<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>oct0310q.txt
<DESCRIPTION>MFRI 3RD QUARTER 2003 10Q
<TEXT>
                                                    UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended                   October 31, 2003
                               -------------------------------------------------

                                       OR

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

For the transition period from             to
                               -----------    -----------

                         Commission file number 0-18370
                                                -------

                                   MFRI, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware                                                              36-3922969
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

7720 Lehigh Avenue               Niles, Illinois                           60714
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                 (847) 966-1000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
 report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X    No
                                      -----     -----

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes        No   X
                                                -----     -----

On December 15, 2003,  there were 4,922,364  shares of the  registrant's  common
stock outstanding.

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

The accompanying  interim condensed  consolidated  financial statements of MFRI,
Inc. and subsidiaries (the "Company") are unaudited, but include all adjustments
which the  Company's  management  considers  necessary  to  present  fairly  the
financial  position and results of operations for the periods  presented.  These
adjustments  consist of normal recurring  adjustments.  Certain  information and
footnote  disclosures  have been condensed or omitted pursuant to Securities and
Exchange  Commission  rules  and  regulations.   These  condensed   consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements  and the notes thereto  included in the  Company's  annual
report  on  Form  10-K  for  the  year   ended   January   31,   2003.   Certain
reclassifications  have been made in prior-year  financial statements to conform
to the  current-year  presentation.  The results of  operations  for the quarter
ended  October  31,  2003 are not  necessarily  indicative  of the results to be
expected for the full year ending January 31, 2004.


                                       1
<PAGE>
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except per share information)

<TABLE>
<CAPTION>
                                                          Three Months Ended        Six Months Ended
                                                              October 31,              October 31,
                                                         ---------------------    ---------------------
                                                           2003        2002(3)      2003        2002(1)(2)
                                                         --------     --------    --------     --------
<S>                                                      <C>          <C>         <C>          <C>
Net sales                                                $ 32,635     $ 33,230    $ 93,793     $ 94,325
Cost of sales                                              25,732       25,400      74,016       72,504
                                                         --------     --------    --------     --------
Gross profit                                                6,903        7,830      19,778       21,821

Operating expenses:
  Selling expense                                           2,418        2,773       7,582        7,648
  General and administrative expense                        4,242        3,988      11,571       11,928
                                                         --------     --------    --------     --------
    Total operating expenses                                6,660        6,761      19,153       19,576
                                                         --------     --------    --------     --------
Income from operations                                        243        1,069         625        2,245
Income from Joint Venture                                       8           13         193           13
Interest Expense - net                                        500          460       1,519        1,496
                                                         --------     --------    --------     --------
Income (loss) before income taxes, extraordinary item        (249)         622        (701)         762
  and cumulative effect of accounting change
Income taxes (benefit)                                       (123)         259        (313)         319
                                                         --------     --------    --------     --------
Income (loss) before extraordinary item and cumulative       (126)         363        (388)         443
  effect of accounting change
Extraordinary gain (loss), net of tax of $74 and $64 YTD     -            (112)       -              96
                                                         --------     --------    --------     --------
Income (loss) before cumulative effect of accounting         (126)         251        (388)         539
  change

Cumulative effect of a change in accounting for
  goodwill, net of tax benefit of $1,110                     -            -           -         (10,739)
                                                         --------     --------    --------     --------
Net income (loss)                                        $   (126)    $    251    $   (388)    $(10,200)
                                                         ========     ========    ========     ========

Weighted average common shares outstanding
  (basic and fully diluted)                                 4,922        4,922       4,922        4,922

Basic earnings per share
  Income (loss) before extraordinary item and            $  (0.03)    $   0.07    $  (0.08)    $   0.09
    cumulative effect of accounting change
  Income (loss) before cumulative effect of
    accounting change                                    $  (0.03)    $   0.05    $  (0.08)    $   0.11
  Cumulative effect of accounting change                     -            -           -           (2.18)
  Net income (loss)                                      $  (0.03)    $   0.05    $  (0.08)    $  (2.07)

Diluted earnings per share

  Income (loss) before extraordinary item and
    cumulative effect of accounting change               $  (0.03)    $   0.07    $  (0.08)    $   0.09
  Income (loss) before cumulative effect of
    accounting change                                    $  (0.03)    $   0.05    $  (0.08)    $   0.11
  Cumulative effect of accounting change                     -            -           -           (2.18)
  Net income (loss)                                      $  (0.03)    $   0.05    $  (0.08)    $  (2.07)
</TABLE>

(1)  The  first  quarter  of  fiscal  year  2002 was  restated  to  reflect  the
     cumulative effect of accounting change in accordance with SFAS 142.
(2)  The second  quarter of fiscal year 2002 was restated to reclassify the loss
     on extinguishment of debt from  extraordinary  item to operating expense in
     accordance with SFAS 145.
(3)  Management's  estimate of the  extraordinary  gain was  reduced  during the
     quarter ended October 2002 by $185,000 (net of tax of $112,000). Subsequent
     to October 31, 2002 the extraordinary  gain was further adjusted to $35,000
     (net of tax of $23,000).

                                       2
<PAGE>
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
                                                       October 31,   January 31,
Assets                                                    2003          2003
--------------------------------------------------------------------------------
Current Assets:
<S>                                                      <C>          <C>
  Cash and cash equivalents                              $    183     $    346
  Restricted cash                                             195          276
  Trade accounts receivable, net                           23,152       17,806
  Accounts receivable - related companies                     753          329
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                       1,380        2,044

  Income taxes receivable                                   1,751        1,043
  Inventories                                              18,498       19,582
  Deferred income taxes                                     2,046        1,822
  Prepaid expenses and other current assets                   448        1,828
                                                         --------     --------
    Total current assets                                   48,406       45,076

Property, plant and equipment, net                         28,996       27,888

Other Assets:
  Assets held for sale                                          0          277
  Patents, net of accumulated amortization                    745          844
  Goodwill                                                  2,449        2,353
  Other assets                                              2,100        2,538
                                                         --------     --------
    Total other assets                                      5,294        6,012
                                                         --------     --------
Total Assets                                             $ 82,696     $ 78,976
                                                         ========     ========

Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------
Current Liabilities:
  Trade accounts payable                                 $ 11,037     $  9,673
  Accrued compensation and payroll taxes                    2,316        2,193
  Other accrued liabilities                                 2,903        2,262
  Commissions payable                                       3,746        4,163
  Current maturities of long-term debt                     17,637        2,415
  Billings in excess of costs and estimated earnings
    on uncompleted contracts                                  535          299
  Income taxes payable                                        340           82
                                                         --------     --------
    Total current liabilities                              38,514       21,087

Long-Term Liabilities:
  Long-term debt, less current maturities                  15,564       29,261
  Other                                                     2,097        2,016
                                                         --------     --------
    Total long-term liabilities                            17,661       31,277

Stockholders' Equity:
  Common stock, $.01 par value, authorized - 50,000
    shares in October 2003 and January 2003;
    4,922 issued and outstanding in October 2003 and
    January 2003                                               49           49
  Additional paid-in capital                               21,397       21,397
  Retained earnings                                         5,807        6,197
  Accumulated other comprehensive loss                       (732)      (1,031)
                                                         --------     --------
    Total stockholders' equity                             26,521       26,612
                                                         --------     --------
Total Liabilities and Stockholders' Equity               $ 82,696     $ 78,976
                                                         ========     ========
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
                                                      Nine Months Ended October 31,
                                                      -----------------------------
                                                          2003(3)     2002(1)(2)
                                                         --------     --------
Cash Flows from Operating Activities:
<S>                                                      <C>          <C>
  Net loss                                               $   (388)    $(10,200)
  Adjustments to reconcile net loss to
    net cash flows from operating activities:
      Cumulative effect of change in accounting for
        goodwill                                             -          10,739
      Extraordinary (gain), net of tax of $64                -             (96)
      (Income) from joint venture                            (193)        -
      Provision for depreciation and amortization           3,082        2,905
      (Gain) on sale of property, plant and equipment         (27)        -
      Change in operating assets and liabilities:
        Trade accounts receivable                          (5,346)      (2,556)
        Costs and estimated earnings in excess of
          billings on uncompleted contracts                   899        1,371
        Inventories                                         1,228       (1,207)
        Prepaid expenses and other current assets             701           29
        Current liabilities                                 1,413          828
        Other operating assets and liabilities                 54       (1,211)
                                                         --------     --------
Net Cash Flows from Operating Activities                    1,423          602
                                                         --------     --------

Cash Flows from Investing Activities:
  Proceeds from sale of property and equipment                475            0
  Purchases of property and equipment                      (3,789)        (976)
  Purchase of a business by acquiring specified
    assets and assuming specified liabilities                -            (500)
  Investment in joint venture                                 160          (23)
                                                         --------     --------
Net Cash Flows from Investing Activities                   (3,154)      (1,499)
                                                         --------     --------

Cash Flows from Financing Activities:
  Payments on capitalized lease obligations                  (101)        (104)
  Borrowings under revolving, term and mortgage loans      15,875       18,500
  Repayment of debt                                       (14,467)     (17,397)
                                                         --------     --------
Net Cash Flows from Financing Activities                    1,307          999
                                                         --------     --------
Effect of Exchange Rate Changes on Cash
  and Cash Equivalents                                        261           33
                                                         --------     --------
Net increase (decrease) in Cash and Cash Equivalents         (163)         135

Cash and Cash Equivalents - Beginning of Period               346          119
                                                         --------     --------

Cash and Cash Equivalents - End of Period                $    183     $    254
                                                         ========     ========

Supplemental cash flow information:
  Cash paid for:
    Interest, net of capitalized amounts                 $  1,518     $  1,500
    Income taxes, net of refunds received                       5          132
</TABLE>

(1)  The  first  quarter  of  fiscal  year  2002 was  restated  to  reflect  the
     cumulative effect of accounting change in accordance with SFAS 142.
(2)  The second  quarter of fiscal year 2002 was restated to reclassify the loss
     on extinguishment of debt from  extraordinary  item to operating expense in
     accordance with SFAS 145.
(3)  Management's  estimate of the  extraordinary  gain was  reduced  during the
     quarter ended October 2002 by $185,000 (net of tax of $112,000). Subsequent
     to October 31, 2002 the extraordinary  gain was further adjusted to $35,000
     (net of tax of  $23,000).  See notes to  condensed  consolidated  financial
     statements.  MFRI, INC. AND  SUBSIDIARIES  NOTES TO CONDENSED  CONSOLIDATED
     FINANCIAL STATEMENTS (UNAUDITED) OCTOBER 31, 2003

                                       4
<PAGE>
1.   The unaudited financial statements herein have been prepared by the Company
     pursuant  to the rules  and  regulations  of the  Securities  and  Exchange
     Commission.   The  accompanying  interim  financial  statements  have  been
     prepared  under  the  presumption  that  users  of  the  interim  financial
     information  have  either  read or have  access  to the  audited  financial
     statements for the latest fiscal year ended January 31, 2003.  Accordingly,
     footnote  disclosures which would  substantially  duplicate the disclosures
     contained in the January 31, 2003 audited  financial  statements  have been
     omitted from these interim financial statements.  Certain reclassifications
     have  been  made in  prior-year  financial  statements  to  conform  to the
     current-year  presentation.  Certain  information and footnote  disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     have been  condensed  or omitted  pursuant  to such rules and  regulations.
     Although the Company believes that the disclosures are adequate to make the
     information  presented not  misleading,  it is suggested that these interim
     financial  statements be read in conjunction with the financial  statements
     and the notes  thereto  included in the  Company's  latest Annual Report on
     Form 10-K.

2.  Inventories consisted of the following:
<TABLE>
<CAPTION>
                                                      October 31,    January 31,
     (In thousands)                                      2003           2003
                                                       --------       --------
<S>                                                    <C>            <C>
         Raw materials                                 $ 13,232       $ 14,647
         Work in process                                  2,570          1,881
         Finished goods                                   2,696          3,054
                                                       --------       --------
         Total                                         $ 18,498       $ 19,582
                                                       ========       ========
</TABLE>

3.   Other  intangible  assets with definite lives:  Patents are capitalized and
     amortized  on a  straight-line  basis over a period not to exceed the legal
     lives  of the  patents.  Patents,  net of  accumulated  amortization,  were
     $745,000   and   $844,000  at  October  31,  2003  and  January  31,  2003,
     respectively.  Accumulated  amortization  was  $1,395,000 and $1,273,000 at
     October 31, 2003 and January 31, 2003,  respectively.  Future amortizations
     over the next five years ending January 31, will be 2004 - $177,500, 2005 -
     $180,200, 2006 - $180,200, 2007 - $173,600 and 2008 - $29,200.

4.   Certain  assets  held  for  sale:   Certain  machinery  in  Perma-Pipe  had
     previously been classified as  held-for-sale.  In October 2003,  management
     determined  it was not probable  that these assets would be sold within one
     year from their  classification as held for sale. As a result,  these fixed
     assets have been reclassified as held for use and are included in property,
     plant and equipment at October 31, 2003. Additional depreciation of $40,000
     was recorded when the property was transferred to held for use.

5.   Investment in Joint Venture:  In April 2002,  the Company's  Piping Systems
     Business and two unrelated  companies formed an equally owned joint venture
     to more efficiently market their complementary  thermal insulation products
     and systems for use in undersea pipeline flow assurance projects worldwide.
     During the year ended January 31, 2003, the Company invested $67,000 as its
     initial  capital  contribution  and its share of advances to fund costs and
     expenses.  In October 2003, the Company received a partner  distribution of
     $160,000 from its investment in the joint venture. The Company accounts for
     its joint venture  investment using the equity method.  The Company's share
     of income for the current year is $193,000.

                                       5
<PAGE>
6.   The basic weighted  average shares  reconcile to diluted  weighted  average
     shares as follows:

<TABLE>
<CAPTION>
                                                          Three Months Ended        Nine Months Ended
     (In thousands)                                           October 31,              October 31,
                                                         ---------------------    ---------------------
                                                           2003        2002(3)      2003        2002(1)(2)
                                                         --------     --------    --------     --------
     Income (loss) before extraordinary item and
<S>                                                          <C>           <C>        <C>           <C>
       cumulative effect of accounting change                (126)         363        (388)         443
     Extraordinary gain (loss), net of tax                   -            (112)       -              96
     Income (loss before cumulative effect of
       accounting change                                     (126)         251        (388)         539
     Cumulative effect of a change in
       accounting for goodwill, net of tax
       benefit of $1,110                                     -            -           -         (10,739)
                                                         --------     --------    --------     --------
       Net income (loss)                                 $   (126)    $    251        (388)    $(10,200)
                                                         ========     ========    ========     ========

       Basic weighted average common
         shares outstanding                                 4,922        4,922       4,922        4,922
       Dilutive effect of stock options                      -            -           -            -
                                                         --------     --------    --------     --------
       Weighted average common shares
         outstanding assuming full dilution                 4,922        4,922       4,922        4,922
                                                         ========     ========    ========     ========

       Basic earnings per share
       Income (loss) before extraordinary
         item and cumulative effect of
         accounting change                               $  (0.03)    $   0.07    $  (0.08)    $   0.09
       Income (loss) before cumulative effect of
         accounting change                               $  (0.03)    $   0.05    $  (0.08)    $   0.11
       Cumulative effect of accounting
         change                                              -            -           -           (2.18)
       Net income (loss)                                 $  (0.03)    $   0.05    $  (0.08)    $  (2.07)

       Diluted earnings per share
       Income (loss) before extraordinary
         item and cumulative effect of
         accounting change                               $  (0.03)    $   0.07    $  (0.08)    $   0.09
       Income (loss) before cumulative effect of
         accounting change                               $  (0.03)    $   0.05    $  (0.08)    $   0.11
       Cumulative effect of accounting change                -            -                       (2.18)
       Net income (loss)                                 $  (0.03)    $   0.05    $  (0.08)    $  (2.07)
</TABLE>

(1)  The  first  quarter  of  fiscal  year  2002 was  restated  to  reflect  the
     cumulative effect of accounting change in accordance with SFAS 142.
(2)  The second  quarter of fiscal year 2002 was restated to reclassify the loss
     on extinguishment of debt from  extraordinary  item to operating expense in
     accordance with SFAS 145.
(3)  Management's  estimate of the  extraordinary  gain was  reduced  during the
     quarter ended October 2002 by $185,000 (net of tax of $112,000). Subsequent
     to October 31, 2002 the extraordinary  gain was further adjusted to $35,000
     (net of tax of $23,000).

The weighted  average number of stock options not included in the computation of
diluted  earnings per share of common stock because the option  exercise  prices

                                       6
<PAGE>
exceeded  the average  market  prices of the common  shares were  1,036,000  and
966,000 for the three months ended October 31, 2003 and 2002, respectively,  and
993,000  and  912,667  for the nine  months  ended  October  31,  2003 and 2002,
respectively.  These  options  were  outstanding  at  the  end  of  each  of the
respective periods.


7.   The components of comprehensive income (loss), net of tax, were as follows:

<TABLE>
<CAPTION>
                                                          Three Months Ended        Nine Months Ended
     (In thousands)                                           October 31,              October 31,
                                                         ---------------------    ---------------------
                                                           2003        2002(3)      2003        2002(1)(2)
                                                         --------     --------    --------     --------

<S>                                                      <C>          <C>        <C>          <C>
     Net income (loss)                                   $   (126)    $    251   $   (388)    $(10,200)
     Change in foreign currency translation
       adjustments                                            128           57        299          458
                                                         --------     --------   --------     --------
     Comprehensive income (loss)                         $      2     $    308   $    (89)    $ (9,742)
                                                         ========     ========   ========     ========
</TABLE>
     Accumulated  other   comprehensive   loss  presented  on  the  accompanying
     condensed consolidated balance sheet consists of the following:

<TABLE>
<CAPTION>
                                                      October 31,    January 31,
     (In thousands)                                      2003           2003
                                                       --------       --------
<S>                                                    <C>            <C>
     Accumulated translation adjustment                $    338       $     39
     Minimum pension liability adjustment (net of
       tax benefit of $655 at October 31 and
       January 31, 2003)                                 (1,070)        (1,070)
                                                       --------       --------
       Total                                           $   (732)      $ (1,031)
                                                       ========       ========
</TABLE>

     (1)  The first  quarter of fiscal  year 2002 was  restated  to reflect  the
          cumulative effect of accounting change in accordance with SFAS 142.


8.   The Company has three  reportable  segments under the criteria of Statement
     of Financial Accounting  Standards No. 131,  "Disclosures about Segments of
     an Enterprise and Related  Information."  The Filtration  Products Business
     manufactures and sells a wide variety of filter elements for air filtration
     and particulate  collection systems. The Piping Systems Business engineers,
     designs, manufactures and sells specialty piping systems and leak detection
     and location systems.  The Industrial  Process Cooling  Equipment  Business
     engineers,  designs, manufactures and sells chillers, cooling towers, plant
     circulating systems and accessories for industrial process applications.

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                          Three Months Ended        Nine Months Ended
     (In thousands)                                           October 31,              October 31,
                                                         ---------------------    ---------------------
                                                           2003        2002(3)      2003        2002(1)(2)
                                                         --------     --------    --------     --------
     Net Sales:
<S>                                                      <C>          <C>         <C>          <C>
       Filtration Products                               $ 13,836     $ 14,163    $ 41,813     $ 40,130
       Piping Systems                                      12,274       11,511      33,227       35,306
       Industrial Process Cooling Equipment                 6,525        7,556      18,753       18,889
                                                         --------     --------    --------     --------
     Total Net Sales                                     $ 32,635     $ 33,230    $ 93,793     $ 94,325
                                                         ========     ========    ========     ========
     Gross Profit:
       Filtration Products                               $  2,547     $  2,694    $  7,882     $  7,699
       Piping Systems                                       2,428        2,783       6,506        8,360
       Industrial Process Cooling Equipment                 1,928        2,353       5,390        5,762
                                                         --------     --------    --------     --------
     Total Gross Profit                                  $  6,903     $  7,830    $ 19,778     $ 21,821
                                                         ========     ========    ========     ========
     Income (loss) from Operations:
       Filtration Products                               $    367     $    357    $  1,326     $    901
       Piping Systems                                         680        1,268       2,336        3,776
       Industrial Process Cooling Equipment                   325          606         607          905
       Corporate                                           (1,129)      (1,162)     (3,644)      (3,337)
                                                         --------     --------    --------     --------
     Income from Operations                              $    243     $  1,069    $    625     $  2,245
                                                         ========     ========    ========     ========
</TABLE>

     (1)  The first  quarter of fiscal  year 2002 was  restated  to reflect  the
          cumulative effect of accounting change in accordance with SFAS 142.
     (2)  The second  quarter of fiscal year 2002 was restated to reclassify the
          loss on  extinguishment of debt from  extraordinary  item to operating
          expense in accordance with SFAS 145.
     (3)  Management's estimate of the extraordinary gain was reduced during the
          quarter  ended  October  2002 by  $185,000  (net of tax of  $112,000).
          Subsequent  to October  31,  2002 the  extraordinary  gain was further
          adjusted to $35,000 (net of tax of $23,000).

9.   In May  2003,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting Standards (SFAS) No. 150 "Accounting for
     certain financial  instruments with characteristics of both liabilities and
     equity,"  effective  in June  2003.  SFAS No.  150  requires  an  issuer to
     classify,  as liabilities,  any financial  instruments that fall within the
     scope of this  pronouncement.  Many of those  instruments  were  previously
     classified as equity.  Adoption of SFAS 150 did not have a material  effect
     on the results of  operations,  financial  condition,  or cash flows of the
     Company.

     In April 2003,  the FASB issued SFAS No. 149 "Amendment of Statement 133 on
     Derivative  Instruments  and Hedging  Activities,"  parts of which apply to
     existing contracts,  but which is generally effective for contracts entered
     into after June 30, 2003.  Adoption of SFAS No. 149 did not have a material
     effect on the results of operations,  financial  condition or cash flows of
     the Company.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable  Interest  Entities,  an  Interpretation  of ARB  No.  51,"  which
     requires that the assets,  liabilities,  and the results of activities of a
     variable  interest  entity in which a business  enterprise has  controlling
     financial  interest be included in consolidation with those of the business
     enterprise.  Adoption  of FIN No. 46 did not have a material  effect on the
     results of operations, financial condition or cash flows of the Company.

                                       8
<PAGE>
     In December 2002, the FASB issued SFAS No. 148  "Accounting for Stock-Based
     Compensation"  which was  effective  for the Company on December  15, 2002.
     SFAS No. 148 provides  alternative  methods of  transition  for a voluntary
     change to the  fair-value  method of accounting  for  stock-based  employee
     compensation.   In  addition,   this   Statement   amends  the   disclosure
     requirements of SFAS No. 123 to require  prominent  disclosures in both the
     annual and  interim  financial  statements  about the  Company's  method of
     accounting for  stock-based  employee  compensation  and the effects of the
     method  used on reported  results.  Adoption of SFAS No. 148 did not have a
     material effect on the results of operations,  financial  condition or cash
     flows of the Company.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of  Indebtedness  of Others." This  Interpretation  requires the
     recognition  of certain  guarantees as liabilities at fair market value and
     is effective for  guarantees  issued or modified  after  December 31, 2002.
     Adoption of the provisions of the  Interpretation  has not had and will not
     have a material effect on the financial statements of the Company, based on
     guarantees in effect on October 31, 2003.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
     4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
     Corrections."  The Statement is effective for fiscal years  beginning after
     May 15,  2002 and  rescinds  SFAS No. 4,  "Reporting  Gains and Losses from
     Extinguishment  of Debt," and an amendment of that Statement,  SFAS No. 64,
     "Extinguishments of Debt Made to Satisfy Sinking-Fund  Requirements." Under
     SFAS No. 4, all gains and losses from extinguishments of debt were required
     to be aggregated and, if material, classified as an extraordinary item, net
     of related income tax effect. SFAS No. 145 eliminated SFAS No. 4 and, thus,
     the exception to applying  Accounting  Principles Board (APB) No. 30 to all
     gains  and  losses   related  to   extinguishments   of  debt  (other  than
     extinguishments  of  debt  to  satisfy  sinking-fund   requirements  -  the
     exception to applications of SFAS No. 4 noted in SFAS No. 64). As a result,
     gains and losses  from  extinguishments  of debt  should be  classified  as
     extraordinary  items only if they meet the criteria in APB No. 30. Applying
     the provisions of APB No. 30 will distinguish transactions that are part of
     an entity's recurring  operations from those that are unusual or infrequent
     or that  meet the  criteria  for  classification  as  extraordinary  items.
     Adoption  of  SFAS  No.  145  resulted  in  the   reclassification   of  an
     extraordinary loss of $133,000 ($79,000 net of tax) recorded in the quarter
     ended  July  31,  2002  to an  operating  expense  in  the  current  year's
     presentation of the prior year financial information.

     On February 1, 2002, the Company adopted SFAS No. 142,  "Goodwill and Other
     Intangible  Assets".  SFAS No. 142 changes the  accounting for goodwill and
     other intangible  assets with indefinite lives from an amortization  method
     to an  impairment-only  approach.  Amortization  of goodwill and intangible
     assets  with  indefinite  lives,  including  such  assets  recorded in past
     business combinations, ceased upon adoption. Thus, no amortization for such
     goodwill  and   indefinite   lived   intangibles   was  recognized  in  the
     accompanying  condensed  consolidated  statements  of  operations  for  the
     quarter and nine-month period ended October 31, 2003. SFAS No. 142 requires
     that goodwill and other intangible assets with indefinite lives be analyzed
     for impairment at its adoption with any resulting  impairment loss recorded
     as a cumulative effect of change in accounting principle. Subsequent to the
     initial  impairment  test,  SFAS No. 142 requires  that  goodwill and other
     intangible  assets with  indefinite  lives be analyzed for impairment on an
     annual basis or when there is reason to suspect that their values have been
     impaired.  The Company has  designated  the beginning of its fiscal year as
     the date of its annual  goodwill  impairment  test.  The Company's  initial
     impairment  analysis of its goodwill in 2002 resulted in an impairment loss
     of $11,849,000  or  $10,739,000  net of a tax benefit of $1,110,000 for the

                                       9
<PAGE>
     year ended  January 31, 2003.  As required by SFAS No. 142, the  impairment
     loss was  recognized in the first quarter of 2002 to reflect the cumulative
     effect of  accounting  change.  The  Company's  annual  impairment  test at
     February 1, 2003 did not result in an  impairment.  Goodwill was $2,449,000
     and $2,353,000 at October 31, 2003 and January 31, 2003, respectively.  The
     change in Goodwill was due to foreign currency translation.

10.  The  Company's  stock option plans are  accounted  for using the  intrinsic
     value method and,  accordingly,  no compensation  cost has been recognized.
     Had  compensation  cost been determined using the fair value method in 2003
     and 2002, the Company's pro forma net income (loss) and earnings (loss) per
     share would have been as follows:

<TABLE>
<CAPTION>
                                                          Three Months Ended        Nine Months Ended
                                                              October 31,              October 31,
                                                         ---------------------    ---------------------
                                                           2003        2002(3)      2003        2002(1)(2)
                                                         --------     --------    --------     --------
     Income (loss) before extraordinary item
<S>                                                      <C>          <C>         <C>          <C>
     and cumulative effect of accounting    change       $   (126)    $    363    $   (388)    $    433
     Extraordinary gain (loss), net of tax of $64            -            (112)       -              96
                                                         --------     --------    --------     --------
     Income (loss) before cumulative effect of
       accounting change                                 $   (126)    $    251    $   (388)    $    539
                                                             -            -           -         (10,739)
                                                         --------     --------    --------     --------
     Net income (loss) - as reported (in
       thousands)                                        $   (126)    $    251    $   (388)    $(10,200)
                                                         --------     --------    --------     --------
     Compensation cost under fair-market
       value-based accounting method, net
       of tax (in thousands)                                  (42)         (35)       (121)         (69)
     Net income (loss) - pro forma (in
       thousands)                                        $   (168)         216    $   (509)    $(10,269)
                                                         ========     ========    ========     ========
     Income (loss) before extraordinary item and
       cumulative effect of accounting change            $  (0.03)    $   0.07    $  (0.08)    $   0.09
     Net income (loss) per common share -
       basic, as reported                                $  (0.03)    $   0.05    $  (0.08)    $  (2.07)
     Net income (loss) per common share -
       basic, pro forma                                  $  (0.03)    $   0.04    $  (0.10)    $  (2.09)
     Net income (loss) per common share -
       diluted, as reported                              $  (0.03)    $   0.05    $  (0.08)    $  (2.07)
     Net income (loss) per common share -
       diluted, pro forma                                $  (0.03)    $   0.04    $  (0.10)    $  (2.09)
</TABLE>

     (1)  The first  quarter of fiscal  year 2002 was  restated  to reflect  the
          cumulative effect of accounting change in accordance with SFAS 142.

     (2)  The second  quarter of fiscal year 2002 was restated to reclassify the
          loss on  extinguishment of debt from  extraordinary  item to operating
          expense in accordance with SFAS 145.

     (3)  Management's estimate of the extraordinary gain was reduced during the
          quarter  ended  October  2002 by  $185,000  (net of tax of  $112,000).
          Subsequent  to October  31,  2002 the  extraordinary  gain was further
          adjusted to $35,000 (net of tax of $23,000).

11.  On July 11, 2002, the Company entered into secured note purchase agreements
     with certain institutional  investors ("Note Purchase  Agreements").  Under
     the terms of the Note  Purchase  Agreements,  the  Company  entered  into a
     five-year $6,000,000 term loan replacing prior term loans with an aggregate

                                       10
<PAGE>
     original  principal  balance  of  $25,000,000  ("Prior  Term  Loans").  The
     outstanding  principal balance of the Prior Term Loans at July 11, 2002 was
     $16,000,000.

     The Company borrowed $10,000,000 from its new revolving line of credit from
     another financial institution  (described below) to pay down this loan from
     $16,000,000  to   $6,000,000.   Interest  rates  under  the  Note  Purchase
     Agreements are 12% per annum if the  outstanding  principal is greater than
     $5,000,000 or 10% per annum if the  outstanding  principal is $5,000,000 or
     less.  The Company is scheduled  to pay $188,000 in aggregate  principal on
     the  last  days of  March,  June,  September  and  December  in each  year,
     commencing  on September 30, 2002 and ending on June 30, 2007. In addition,
     the Company is scheduled to make annual prepayments of excess cash flow (as
     defined  in the Note  Purchase  Agreements).  Finally,  the Loan  Agreement
     (defined  below)  and  the  Note  Purchase   Agreements   permit  voluntary
     prepayments  sufficient to reduce the  outstanding  term loan  principal to
     $5,000,000 subject to certain  conditions.  The Company met such conditions
     and made such a prepayment on July 31, 2002.

     At October 31, 2003,  the Company was not in  compliance  with one covenant
     under  the Note  Purchase  Agreements.  The  Company  and the  lenders  are
     discussing a waiver.  Also,  the  Company's  noncompliance  with a covenant
     under the Loan  Agreement  constitutes  an event of default  under the Note
     Purchase  Agreements  (see  the  paragraphs  below  that  refer to the Loan
     Agreement).  The holders of Notes  pursuant to the Note Purchase  Agreement
     have not declared an event of default or accelerated  the  indebtedness  of
     the Company  evidenced  by the Notes.  The  Company  has made all  required
     payments of principal and interest  under the Note  Purchase  Agreements to
     date. See the Loan Agreement paragraph below for a discussion relating to a
     waiver and amendment under the Loan Agreement.

     On July 11,  2002,  the Company  entered  into a secured  loan and security
     agreement with a financial institution ("Loan Agreement").  Under the terms
     of the Loan  Agreement,  which  matures on July 10,  2005,  the Company can
     borrow up to $27,000,000, subject to borrowing base and other requirements,
     under a revolving  line of credit.  Interest  rates  generally are based on
     options  selected by the Company as follows:  (a) a margin in effect plus a
     base  rate;  or (b) a  margin  in  effect  plus  the  LIBOR  rate  for  the
     corresponding interest period. At October 31, 2003, the prime rate was 4.00
     percent,  and the margins added to the prime rate and the LIBOR rate, which
     are  determined  each quarter based on the applicable  financial  statement
     ratio, were 1.25 and 3.25 percentage points, respectively.

     As of October  31,  2003,  the  Company had  borrowed  $12,265,000  and had
     $2,088,000 available to it under the revolving line of credit. In addition,
     $6,121,000 of availability  was used under the Loan Agreement  primarily to
     support letters of credit to guarantee amounts owed for Industrial  Revenue
     Bond  borrowings.  The Loan  Agreement  provides  that all  payments by the
     Company's  customers  are  deposited in a bank account from which all funds
     may only be used to pay the debt under the Loan  Agreement.  At October 31,
     2003,  the  amount of  restricted  cash was  $195,000.  Cash  required  for
     operations is provided by draw-downs on the line of credit.

     At October 31, 2003,  the Company was not in compliance  with two covenants
     under the Loan  Agreement.  The Company and the  lenders are  discussing  a
     waiver.  Although this noncompliance  constitutes an event of default under
     the Loan  Agreement,  the  lender has not  declared  an event of default or
     accelerated the  indebtedness of the Company under the Loan Agreement.  The
     Company has made all required  payments of principal and interest under the
     Loan  Agreement to date. The Company and the lender are discussing a waiver
     and amendment.  The Company  believes it is probable that agreement will be
     reached for the waiver and amendment, although agreement is not assured. If

                                       11
<PAGE>
     it does  not  occur,  the  Company  believes  it  will  be  able to  obtain
     replacement  financing on acceptable terms,  although there is no assurance
     that any  such  financing  will be  obtained.  As  required  by  accounting
     principles  generally  accepted in the United  States,  due to the unwaived
     covenant  noncompliance  discussed  above, all amounts owing under the Note
     Purchase  Agreements and the Loan Agreement have been classified as current
     in the accompanying Balance Sheet.

     The Company also has short-term  credit  arrangements  used by its European
     subsidiaries.  These  credit  arrangements  are  generally  in the  form of
     overdraft  facilities  at rates  competitive  in the countries in which the
     Company  operates.  At October 31,  2003,  borrowings  under  these  credit
     arrangements totaled $395,000; an additional $420,000 remained unused.

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

The statements contained under the caption "Management's Discussion and Analysis
of Financial  Condition and Results of Operations" and certain other information
contained  elsewhere  in this  report,  which  can be  identified  by the use of
forward-looking   terminology  such  as  "may,"  "will,"  "expect,"  "continue,"
"remains,"   "intend,"  "aim,"   "should,"   "prospects,"   "could,"   "future,"
"potential,"  "believes,"  "plans,"  "likely," and  "probable,"  or the negative
thereof  or other  variations  thereon  or  comparable  terminology,  constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as  amended,  and  are  subject  to the  safe  harbors  created  thereby.  These
statements  should be considered as subject to the many risks and  uncertainties
that exist in the Company's operations and business environment.  Such risks and
uncertainties  could  cause  actual  results  to differ  materially  from  those
projected.  These  uncertainties  include,  but are  not  limited  to,  economic
conditions,  market  demand  and  pricing,  competitive  and cost  factors,  raw
material  availability  and prices,  global  interest rates,  currency  exchange
rates, labor relations and other risk factors.

RESULTS OF OPERATIONS

MFRI, Inc.

Three months ended October 31

Net sales of  $32,635,000  for the quarter ended October 31, 2003  decreased 1.8
percent from  $33,230,000  for the  comparable  quarter in the prior year.  (See
discussion of each business segment below.)

Gross profit of $6,903,000  decreased 11.8 percent from  $7,830,000 in the prior
year  quarter,  and gross  margin  decreased to 21.2 percent of net sales in the
current-year  from 23.6 percent of net sales in the prior year.  (See discussion
of each business segment below.)

Net income before  extraordinary item and cumulative effect of accounting change
decreased  135.0  percent to a loss of $126,000 in the current year quarter from
income of $363,000 in the prior year quarter.  Net income  before  extraordinary
item and  cumulative  effect of  accounting  change per common  share  (diluted)
decreased  to a net loss of $0.03 per share from income of $0.07 per share.  The
decrease  in net income was due  primarily  to settling a dispute and legal fees
related to that settlement. (See discussion of each business segment below.)

                                       12
<PAGE>
Nine Months Ended October 31

Net sales of  $93,793,000  for the nine months ended October 31, 2003  decreased
0.6 percent from  $94,325,000 for the comparable  period in the prior year. (See
discussion of each business segment below.)

Gross  profit of  $19,778,000  decreased  9.4 percent from  $21,821,000  for the
comparable  period in the prior  year,  while  gross  margin  decreased  to 21.1
percent of net sales in the current  year from 23.1  percent of net sales in the
prior year. (See discussion of each business segment below.)

Net income before  extraordinary item and cumulative effect of accounting change
decreased  from  $443,000 for the nine months ended  October 31, 2002,  to a net
loss of $388,000 in the  comparable  period ended  October 31, 2003.  Net income
before  extraordinary item and cumulative effect of accounting change per common
share (diluted)  decreased from $0.09 in the nine months ended October 31, 2002,
to a net loss of $0.08 in the current  year.  The decrease was due  primarily to
decreased  gross profit in the current  year,  settling a dispute and legal fees
related  to  the   settlement   partially   offset  by  decreased   general  and
administrative  expenses  and  income  from a  joint  venture  investment.  (See
discussion of each business segment below.)

On June 19, 2002, the Company purchased a business by acquiring specified assets
and assuming specified liabilities for $500,000 in cash. In accordance with SFAS
No. 141, the purchase price plus  purchase-related  expenses is first applied to
current  assets and any excess of value over the current  assets is allocated to
extraordinary  gain. In October 2002 the extraordinary  gain recognized from the
purchase of certain  assets of a business was reduced by $185,000  ($112,000 net
of tax).  At October 31, 2002 the  purchase  resulted in the  recognition  of an
extraordinary  gain of $160,000 ($96,000 net of tax).  Management's  estimate of
the  extraordinary  gain was adjusted  subsequent to October 31, 2002 to $35,000
(net of tax of  $23,000)  which  results  in a $0.01 per share  decrease  in net
income (loss) for basic and diluted earnings.

The 2002 net loss of  $10,200,000 or $2.07 per common share is mainly the result
of an  adjustment  for a  write-off  of  impaired  goodwill  (see  Note 9 of the
financial  statements).  In February  2002,  the Company  adopted  Statement  of
Financial Accounting Standards No. 142, which requires that goodwill be analyzed
for  impairment  on an annual basis.  The Company's  analysis of its goodwill in
2002 resulted in a loss on impairment of $11,849,000 or $10,739,000 net of a tax
benefit of $1,110,000.

Filtration Products Business

Three months ended October 31

Net sales for the  quarter  ended  October  31,  2003  decreased  2.3 percent to
$13,836,000 from $14,163,000 for the comparable  quarter in the prior year. This
decrease is primarily  the result of lower sales of filter bags offset by higher
pleated filter elements sales.

Gross profit as a percent of net sales  decreased from 19.0 percent in the prior
year  to  18.4  percent  in  the  current  year,  primarily  as a  result  of an
unfavorable product mix in the current quarter.

Selling expense for the quarter ended October 31, 2003 decreased from $1,488,000
or 10.5 percent of net sales in the  prior-year  quarter to  $1,380,000  or 10.0
percent of net sales in the current-year  quarter primarily as a result of staff
reductions.

                                       13
<PAGE>
General and  administrative  expenses  decreased from $849,000 or 6.0 percent of
net sales in the  prior-year  quarter to $800,000 or 5.8 percent of net sales in
the  current-year  quarter.  The  prior-year  period  included  data  processing
expenses and the recognition of uncollectible receivables.

Nine months ended October 31

Net sales for the nine months ended  October 31, 2003  increased  4.2 percent to
$41,813,000 from  $40,130,000 for the comparable  period in the prior year. This
increase is primarily the result of increased sales of pleated filter  elements,
which are partially offset by lower filter bag sales.

Gross profit as a percent of net sales  decreased from 19.2 percent in the prior
year to 18.9 percent in the current  year,  primarily as a result of product mix
and competitive pricing pressures in the marketplace.

Selling  expense  for the nine  months  ended  October  31,  2003  increased  to
$4,232,000  or 10.1 percent of net sales from  $4,116,000 or 10.3 percent of net
sales for the comparable  period in the prior year. The increase is attributable
to higher advertising,  commissions, and travel expenses, primarily in the first
quarter, offset by reduced staff expenses.

General and administrative  expenses decreased from $2,682,000 or 6.7 percent of
net sales in the prior-year  period to $2,323,000 or 5.6 percent of net sales in
the current  year period.  The  prior-year  period  included  significant  legal
expense  associated  with a  patent-infringement  suit that has been settled,  a
warranty  claim that has been  settled,  higher  data  processing  expenses  and
recognition of uncollectible receivables. Additionally,  cost-reduction measures
implemented  in the current year have led to reductions  in current  general and
administrative expense.

Piping Systems Business

Three months ended October 31

Net sales  increased 6.6 percent from  $11,511,000  in the prior year quarter to
$12,274,000  for the quarter ended October 31, 2003.  This increase is primarily
due to  higher  sales  of  products  in the oil and gas  industry  with a slight
decrease in sales of district heating and cooling products.

Gross  profit as a percent  of net sales  decreased  from 24.2  percent  to 19.8
percent, mainly as a result of the lower margin work to maintain work levels and
under-absorption of manufacturing expenses due to lower volume.

Selling  expense  decreased  from  $347,000  or 3.0 percent of net sales for the
prior year  quarter to $228,000 or 1.9 percent of net sales in the current  year
quarter.  The decrease is primarily due to lower marketing  expenses and reduced
commissions due to lower sales.

General and  administrative  expense increased from $1,167,000 in the prior year
quarter to $1,520,000 in the current year quarter, and increased as a percent of
net sales from 10.1 percent to 12.4 percent. The increase is due to a settlement
of $510,000 and $284,000 in legal fees  associated  with that  settlement.  Such
expenses were partially  offset by lower  management  information  systems (MIS)
expenses,  currency  exchange  gains  from the  collection  of  Canadian  Dollar
accounts receivable,  lower management incentive expenses,  and reduced salaries
charged to general and administrative expense.

                                       14
<PAGE>
Nine months ended October 31

Net sales of  $33,227,000  for the nine months ended October 31, 2003  decreased
5.9 percent from  $35,306,000 for the comparable  period in the prior year. This
decrease  is  primarily  due to lower  sales in  product  lines  that are mainly
dependent on state and federal government spending.

Gross  profit as a percent  of net sales  decreased  from 23.7  percent  to 19.6
percent,   mainly  due  to  lower  margin  work  to  maintain  work  levels  and
under-absorption of manufacturing expenses due to lower volume.

Selling  expense  decreased  from  $1,056,000 or 3.0 percent of net sales in the
prior year period to  $915,000  or 2.8 percent of net sales in the current  year
period. The decrease is primarily due to reduced commissions due to lower sales.

General and  administrative  expense  decreased  to  $3,255,000,  compared  with
$3,527,000  in the prior year  period,  and  decreased as a percent of net sales
from 10.0 percent to 9.8 percent. A settlement of $510,000 and $360,000 in legal
fees  associated  with that  settlement  incurred in the current year.  This was
offset by lower MIS expenses,  currency  exchange  gains from the  collection of
Canadian Dollar accounts receivable,  lower management  incentive expenses,  and
reduced salaries charged to general and administrative expense.

Industrial Process Cooling Equipment Business

Three months ended October 31

Net sales of $6,525,000  for the quarter ended October 31, 2003  decreased  13.6
percent  from  $7,556,000  for the  comparable  quarter in the prior  year.  The
decrease is primarily due to new products  resulting from the July 2002 purchase
of  a  business  (by   acquiring   specified   assets  and  assuming   specified
liabilities).  A sales backlog was absorbed from this business  purchase,  which
resulted in additional sales activity in the prior year quarter.

Gross  profit  decreased  to 29.5  percent of net sales from 31.1 percent of net
sales in the prior-year quarter,  primarily due to competitive pricing pressures
and higher production costs associated with new products.

Selling  expense  decreased  to  $809,000  or 12.4  percent  of net sales in the
current-year  quarter  from  $938,000  or  12.4  percent  of  net  sales  in the
prior-year  quarter.  The dollar  decrease is due to  increased  sales to direct
manufacturers, which results in lower selling expenses.

General and administrative  expense decreased to $794,000 or 12.2 percent of net
sales from $809,000 or 10.7 percent of net sales in the prior-year quarter.  The
dollar decrease is due to elimination of expenses associated with the prior-year
completion of a new ERP business applications software package, partially offset
by certification expenses for the International Organization for Standardization
(ISO).

Nine months ended October 31

Net  sales of  $18,753,000  for the  nine  months  ended  October  31,  2003 was
essentially  flat  with the  comparable  period in the prior  year.  Demand  for
equipment was down, but largely offset by increased  orders for installation and

                                       15
<PAGE>
other  services and new product  sales from the July 2002 purchase of a business
(by acquiring specified assets and assuming specified liabilities).

Gross profit  decreased from 30.5 percent of net sales in the prior year to 28.7
percent of net sales in the current year,  primarily due to competitive  pricing
pressures and higher production costs associated with new products.

Selling  expense  decreased  to  $2,434,000  or 13.0 percent of net sales in the
current  year period from  $2,476,000  or 13.1 percent of net sales in the prior
year. This decrease is primarily due to increased sales to direct manufacturers,
which  results in lower selling  expenses,  partially  offset by the  additional
sales  employees  associated  with the July  2002  purchase  of a  business  (by
acquiring specified assets and assuming specified liabilities).

General and  administrative  expense  decreased to $2,349,000 or 12.5 percent of
net sales in the  current  year period from  $2,381,000  or 12.6  percent of net
sales in the prior year.  The dollar  decrease is due to elimination of expenses
associated  with the  prior-year  completion of a new ERP business  applications
software,  partially offset by additional  employees and certification  expenses
for the ISO.

General Corporate Expense

General   corporate   expense   includes   interest   expense  and  general  and
administrative  expense  incurred  by  MFRI,  Inc.  Corporate  that has not been
allocated to the business segments.

Three months ended October 31

General and  administrative  expense decreased from $1,162,000 in the prior year
quarter to $1,129,000 in the current year quarter,  and was essentially level as
a  percentage  of net sales at 3.5  percent in both  quarters.  The  decrease is
mainly due to reduced property tax, lower outside  professional costs, and lower
legal costs  partially  offset by  increased  costs  related to  maintenance  of
director and officer insurance.

Interest  expense  increased  to $500,000  for the  current  year  quarter  from
$460,000  in the prior year  quarter.  The  increase is  primarily  due to a new
euro-denominated  loan acquired in January 2003 by one of the Company's  foreign
subsidiaries for the construction of a building.

Nine months ended October 31

General and  administrative  expense increased from $3,337,000 in the prior year
period to $3,644,000 in the current-year  nine-month  period, and increased as a
percentage of net sales from 3.5 percent in the prior year period to 3.9 percent
in  the  current  year  period.  Adoption  of  SFAS  No.  145  resulted  in  the
reclassification  of an extraordinary  loss of $133,000  recorded in the quarter
ended July 31, 2002 to an operating  expense in the current year's  presentation
of prior-year financial information.  The increase in the current year is mainly
due to  increased  salaries  due to filled  positions  that  were  vacant in the
prior-year,  partially offset by reduced expenses for temporary help,  increased
costs related to maintenance of director and officer  insurance,  increased loan
amortization  expense  due to debt  restructuring  in July  2002 and  amendments
thereafter, and an adjustment for accrued expenses.

                                       16
<PAGE>
Interest  expense  increased  to  $1,519,000  for the  current  year period from
$1,496,000  for the  comparable  period  in the  prior  year.  The  increase  is
primarily due to interest expense on increased debt borrowings, partially offset
by reduced interest rates from the July 2002 debt restructuring.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents  as of October 31, 2003 were  $183,000 as compared to
$254,000 at October 31, 2002. The Company  generated  $1,423,000 from operations
during the first nine months.  Operating  cash flows  increased by $600,000 from
the same period in the prior year. The proceeds from sale of property, plant and
equipment of $475,000  mainly  resulted from the sale of certain  equipment to a
third  party in July  2003.  The  Company  leased  back the  equipment  from the
third-party  purchaser.  In October  2003, a cash  distribution  of $160,000 was
received from the Company's  investment  in a joint  venture.  These cash flows,
plus borrowings of $15,875,000 from the Company's credit facility,  were used to
support $3,789,000 in capital spending.

Trade receivables increased from January 31, 2003 due to sales seasonality.  The
months of November  and  December are  traditionally  our lowest  sales  months.
Inventories  decreased  from  January  31, 2003 due to the  reduction  of excess
specialized  inventories at January 2003 for which awaited orders were received.
The  decrease is also a result of higher  levels of work in process  inventories
from January 2003 that have been completed and sold.  Prepaid expenses and other
current  assets  decreased from January 31, 2003 due to the receipt of remaining
$1,053,000  receivable  from the Danish  bank loan that was  obtained in January
2003,  partially  offset by an increased  income tax receivable and an increased
receivable  from  related  companies.  Other  operating  assets and  liabilities
decreased  from January 31, 2003 due to increased  real estate taxes  related to
the  timing  of  the  payments,   increased  sales  tax  payable  due  to  sales
seasonality, partially offset by decreased balance in customer deposits.

Net cash used for  investing  activities  for the nine months ended  October 31,
2003 and 2002 were $3,154,000 and $1,499,000, respectively. Capital expenditures
increased  from  $976,000 in the prior year to  $3,789,000  in the current year.
Capital  additions of $1,977,000  relate to the Company's  construction of a new
building  for  one of its  foreign  subsidiaries,  $136,000  relate  to new  ERP
business  applications   software,   and  the  remainder  relates  to  equipment
purchases.

Debt totaled  $33,201,000,  up $1,525,000 since the beginning of the year. Refer
to the Company's  2002 Annual  Report on Form 10-K for a complete  discussion of
the Company's debt and credit facilities.  For the nine months ended October 31,
2003, net cash inflows from  financing  activity was  $1,307,000,  consisting of
$1,408,000  from net  borrowings  and $101,000 used for payments on  capitalized
lease  obligations.  In the  comparable  prior-year  period,  the  Company  used
$1,103,000  for net borrowings of long-term  debts and utilized  $104,000 to pay
capitalized lease  obligations.  As of October 31, 2003,  scheduled  maturities,
excluding the revolving  line of credit,  for each of the next five years are as
follows:  remainder of 2003 - $506,000;  2004 -  $1,556,000;  2005 - $1,406,000;
2006 - $3,067,000; 2007 - $5,933,000; thereafter - $7,906,000.

The Company's working capital was  approximately  $9,892,000 at October 31, 2003
compared to approximately $23,990,000 at January 31, 2003.

The  Company's  current  ratio was 1.3 to 1 and 2.1 to 1 at October 31, 2003 and
January 31, 2003, respectively. Debt to total capitalization at October 31, 2003
increased to 55.6 percent from 54.3 percent at January 31, 2003.

                                       17
<PAGE>
On July 11, 2002, the Company entered into secured note purchase agreements with
certain institutional investors ("Note Purchase Agreements"). Under the terms of
the Note Purchase  Agreements,  the Company entered into a five-year  $6,000,000
term loan  replacing  prior  term  loans with an  aggregate  original  principal
balance of $25,000,000 ("Prior Term Loans").  The outstanding  principal balance
of the Prior Term Loans at July 11, 2002 was $16,000,000.

The Company  borrowed  $10,000,000  from its new  revolving  line of credit from
another  financial  institution  (described  below)  to pay down  this loan from
$16,000,000 to $6,000,000. Interest rates under the Note Purchase Agreements are
12% per annum if the outstanding principal is greater than $5,000,000 or 10% per
annum if the  outstanding  principal  is  $5,000,000  or less.  The  Company  is
scheduled  to pay  $188,000 in  aggregate  principal  on the last days of March,
June, September and December in each year,  commencing on September 30, 2002 and
ending on June 30, 2007.  In  addition,  the Company is scheduled to make annual
prepayments  of excess cash flow (as defined in the Note  Purchase  Agreements).
Finally,  the Loan Agreement  (defined  below) and the Note Purchase  Agreements
permit  voluntary  prepayments  sufficient to reduce the  outstanding  term loan
principal  to  $5,000,000  subject to certain  conditions.  The Company met such
conditions and made such a prepayment on July 31, 2002.

At October 31, 2003,  the Company was not in compliance  with one covenant under
the Note  Purchase  Agreements.  The Company and the  lenders are  discussing  a
waiver.  Also,  the  Company's  noncompliance  with a  covenant  under  the Loan
Agreement  constitutes  an event of default under the Note  Purchase  Agreements
(see the  paragraphs  below that refer to the Loan  Agreement).  The  holders of
Notes  pursuant to the Note  Purchase  Agreement  have not  declared an event of
default or accelerated the  indebtedness of the Company  evidenced by the Notes.
The Company has made all required  payments of principal and interest  under the
Note Purchase  Agreements to date. See the Loan Agreement  paragraph below for a
discussion relating to a waiver and amendment under the Loan Agreement.

On July 11, 2002, the Company entered into a secured loan and security agreement
with a financial  institution  ("Loan  Agreement").  Under the terms of the Loan
Agreement,  which  matures  on July 10,  2005,  the  Company  can  borrow  up to
$27,000,000, subject to borrowing base and other requirements, under a revolving
line of credit.  Interest rates  generally are based on options  selected by the
Company as follows:  (a) a margin in effect plus a base rate; or (b) a margin in
effect plus the LIBOR rate for the corresponding interest period. At October 31,
2003,  the prime rate was 4.00 percent,  and the margins added to the prime rate
and the LIBOR rate,  which are  determined  each quarter based on the applicable
financial statement ratio, were 1.25 and 3.25 percentage points, respectively.

As of October 31, 2003, the Company had borrowed  $12,265,000 and had $2,088,000
available to it under the revolving line of credit.  In addition,  $6,121,000 of
availability  was used under the Loan Agreement  primarily to support letters of
credit to guarantee  amounts owed for Industrial  Revenue Bond  borrowings.  The
Loan  Agreement  provides  that all  payments  by the  Company's  customers  are
deposited  in a bank  account  from  which all funds may only be used to pay the
debt under the Loan  Agreement.  At October 31, 2003,  the amount of  restricted
cash was $195,000. Cash required for operations is provided by draw-downs on the
line of credit.

At October 31, 2003, the Company was not in compliance  with two covenants under
the Loan  Agreement.  The Company and lenders are discussing a waiver.  Although
this noncompliance constitutes an event of default under the Loan Agreement, the
lender has not declared an event of default or accelerated  the  indebtedness of
the Company under the Loan Agreement. The Company has made all required payments

                                       18
<PAGE>
of principal and interest  under the Loan Agreement to date. The Company and the
lender are  discussing  a waiver  and  amendment.  The  Company  believes  it is
probable that agreement  will be reached for the waiver and amendment,  although
agreement is not assured.  If it does not occur, the Company believes it will be
able to obtain replacement  financing on acceptable terms,  although there is no
assurance that any such  financing  will be obtained.  As required by accounting
principles generally accepted in the United States, due to the unwaived covenant
noncompliance  discussed  above,  all  amounts  owing  under  the Note  Purchase
Agreements  and the Loan  Agreement  have  been  classified  as  current  in the
accompanying Balance Sheet.

The  Company  also  has  short-term  credit  arrangements  used by its  European
subsidiaries.  These credit  arrangements are generally in the form of overdraft
facilities at rates  competitive in the countries in which the Company operates.
At  October  31,  2003,  borrowings  under  these  credit  arrangements  totaled
$395,000; an additional $420,000 remained unused.

ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of
Financial  Accounting Standards (SFAS) No. 150 "Accounting for certain financial
instruments with  characteristics  of both liabilities and equity," effective in
June 2003.  SFAS No. 150 requires an issuer to  classify,  as  liabilities,  any
financial instruments that fall within the scope of this pronouncement.  Many of
those instruments were previously classified as equity. Adoption of SFAS 150 did
not have a material effect on the results of operations, financial condition, or
cash flows of the Company.

In April 2003,  the FASB  issued SFAS No. 149  "Amendment  of  Statement  133 on
Derivative Instruments and Hedging Activities," parts of which apply to existing
contracts,  but which is generally  effective for  contracts  entered into after
June 30,  2003.  Adoption of SFAS No. 149 did not have a material  effect on the
results of operations, financial condition or cash flows of the Company.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities,  an  Interpretation of ARB No. 51," which requires
that the  assets,  liabilities,  and the  results  of  activities  of a variable
interest  entity  in  which a  business  enterprise  has  controlling  financial
interest be included in  consolidation  with those of the  business  enterprise.
Adoption  of FIN  No.  46 did not  have a  material  effect  on the  results  of
operations, financial condition or cash flows of the Company.

In  December  2002,  the FASB issued SFAS No. 148  "Accounting  for  Stock-Based
Compensation" which was effective for the Company on December 15, 2002. SFAS No.
148 provides  alternative  methods of transition  for a voluntary  change to the
fair-value  method of  accounting  for  stock-based  employee  compensation.  In
addition,  this Statement amends the disclosure  requirements of SFAS No. 123 to
require  prominent   disclosures  in  both  the  annual  and  interim  financial
statements  about the Company's  method of accounting for  stock-based  employee
compensation and the effects of the method used on reported results. Adoption of
SFAS No.  148 did not have a  material  effect  on the  results  of  operations,
financial condition or cash flows of the Company.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness of Others." This Interpretation requires the recognition of certain
guarantees as  liabilities  at fair market value and is effective for guarantees
issued or modified  after  December 31, 2002.  Adoption of the provisions of the

                                       19
<PAGE>
Interpretation  has not had and will not have a material effect on the financial
statements of the Company, based on guarantees in effect on October 31, 2003.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB  Statements 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical  Corrections. The
Statement  is  effective  for  fiscal  years  beginning  after May 15,  2002 and
rescinds SFAS No. 4, "Reporting Gains and Losses from  Extinguishment  of Debt,"
and an amendment of that Statement,  SFAS No. 64,  "Extinguishments of Debt Made
to Satisfy  Sinking-Fund  Requirements."  Under SFAS No. 4, all gains and losses
from  extinguishments  of debt were required to be aggregated  and, if material,
classified as an extraordinary  item, net of related income tax effect. SFAS No.
145  eliminated  SFAS No. 4 and,  thus,  the  exception  to applying  Accounting
Principles Board (APB) No. 30 to all gains and losses related to extinguishments
of debt (other than extinguishments of debt to satisfy sinking-fund requirements
- the  exception  to  applications  of SFAS No. 4 noted  in SFAS No.  64).  As a
result,  gains and losses from  extinguishments  of debt should be classified as
extraordinary  items only if they meet the criteria in APB No. 30.  Applying the
provisions  of APB No.  30 will  distinguish  transactions  that  are part of an
entity's recurring  operations from those that are unusual or infrequent or that
meet the criteria for  classification as extraordinary  items.  Adoption of SFAS
No. 145 resulted in the  reclassification  of an extraordinary  loss of $133,000
($79,000 net of tax) recorded in the quarter ended July 31, 2002 to an operating
expense  in  the  current  year's  presentation  of  the  prior  year  financial
information.

On  February 1, 2002,  the Company  adopted  SFAS No. 142,  "Goodwill  and Other
Intangible  Assets".  SFAS No. 142 changes the accounting for goodwill and other
intangible  assets  with  indefinite  lives  from an  amortization  method to an
impairment-only  approach.  Amortization of goodwill and intangible  assets with
indefinite lives,  including such assets recorded in past business combinations,
ceased upon  adoption.  Thus, no  amortization  for such goodwill and indefinite
lived  intangibles  was recognized in the  accompanying  condensed  consolidated
statements  of  operations  for the quarter and nine month periods ended October
31, 2003. SFAS No. 142 requires that goodwill and other  intangible  assets with
indefinite  lives be analyzed for  impairment at its adoption with any resulting
impairment  loss  recorded  as a  cumulative  effect  of  change  in  accounting
principle. Subsequent to the initial impairment test, SFAS No. 142 requires that
goodwill  and other  intangible  assets with  indefinite  lives be analyzed  for
impairment  on an annual  basis or when  there is reason to  suspect  that their
values have been  impaired.  The Company has  designated  the  beginning  of its
fiscal year as the date of its annual  goodwill  impairment  test. The Company's
initial  impairment  analysis of its goodwill in 2002  resulted in an impairment
loss of $11,849,000  or  $10,739,000  net of a tax benefit of $1,110,000 for the
year ended  January 31, 2003. As required by SFAS No. 142, the  impairment  loss
was recognized in the first quarter of 2002 to reflect the cumulative  effect of
accounting  change. The Company's annual impairment test at February 1, 2003 did
not result in an  impairment.  Goodwill was $2,449,000 and $2,353,000 at October
31, 2003 and January 31, 2003,  respectively.  The change in Goodwill was due to
foreign currency translation.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The  Company  is  subject  to market  risk  associated  with  changes in foreign
currency exchange rates and interest rates.  Foreign currency exchange rate risk
is mitigated through  maintenance of local production  facilities in the markets
served,  invoicing  of  customers  in the same  currency  as the  source  of the
products and use of foreign currency  denominated  debt in Denmark.  The Company
also utilizes foreign currency forward  contracts to reduce exposure to exchange
rate risks. The forward contracts are short-term in duration, generally one year

                                       20
<PAGE>
or less.  The major  currency  exposure  hedged by the  Company is the  Canadian
dollar.  The  contract  amounts,  carrying  amounts  and  fair  values  of these
contracts were not significant at October 31, 2003 or January 31, 2003.

The  changeover  from national  currencies to the Euro began on January 1, 2002,
and has not materially  affected,  and is not expected to materially affect, the
Company's  foreign currency  exchange risk profile,  although some customers may
require  the  Company  to  invoice or pay in Euros  rather  than the  functional
currency of the manufacturing entity.

The Company  has  attempted  to mitigate  its  interest  rate risk by  combining
fixed-rate long-term debt with floating rate debt.

Item 4.     Controls and Procedures

As of October  31,  2003,  the  Company  carried  out an  evaluation,  under the
supervision and with the  participation  of our management,  including our Chief
Executive  Officer and Chief  Financial  Officer,  of the  effectiveness  of the
design and operation of our disclosure  controls and procedures pursuant to Rule
13a-14 under the  Securities  Exchange Act of 1934, as amended.  Based upon that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that our disclosure  controls and  procedures  are effective in timely  alerting
them to  material  information  relating  to us  required  to be included in the
Company's  periodic SEC filings.  There have been no significant  changes in the
Company's internal controls, or in other factors that could significantly affect
these controls, subsequent to the date of that evaluation.


                           PART II - OTHER INFORMATION



Item 6.  Exhibits and Reports on Form 8-K.
                  Exhibits:

         (31)  Rule 13a - 14(a)/15d - 14(a) Certifications

               (1)  Chief Executive Officer certification pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002

               (2)  Chief Financial Officer certification pursuant to Section
                      302 of the Sarbanes-Oxley Act of 2002

         (32)  Section 1350 Certifications

               (1)  Chief Executive Officer certification pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002

               (2)  Chief Financial Officer certification pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002

                                      21
<PAGE>


                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                    MFRI, INC.


Date:     December 15, 2003         /s/ David Unger
                                    --------------------------------------------
                                    David Unger
                                    Chairman of the Board of Directors,
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Date:     December 15, 2003         /s/ Michael D. Bennett
                                    --------------------------------------------
                                    Michael D. Bennett
                                    Vice President, Secretary and Treasurer
                                    (Principal Financial and Accounting Officer)


                                       22
<PAGE>
                                                                    Exhibit 31.1
I, David Unger, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (c)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most  recent  fiscal  quarter  that  has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record,  process,  summarize and report financial information;  and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date:    December 15, 2003


/s/ David Unger
---------------------------
David Unger
Director and Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)

<PAGE>
                                                                    Exhibit 31.2
I, Michael D. Bennett, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (c)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most  recent  fiscal  quarter  that  has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record,  process,  summarize and report financial information;  and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date:    December 15, 2003


/s/ Michael D. Bennett
---------------------------
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)

<PAGE>
                                                                    Exhibit 32.1

                  Certification of Principal Executive Officer
                           Pursuant to 18 U.S.C. 1350
                 (Section 906 of the Sarbanes-Oxley Act of 2002)


I, David Unger,  President  and Chief  Executive  Officer  (principal  executive
officer)  of  MFRI,  Inc.  (the  "Registrant"),  certify  that to the best of my
knowledge,  based  upon a review  of the  Quarterly  Report on Form 10-Q for the
period ended July 31, 2003 of the Registrant (the "Report"):

(1)  The Report fully  complies  with the  requirements  of Section 13(a) of the
     Securities Exchange Act of 1934, as amended; and

(2)  The information  contained in the Report fairly  presents,  in all material
     respects,  the  financial  condition  and  results  of  operations  of  the
     Registrant.


/s/ David Unger
------------------------------
David Unger
Director and Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
December 15, 2003


A signed  original of this  written  statement  required by Section 906 has been
provided to MFRI,  Inc. and will be retained by MFRI,  Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

<PAGE>
                                                                    Exhibit 32.2

                  Certification of Principal Financial Officer
                           Pursuant to 18 U.S.C. 1350
                 (Section 906 of the Sarbanes-Oxley Act of 2002)


I, Michael D. Bennett,  Chief Financial Officer (principal financial officer) of
MFRI, Inc. (the "Registrant"),  certify that to the best of my knowledge,  based
upon a review of the Quarterly Report on Form 10-Q for the period ended July 31,
2003 of the Registrant (the "Report"):

(1)  The Report fully  complies  with the  requirements  of Section 13(a) of the
     Securities Exchange Act of 1934, as amended; and

(2)  The information  contained in the Report fairly  presents,  in all material
     respects,  the  financial  condition  and  results  of  operations  of  the
     Registrant.


/s/ Michael D. Bennett
------------------------------
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
December 15, 2003

A signed  original of this  written  statement  required by Section 906 has been
provided to MFRI,  Inc. and will be retained by MFRI,  Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
























</TEXT>
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