<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>mfri2q10q.txt
<DESCRIPTION>2ND QUARTER 2004 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                    July 31, 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 Rule 12b-2 of the Exchange Act). Yes       No   X
                                                -----    -----

On September 13, 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 July 31, 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         Six Months Ended
                                                                 July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
<S>                                                       <C>          <C>          <C>          <C>
Net sales                                                 $ 38,068     $ 33,148     $ 70,196     $ 61,158
Cost of sales                                               29,116       25,467       55,338       48,283
                                                          --------     --------     --------     --------
Gross profit                                                 8,952        7,681       14,858       12,875

Operating expenses:
  Selling expense                                            2,494        2,564        5,106        5,164
  General and administrative expense                         3,946        3,786        7,403        7,329
                                                          --------     --------     --------     --------
    Total operating expenses                                 6,440        6,350       12,509       12,493
                                                          --------     --------     --------     --------
Income from operations                                       2,512        1,331        2,349          382

Income (loss) from joint venture                               (33)         176          (10)         186
Interest expense - net                                         455          528          875        1,020
                                                          --------     --------     --------     --------
Income (loss) before income taxes                            2,024          979        1,464         (452)
Income taxes (benefit)                                         655          376          424         (190)
                                                          --------     --------     --------     --------
                                                          $  1,369     $    603     $  1,040         (262)
Net income (loss)                                         ========     ========     ========     ========

Weighted average common shares outstanding
  basic                                                      4,922        4,922        4,922        4,922
Weighted average common shares outstanding
  diluted                                                    4,997        4,922        4,987        4,922
Basic earnings per share
  Net income (loss)                                       $   0.28     $   0.12     $   0.21     $  (0.05)

Diluted earnings per share
  Net income (loss)                                       $   0.27     $   0.12     $   0.21     $  (0.05)
</TABLE>

See notes to condensed consolidated financial statements.

                                       1
<PAGE>
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)


<TABLE>
<CAPTION>
                                                           July 31,   January 31,
Assets                                                      2004        2004
--------------------------------------------------------------------------------
Current Assets:
<S>                                                       <C>          <C>
  Cash and cash equivalents                               $    693     $    154
  Restricted cash                                            1,034          238
  Trade accounts receivable, net                            24,112       18,353
  Accounts receivable - related companies                      872          853
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                        1,488        1,115

  Income taxes receivable                                      473          393
  Inventories                                               18,980       18,275
  Deferred income taxes                                      1,651        1,639
  Prepaid expenses and other current assets                    970          857
                                                          --------     --------
    Total current assets                                    50,273       41,877

Property, plant and equipment, net                          25,954       28,828

Other Assets:
  Patents, net of accumulated amortization                     627          716
  Goodwill                                                   2,500        2,549
  Other assets                                               4,881        4,957
                                                          --------     --------
    Total other assets                                       8,008        8,222
                                                          --------     --------
Total Assets                                              $ 84,235     $ 78,927
                                                          ========     ========

Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------
Current Liabilities:
  Trade accounts payable                                  $ 13,633     $ 12,337
  Accrued compensation and payroll taxes                     2,520        2,673
  Other accrued liabilities                                  3,524        2,835
  Commissions payable                                        3,470        3,046
  Current maturities of long-term debt                       3,418       11,864
  Billings in excess of costs and estimated earnings
    on uncompleted contracts                                   380          299
  Income taxes payable                                         657           64
                                                          --------     --------
    Total current liabilities                               27,602       33,118

Long-Term Liabilities:
  Long-term debt, less current maturities                   26,563       16,661
  Other                                                      2,340        2,275
                                                          --------     --------
    Total long-term liabilities                             28,903       18,936

Stockholders' Equity:
  Common stock, $.01 par value, authorized - 50,000
    shares in July 2004 and January 2004;
    4,922 issued and outstanding in July 2004 and
    January 2004                                                49           49
  Additional paid-in capital                                21,397       21,397
  Retained earnings                                          6,140        5,100
  Accumulated other comprehensive loss                         144          327
                                                          --------     --------
    Total stockholders' equity                              27,730       26,873
                                                          --------     --------
Total Liabilities and Stockholders' Equity                $ 84,235     $ 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)                                              Six Months Ended
                                                                July 31,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
Cash Flows from Operating Activities:
<S>                                                       <C>          <C>
  Net income (loss)                                       $  1,040     $   (262)
  Adjustments to reconcile net income (loss) to
    net cash flows from operating activities:
      (Income) loss from joint venture                          10         (186)
      Provision for depreciation and amortization            1,911        2,023
      Provision for uncollectible accounts                      63           65
      (Gain)loss on sale of property, plant and equipment       17          (21)
      Change in operating assets and liabilities:
        Trade accounts receivable                           (5,822)      (1,556)
        Costs and estimated earnings in excess of
          billings on uncompleted contracts                   (293)        (199)
        Inventories                                           (781)         502
        Prepaid expenses and other current assets             (580)         512
        Current liabilities                                  1,199          135
        Other operating assets and liabilities                 985          560
                                                          --------     --------
Net Cash Flows from Operating Activities                    (2,249)       1,573
                                                          --------     --------

Cash Flows from Investing Activities:
  Proceeds from sale of property and equipment               1,786          466
  Purchases of property and equipment                         (635)      (2,804)
                                                          --------     --------
Net Cash Flows from Investing Activities                     1,152       (2,338)
                                                          --------     --------

Cash Flows from Financing Activities:
  Payments on capitalized lease obligations                    (38)         (75)
  Borrowings under revolving, term and mortgage loans        9,061       11,669
  Repayment of debt                                         (7,429)     (11,019)
                                                          --------     --------
Net Cash Flows from Financing Activities                     1,594          575
                                                          --------     --------

Effect of Exchange Rate Changes on Cash
  and Cash Equivalents                                          42           48
                                                          --------     --------

Net Increase (Decrease) in Cash and Cash Equivalents           539         (142)

Cash and Cash Equivalents - Beginning of Period                154          346
                                                          --------     --------

Cash and Cash Equivalents - End of Period                 $    693     $    204
                                                          ========     ========

Supplemental cash flow information:
  Cash paid for:
    Interest, net of capitalized amounts                  $  1,008     $  1,016
    Income taxes paid (refunded)                               (99)           5
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
MFRI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 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>
<CAPTION>
2.   Inventories consisted of the following:
                                                                       July 31,    January 31,
     (In thousands)                                                      2004         2004
                                                                       --------     --------
<S>                                                                    <C>          <C>
       Raw materials                                                   $ 14,895     $ 13,593
       Work in process                                                    1,929        1,905
       Finished goods                                                     2,156        2,777
                                                                       --------     --------
       Total                                                           $ 18,980     $ 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
     $2,500,000   and  $2,549,000  at  July  31,  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
     $627,000 and $716,000 at July 31, 2004 and January 31, 2004,  respectively.
     Accumulated amortization was $1,542,000 and $1,453,000 at July 31, 2004 and
     January 31,  2004,  respectively.  Future  amortization  over the next five
     years ending January 31, will be 2005 - $180,500,  2006 - $180,500,  2007 -
     $173,800, 2008 - $29,400 and 2009 - $26,400.

                                       4
<PAGE>
5.   Employee Retirement Plans: The market-related  value of plan assets at July
     31, 2004 and January 31, 2004 were $2,751,036 and $2,682,942  respectively.
     Net cost  recognized for the six months ended July 31 is as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended         Six Months Ended
     (In thousands)                                              July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Components of net periodic benefit cost:
<S>                                                       <C>          <C>          <C>          <C>
     Service cost                                         $     25     $     24     $     50     $     48
     Interest cost                                              47           42           94           85
     Expected return on plan assets                            (56)         (42)         112          (83
     Amortization of prior service cost                         21           14           41           29
     Recognized actuarial loss                                  20           24           39           49
                                                          --------     --------     --------     --------
     Net periodic benefit cost                            $     57     $     62     $    112     $    128
</TABLE>

     Expected  employer  contributions  for fiscal  year  ending  1/31/2005  are
     $329,000. In May 2004, a $66,238 contribution was made.

6.   The basic weighted  average shares  reconcile to diluted  weighted  average
     shares as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended         Six Months Ended
     (In thousands)                                              July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Net income (loss)                                    $  1,369     $    603     $  1,040     $   (262)
                                                          ========     ========     ========     ========

     Basic weighted average common
<S>                                                          <C>          <C>          <C>          <C>
       shares outstanding                                    4,922        4,922        4,922        4,922

     Dilutive effect of stock options                           75         -              65         -
                                                          --------     --------     --------     --------
     Weighted average common shares
       outstanding assuming full dilution                    4,997        4,922        4,987        4,922
                                                          ========     ========     ========     ========

     Basic earnings per share
     Net income (loss)                                    $   0.28     $   0.12     $   0.21     $  (0.05)

     Diluted earnings per share
     Net income (loss)                                    $   0.27     $   0.12     $   0.21     $  (0.05)
</TABLE>

7.   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 106,000 and  1,002,000 for the three months ended July 31, 2004
     and 2003,  respectively,  and 792,000 and 971,000 for the six months  ended
     July 31,  2004 and 2003,  respectively.  At July 31,  2004,  914,650  stock
     options had an exercise  price below the average  stock price for the three
     month period. At July 31, 2004, 227,250 stock options had an exercise price
     below the  average  stock  price for the six month  period.  However  these
     options were  outstanding as no shares were exercised.  There were no stock
     options below the average stock price at July 31, 2003.

                                       5
<PAGE>


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

<TABLE>
<CAPTION>
                                                           Three Months Ended         Six Months Ended
     (In thousands)                                              July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------

<S>                                                       <C>          <C>          <C>          <C>
     Net income (loss)                                    $  1,369     $    603     $  1,040     $   (262)
     Change in foreign currency translation adjustments         20           19         (183)         171
                                                          --------     --------     --------     --------
     Comprehensive income (loss)                          $  1,389     $    622     $    857     $    (91)
                                                          ========     ========     ========     ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                       July 31,    January 31,
     (In thousands)                                                      2004         2004
                                                                       --------     --------
<S>                                                                    <C>          <C>
     Accumulated translation adjustment                                $    499     $    682
     Minimum pension liability adjustment (net of
       tax benefit of $217 at July 31 and
       January 31, 2004)                                                   (355)        (355)
                                                                       --------     --------
       Total                                                           $    144     $    327
                                                                       ========     ========
</TABLE>


                                       6
<PAGE>
9.   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         Six Months Ended
     (In thousands)                                              July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Net Sales:
<S>                                                       <C>          <C>          <C>          <C>
       Filtration Products                                $ 15,370     $ 14,587     $ 31,666     $ 27,977
       Piping Systems                                       14,997       12,148       23,987       20,953
       Industrial Process Cooling Equipment                  7,701        6,413       14,543       12,228
                                                          --------     --------     --------     --------
     Total Net Sales                                      $ 38,068     $ 33,148     $ 70,196     $ 61,158
                                                          ========     ========     ========     ========

     Gross Profit:
       Filtration Products                                $  3,248     $  3,060     $  6,125     $  5,335
       Piping Systems                                        3,433        2,804        4,632        4,078
       Industrial Process Cooling Equipment                  2,271        1,817        4,101        3,462
                                                          --------     --------     --------     --------
    Total Gross Profit                                    $  8,952     $  7,681     $ 14,858     $ 12,875
                                                          ========     ========     ========     ========

     Income (loss) from Operations:
       Filtration Products                                $    992     $    761     $  1,770     $    959
       Piping Systems                                        2,119        1,551        2,228        1,656
       Industrial Process Cooling Equipment                    646          273          785          281
       Corporate                                            (1,245)      (1,254)      (2,434)      (2,514)
                                                          --------     --------     --------     --------
     Income from Operations                               $  2,512     $  1,331     $  2,349     $    382
                                                          ========     ========     ========     ========
</TABLE>

10.  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 July 31, 2004.

11.  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 2004
     and 2003, the Company's pro forma net income (loss) and earnings (loss) per
     share would have been as follows:

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                           Three Months Ended         Six Months Ended
     (In thousands)                                              July 31,                  July 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------

     Net income (loss) - as reported (in
<S>                                                       <C>          <C>          <C>          <C>
       thousands)                                         $  1,369     $    603     $  1,040     $   (262)
     Compensation cost under fair-market
       value-based accounting method, net
       of tax (in thousands)                                   (26)         (45)         (54)         (79)
     Net income (loss) - pro forma (in
       thousands)                                         $  1,343     $    558     $    986     $   (341)
     Net income (loss) per common share -
       basic, as reported                                 $   0.28     $   0.12     $   0.21     $  (0.05)
     Net income (loss) per common share -
       basic, pro forma                                   $   0.27     $   0.11     $   0.20     $  (0.07)
     Net income (loss) per common share -
       diluted, as reported                               $   0.27     $   0.12     $   0.21     $  (0.05)
     Net income (loss) per common share -
       diluted, pro forma                                 $   0.27     $   0.11     $   0.20     $  (0.07)
</TABLE>

12.  On April 26, 2002,  Midwesco Filter borrowed  $3,450,000 under two mortgage
     notes  secured by two parcels of real  property and  improvements  owned by
     Midwesco Filter in Winchester,  Virginia.  Proceeds from the mortgages, net
     of a prior mortgage loan,  were  approximately  $2,700,000 and were used to
     make  principal  payments to the lenders under the Prior Term Loans and the
     Bank. On June 17, 2004,  Midwesco Filter sold one of its buildings  located
     in Winchester,  Virginia. The building sold consisted of 66,998 square feet
     on 10 acres.  The mortgage of $1,088,000 was paid at the closing.  The note
     on the remainder property bears interest at 7.10% with a monthly payment of
     $23,616  for both  principal  and  interest,  and the  note's  amortization
     schedule and term are ten years.

     On September 14, 1995,  Midwesco  Filter in Winchester,  Virginia  received
     $2,050,000 of proceeds of Industrial  Revenue Bonds, which mature on August
     1, 2007.  These bonds are fully  secured by bank letters of credit.  Due to
     the sale of land and a building on June 17,  2004,  the Company will redeem
     the bonds in the third quarter of 2004.

     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.  Waivers have been
     obtained for violation of debt  covenants for fiscal  periods  ending on or
     prior to April 30, 2004.  At July 31, 2004,  the Company was in  compliance
     with covenants under the Loan Agreement.


                                       8
<PAGE>
     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,  2006,  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 July 31, 2004, the prime rate was 4.25%,
     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 July 31, 2004,
     the Company had borrowed  $11,290,000  and had  $1,776,000  available to it
     under the revolving line of credit. In addition, $6,694,000 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 July 31,  2004,  the  amount  of
     restricted cash was $1,034,000. 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  covenants  under the Loan  Agreement.  Waivers have been obtained for
     violation of debt  covenants for fiscal periods ending on or prior to April
     30, 2004. At July 31, 2004,  the Company was in compliance  with  covenants
     under the Loan Agreement.


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 July 31

Net sales of $38,068,000 for the quarter  increased  14.8% from  $33,148,000 for
the  comparable  quarter in the prior year.  (See  discussion  of each  business
segment below.)

Gross profit of  $8,952,000  increased  16.6% from  $7,681,000 in the prior year
quarter,  and gross  margin  increased to 23.5% of net sales in the current year
from 23.2% of net sales in the prior  year.  (See  discussion  of each  business
segment below.)

Net income rose to $1,369,000 in the current  quarter from $603,000 in the prior
year quarter.  The increase in net income was due to increased  revenue at level
margins. (See discussion of each business segment below.)


                                       9
<PAGE>
Six months ended July 31

Net sales of $70,196,000 for the six months increased 14.8% from $61,158,000 for
the  comparable  period in the prior  year.  (See  discussion  of each  business
segment below.)

Gross profit of $14,858,000  increased 15.4% from $12,875,000 for the comparable
period in the prior year,  while gross margin increased to 21.2% of net sales in
the current year from 21.1% of net sales in the prior year.  (See  discussion of
each business segment below.)

Net income rose to $1,040,000 for the six months from a loss of $262,000 for the
comparable  period in the prior  year.  The  increase  in net  income was due to
increased  revenue at level margins.  (See  discussion of each business  segment
below.)

Filtration Products Business
Three months ended July 31

Net sales for the quarter increased 5.4% to $15,370,000 from $14,587,000 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 21.0% in the prior year to
21.1% in the  current  year,  primarily  as a result of  improved  manufacturing
efficiency on higher unit volume.

Selling expense  decreased to $1,363,000 or 8.9% of net sales from $1,421,000 or
9.7% of net sales for the comparable quarter last year.

General and administrative expenses increased from $877,000 or 6.0% of net sales
in the prior-year  quarter to $894,000 or 5.8% of net sales in the  current-year
quarter.  This  increase is  primarily  due to increased  professional  services
expenses.

Six months ended July 31

Net sales for the six months increased 13.2% to $31,666,000 from $27,977,000 for
the  comparable  period 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 19.1% in the prior year to
19.3% in the  current  year,  primarily  as a result of  improved  manufacturing
efficiency on higher unit volume.

Selling expense for the six months  decreased to $2,795,000 or 8.8% of net sales
from  $2,852,000  or 10.2% of net sales for the  comparable  period in the prior
year.

General and  administrative  expenses  increased from  $1,523,000 or 5.4% of net
sales in the prior-year period to $1,561,000 or 4.9% of net sales in the current
year period. This increase is primarily due to increased  professional  services
expenses.

Piping Systems Business
Three months ended July 31

Net  sales  increased  23.5%  from  $12,148,000  in the  prior-year  quarter  to
$14,997,000  for the current  quarter.  This  increase is primarily  due to some
recovery from the weak economy.

Gross profit as a percent of net sales  decreased  from 23.1% to 22.9% due to an
increase in the price of steel.


                                       10
<PAGE>

Selling expense  decreased from $346,000 or 2.9% of net sales for the prior-year
quarter  to  $276,000  or 1.8% of net sales in the  current  year  quarter.  The
decrease is primarily due to lower travel and marketing costs.

General and  administrative  expense  increased  from $909,000 in the prior year
quarter to $1,038,000 in the current year quarter, and decreased as a percent of
net sales from 7.5% to 6.9%.  The dollar  increase is primarily  due to expenses
associated with  implementation of a new enterprise resource planning system and
higher incentive expenses.

Six months ended July 31

Net sales of $23,987,000 for the six months increased 14.5% from $20,953,000 for
the comparable  period in the prior year. This increase is primarily due to some
recovery from the weak economy.

Gross profit as a percent of net sales decreased from 19.5% to 19.3%, mainly due
to an increase in the price of steel.

Selling  expense  decreased from $687,000 or 3.3% of net sales in the prior year
period to $599,000 or 2.5% of net sales in the current year  period.  The dollar
decrease is primarily due to lower travel and marketing costs.

General and  administrative  expense  increased  to  $1,805,000,  compared  with
$1,736,000  in the prior year  period,  and  decreased as a percent of net sales
from 8.3% to 7.5%.  The increase is primarily  due to expenses  associated  with
implementation of a new enterprise resource planning system and higher incentive
expenses.

Industrial Process Cooling Equipment Business
Three months ended July 31

Net sales of $7,701,000 for the quarter  increased 20.1% from $6,413,000 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.

Gross  profit  increased  to 29.5% of net sales  from  28.3% of net sales in the
prior-year   quarter,   primarily  due  to  improved   pricing  and   production
efficiencies.

Selling expense  increased to $855,000 or 11.1% of net sales in the current-year
quarter  from  $797,000  or 12.4% of net sales in the  prior-year  quarter.  The
dollar increase is due to the higher commissions associated with increased sales
and greater export sales.

General and  administrative  expense increased to $769,000 or 10.0% of net sales
from  $746,000  or 11.6% of net sales in the  prior-year  quarter.  This  dollar
increase  is due  to  costs  for  the  international  operation  resulting  from
additional headcount.

Six months ended July 31

Net sales of $14,543,000 for the six months increased 18.9% from $12,228,000 for
the  comparable  period in the prior year,  mainly due to some recovery from the
weak economy. Sales increased in both the domestic and international markets.

Gross margin decreased from 28.3% of net sales in the prior year to 28.2% of net
sales in the current year, primarily due to sales to direct markets.

Selling  expense  increased to  $1,712,000  or 11.8% of net sales in the current
year period from  $1,625,000 or 13.3% of net sales in the prior year. The dollar
increase is primarily due to the higher  commissions  associated  with increased
sales and greater export sales.


                                       11
<PAGE>

General and administrative expense increased to $1,603,000 or 11.0% of net sales
in the current  year period from  $1,556,000  or 12.7% of net sales in the prior
year. This increase is due to costs for the  international  operation  resulting
from additional headcount and increased product development costs.

General Corporate Expense

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

Three months ended July 31

General and  administrative  expense decreased from $1,254,000 in the prior year
quarter to $1,245,000 in the current year quarter, and decreased as a percentage
of net sales from 3.8% in the prior year  quarter  to 3.3% 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 $455,000  for the  current  year  quarter  from
$528,000 in the prior year  quarter.  The decrease is  primarily  due to a lower
debt balance than the prior year.

Six months ended July 31

General and  administrative  expense decreased from $2,514,000 in the prior year
period to $2,434,000 in the current-year  six-month  period,  and decreased as a
percentage  of net  sales  from  4.1% in the  prior  year  period to 3.5% in the
current year period. The decrease is mainly due to lower repairs and maintenance
expense, lower utilities cost and reduced staff size.

Interest  expense  decreased  to  $875,000  for the  current  year  period  from
$1,020,000  for the  comparable  period  in the  prior  year.  The  decrease  is
primarily due to a lower debt balance than the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents  as of July 31,  2004 were  $693,000  as  compared to
$154,000 at January 31, 2004. The Company used $2,249,000 from operations during
the first six months. Operating cash flows decreased by $3,822,000 from the same
period in the prior  year.  The cash from  investing  activities  of  $1,152,000
mainly  resulted  from the sale of a building  and land to a third party in June
2004. These cash flows,  plus borrowings of $1,594,000 from the Company's credit
facility, were used to support $635,000 in capital spending.

Trade receivables  increased $5,822,000 and inventories  increased $781,000 from
January 31, 2004 due to sales  seasonality.  Prepaid  expenses and other current
assets  including  restricted cash increased  $580,000 due to customer  payments
received on the last day of the month.  Other  operating  assets and liabilities
increased $985,000 from January 31, 2004 due to increased  commission  liability
and increased accrued liabilities.

Net cash flow from  investing  activities for the six months ended July 31, 2004
was $1,152,000.  Net cash used for investing activities for the six months ended
July 31,  2003 was  $2,338,000.  Proceeds  from sale of property  and  equipment
increased $1,320,000 from the prior year. On June 17, 2004, the Company sold one
of its buildings located in Winchester, Virginia. The building sold consisted of
66,998  square  feet  on 10  acres.  The  Company  is  leasing  from  the  Buyer
approximately 12,000 square feet of the building.  There was not a material gain
or loss on the sale. Capital  expenditures  decreased  $2,169,000 from the prior
year.  The prior year's  capital  additions of $2,804,000  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.

                                       12
<PAGE>
Debt totaled  $29,981,000,  an increase of $1,456,000 since the beginning of the
year. Net cash inflows from financing activities were $1,594,000,  consisting of
borrowings  of  $9,061,000  and  payments of  $7,429,000  and  $38,000  used for
payments on capitalized lease obligations.

The following table summarizes the Company's estimated contractual  obligations,
excluding the revolving lines of credit at July 31, 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                    $ 9,227,400      $237,200      $502,800     $  533,900   $  567,600      $603,600       $6,782,300
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Senior Debt                    3,500,000       375,000       750,000        750,000    1,625,000         -                -
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
IRB Payable (1)                5,200,000     2,050,000         -              -        3,150,000         -                -
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Term Loans                       117,700       117,700
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Capitalized Lease                 37,700        29,100         6,000          2,000        -             -                -
  Obligations
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
  Sub Total (2)              $18,802,200    $2,809,000    $1,258,000      1,285,900    5,668,600      $603,600       $6,782,300
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Operating lease
  Obligations                $ 2,070,800      $340,000      $520,000       $426,800     $366,500      $ 53,000       $  364,500
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Purchase Committments (3)      8,133,300     7,492,800       551,700         88,800        -             -                -
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Total                         28,286,300   $10,641,800    $2,330,500     $1,801,500   $5,709,100      $656,000       $7,146,800
-----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
</TABLE>

(1)  Due to the sale of land and  building,  the Bond  related  to the  Virginia
     buildings  will be redeemed  (paid in full) in the 3rd quarter of 2004, not
     effecting the Tennessee Bond which expires in 2008

(2)  Scheduled maturities, excluding the revolving line of credits

(3)  Purchase  commitments  are for  purchases  made  in the  normal  course  of
     business to meet operational and capital expenditure requirements.

Other long term liability of $2,340,000 is composed of accrued  pension cost and
deferred compensation.

The Company's  working  capital was  approximately  $22,671,000 at July 31, 2004
compared  to  approximately  $8,759,000  at  January  31,  2004.  The  change is
primarily  due to the  reclassification  of  $12,000,000  from  current  debt to
long-term debt.

The  Company's  current  ratio  was 1.8 to 1 and 1.3 to 1 at July  31,  2004 and
January 31, 2004,  respectively.  Debt to total  capitalization at July 31, 2004
increased to 52.0% from 51.5% at January 31, 2004.

On April 26, 2002,  Midwesco Filter borrowed $3,450,000 under two mortgage notes
secured by two  parcels of real  property  and  improvements  owned by  Midwesco
Filter in  Winchester,  Virginia.  Proceeds from the  mortgages,  net of a prior
mortgage  loan,  were  approximately  $2,700,000 and were used to make principal
payments  to the  lenders  under the Prior Term Loans and the Bank.  On June 17,
2004, Midwesco Filter sold one of its buildings located in Winchester, Virginia.
The sold building  consisted of 66,998 square feet on 10 acres.  The mortgage of
$1,088,000  was paid at the closing.  The note on the remainder  property  bears
interest  at 7.10%  with a monthly  payment of $23,616  for both  principal  and
interest, and the note's amortization schedule and term are ten years.

On  September  14,  1995,  Midwesco  Filter  in  Winchester,  Virginia  received
$2,050,000 of proceeds of Industrial  Revenue  Bonds,  which mature on August 1,
2007.  These bonds are fully secured by bank letters of credit.  Due to the sale
of land and a building on June 17,  2004,  the Company  will redeem the bonds in
the third quarter of 2004.

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


                                       13
<PAGE>
$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.  Waivers have been obtained for
violation of debt  covenants for fiscal  periods ending on or prior to April 30,
2004. At July 31, 2004, the Company was in compliance  with covenants  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,  2006,  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 July 31,
2004, the prime rate was 4.25%,  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 July
31, 2004, the Company had borrowed  $11,290,000 and had $1,776,000  available to
it under the revolving line of credit.  In addition,  $6,694,000 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 July 31, 2004, the amount of restricted cash was $1,034,000.
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
covenants under the Loan Agreement.  Waivers have been obtained for violation of
debt  covenants for fiscal periods ending on or prior to April 30, 2004. At July
31, 2004, the Company was in compliance with covenants under the Loan Agreement.

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 July 31, 2004.


                                       14
<PAGE>
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 July 31, 2004 or January 31, 2004.

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  July  31,  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.


                                       15
<PAGE>

                           PART II - OTHER INFORMATION

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


The annual meeting of the stockholders of the Company was held on June 24, 2004.
David Unger, Henry M. Mautner, Bradley E. Mautner, Arnold F. Brookstone,  Eugene
Miller,  Stephen B. Schwartz and Dennis Kessler were elected as directors of the
Company at the meeting.  The following is a tabulation of the votes cast for, or
against,  with respect to each nominee:

                                          For          Against
                                      ----------     ----------

        David Unger                    3,090,161         11,600
        Henry M. Mautner               3,090,161         11,600
        Bradley E. Mautner             3,090,161         11,600
        Arnold F. Brookstone           2,413,861        687,900
        Eugene Miller                  2,413,861        687,900
        Stephen B. Schwartz            2,413,861        687,900
        Dennis Kessler                 2,413,861        687,900

At that meeting,  the stockholders also voted on and approved the Company's 2004
Stock  Incentive  Plan which plan replaced the Company's  1993 Stock Option Plan
and Amended and Restated  1994 Stock  Option Plan,  both of which had expired by
their terms since the date of the 2003 annual meeting of the  stockholders.  The
following is a tabulation  of the votes cast for and against the approval of the
Company's 2004 Stock Incentive Plan at the meeting:

                                          For          Against
                                      ----------     ----------
Approval  of the Company's
  2004 Stock Incentive Plan:           2,226,502        875,259

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


                                       16
<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:     September 14, 2004        /s/ David Unger
                                    --------------------------------------------
                                    David Unger
                                    Chairman of the Board of Directors,
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


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


                                       17
<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:    September 14, 2004


/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:    September 14, 2004


/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, 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)
September 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 July 31,
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)
September 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>
