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<SEC-DOCUMENT>0000914122-04-000046.txt : 20041215
<SEC-HEADER>0000914122-04-000046.hdr.sgml : 20041215
<ACCEPTANCE-DATETIME>20041215172503
ACCESSION NUMBER:		0000914122-04-000046
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20041031
FILED AS OF DATE:		20041215
DATE AS OF CHANGE:		20041215

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:		041205739

	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>mfri3q0410q.txt
<DESCRIPTION>3RD 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                October 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 December 14, 2004,  there were 5,030,895  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-2  Amendment No. 2 for the year ended January 31, 2004 as
filed on  December  15,  2004.  Reclassifications  have been made in  prior-year
financial statements to conform to the current-year presentation. The results of
operations for the quarter ended October 31, 2004 are not necessarily indicative
of the results to be expected for the full year ending  January 31, 2005. One of
the reasons for this is that,  generally,  sales of the Company's piping systems
have had a  tendency  to be lower  during  the  winter  months,  due to  weather
constraints over much of the country.

MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except per share information)
<TABLE>
<CAPTION>
                                                           Three Months Ended         Nine Months Ended
                                                               October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
<S>                                                       <C>          <C>          <C>          <C>
Net sales                                                 $ 39,708     $ 32,635     $109,904     $ 93,793
Cost of sales                                               30,544       25,732       85,882       74,016
                                                          --------     --------     --------     --------
Gross profit                                                 9,164        6,903       24,022       19,778

Operating expenses:
  Selling expense                                            2,583        2,418        7,690        7,582
  General and administrative expense                         4,098        4,242       11,500       11,571
                                                          --------     --------     --------     --------
    Total operating expenses                                 6,681        6,660       19,190       19,153
                                                          --------     --------     --------     --------

Income from operations                                       2,483          243        4,832          625

Income (loss) from joint venture                               189            8          178          193
Interest expense - net                                         456          500        1,331        1,519
                                                          --------     --------     --------     --------
Income (loss) before income taxes                            2,216         (249)       3,679         (701)
Income taxes (benefit)                                         602         (123)       1,026         (313)
                                                          --------     --------     --------     --------
Net income (loss)                                         $  1,614     $   (126)    $  2,653     $   (388)
                                                          ========     ========     ========     ========

Weighted average common shares outstanding
  basic                                                      4,961        4,922        4,935        4,922
Weighted average common shares outstanding
  Diluted                                                    5,304        4,922        5,109        4,922
Basic earnings per share
  Net income (loss)                                       $   0.33     $  (0.03)    $   0.54     $  (0.08)

Diluted earnings per share
  Net income (loss)                                       $   0.30     $  (0.03)    $   0.52     $ (0.08)
</TABLE>

See notes to condensed consolidated financial statements.

                                       1
<PAGE>
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
                                                    October 31,      January 31,
Assets                                                 2004             2004
- --------------------------------------------------------------------------------
Current Assets:
<S>                                                       <C>         <C>
  Cash and cash equivalents                               $    529    $     154
  Restricted cash                                            1,394          238
  Trade accounts receivable, net                            26,479       18,353
  Accounts receivable - related companies                      885          853
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                        1,511        1,115

  Income taxes receivable                                      572          393
  Inventories                                               20,519       18,275
  Deferred income taxes                                      1,651        1,639
  Prepaid expenses and other current assets                    586          857
                                                          --------     --------
    Total current assets                                    54,126       41,877

Property, plant and equipment, net                          25,788       28,828

Other Assets:
  Patents, net of accumulated amortization                     581          716
  Goodwill                                                   2,591        2,549
  Other assets                                               4,934        4,957
                                                          --------     --------
    Total other assets                                       8,106        8,222
                                                          --------     --------
Total Assets                                              $ 88,020     $ 78,927
                                                          ========     ========

Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------

Current Liabilities:
  Trade accounts payable                                  $ 12,927     $ 12,337
  Accrued compensation and payroll taxes                     2,477        2,673
  Other accrued liabilities                                  3,505        2,835
  Commissions payable                                        4,854        3,046
  Current maturities of long-term debt                      14,220       11,864
  Billings in excess of costs and estimated earnings
    on uncompleted contracts                                 1,178          299
  Income taxes payable                                       1,508           64
                                                          --------     --------
    Total current liabilities                               40,669       33,118

Long-Term Liabilities:
  Long-term debt, less current maturities                   15,046       16,661
  Other                                                      2,372        2,275
                                                          --------     --------
    Total long-term liabilities                             17,418       18,936

Stockholders' Equity:
  Common stock, $.01 par value, authorized - 50,000
    shares in October 2004 and January 2004; 4,999
    issued and outstanding in October 2004 and 4,922
    issued and outstanding in January 2004                      50           49
  Additional paid-in capital                                21,622       21,397
  Retained earnings                                          7,753        5,100
  Accumulated other comprehensive income                       508          327
                                                          --------     --------
    Total stockholders' equity                              29,933       26,873
                                                          --------     --------
Total Liabilities and Stockholders' Equity                $ 88,020     $ 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>
                                                             Nine Months Ended
(In thousands)                                                  October 31,
                                                          ---------------------
                                                            2004         2003
                                                          --------     --------
Cash Flows from Operating Activities:
<S>                                                       <C>          <C>
  Net income (loss)                                       $  2,653     $   (388)
  Adjustments to reconcile net income (loss) to
    net cash flows from operating activities:
      (Income) from joint venture                             (178)        (193)
      Depreciation and amortization                          2,779        3,082
      Provision for uncollectible accounts                      (1)         (74)
      (Gain) loss on sale of property, plant
        and equipment                                           17          (27)
      Change in operating assets and liabilities:
        Trade accounts receivable                           (8,125)      (5,272)
        Costs and estimated earnings in excess of
          billings on uncompleted contracts                    483          899
        Inventories                                         (2,186)       1,228
        Prepaid expenses and other current assets              314          701
        Current liabilities                                    345        1,413
        Other operating assets and liabilities               2,521           54
                                                          --------     --------
Net Cash Flows from Operating Activities                    (1,378)       1,423
                                                          --------     --------

Cash Flows from Investing Activities:
  Proceeds from sale of property and equipment               1,786          475
  Purchases of property and equipment                         (987)      (3,789)
  Investment in joint venture                                   50          160
                                                          --------     --------
Net Cash Flows from Investing Activities                       849       (3,154)
                                                          --------     --------

Cash Flows from Financing Activities:
  Payments on capitalized lease obligations                    (51)        (101)
  Borrowings under revolving, term and mortgage loans       10,616       15,875
  Repayment of debt                                         (9,940)     (14,467)
  Proceeds from stock options exercised                        228         -
                                                          --------     --------
Net Cash Flows from Financing Activities                       853        1,307
                                                          --------     --------

Effect of Exchange Rate Changes on Cash
  and Cash Equivalents                                          51          261
                                                          --------     --------

Net Increase (Decrease) in Cash and Cash Equivalents           375         (163)

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

Cash and Cash Equivalents - End of Period                 $    529     $    183
                                                          ========     ========

Supplemental cash flow information:
  Cash paid for:
    Interest, net of capitalized amounts                  $  1,306     $  1,518
    Income taxes paid (refunded)                              (196)           5
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
MFRI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 2004

1.   The unaudited financial statements herein have been prepared by the Company
     in accordance with generally accepted accounting principals and pursuant to
     the  rules and  regulations  of the  Securities  and  Exchange  Commission.
     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.
     Reclassifications  have been made in  prior-year  financial  statements  to
     conform to the  current-year  presentation.  Interim  financial  statements
     should 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-2
     Amendment No. 2.

2.   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:
<TABLE>
<CAPTION>

                                                           Three Months Ended         Nine Months Ended
                                                               October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Net income (loss) - as reported (in
<S>                                                       <C>          <C>          <C>          <C>
       thousands)                                         $  1,614     $   (126)    $  2,653     $   (388)
     Compensation cost under fair-market
       value-based accounting method, net
       of tax (in thousands)                                   (54)         (42)        (159)        (121)
     Net income (loss) - pro forma (in
       thousands)                                         $  1,560     $   (168)    $  2,494     $   (509)
     Net income (loss) per common share -
       basic, as reported                                 $   0.33     $  (0.03)    $   0.54     $  (0.08)
     Net income (loss) per common share -
       basic, pro forma                                   $   0.31     $  (0.03)    $   0.51     $  (0.10)
     Net income (loss) per common share -
       diluted, as reported                               $   0.30     $  (0.03)    $   0.52     $  (0.08)
     Net income (loss) per common share -
       diluted, pro forma                                 $   0.29     $  (0.03)    $   0.49     $  (0.10)
</TABLE>

3.   Inventories consisted of the following:
<TABLE>
<CAPTION>
                                                        October 31,  January 31,
     (In thousands)                                         2004         2004
                                                          --------     --------
<S>                                                       <C>          <C>
     Raw materials                                        $ 16,239     $ 13,593
     Work in process                                         2,001        1,905
     Finished goods                                          2,279        2,777
                                                          --------     --------
     Total                                                $ 20,519     $ 18,275
                                                          ========     ========
</TABLE>

4.   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
     $2,591,000  and  $2,549,000  at October  31,  2004 and  January  31,  2004,
     respectively.   The  change  in  Goodwill  was  due  to  foreign   currency
     translation.

                                       4
<PAGE>
5.   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
     $581,000   and   $716,000  at  October  31,  2004  and  January  31,  2004,
     respectively.  Accumulated  amortization  was  $1,588,000 and $1,453,000 at
     October 31, 2004 and January 31, 2004,  respectively.  Future  amortization
     over the next five years ending January 31, will be 2005 - $45,100,  2006 -
     $180,500,  2007 -  $173,800,  2008 -  $29,400,  2009 -  $26,400  and 2010 -
     $22,100.

6.   Employee  Retirement  Plans:  The  market-related  value of plan  assets at
     October  31, 2004 and January  31,  2004 were  $2,943,579  and  $2,682,942,
     respectively.  Net cost  recognized  for the  three and nine  months  ended
     October 31 was as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended         Nine Months Ended
     (In thousands)                                             October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Components of net periodic benefit
       cost:
<S>                                                       <C>          <C>          <C>          <C>
     Service cost                                         $     25     $     24     $     75     $     72
     Interest cost                                              47           42          141          127
     Expected return on plan assets                            (56)         (42)        (168)        (125)
     Amortization of prior service cost                         21           14           62           43
     Recognized actuarial loss                                  20           24           59           73
                                                          --------     --------     --------     --------
     Net periodic benefit cost                            $     57     $     62     $    169     $    190
</TABLE>

     Employer contributions for fiscal year ending January 31, 2005 are expected
     to be $252,191. As of October 2004, $185,953 in contributions were made. In
     November 2004, a $66,238 contribution was made. In February 2005, a $76,800
     contribution is expected to be made.

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

<TABLE>
<CAPTION>
                                                            Three Months Ended         Nine Months Ended
     (In thousands)                                             October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
<S>                                                       <C>          <C>          <C>          <C>
      Net income (loss)                                   $  1,614     $   (126)    $  2,653     $   (388)
                                                          ========     ========     ========     ========

      Basic weighted average common
        shares outstanding                                   4,961        4,922        4,935        4,922
      Dilutive effect of stock options                         343         -             174         -
                                                          --------     --------     --------     --------
      Weighted average common shares
        outstanding assuming full dilution                   5,304        4,922        5,109        4,922
                                                          ========     ========     ========     ========

      Basic earnings per share
      Net income (loss)                                   $   0.33     $  (0.03)    $   0.54     $  (0.08)

      Diluted earnings per share
      Net income (loss)                                   $   0.30     $  (0.03)    $   0.52     $  (0.08)
</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>

                                                           Three Months Ended         Nine Months Ended
     (In thousands)                                             October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------

     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
<S>                                                        <C>        <C>            <C>          <C>
       common shares                                       122,000    1,036,000      158,500      993,000
     Stock options with an exercise price below the
       average stock price                                 861,704         -         848,904         -
</TABLE>

     In  September  and  October  2004,  a total of 76,746  stock  options  were
     exercised.  In November 2004,  28,098 stock options were  exercised.  As of
     December 7, 2004 3,687 stock  options were  exercised  in  December.  As of
     December 7, 2004 a total of 108,531 stock options were exercised.

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

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

<S>                                                       <C>          <C>          <C>          <C>
     Net income (loss)                                    $  1,614     $   (126)    $  2,653     $   (388)
     Change in foreign currency translation
       adjustments                                             364          128          181          299
                                                          --------     --------     --------     --------
     Comprehensive income (loss)                          $  1,978     $      2     $  2,834     $    (89)
                                                          ========     ========     ========     ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                        October 31,  January 31,
     (In thousands)                                         2004         2004
                                                          --------     --------
<S>                                                       <C>          <C>
     Accumulated translation adjustment                   $    863     $    682
     Minimum pension liability adjustment (net of
       tax benefit of $217 at October 31 and
       January 31, 2004)                                      (355)        (355)
                                                          --------     --------
       Total                                              $    508          327
                                                          ========     ========
</TABLE>

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.

                                      6
<PAGE>
<TABLE>
<CAPTION>
                                                           Three Months Ended         Nine Months Ended
     (In thousands)                                             October 31,               October 31,
                                                          ---------------------     ---------------------
                                                            2004         2003         2004         2003
                                                          --------     --------     --------     --------
     Net Sales:
<S>                                                       <C>          <C>          <C>          <C>
       Filtration Products                                $ 14,067     $ 13,836     $ 45,733     $ 41,813
       Piping Systems                                       18,544       12,274       42,531       33,227
       Industrial Process Cooling Equipment                  7,097        6,525       21,640       18,753
                                                          --------     --------     --------     --------
     Total Net Sales                                      $ 39,708     $ 32,635     $109,904     $ 93,793
                                                          ========     ========     ========     ========

     Gross Profit:
       Filtration Products                                $  3,238     $  2,547     $  9,363     $  7,882
       Piping Systems                                        3,773        2,428        8,406        6,506
       Industrial Process Cooling Equipment                  2,153        1,928        6,253        5,390
                                                          --------     --------     --------     --------
     Total Gross Profit                                   $  9,164     $  6,903     $ 24,022     $ 19,778
                                                          ========     ========     ========     ========

     Income (loss) from Operations:
       Filtration Products                                $  1,060     $    367     $  2,830     $  1,326
       Piping Systems                                        2,417          680        4,644        2,336
       Industrial Process Cooling Equipment                    452          325        1,238          607
       Corporate                                            (1,446)      (1,129)      (3,880)      (3,644)
                                                          --------     --------     --------     --------
     Income from Operations                               $  2,483     $    243     $  4,832     $    625
                                                          ========     ========     ========     ========
</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 was  effective  for
     fiscal  years ending after  December 15, 2003,  and for quarters  beginning
     after  December 15, 2003.  The adoption of SFAS 132R has not had 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 a material
     effect on the financial  statements of the Company,  based on guarantees in
     effect on October 31, 2004.

11.  On September  14, 1995,  Midwesco  Filter  Resources,  Inc. in  Winchester,
     Virginia  received  $2,050,000 of proceeds from  Industrial  Revenue Bonds,
     which were to mature on August 1, 2007.  These bonds had been fully secured
     by bank  letters of credit.  As a result of the sale of land and a building
     on June 17, 2004, the Company redeemed the bonds in September 2004.

     On July 11, 2002, the Company entered into secured note purchase agreements
     with certain institutional investors ("Note Purchase Agreements").  At July
     31, 2004 and October 31, 2004, the Company was in compliance with covenants
     under the Note Purchase Agreement.  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 noncompliance of debt covenants
     for fiscal periods ending on or prior to April 30, 2004.

                                       7
<PAGE>
     On July 11,  2002,  the Company  entered  into a secured  loan and security
     agreement with a financial  institution ("Loan  Agreement").  As of October
     31, 2004, the Company had borrowed $12,844,000 and had $4,223,000 available
     to it under the  revolving  line of  credit.  In  addition,  $4,446,600  of
     availability was used under the Loan Agreement primarily to support letters
     of  credit  to  guarantee  amounts  owed  for an  Industrial  Revenue  Bond
     borrowing. The Company has determined that borrowings outstanding under its
     revolving  credit  facility  should be classified as current  maturities of
     long-term  debt in  accordance  with the  provisions  set forth in Emerging
     Issues  Task Force  95-22,  "Balance  Sheet  Classification  of  Borrowings
     Outstanding   under  Revolving  Credit   Agreements  That  Include  both  a
     Subjective Acceleration Clause and a Lock-Box Arrangement".

     At July 31, 2004 and October 31, 2004,  the Company was in compliance  with
     covenants under the Loan Agreement. 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  noncompliance  of debt covenants for fiscal
     periods ending on or prior to 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.

RESULTS OF OPERATIONS

MFRI, Inc.

Generally, sales of the Company's piping systems have had a tendency to be lower
during the winter months, due to weather constraints over much of the country.

Three months ended October 31

Net sales of $39,708,000 for the quarter  increased  21.7% from  $32,635,000 for
the  comparable  quarter in the prior year.  (See  discussion  of each  business
segment below.)

Gross profit of  $9,164,000  increased  32.8% from  $6,903,000 in the prior year
quarter,  and gross  margin  increased to 23.1% of net sales in the current year
from 21.2 % of net sales in the prior year.  (See  discussion  of each  business
segment below.)

Net income rose to $1,614,000 in the current  quarter from a loss of $126,000 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.)

                                       8
<PAGE>
Nine months ended October 31

Net sales of $109,904,000  for the nine months  increased 17.2% from $93,793,000
for the comparable  period in the prior year.  (See  discussion of each business
segment below.)

Gross profit of $24,022,000  increased 21.5% from $19,778,000 for the comparable
period in the prior year,  while gross margin increased to 21.9% 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  $2,653,000  for the nine months from a loss of $388,000  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 October 31

Net sales for the quarter increased 1.7% to $14,067,000 from $13,836,000 for the
comparable  quarter in the prior year.  This  increase  was  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 18.4% in the prior year to
23.0% in the  current  year,  primarily  as a result of  improved  manufacturing
efficiency on slightly higher unit volume and a favorable product mix.

Selling expense  decreased to $1,377,000 or 9.8% of net sales from $1,380,000 or
10.0% of net sales for the comparable quarter last year.

General and  administrative  expenses  remained  relatively level at $801,000 or
5.7% of net sales in the  current-year  quarter  compared to $800,000 or 5.8% of
net sales in the prior-year quarter.

Nine months ended October 31

Net sales for the nine months increased 9.4% to $45,733,000 from $41,813,000 for
the  comparable  period in the prior year.  This increase was 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 18.8% in the prior year to
20.5% in the  current  year,  primarily  as a result of  improved  manufacturing
efficiency on higher unit volume and a favorable product mix.

Selling expense for the nine months decreased to $4,171,000 or 9.1% of net sales
from  $4,232,000  or 10.1% of net sales for the  comparable  period in the prior
year. The decrease was primarily due to less commission expense and lower travel
costs.

General and  administrative  expenses  increased from  $2,323,000 or 5.6% of net
sales in the prior-year period to $2,361,000 or 5.2% of net sales in the current
year period. This increase was primarily due to increased  professional services
expenses.

Piping Systems Business

Generally, sales of the Company's piping systems have had a tendency to be lower
during the winter months, due to weather constraints over much of the country.

                                       9
<PAGE>
Three months ended October 31

Net  sales  increased  51.1%  from  $12,274,000  in the  prior-year  quarter  to
$18,544,000  for the current  quarter.  This  increase was primarily due to some
recovery from the weak economy in both the private and public sectors.

Gross  profit as a percent  of net sales  increased  from  19.8% to 20.3% due to
product mix.

Selling expense  increased from $228,000 or 1.9% of net sales for the prior year
quarter  to  $333,000  or 1.8% of net sales in the  current  year  quarter.  The
increase was primarily due to higher commissions.

General and  administrative  expense decreased from $1,520,000 in the prior year
quarter to $1,024,000 in the current year quarter, and decreased as a percent of
net sales from 12.4% to 5.5%.  The decrease was primarily due to the  prior-year
quarter legal  settlement of $510,000 and $284,000 in legal fees associated with
that settlement.

Nine months ended October 31

Net sales of $42,531,000 for the nine months  increased  28.0% from  $33,227,000
for the comparable  period in the prior year. This increase was primarily due to
some recovery from the weak economy in both the private and public sectors.

Gross profit as a percent of net sales increased from 19.6% to 19.8%, mainly due
to product mix.

Selling  expense  increased from $915,000 or 2.8% of net sales in the prior year
period to $932,000 or 2.2% of net sales in the current year  period.  The dollar
increase was primarily due to increased commissions.

General and  administrative  expense  decreased  to  $2,829,000,  compared  with
$3,255,000  in the prior year  period,  and  decreased as a percent of net sales
from 9.8% to 6.7%.  The  decrease was  primarily  due to a legal  settlement  of
$510,000 and legal fees  associated  with that  settlement  incurred in the nine
months ended October 31, 2003.

Industrial Process Cooling Equipment Business
Three months ended October 31

Net sales of $7,097,000 for the quarter  increased 8.8% from  $6,525,000 for the
comparable  quarter in the prior year.  The increase  was due  primarily to some
recovery  from the weak  economy.  Sales  increased  in both  the  domestic  and
international   markets.

Gross  profit  increased  to 30.3% of net sales  from  29.6% of net sales in the
prior-year   quarter,   primarily  due  to  improved   pricing  and   production
efficiencies.

Selling expense  increased to $874,000 or 12.3% of net sales in the current-year
quarter  from  $809,000  or 12.4% of net sales in the  prior-year  quarter.  The
dollar  increase was due to the higher  commissions  associated  with  increased
sales and greater distributor sales.

General and  administrative  expense increased to $828,000 or 11.7% of net sales
from  $794,000  or 12.2% of net sales in the  prior-year  quarter.  This  dollar
increase  was  primarily  due to higher  costs for the  international  operation
resulting from  additional  headcount and some  additional  engineering  product
development expenses.

                                       10
<PAGE>
Nine months ended October 31

Net sales of $21,640,000 for the nine months  increased  15.4% from  $18,753,000
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 increased from 28.7% of net sales in the prior year to 28.9% of net
sales in the current  year,  primarily  due to improved  pricing and  production
efficiencies.

Selling  expense  increased to  $2,586,000  or 12.0% of net sales in the current
year period from  $2,434,000 or 13.0% of net sales in the prior year. The dollar
increase was primarily due to the higher  commissions  associated with increased
sales and greater distributor sales.

General and administrative expense increased to $2,431,000 or 11.2% of net sales
in the current  year period from  $2,349,000  or 12.5% of net sales in the prior
year.  This  increase was  primarily  due to higher costs for the  international
operation resulting from additional  headcount and increased product development
costs.

General Corporate Expense

General   corporate   expense   included   interest   expense  and  general  and
administrative expenses that were not allocated to the business segments.

Three months ended October 31

General and  administrative  expense increased from $1,129,000 in the prior year
quarter to $1,446,000 in the current year quarter, and increased as a percentage
of net sales from 3.5% in the prior year  quarter  to 3.6% in the  current  year
quarter.  The increase was mainly due to management  incentive  compensation and
building repairs and maintenance costs.

Interest  expense  decreased  to $456,000  for the  current  year  quarter  from
$500,000 in the prior year  quarter.  The  decrease was  primarily  due to lower
interest  expense due to the sale of a building in Winchester,  Virginia in June
2004, and redemption of the Industrial Revenue Bonds in September 2004.

Nine months ended October 31

General and  administrative  expense increased from $3,644,000 in the prior year
period to $3,879,000 in the current-year  nine-month  period, and decreased as a
percentage  of net  sales  from  3.9% in the  prior  year  period to 3.5% in the
current  year  period.  The  increase  was  mainly due to  management  incentive
compensation and building repairs and maintenance costs.

Interest  expense  decreased  to  $1,331,000  for the  current  year period from
$1,519,000  for the  comparable  period  in the prior  year.  The  decrease  was
primarily  due to  lower  interest  expense  due to the  sale of a  building  in
Winchester,  Virginia in June 2004,  and  redemption of the  Industrial  Revenue
Bonds in September 2004.  Interest income on federal tax refunds was received in
the current year.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents  as of October 31, 2004 were  $529,000 as compared to
$154,000 at January 31, 2004. The Company used $1,378,000 from operations during
the first nine months.  Operating  cash flows  decreased by $2,801,000  from the
same period in the prior year.  The cash from  investing  activities of $849,000
mainly  resulted  from the sale of a building  and land to a third party in June
2004. A cash distribution of $50,000 was received from the Company's  investment
in a joint  venture.  These cash flows,  plus  borrowings  of $676,000  from the
Company's  credit facility,  were used to support $987,000 in capital  spending.
Exercise of stock options resulted in $228,000 of cash inflow.

                                       11
<PAGE>
Trade receivables increased $8,125,000 and inventories increased $2,186,000 from
January 31, 2004 due to increased  sales.  Prepaid  expenses  and other  current
assets  decreased  $314,000  due to insurance  premiums  that will be renewed in
November  and  utilization  of sales tax  credits.  Other  operating  assets and
liabilities  increased  $2,519,000  from  January  31,  2004  due  to  increased
commission liability and increased accrued liabilities.

Net cash flow from  investing  activities  for the nine months ended October 31,
2004 was $849,000.  Net cash used for investing  activities  for the nine months
ended  October 31, 2003 was $3,154,000. Proceeds from  the sale of property  and
equipment  increased  $1,311,000  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. This transaction did
not  materially  affect  the  earnings  of  the  Company.  Capital  expenditures
decreased  $2,802,000 from the prior year. The prior year's capital additions of
$3,789,000  mainly related to the Company's  construction  of a new building for
one of its foreign  subsidiaries.  Current year capital  expenditures related to
new ERP business applications software and equipment purchases.

Debt totaled  $29,266,000,  an increase of $741,000  since the  beginning of the
year. Net cash inflows from financing  activities were $852,000,  primarily as a
result of  borrowings  of  $10,616,000  and  payments of  $9,940,000  as well as
$51,000 used for payments on capitalized  lease  obligations.  Exercise of stock
options resulted in $228,000 of cash inflow.

The following table summarizes the Company's estimated contractual  obligations,
excluding the revolving lines of credit at October 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                    $ 9,252,400      $125,400      $502,800     $  533,900   $  567,700      $603,600       $6,919,000
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Senior Debt                    3,312,500       187,500       750,000        750,000    1,625,000         -                -
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
IRB Payable                    3,150,000          -             -              -       3,150,000         -                -
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Term Loans                       125,400       125,400
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Capitalized Lease                 23,900        15,900         6,000          2,000        -             -                -
  Obligations
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
  Sub Total (1)              $15,864,200    $  454,200    $1,258,800      1,285,900    5,342,700      $603,600       $6,919,000
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Operating lease
  Obligations                  2,070,800    $  340,000    $  520,000       $426,800     $366,500      $ 53,000       $  364,500
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Purchase Committments (2)      8,300,900     7,085,400     1,022,000        139,700       40,000        13,800             -
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Total                         26,235,900   $ 7,879,600    $2,800,800     $1,852,400   $5,749,200      $670,400       $7,283,500
- -----------------------    -------------- -------------- ------------- ------------- -------------- ------------- ---------------
</TABLE>

(1)  Scheduled maturities, excluding the revolving line of credits
(2)  Purchase  commitments  were for  purchases  made in the  normal  course  of
     business to meet operational and capital expenditure requirements.

Other long term liability of $2,372,000 was composed of accrued pension cost and
deferred compensation.

The Company's working capital was approximately  $13,458,000 at October 31, 2004
compared  to  approximately  $8,759,000  at  January  31,  2004.  The change was
primarily due to the increased accounts receivable.

The  Company's  current  ratio  remained  at 1.3 to 1 for  October  31, 2004 and
January 31, 2004, respectively. Debt to total capitalization at October 31, 2004
decreased to 49.4% from 51.5% at January 31, 2004.

On September 14, 1995, Midwesco Filter Resources,  Inc. in Winchester,  Virginia
received  $2,050,000 of proceeds from  Industrial  Revenue Bonds,  which were to
mature on August 1, 2007.  These bonds had been fully secured by bank letters of
credit.  As a result of the sale of land and a building  on June 17,  2004,  the
Company redeemed the bonds in September 2004.

                                       12
<PAGE>
On July 11, 2002, the Company entered into secured note purchase agreements with
certain institutional  investors ("Note Purchase Agreements").  At July 31, 2004
and October 31, 2004,  the Company was in compliance  with  covenants  under the
Note Purchase Agreement. At January 31, 2004 and April 30, 2004, the Company was
not in compliance with one covenant under the Note Purchase Agreements.  Waivers
were previously  obtained for noncompliance of debt covenants for fiscal periods
ending on or prior to April 30, 2004.

On July 11, 2002, the Company entered into a secured loan and security agreement
with a financial  institution  ("Loan  Agreement").  As of October 31, 2004, the
Company had borrowed  $12,844,000  and had $4,223,000  available to it under the
revolving line of credit. In addition, $4,446,600 of availability was used under
the Loan Agreement  primarily to support letters of credit to guarantee  amounts
owed for an Industrial  Revenue Bond borrowing.  The Company has determined that
borrowings  outstanding under its revolving credit facility should be classified
as current  maturities of long-term  debt in accordance  with the provisions set
forth in Emerging  Issues Task Force 95-22,  "Balance  Sheet  Classification  of
Borrowings  Outstanding  under Revolving  Credit  Agreements That Include both a
Subjective Acceleration Clause and a Lock-Box Arrangement."

At July 31, 2004 and  October 31,  2004,  the  Company  was in  compliance  with
covenants under the Loan Agreement.  At January 31, 2004 and April 30, 2004, the
Company was not in compliance with covenants  under the Loan Agreement.  Waivers
were previously  obtained for noncompliance of debt covenants for fiscal periods
ending on or prior to 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 was  effective  for fiscal  years ending after
December  15, 2003,  and for quarters  beginning  after  December 15, 2003.  The
adoption of SFAS 132R has not had 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 a material effect on the financial  statements of the
Company, based on guarantees in effect on October 31, 2004.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The  Company  was  subject to market  risk  associated  with  changes in foreign
currency exchange rates and interest rates.  Foreign currency exchange rate risk
was 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 utilized foreign currency forward  contracts to reduce exposure to exchange
rate risks.  The forward  contracts were  short-term in duration,  generally one
year or less. The major currency exposure hedged by the Company was the Canadian
dollar.  The  contract  amounts,  carrying  amounts  and  fair  values  of these
contracts were not significant at October 31, 2004 or January 31, 2004.

                                       13
<PAGE>
The changeover from national currencies to the Euro began on January 1, 2002 and
has not  materially  affected,  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 are
used in the production of the piping systems.  The Company attempted to mitigate
such risks by obtaining price commitments from its commodity suppliers and, when
it  appeared  appropriate,  purchasing  quantities  in advance  of likely  price
increases.

Item 4.     Controls and Procedures

As of October  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  were  effective  in  recording,
processing,  summarizing and reporting, on a timely basis,  information required
to be  disclosed  in the  Company's  periodic  SEC  filings.  There have been no
changes in the Company's  internal controls over financial  reporting during the
fiscal quarter to which this report relates that have materially effected or are
reasonably  likely to effect the  Company's  internal  controls  over  financial
reporting.


                           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

                                       14
<PAGE>

                                   SIGNATURES



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


                                    MFRI, INC.


Date:     December 15, 2004         /s/ David Unger
                                    --------------------------------------------
                                    David Unger
                                    Chairman of the Board of Directors
                                    and Chief Executive Officer
                                    (Principal Executive Officer)


Date:     December 15, 2004         /s/ Michael D. Bennett
                                    --------------------------------------------
                                    Michael D. Bennett
                                    Vice President, Secretary and Treasurer
                                    (Principal Financial and Accounting Officer)


                                       15
<PAGE>
                                                                    Exhibit 31.1
 I, David Unger, certify that:

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

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

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

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

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

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

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

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

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

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

Date:    December 15, 2004


/s/ David Unger
- ---------------------------
Director and Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
<PAGE>
                                                                    Exhibit 31.2
 I, Michael D. Bennett, certify that:

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

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

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

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

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

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

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

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

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

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

Date:    December 15, 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, 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  October 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
and Chief Executive Officer
(Principal Executive Officer)
December 15, 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 October
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)
December 15, 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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