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<SEC-DOCUMENT>0000914122-04-000013.txt : 20040614
<SEC-HEADER>0000914122-04-000013.hdr.sgml : 20040611
<ACCEPTANCE-DATETIME>20040614160433
ACCESSION NUMBER:		0000914122-04-000013
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20040430
FILED AS OF DATE:		20040614

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MFRI INC
		CENTRAL INDEX KEY:			0000914122
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564]
		IRS NUMBER:				363922969
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0131

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-18370
		FILM NUMBER:		04861589

	BUSINESS ADDRESS:	
		STREET 1:		7720 LEHIGH AVE
		CITY:			NILES
		STATE:			IL
		ZIP:			60714
		BUSINESS PHONE:		8479661000

	MAIL ADDRESS:	
		STREET 1:		7720 LEHIGH AVE
		CITY:			NILES
		STATE:			IL
		ZIP:			60714

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MIDWESCO FILTER RESOURCES INC
		DATE OF NAME CHANGE:	19970402
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>mfri1q10q.txt
<DESCRIPTION>MFRI 1ST QUARTER 2004
<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                  April 30, 2004
                              --------------------------------------------------

                                       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 Exchange Act Rule 12-b). Yes      No  X
                                       -----   -----

On June 14, 2004, 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/A  for  the  year  ended   January  31,   2004.   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  April  30,  2004 are not  necessarily  indicative  of the  results  to be
expected for the full year ending January 31, 2005.

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

                                                           Three Months Ended
                                                                April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------

<S>                                                       <C>          <C>
Net sales                                                 $ 32,128     $ 28,010

Cost of sales                                               26,222       22,816
                                                          --------     --------
                                                             5,906        5,194
Gross profit

Selling expense                                              2,612        2,600
General and administrative expense                           3,457        3,543
                                                          --------     --------

Loss from operations                                          (163)        (949)
Income from Joint Venture                                       23           10
Interest expense - net                                         420          492
                                                          --------     --------
Loss before income taxes                                      (560)      (1,431)

Income tax (benefit)                                          (231)        (566)
                                                          --------     --------
Net loss                                                  $   (329)    $   (865)
                                                          ========     ========

Weighted average common shares outstanding
  basic and diluted                                          4,922        4,922

Basic earnings per share
  Net loss                                                $  (0.07)    $  (0.18)

Diluted earnings per share
    Net loss                                              $  (0.07)    $  (0.18)
</TABLE>

See notes to condensed consolidated financial statements.

                                       1
<PAGE>

MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)

<TABLE>
<CAPTION>
                                                          April 30,   January 31,
Assets                                                      2004         2004
- --------------------------------------------------------------------------------
Current Assets:
<S>                                                       <C>          <C>
  Cash and cash equivalents                               $    408     $    154
  Restricted cash                                              274          238
  Trade accounts receivable, net                            20,490       18,353
  Accounts receivable - related companies                    1,053          853
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                        1,823        1,115
  Income taxes receivable                                      668          393
  Inventories                                               19,673       18,275
  Deferred income taxes                                      2,967        1,639
  Prepaid expenses and other current assets                    823          857
                                                          --------     --------
    Total current assets                                    48,179       41,877

Property, plant and equipment, net                          28,151       28,828

Other Assets:
  Patents, net of accumulated amortization                     670          716
  Goodwill                                                   2,494        2,549
  Other assets                                               3,512        4,957
                                                          --------     --------
    Total other assets                                       6,676        8,222
                                                          --------     --------
Total Assets                                              $ 83,006     $ 78,927
                                                          ========     ========

Liabilities and Stockholder' Equity
- --------------------------------------------------------------------------------
Current Liabilities:
  Trade accounts payable                                  $ 14,279     $ 12,337
  Accrued compensation and payroll taxes                     2,635        2,673
  Other accrued liabilities                                  2,912        2,835
  Commissions payable                                        2,688        3,046
  Current maturities of long-term debt                      15,384       11,864
  Billings in excess of costs and estimated earnings
    on uncompleted contracts                                   346          299
  Income taxes payable                                         112           64
                                                          --------     --------
    Total current liabilities                               38,356       33,118

Long-Term Liabilities:
  Long-term debt, less current maturities                   16,002       16,661
  Other                                                      2,307        2,275
                                                          --------     --------
    Total long-term liabilities                             18,309       18,936

Stockholders' Equity:
  Common stock, $.01 par value, authorized - 50,000
    shares in April 2004 and January 2004;
    4,922 issued and outstanding in April 2004 and
    January 2004                                                49           49
  Additional paid-in capital                                21,397       21,397
  Retained earnings                                          4,771        5,100
  Accumulated other comprehensive loss                         124          327
                                                          --------     --------
    Total stockholders' equity                              26,341       26,873
                                                          --------     --------
Total Liabilities and Stockholders' Equity                $ 83,006     $ 78,927
                                                          ========     ========
</TABLE>
See notes to condensed consolidated financial statements.

                                       2
<PAGE>

MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>

(In thousands)                                              Three Months Ended
                                                                April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
Cash Flows from Operating Activities:
<S>                                                       <C>          <C>
  Net loss                                                $   (329)    $   (865)
  Adjustments to reconcile net loss to
    net cash flows from operating activities:
      (Income) from joint venture                              (23)         (10)
      Provision for depreciation and amortization              987          945
      Provision for uncollectible accounts                      10           35
      Loss on sale of property, plant and equipment              1           10
      Change in operating assets and liabilities:
        Trade accounts receivable                           (2,147)      (2,176)
        Costs and estimated earnings in excess of
          billings on uncompleted contracts                   (662)         119
        Inventories                                         (1,480)         (97)
        Prepaid expenses and other current assets             (488)         374
        Current liabilities                                  1,965        2,560
       Other operating assets and liabilities                 (303)        (427)
                                                          --------     --------
Net Cash Flows from Operating Activities                    (2,469)         468
                                                          --------     --------

Cash Flows from Investing Activities:
  Proceeds from sale of property and equipment                -              10
  Purchases of property and equipment                         (273)      (1,438)
                                                          --------     --------
Net Cash Flows from Investing Activities                      (273)      (1,428)
                                                          --------     --------

Cash Flows from Financing Activities:
  Payments on capitalized lease obligations                    (24)         (38)
  Borrowings under revolving, term and mortgage loans        8,731        1,417
  Repayment of debt                                         (5,691)        (389)
                                                          --------     --------
Net Cash Flows from Financing Activities                     3,016          990
                                                          --------     --------

Effect of Exchange Rate Changes on Cash
  And Cash Equivalents                                         (20)         (56)
                                                          --------     --------

Net Increase in Cash and Cash Equivalents                      254          (26)

Cash and Cash Equivalents - Beginning of Period                154          346
                                                          --------     --------
Cash and Cash Equivalents - End of Period                 $    408     $    320
                                                          ========     ========

Supplemental cash flow information:

  Cash paid for:
    Interest, net of capitalized amounts                  $    463     $    480
    Income taxes, net of refunds received                     (104)           3
</TABLE>


See notes to condensed consolidated financial statements.

                                       3
<PAGE>

MFRI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2004

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, 2004.  Accordingly,
     footnote  disclosures which would  substantially  duplicate the disclosures
     contained in the January 31, 2004 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/A.

<TABLE>

2.   Inventories consisted of the following:
<CAPTION>
                                                          April 30,   January 31,
     (In thousands)                                         2004         2004
                                                          --------     --------
<S>                                                       <C>          <C>
        Raw materials                                     $ 15,244     $ 13,593
        Work in process                                      1,906        1,905
        Finished goods                                       2,523        2,777
                                                          --------     --------
        Total                                             $ 19,673     $ 18,275
                                                          ========     ========
</TABLE>

3.   Goodwill:  Goodwill  represents  the excess cost over fair value of the net
     assets of purchased businesses. The Company does not amortize goodwill. The
     Company performs an annual  impairment  assessment of goodwill in the first
     quarter of each  year,  based on the fair  value of the  related  reporting
     unit.  When  performing  its  annual  impairment  assessment,  the  Company
     compares  the fair  value of the  related  reporting  unit to its  carrying
     value.  Fair values are  determined by  discounting  estimated  future cash
     flows.  If the fair value of an  operating  unit is less than its  carrying
     value, an impairment loss is recorded. The Company's annual impairment test
     at  February  1,  2004  did  not  result  in an  impairment.  Goodwill  was
     $2,494,000  and  $2,549,000  at  April  30,  2004  and  January  31,  2004,
     respectively.   The  change  in  Goodwill  was  due  to  foreign   currency
     translation.

4.   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
     $669,000 and $716,000 at April 30, 2004 and January 31, 2004, respectively.
     Accumulated  amortization  was  $1,500,000 and $1,453,000 at April 30, 2004
     and January 31, 2004, respectively. Future amortizations over the next five
     years ending January 31, will be 2005 - $182,000,  2006 - $182,000,  2007 -
     $175,000, 2008 - $29,000, 2009 - $26,000, and 2110 - $22,000.

                                       4
<PAGE>

5.   Employee Retirement Plans: The market-related value of plan assets at April
     30, 2004 and January 31, 2004 were $2,778,110 and $2,682,942  respectively.
     Net cost  recognized  for the three  months  ended  April 30 is as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
       Components of net periodic benefit cost:
<S>                                                       <C>          <C>
         Service cost                                     $     25     $     24
         Interest cost                                          47           42
         Expected return on plan assets                        (56)         (42)
         Amortization of prior service cost                     21           14
         Recognized actuarial loss                              20           24
                                                          --------     --------
         Net periodic benefit cost                        $     57     $     62
                                                          ========     ========
</TABLE>

Expected employer contributions for fiscal year ending 1/31/2005 is $329,000. No
contributions have been made in the first quarter.


6.   The basic weighted  average shares  reconcile to diluted  weighted  average
     shares as follows:
<TABLE>
<CAPTION>
                                                           Three Months Ended
     (In thousands)                                             April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------

<S>                                                       <C>          <C>
     Net Loss                                             $   (329)    $   (865)
                                                          ========     ========
     Basic weighted average common
       shares outstanding                                    4,922        4,922
     Dilutive effect of stock options                         -            -
                                                          --------     --------
     Weighted average common shares
       outstanding assuming full dilution                    4,922        4,922
                                                          ========     ========


     Basic earnings per share
     Net loss                                             $  (0.07)    $  (0.18)

     Diluted earnings per share
     Net loss                                             $  (0.07)    $  (0.18)
</TABLE>

     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  exceeded the average  market prices of the common
     shares were  791,000 and 939,000 for the three  months ended April 30, 2004
     and 2003,  respectively.  At April 30, 2004,  227,250  stock options had an
     exercise price below the average stock price however, the inclusion of such
     stock options would be anti-dilutive  and as a result,  these stock options
     are  excluded  from the  computation  of  weighted  average  common  shares
     outstanding  assuming full dilution.  There were no stock options below the
     average stock price at April 30, 2003.  These options were  outstanding  at
     the end of the respective periods.

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                           Three Months Ended
     (In thounsands)                                            April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------


<S>                                                       <C>          <C>
     Net Loss                                             $   (329)    $   (865)
     Change in foreign currency translation adjustments       (203)         152
                                                          --------     --------
     Comprehensive loss                                   $   (532)    $   (713)
                                                          ========     ========
</TABLE>

     Accumulated  other   comprehensive   loss  presented  on  the  accompanying
     condensed consolidated balance sheets consists of the following:

<TABLE>
<CAPTION>
                                                          April 30,   January 31,
     (In thousands)                                         2004         2004
                                                          --------     --------

<S>                                                       <C>          <C>
     Accumulated translation adjustment                   $    479     $    682
     Minimum pension liability adjustment (net of
       tax benefit of $217 at April 30 and
       January 31, 2004)                                      (355)        (355)
                                                          --------     --------
       Total                                              $    124     $    327
                                                          ========     ========
</TABLE>

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.
<TABLE>

<CAPTION>
                                                           Three Months Ended
     (In thounsands)                                            April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
     Net Sales:
<S>                                                       <C>          <C>
       Filtration Products                                $ 16,296     $ 13,390
       Piping Systems                                        8,990        8,805
       Industrial Process Cooling Equipment                  6,842        5,815
                                                          --------     --------
     Total Net Sales                                      $ 32,128     $ 28,010
                                                          ========     ========

     Gross Profit:
       Filtration Products                                $  2,877     $  2,275
       Piping Systems                                        1,199        1,274
       Industrial Process Cooling Equipment                  1,830        1,645
                                                          --------     --------
     Total Gross Profit                                   $  5,906     $  5,194
                                                          ========     ========

     Income (loss) from Operations:
       Filtration Products                                $    778     $    198
       Piping Systems                                          109          105
       Industrial Process Cooling Equipment                    139            8
       Corporate                                            (1,189)      (1,260)
                                                          --------     --------
     Income (loss) from Operations                        $   (163)    $   (949)
                                                          ========     ========
</TABLE>

     9.   In December  2003,  the Financial  Accounting  Standards  Board (FASB)
          issued  a  revision  to SFAS No.  132,  "Employers'  Disclosure  about
          Pensions and Other  Postretirement  Benefits." This Statement  retains
          the  disclosures  previously  required by SFAS 132 but adds additional
          disclosure requirements about the assets, obligations, cash flows, and
          net periodic  benefit cost of defined  benefit pension plans and other

                                       6
<PAGE>

          defined benefit  postretirement  plans. It also calls for the required
          information to be provided  separately for pension plans and for other
          postretirement   benefit  plans.   In  addition  to  expanded   annual
          disclosures,  the standard improves information available to investors
          in interim  financial  statements.  SFAS 132R is effective  for fiscal
          years ending after December 15, 2003, and for quarters beginning after
          December 15,  2003.  The adoption of SFAS 132R did not have a material
          impact  on  the  Company's  financial  statements,  however,  required
          interim  disclosures  have been  reflected  in the  current  financial
          statements.

          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 April 30,
          2004.

     10.  The Company's stock option plans are accounted for using the intrinsic
          value  method  and,   accordingly,   no  compensation  cost  has  been
          recognized  as all options were granted at an exercise  price equal to
          fair value at the date of grant. Had compensation cost been determined
          using the fair value method in 2004 and 2003,  the Company's pro forma
          net income  (loss) and  earnings  (loss) per share  would have been as
          follows:

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                  April 30,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------

<S>                                                       <C>          <C>
     Net loss - as reported (in thousands)                $   (329)    $   (865)
     Compensation cost under fair-market value-based
     accounting method, net of tax (in thousands)              (42)         (34)
                                                          --------     --------
     Net loss - pro forma (in thousands)                      (371)        (899)

     Net loss per common share - basic, as reported       $  (0.07)    $  (0.18)
     Net loss per common share - basic, pro forma         $  (0.08)    $  (0.18)
     Net loss per common share - diluted, as reported     $  (0.07)    $  (0.18)
     Net loss per common share - diluted, pro forma       $  (0.08)    $  (0.18)
     Reported diluted EPS higher than pro forma diluted
       EPS                                                $  (0.01)       -
</TABLE>

     No stock  options were  granted for the  quarters  ended April 30, 2004 and
     2003.

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
     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 January 31, 2004 and April 30, 2004,  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

                                       7
<PAGE>

     Note Purchase  Agreements (see the paragraphs  below that refer to the Loan
     Agreement).  Although this  noncompliance  constitutes  an event of default
     under the Note Purchase Agreement,  the lender has 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.

     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
     prime  rate;  or (b) a  margin  in  effect  plus  the  LIBOR  rate  for the
     corresponding interest period. At April 30, 2004, the prime rate was 4.00%,
     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 April 30, 2004,
     the Company had borrowed  $10,958,000 and had $79,000 available to it under
     the revolving line of credit.  In addition,  $6,493,000 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 April  30,  2004,  the  amount of
     restricted  cash was $274,000.  Cash required for operations is provided by
     draw-downs on the line of credit.

     At January 31, 2004 and April 30, 2004,  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 lenders under the Note Purchase Agreements and the Loan
     Agreement are discussing waivers and amendments. The Company believes it is
     probable that  agreements  will be reached for the waivers and  amendments,
     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 as of January 31, 2004 and April 30, 2004.


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.

                                       8
<PAGE>

RESULTS OF OPERATIONS

MFRI, Inc.
Three months ended April 30

Net sales of $32,128,000  for the quarter ended April 30, 2004  increased  14.7%
from  $28,010,000  for  the  comparable  quarter  ended  April  30,  2004.  (See
discussion of each business segment below.)

Gross profit of  $5,906,000  increased  13.7% from  $5,194,000 in the prior year
quarter,  and gross margin remained level at 18.4% of net sales. (See discussion
of each business segment below.)

Net loss  decreased 62% to $329,000 in the current year quarter from $865,000 in
the prior year  quarter,  and net loss per common share  (diluted)  decreased to
$0.07  from a loss of  $0.18.  The  decrease  in net loss was  primarily  due to
increased sales.

Filtration Products Business
Three months ended April 30

Net sales for the quarter ended April 30, 2004  increased  21.7% to  $16,296,000
from $13,390,000 for the comparable  quarter in the prior year. This increase is
primarily due to a better economic environment  including improved conditions in
the domestic steel industry.

Gross profit as a percent of net sales increased from 17.0% in the prior year to
17.7% in the  current  year,  primarily  as a result of  improved  manufacturing
efficiency on higher unit volume.

Selling  expense for the quarter ended April 30, 2004 remained  across the group
level at  $1,432,000  but  decreased as a percentage  of net sales from 10.7% to
8.8% for the comparable quarter in the prior year.

General and  administrative  expenses  increased 3.3% to $667,000 in the current
year quarter from $646,000 for the  comparable  quarter in the prior year.  This
increase is primarily due to increased professional services expenses.

Piping Systems Business
Three months ended April 30

Net sales increased 2.1% from $8,805,000 in the prior year quarter to $8,990,000
for the quarter  ended April 30, 2004.  This  increase is primarily  due to some
recovery from the weak economy.

Gross  profit  decreased  from  14.5% to 13.3% due to tighter  margins  and some
increases in raw material prices.

Selling expense  decreased from $341,000 or 3.9% of net sales for the prior year
quarter  to  $323,000  or 3.6% of net sales in the  current  year  quarter.  The
decrease is primarily due to lower travel and marketing costs.

General and  administrative  expense  decreased  from $827,000 in the prior year
quarter to $767,000 in the current year  quarter,  and decreased as a percent of
net sales  from 9.4% to 8.5%.  The  decrease  is  primarily  due to lower  legal
expenses and some incentive expense.

Industrial Process Cooling Equipment Business
Three months ended April 30

Net sales of $6,842,000  for the quarter ended April 30, 2004 increased by 17.7%
from  $5,815,000 for the  comparable  quarter in the prior year. The increase is
due primarily to some recovery  from the weak economy.  Sales  increased in both
the domestic and international markets.

                                       9
<PAGE>

Gross  profit  decreased  from 28.3% of net sales in the prior  year  quarter to
26.7% of net sales in the current year quarter, primarily due to sales to direct
markets.

Selling expense  increased to $857,000 or 12.5% of net sales in the current year
quarter  from  $828,000  or 14.2% of net sales in the prior  year  quarter.  The
increase is due to the higher  commissions  associated with higher shipments and
greater export sales.

General and administrative expense increased from $810,000 or 13.9% of net sales
in the prior year  quarter to $834,000 or 12.2% of net sales in the current year
quarter.  This  increase  is  due to  costs  associated  with  a data  retention
database.

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 April 30

General and  administrative  expense decreased from $1,260,000 in the prior year
quarter to $1,189,000 in the current year quarter, and decreased as a percentage
of net sales from 4.5% in the prior year  quarter  to 3.7% in the  current  year
quarter.  The decrease is mainly due to lower repairs and  maintenance  expense,
lower utilities cost and reduced staff size.

Interest  expense  decreased  to $420,000  for the  current  year  quarter  from
$492,000 in the prior year  quarter.  The decrease is primarily  due to slightly
lower average costs of borrowing and interest  income  received on a federal tax
refund.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents  as of April 30,  2004 were  $408,000  as compared to
$320,000 at April 30, 2003. The Company used  $2,469,000  from operations in the
first  quarter.  Operating cash flows  decreased by $2,937,000  from April 2003.
These cash flows were supported by net borrowings of $3,016,000.

Trade receivables increased $2,147,000,  and inventories increased $1,480,000 in
the first quarter.  Prepaid expenses and other current assets increased $488,000
due to an  increased  income tax  receivable  and an increased  receivable  from
related companies.  Other operating assets and liabilities decreased $303,000 in
the first quarter.

Net cash used for  investing  activities in the first quarter 2004 and 2003 were
$273,000 and  $1,428,000,  respectively.  Capital  expenditures  decreased  from
$1,165,000 from the prior year. The prior year's capital additions of $1,438,000
mainly  related to the Company's  construction  of a new building for one of its
foreign subsidiaries.  Current capital expenditures relate to a new ERP business
applications software and equipment purchases.

Debt totaled  $31,386,000,  an increase of $2,861,000 since the beginning of the
year. Net cash inflows from financing activities were $3,016,000,  consisting of
borrowings  of  $8,731,000  and  payments of  $5,691,000  and  $24,000  used for
payments on capitalized lease obligations.

                                       10
<PAGE>

The following table summarizes the Company's scheduled maturities, excluding the
revolving lines of credit at April 30, 2004:
<TABLE>

<CAPTION>
                               Total         1/31/05       1/31/06       1/31/07        1/31/08       1/31/09       Thereafter
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
<S>                          <C>              <C>           <C>            <C>          <C>           <C>            <C>
Mortgages                    $10,551,800      $434,000      $626,100       $666,300     $709,700      $756,000       $7,359,700
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Senior Debt                    3,687,500       562,500       750,000        750,000    1,625,000         -              -
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
IRB Payable                    5,200,000        -             -             -          5,200,000         -              -
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Term Loans                       117,200       117,200
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Capitalized Lease                 51,500        43,500         6,000          2,000        -             -              -
  Obligations
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
  Total                      $19,608,000    $1,157,200    $1,382,100     $1,418,300   $7,534,700      $756,000       $7,359,700
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
</TABLE>

Other long term liability of $2,307,000 is composed of accrued  pension cost and
deferred compensation.

The Company's  working  capital was  approximately  $9,823,000 at April 30, 2004
compared to approximately $8,759,000 at January 31, 2004.

The  Company's  current  ratio was 1.3 to 1 and 1.3 to 1 at April  30,  2004 and
January 31, 2004,  respectively.  Debt to total capitalization at April 30, 2004
increased to 54.4% from 51.5% at January 31, 2004.

Financing

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 January 31, 2004 and April 30, 2004,  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). Although
this  noncompliance  constitutes  an event of  default  under the Note  Purchase
Agreement,  the lender has 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.

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 prime rate; or (b) a margin in
effect plus the LIBOR rate for the  corresponding  interest period. At April 30,
2004, the prime rate was 4.00%,  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 April
30, 2004, the Company had borrowed  $10,958,000 and had $79,000  available to it
under the revolving line of credit. In addition,  $6,493,000 of availability was

                                       11
<PAGE>

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 April 30, 2004, the amount of restricted cash was $274,000.
Cash required for operations is provided by draw-downs on the line of credit.

At January 31, 2004 and April 30, 2004,  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 lenders  under the Note  Purchase  Agreements  and the Loan
Agreement are  discussing  waivers and  amendments.  The Company  believes it is
probable  that  agreements  will be  reached  for the  waivers  and  amendments,
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
as of January 31, 2004 and April 30, 2004.

ACCOUNTING PRONOUNCEMENTS

In December  2003,  the  Financial  Accounting  Standards  Board (FASB) issued a
revision  to SFAS No.  132,  "Employers'  Disclosure  about  Pensions  and Other
Postretirement  Benefits."  This Statement  retains the  disclosures  previously
required  by SFAS 132 but adds  additional  disclosure  requirements  about  the
assets,  obligations,  cash  flows,  and net  periodic  benefit  cost of defined
benefit  pension plans and other defined benefit  postretirement  plans. It also
calls for the required  information to be provided  separately for pension plans
and for other  postretirement  benefit  plans.  In addition  to expanded  annual
disclosures, the standard improves information available to investors in interim
financial  statements.  SFAS 132R is  effective  for fiscal  years  ending after
December  15, 2003,  and for quarters  beginning  after  December 15, 2003.  The
adoption of SFAS 132R did not have a material impact on the Company's  financial
statements,  however,  required  interim  disclosures have been reflected in the
current financial statements.

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 April 30, 2004.


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
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 April 30, 2004 or January 31, 2004.

                                       12
<PAGE>

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  maintaining a
balance of fixed-rate long-term debt with floating rate debt.

Commodity  price risk is the possibility of higher or lower costs due to changes
in the prices of commodities,  such as ferrous alloys (e.g., steel) which we use
in the production of piping systems. The Company attempts to mitigate such risks
by obtaining price commitments from its commodity suppliers and, when it appears
appropriate, purchasing quantities in advance of likely price increases.

Item 4.     Controls and Procedures

As of  April  30,  2004,  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 the Company 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

                                       13
<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.



Date:     June 14, 2004             /s/ David Unger
                                    --------------------------------------------
                                    David Unger
                                    Chairman of the Board of Directors,
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Date:     June 14, 2004             /s/ Michael D. Bennett
                                    --------------------------------------------
                                    Michael D. Bennett
                                    Vice President, Secretary and Treasurer
                                    (Principal Financial and Accounting Officer)


                                       14
<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:    June 14, 2004


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

                                       15
<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:    June 14, 2004


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

                                       16
<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 April 30, 2004 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)
June 14, 2004

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 April,
2004 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)
June 14, 2004

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>
</DOCUMENT>
</SEC-DOCUMENT>
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