company repurchased 62,480 Common Shares at a cost of $0.9 million. At January 31, 2004, the Company had the authority to repurchase an additional 245,480 shares under the December 15, 2000 stock repurchase program.





The Company has a Shareholders Rights Plan, under which the Companys Board of Directors declared a dividend of one Right for each Common Share owned. The Plan provides, under certain conditions involving acquisition of the Companys Common Shares, that holders of Rights, except for the acquiring entity, would be entitled to purchase Common Shares of the Company, or acquiring company, having a value of twice the Rights exercise price. The Rights under the Plan expire in 2010.








**NOTE 8:**
**INCOME TAXES**





The provision for income taxes was comprised of the following:





2004

2003

2002CurrentFederal
$2,331,231

$2,291,842

$2,675,479State
242,078

275,729

552,851Foreign
224,488

91,894

173,8892,797,797

2,659,465

3,402,219Deferred
471,652

379,874

155,419$3,269,449

$3,039,339

$3,557,638






















31Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002














2004

2003Deferred tax assetsInventory cost capitalization
$137,143

$152,674Pension cost
955,321

639,327Non-compete agreements
334,896

395,783Excess of tax over book basis ofproperty acquired in acquisition
-

8,954Other
242,983

449,226Total deferred tax assets
1,670,343

1,645,964Deferred tax liabilitiesAccelerated depreciation
612,907

478,219Inventory - Dean Pump Division
348,913

364,438Excess of book over tax basis ofproperty acquired in acquisitions
17,296

-Goodwill
1,235,474

981,947Total deferred tax liabilities
2,214,590

1,824,604Net deferred tax assets/(liabilities)
($544,247)

($178,640
)








2004
2003
2002Computed expectedtax expense (federal)
$3,269,449

34.0
%
$3,035,424

34.0
%
$3,313,965

34.0
%State income taxes,net of federalincome tax benefit
177,415

1.8

188,981

2.1

306,012

3.2Other
(177,415
)
(1.8
)
(185,066
)
(2.1
)
(62,339
)
(.7
)Effective income taxes
$3,269,449

34.0
%
$3,039,339

34.0
%
$3,557,638

36.5
%





**NOTE 9:**
**LEASES AND OTHER COMMITMENTS**

The Company has various real estate operating leases for warehouse space and office space for sales, general and administrative purposes. Future minimum lease payments under these non-cancelable operating leases at January 31, 2004 were as follows:


2005

$264,1692006

139,7402007

132,1242008

108,733



















32Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 10:**
**EMPLOYEE BENEFIT PLANS**





Pension Plans:





The Company has several defined benefit pension plans covering eligible employees in the United States. The Company contributes amounts to the plans equal to the amounts that are tax deductible.





On October 31, 2003, the Companys annual measurement date, the accumulated benefit obligation related to the Companys pension plans exceeded the fair value of the pension plan assets (such excess is referred to as an unfunded accumulated benefit obligation). This difference reflects an increase in the accumulated benefit obligation that resulted from a decrease from 7.00% to 6.25% in the interest rate used to discount the projected benefit obligation to its present settlement amount.





A minimum pension liability adjustment was recorded in the fourth quarter of the fiscal year ended January 31, 2004 as a liability with a corresponding decrease to shareholders equity and an increase in intangible assets. During the fiscal year ended January 31, 2004, the Company recorded an after-tax charge to shareholders equity of $314,543 and intangible assets of $327,753.





Net periodic pension cost (income) included the following components:





2004

2003

2002Service cost - benefits earnedduring the period
$549,886

$574,129

$570,695Interest cost on projectedbenefit obligation
916,844

881,278

836,860Expected return on assets
(946,473
)
(1,064,136
)
(1,178,322
)Amortization
91,995

31,332

(440,135
)$612,252

$422,603

($210,902
)



















33Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








The following table sets forth the plans change in benefit obligations, change in plan assets and amounts recognized in the Companys balance sheet at January 31, 2004 and 2003:





2004

2003Change in benefit obligation:Benefit obligation at beginning of year

$13,407,299

$12,876,395Service cost

549,886

574,129Interest cost

916,844

881,278Actuarial (gain) loss

2,398,019

(302,479
)Benefits paid

(893,971
)
(666,722
)Other

-

44,698Benefit obligation at end of year

$16,378,077

$13,407,299Change in plan assets:Fair value of plan assets at beginning of year

$10,837,628

$12,125,268Actual gain (loss) on plan assets

1,642,973

(1,080,918
)Employer contribution

89,608

460,000Benefits paid

(893,971
)
(666,722
)Fair value of plan assets at end of year

$11,676,238

$10,837,628Funded status

($4,701,839
)
($2,569,671
)Unrecognized actuarial loss

1,829,201

130,739Unrecognized transition (asset)

(102,405
)
(112,920
)Unrecognized prior service costs

837,285

936,738Contribution after measurement date

24,869

15,000Net amount recognized

($2,112,889
)
($1,600,114
)Amounts recognized in the balance sheet consist of:Accrued benefit liability

($3,137,520
)
($1,815,088
)Intangible assets

327,753

-Accumulated other comprehensive loss

672,009

199,974Contributions after measurement date

24,869

15,000Net amount recognized

($2,112,889
)
($1,600,114
)


















2004
2003
2002Discount rate
6.25%
7.00%
7.00%Expected long-term rate ofreturn on assets
9.00%
9.00%
9.00%Rate of increase incompensation levels
3% for Three Years
3% for Four Years
3% for Five Years(where applicable)
Then 4.50% Thereafter
Then 4.50% Thereafter
Then 4.50% Thereafter







34Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








Weighted average assumptions used in accounting for net projected pension cost for the fiscal year ended January 31:










2004
2003
2002Discount rate
7.00%
7.00%
7.00%Expected long-term rate ofreturn on assets
9.00%
9.00%
9.00%Rate of increase incompensation levels
3% for Four Years
3% for Five Years
4.50%(where applicable)
Then 4.50% Thereafter
Then 4.50% Thereafter


In selecting the expected long-term rate of return on asset assumption, the Company considered the average rate of earnings on the funds invested or to be invested to provide for the benefits of these plans. This included considering the trusts asset allocation and the expected returns likely to be earned over the life of the plans.

The table below sets forth the target allocations and asset allocations for the plan as follows:2003

2002Target allocation:Equity securities

40-80%

40-80%Debt securities

20-60%

20-60%Asset allocation as of October 31:Equity securities

79%

80%Debt securities

21%

19%Other

0%

1%Total

100%

100%

The assets of the funds will be invested in a manner consistent with the safeguards and diversity to which a prudent investor would adhere to and undertake on the behalf of the plans participants. The main objective is to obtain the highest possible return commensurate with the level of assumed risk and with an investment horizon sufficient to permit market cycles to be reasonably reflected.





Directors Benefit Plan:





The Company also provides a non-qualified pension plan for Directors which is presently unfunded. The plan is designed to provide pension benefits based on the category of the Director and length of service. The aggregate benefit obligation payable in the future under the terms of the plan was $781,630 and $711,693 at January 31, 2004 and 2003, respectively. The amounts applicable are included in the tables above. This plan was discontinued in December 1999 as to non-vested Directors.





Defined Contribution Plan:





The Company has a 401(k) profit sharing plan in which all employees of the Company in the United States are eligible to participate following completion of one year of service and attaining age 21. Pursuant to this plan, employees can contribute up to 25% of their compensation to the Plan. The Company will match, in the form of Met-Pro Common Shares, up to 50% of the employees contribution up to 4% of compensation. The Company provided for cash contributions to the 401(k) profit sharing plan of $203,103, $206,257 and $206,866, for the years ended January 31, 2004, 2003 and 2002, respectively.


















35Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








Employees Stock Ownership Trust:





The Company sponsors an employee stock ownership plan under which it may make discretionary contributions to the trust either in cash or in shares of the Company for salaried employees in the United States eligible to participate in the plan. There were no contributions to the Employees Stock Ownership Trust for the fiscal years ended in 2004, 2003 and 2002. All shares are considered to be allocated to participants or to be released for allocation to participants, and are included in the earnings per share computations.





Stock Option Plans:





In 1991, the Board of Directors of the Company approved a stock option plan covering 100,000 shares (increased to 300,000 shares after giving effect to stock splits and stock dividends), that was approved by the Companys shareholders at the 1992 meeting of shareholders (the 1992 Plan). In 1997, the Board of Directors of the Company approved a stock option plan covering 350,000 shares (increased to 466,667 shares after giving effect to a stock split) that was approved by the Companys shareholders at the 1997 meeting of shareholders (the 1997 Plan). In 2001, the Board of Directors of the Company approved an equity incentive plan covering 350,000 shares (increased to 466,667 shares after giving effect to a stock split) that was approved by the Companys shareholders at the 2001 meeting of shareholders (the 2001 Plan). All of these plans contain anti-dilution provisions that apply to stock splits and stock dividends declared by the Company.































36Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002









1992 Plan

2004

2003

2002Options outstanding, beginning

-

-

161,367Grants

-

-

-Exercises

-

-

151,367Cancellations

-

-

10,000Options outstanding, ending

-

-

-Options price range at January 31

-

-

$3.7500to$9.8475Options exercisable at January 31

-

-

-Options available for grant at January 31

0

0

0







1997 Plan

2004

2003

2002Options outstanding, beginning

347,408

271,167

176,100Grants

12,000

124,675

111,734Exercises

92,935

43,367

16,667Cancellations

9,600

5,067

-Options outstanding, ending

256,873

347,408

271,167Options price range at January 31

$7.3125

$7.3125

$7.3125to

to

to$9.8625

$11.6250

$11.6250Options exercisable at January 31

252,871

307,708

194,207Options available for grant at January 31

558

12,558

137,233





2001 Plan

2004

2003

2002Options outstanding, beginning

-

-

-Grants

108,402

-

-Exercises

4,444

-

-Cancellations

4,000

-

-Options outstanding, ending

99,958

-

-Options price range at January 31

$9.8100

-

-to$9.8663Options exercisable at January 31

65,150

-

-Options available for grant at January 31

358,265

466,667

466,667





The weighted average exercise prices of the Companys stock option plans were as follows:


2004

2003

2002Options outstanding, beginning

$8.9775

$8.4450

$7.3125Grants

$9.8119

$9.8625

$9.0600Exercises

$9.0814

$8.1450

$6.5025Cancellations

$9.6154

$9.6525

$9.8475Options outstanding, ending

$9.2080

$8.9775

$8.4450


37Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 11:**
**OTHER INCOME/(EXPENSE), NET**


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










2004

2003

2002Gain/(Loss) on sale of property andequipment

($24,906
)
$5,248

$472,895Other, primarily interest income

207,642

272,878

379,990Unusual charge  patent litigation

(1,292,242
)
-

-($1,109,506
)
$278,126

$852,885


**NOTE 12:**
**BUSINESS SEGMENT DATA**

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





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





Financial information by business segment is shown on page 22.








**NOTE 13:**
**GEOGRAPHIC INFORMATION**





Transfers between geographic areas are accounted for at cost and consistent with rules and regulations of governing tax authorities. Such transfers are eliminated in the consolidated financial statements. Income from operations by geographic segment includes an allocation of general corporate expenses. Identifiable assets are those that can be directly associated with the geographic area. Geographic information for the three years ended January 31 is presented in the following table:





2004

**2003**

**2002**Net sales:United States

$62,013,296

$58,934,875

$59,052,391Foreign

13,045,633

10,684,507

11,036,055$75,058,929

$69,619,382

$70,088,446Income from operations:United States

$9,217,442

$8,093,077

$8,337,026Foreign

1,949,796

1,061,909

1,114,899$11,167,238

$9,154,986

$9,451,925Total assets:United States

$74,940,833

$69,012,399

$63,813,498Foreign

6,194,724

4,742,272

4,256,694$81,135,557

$73,754,671

$68,070,192












38Index**MET-PRO CORPORATION**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002








**NOTE 14:**
**CONTINGENCIES**



























39Index




QUARTERLY FINANCIAL DATA (Unaudited)





Earning

Earnings****

********

Per Share,

Per Share,**2003**

**Net Sales**

****Gross**Profit**

****Net** Income**

**Basic**

**Diluted**
 First Quarter

$16,193,880

$5,528,831

$1,200,128

$.15

$.15Second Quarter

18,278,083

6,176,474

1,433,166

.18

.17Third Quarter

16,671,696

6,045,425

1,440,616

.18

.17Fourth Quarter

18,475,723

6,429,095

1,814,469

.22

.22
 
 Earning

Earnings****

********

Per Share,

Per Share,**2004**

**Net Sales**

****Gross**Profit**

****Net** Income**

**Basic**

**Diluted**
 First Quarter

$17,002,269

$6,234,967

$1,350,088

.16

.16Second Quarter

18,626,209

6,648,468

1,568,039

.19

.19Third Quarter

19,811,544

6,949,807

1,655,529

.20

.20Fourth Quarter

19,618,907

6,819,597

1,772,923

.21

.21


Adjusted for four-for-three stock split.








Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:





None.








Item 9A.Controls and Procedures:





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





There were no changes in our internal controls over financial reporting (as defined in Rule 13a  15(f) under the Securities Exchange Act of 1934) during the fourth quarter of fiscal 2004 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.








PART III





Item 10.Directors and Executive Officers of the Registrant :





We have a code of ethics that applies to all Directors, officers and employees, including our Chief Executive Officer and our Chief Financial Officer (who is also our principal accounting officer). You can find our code of ethics on our website by going to the following address:www.met-pro.com, and clicking on the link for our code of ethics under the Investor Relations  Corporate Governance captions. We will post any amendments to the code of ethics, as well as, any waivers that are required to be disclosed by the rules of either the Securities and Exchange Commission or the New York Stock Exchange, on our website.





Our Board of Directors has adopted charters for the three standing committees of the Board, being the Audit, Compensation and Stock Option, and Corporate Governance and Nominating Committees. You can find these documents on our website by going to the following address: www.met-pro.com,and clicking on the link charters under the Investor Relations  Corporate Governance captions.





You may obtain a printed copy of any of the foregoing materials by writing to: Corporate Secretary, Met-Pro Corporation, 160 Cassell Road, Harleysville, PA 19438.





The information required by this Item (except for the information set forth on page 6 with respect to Executive Officers of Registrant) is hereby incorporated by reference to the applicable information set forth in our proxy statement for our 2004 Annual Meeting of Shareholders, including the information set forth under the caption Election of Directors and Security Ownership of Certain Beneficial Owners and Management.








40Index







Item 11.Executive Compensation :





The information required by this Item is hereby incorporated by reference to the applicable information set forth in our proxy statement for our 2004 Annual Meeting of Shareholders, including the information set forth under the caption Executive Compensation and Other Information.








Item 12.Security Ownership of Certain Beneficial Owners and Management:





The information required by this Item is hereby incorporated by reference to the applicable information set forth in our proxy statement for our 2004 Annual Meeting of Shareholders, including the information set forth under the caption Security Ownership of Certain Beneficial Owners and Management.








Item 13.Certain Relationships and Related Transactions:





The information required by this Item is hereby incorporated by reference to the applicable information set forth in our proxy statement for our 2004 Annual Meeting of Shareholders, including the information set forth under the captions Election of Directors and Certain Business Relationships.








Item 14.Principal Accountant Fees and Services:





The information required by this Item is hereby incorporated by reference to the applicable information set forth in our proxy statement for our 2004 Annual Meeting of Shareholders, including the information set forth under the caption Our Relationship with Our Independent Auditor.








PART IV





Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K:





A.    Financial statements:





Financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements and Supplementary Data that appears on page 16 of this report.





B.    Reports on Form 8-K:





On November 20, 2003, the Company filed a Report on Form 8-K covering its press release announcing the Companys third quarter financial results for the quarter ended October 31, 2003, as required by SEC Release 33-8216.





On February 25, 2004, the Company filed a Report on Form 8-K covering its press release announcing the Companys fiscal year ended January 31, 2004 financial results, as required by SEC Release 33-8216.





C.Exhibits, Including Those Incorporated by Reference:





Exhibit No. Description


(2)(a)
Agreement and Plan of Merger dated September 12, 1996 by and between Met-Pro Corporation, Met-Pro Acquisition Corporation, Strobic Air Corporation, Lynn T. Secrest, Ronald H. Secrest, Richard P. Secrest and John W. Stone, III. Incorporated by reference to Registrants Registration Statement on Form S-3 (File No. 333-13929), declared effective December 31, 1996.(2)(b)
Asset Purchase Agreement dated October 29, 1998 among Flex-Kleen Corporation, Flex-Kleen Canada Limited, Aqua Alliance, Inc., AWT Air Company Inc., 1321249 Ontario Limited and Met-Pro Corporation. Incorporated by reference to Companys Registration Statement on Form 8-K filed on November 13, 1998 and amended on January 12, 1999.





41Index







Exhibit No.  Description








(2)(c)
Agreement and Plan of Merger dated July 31, 2003 by and between Met-Pro Corporation, a Delaware Corporation, and Met-Pro Pennsylvania, Inc., a Pennsylvania corporation. Incorporated by reference to the Companys Current Report on Form 8-K filed on August 6, 2003.(3)(f)
Articles of Incorporation of Met-Pro Corporation, a Pennsylvania corporation formerly known as Met-Pro Pennsylvania, Inc. Incorporated by reference to the Companys Current Report of Form 8-K filed on August 6, 2003.(3)(g)
By-Laws of Met-Pro Corporation, a Pennsylvania corporation formerly known as Met-Pro Pennsylvania, Inc. Incorporated by reference to the Companys Current Report on Form 8-K filed on August 6, 2003.(4)
Shareholders Rights Plan, incorporated by reference to Companys Current Report on Form 8-K filed on January 6, 2000.(10)(a)
The 1992 Stock Option Plan, incorporated by reference to Companys Registration Statement on Form S-8 filed June 13, 2000.*(10)(b)
The 1997 Stock Option Plan, incorporated by reference to Companys Registration Statement on Form S-8 filed January 16, 1998.*(10)(c)
Amendment No. 1 to the 1992 Stock Option Plan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(d)
Amendment No. 1 to the 1997 Stock Option Plan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(e)
Key Employee Severance Agreement between Met-Pro Corporation and William L. Kacin, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(f)
Key Employee Severance Agreement between Met-Pro Corporation and Gary J. Morgan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(g)
Key Employee Severance Agreement between Met-Pro Corporation and Raymond J. De Hont, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(h)
Amendment to Key Employee Severance Agreement between Met-Pro Corporation and William L. Kacin, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(i)
Amendment to Key Employee Severance Agreement between Met-Pro Corporation and Gary J. Morgan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(j)
The Companys Directors Retirement Plan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(k)
Amendment No. 1 to the Companys Directors Retirement Plan, incorporated by reference toCompanys Annual Report on Form 10-K filed on May 4, 2001.*(10)(l)
Amendment No. 2 to the Companys Directors Retirement Plan, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(m)
Restoration Plan, effective February 1, 2000, incorporated by reference   to Companys Annual Report on Form 10-Kfiled on May 4, 2001.*





42Index




Exhibit No.Description





(10)(o)
Additional 1% Supplemental Executive Retirement Plan, effective February 1, 2000, incorporated by reference to Companys Annual Report on Form 10-K filed on May 4, 2001.*(10)(p)
The 2001 Equity Incentive Plan, incorporated by reference to Companys Registration Statement on Form S-8 filed August 22, 2001.*(10)(q)
Year 2000 Employee Stock Purchase Plan, incorporated by reference to the Companys Registration Statement on  Form S-8 filed on June 13, 2000.*(10)(r)
Salaried Pension Plan Amended and Restated effective September 1, 2000.*(10)(s)
First Amendment to the Companys Salaried Pension Plan dated August 15, 2002.*(10)(t)
Second Amendment to the Companys Salaried Pension Plan dated October 23, 2002.*(10)(u)
Amendment No. 3 to the Companys Directors Retirement Plan dated as of February 24, 2003.*(10)(v)
Amendment No. 1 to the Companys Additional 1 % Supplemental Executive Plan dated as of March 21, 2003.*(10)(w)
Directors Retirement Plan Trust dated as of February 11, 2000.*(10)(x)
Amendment No. 1 to the Companys Directors Retirement Plan Trust dated as of February 24, 2003.*(10)(y)
Amendment No. 2 to the Companys Directors Retirement Plan Trust dated as of February 24, 2003.*(10)(z)
Restoration and Supplemental Executive Retirement Plan Trust Agreement dated as of February 11, 2000.*(10)(aa)
Amendment No. 1 to the Companys Restoration and Supplemental Executive Retirement Plan Trust Agreement dated as of February 24, 2003.*(11)
Statement Re-computation of Per Share Earnings. See page 18 of Item 8.(21)
List of Subsidiaries of Registrant:


Corporate
Jurisdiction of
Name under which BusinessName
Incorporation
is ConductedMefiag B.V.
The Netherlands
Mefiag B.V., a wholly-owned subsidiary ofMet-Pro CorporationFlex-Kleen Canada Inc.
Ontario, Canada
Flex-Kleen Canada Inc.,a wholly-owned subsidiary ofMet-Pro CorporationStrobic Air Corporation
Delaware
Strobic Air Corporation,a wholly-owned subsidiary ofMet-Pro CorporationMPC Inc.
Delaware
MPC Inc.,a wholly-owned subsidiary ofMet-Pro CorporationPristine Hydrochemical Inc.
Delaware
Pristine Hydrochemical Inc.,a wholly-owned subsidiary ofMet-Pro Corporation


43Index







Exhibit No.Description


(23)
Consent of Independent Auditor.**(31.1)
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.**(31.2)
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.**(32.1)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.**(32.2)
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.**













(9)
Voting trust agreements.(12)
Statements re computation of ratios.(13)
Annual report to security holders.(14)
Code of ethics.(16)
Letter re change in certifying accountant.(18)
Letter re change in accounting principles.(22)
Published report regarding matters submitted to vote of security holders.(24)
Power of attorney.







*
Indicates management contract or compensatory plan or arrangement.**
Filed herewith.



































































44Index




SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) 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 CORPORATIONApril 13, 2004

By:/s/ Raymond J. De HontDate

Raymond J. De HontChairman,Chief ExecutiveOfficer and President












Signature

Title

Date/s/ Raymond J. De Hont

Chairman,

April 13, 2004Raymond J. De Hont

Chief Executive Officerand President/s/ Gary J. Morgan

Vice President-Finance,

April 13, 2004Gary J. Morgan

Secretary, Treasurer,Chief Financial Officer,Chief Accounting Officerand Director/s/ Nicholas DeBenedictis

Director

April 13, 2004Nicholas De Benedictis/s/ William L. Kacin

Director

April 13, 2004William L. Kacin/s/ Alan Lawley

Director

April 13, 2004Alan Lawley/s/ Michael J. Morris

Director

April 13, 2004Michael J. Morris/s/ Jeffrey H. Nicholas

Director

April 13, 2004Jeffrey H. Nicholas














45Index