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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)

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



For the quarterly period ended December 31, 2005



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: 0-23335



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MPW INDUSTRIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 31-1567260                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                               | 
|9711 Lancaster Road, S.E., Hebron, Ohio                        |  | 43025                               
|(Address of principal executive offices)                       |  | (Zip code)                          



(740) 927-8790

(Registrants telephone number, including area code)



Not Applicable

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



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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



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈No  x



APPLICABLE ONLY TO CORPORATE ISSUERS:



Indicate
the number of shares outstanding of the issuers classes of common stock, as of the latest practicable date.



As of January 31, 2006, 10,716,207 shares of the issuers common stock, without par value, were outstanding.



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.



INDEX



|              |  |                                                                                                                 |  |     
|------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                                 |  | PAGE
|PART I.       |  | FINANCIAL INFORMATION                                                                                           |  |     
|              |  |                                                                                                                
|Item 1.       |  | Financial Statements                                                                                            |  |     
|              |  |                                                                                                                
|              |  | Consolidated Balance Sheets as of December 31, 2005 (unaudited) and June 30, 2005                               |  | 3   
|              |  |                                                                                                                
|              |  | Consolidated Statements of Operations for the three and six months ended December 31, 2005 and 2004 (unaudited) |  | 4   
|              |  |                                                                                                                
|              |  | Consolidated Statements of Cash Flows for the six months ended December 31, 2005 and 2004 (unaudited)           |  | 5   
|              |  |                                                                                                                
|              |  | Notes to Consolidated Financial Statements (unaudited)                                                          |  | 6   
|              |  |                                                                                                                
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 13  
|              |  |                                                                                                                
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 18  
|              |  |                                                                                                                
|Item 4.       |  | Controls and Procedures                                                                                         |  | 18  
|              |  |                                                                                                                
|PART II.      |  | OTHER INFORMATION                                                                                               |  |     
|              |  |                                                                                                                
|Item 1.       |  | Legal Proceedings                                                                                               |  | 19  
|              |  |                                                                                                                
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 19  
|              |  |                                                                                                                
|Item 3.       |  | Defaults Upon Senior Securities                                                                                 |  | 19  
|              |  |                                                                                                                
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 19  
|              |  |                                                                                                                
|Item 5.       |  | Other Information                                                                                               |  | 19  
|              |  |                                                                                                                
|Item 6.       |  | Exhibits                                                                                                        |  | 20  
|              | 
|SIGNATURES    |  | 21                                                                                                             
|              | 
|EXHIBIT INDEX |  | 22                                                                                                             



2



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##### Table of Contents

PART I.  FINANCIAL INFORMATION



Item 1.Financial Statements



MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                                                                                                                                        |  | December 31,2005 |        |   | June 30,2005 |  
|                                                                                                                                                        |  | (unaudited)      |        |   |              |  
|ASSETS                                                                                                                                                  |  |                  |        |   |              |   |        |  
|Cash                                                                                                                                                    |  | $                | 1,114  |   |              | $ | 744    |  
|Accounts receivable, net                                                                                                                                |  |                  | 19,121 |   |              |   | 16,723 |  
|Inventories                                                                                                                                             |  |                  | 1,844  |   |              |   | 2,002  |  
|Deferred income taxes                                                                                                                                   |  |                  | 1,504  |   |              |   | 1,264  |  
|Prepaid expenses                                                                                                                                        |  |                  | 763    |   |              |   | 1,066  |  
|Other current assets                                                                                                                                    |  |                  |       |   |              |   | 15     |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total current assets                                                                                                                                    |  |                  | 24,346 |   |              |   | 21,814 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Property and equipment, net                                                                                                                             |  |                  | 29,232 |   |              |   | 28,192 |  
|Goodwill                                                                                                                                                |  |                  | 5,487  |   |              |   | 5,487  |  
|Other intangibles, net                                                                                                                                  |  |                  | 6,131  |   |              |   | 6,503  |  
|Other assets                                                                                                                                            |  |                  | 474    |   |              |   | 243    |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total assets                                                                                                                                            |  | $                | 65,670 |   |              | $ | 62,239 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|LIABILITIES                                                                                                                                             |  |                  |        |   |              |   |        |  
|Accounts payable                                                                                                                                        |  | $                | 5,144  |   |              | $ | 3,547  |  
|Accrued compensation and related taxes                                                                                                                  |  |                  | 2,139  |   |              |   | 1,899  |  
|Current maturities of long-term debt                                                                                                                    |  |                  | 1,222  |   |              |   | 1,234  |  
|Other accrued liabilities                                                                                                                               |  |                  | 6,297  |   |              |   | 5,518  |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total current liabilities                                                                                                                               |  |                  | 14,802 |   |              |   | 12,198 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Long-term debt                                                                                                                                          |  |                  | 16,411 |   |              |   | 16,410 |  
|Deferred income taxes                                                                                                                                   |  |                  | 1,363  |   |              |   | 1,806  |  
|Other long-term liabilities                                                                                                                             |  |                  | 219    |   |              |   |       |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total liabilities                                                                                                                                       |  |                  | 32,795 |   |              |   | 30,414 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|SHAREHOLDERS EQUITY                                                                                                                                    |  |                  |        |   |              |   |        |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                         |  |                  |       |   |              |   |       |  
|Common stock, no par value; 30,000,000 shares authorized; 10,716,207 shares issued and outstanding at December 31, 2005 and June 30,
2005, respectively |  |                  | 107    |   |              |   | 107    |  
|Additional paid-in capital                                                                                                                              |  |                  | 41,047 |   |              |   | 40,936 |  
|Accumulated deficit                                                                                                                                     |  |                  | (8,356 | ) |              |   | (9,223 | )
|Accumulated other comprehensive income                                                                                                                  |  |                  | 77     |   |              |   | 5      |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total shareholders equity                                                                                                                              |  |                  | 32,875 |   |              |   | 31,825 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  
|Total liabilities and shareholders equity                                                                                                              |  | $                | 65,670 |   |              | $ | 62,239 |  
|                                                                                                                                                        |  |                  |        |   |              |   |        |  



The accompanying
notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)



|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                          |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                          |  | 2005                           |        |   | 2004                         |   |        | 2005 |  |   | 2004   |  
|                                                                          |  | (unaudited)                    |        |   | (unaudited)                  |  
|Revenues                                                                  |  | $                              | 26,468 |   |                              | $ | 23,035 |      |  | $ | 51,754 |   |  | $ | 45,860 |  
|Cost of services (including depreciation)                                 |  |                                | 21,057 |   |                              |   | 18,366 |      |  |   | 41,048 |   |  |   | 36,404 |  
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                              |  |                                | 5,411  |   |                              |   | 4,669  |      |  |   | 10,706 |   |  |   | 9,456  |  
|Selling, general and administrative expenses                              |  |                                | 4,494  |   |                              |   | 4,412  |      |  |   | 9,165  |   |  |   | 8,761  |  
|Other general (income) expense                                            |  |                                | 33     |   |                              |   | 46     |      |  |   | (422   | ) |  |   | 38     |  
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income from operations                                                    |  |                                | 884    |   |                              |   | 211    |      |  |   | 1,963  |   |  |   | 657    |  
|Other expense:                                                            |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Other expense                                                             |  |                                | (39    | ) |                              |   |       |      |  |   | (29    | ) |  |   |       |  
|Interest expense, net                                                     |  |                                | (258   | ) |                              |   | (263   | )    |  |   | (517   | ) |  |   | (547   | )
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations before provision (benefit) for income taxes |  |                                | 587    |   |                              |   | (52    | )    |  |   | 1,417  |   |  |   | 110    |  
|Provision (benefit) for income taxes                                      |  |                                | 257    |   |                              |   | (29    | )    |  |   | 550    |   |  |   | 36     |  
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                                         |  | $                              | 330    |   |                              | $ | (23    | )    |  | $ | 867    |   |  | $ | 74     |  
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per share, basic and diluted                            |  | $                              | 0.03   |   |                              | $ |       |      |  | $ | 0.08   |   |  | $ | 0.01   |  
|                                                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Weighted average shares outstanding                                       |  |                                | 10,716 |   |                              |   | 10,709 |      |  |   | 10,716 |   |  |   | 10,709 |  
|Weighted average shares outstanding, assuming dilution                    |  |                                | 10,732 |   |                              |   | 10,709 |      |  |   | 10,738 |   |  |   | 10,786 |  



The accompanying
notes are an integral part of these consolidated financial statements.



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MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                              |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Six Months EndedDecember 31, |       
|                                                                                  |  | 2005                         |        |   | 2004 |  
|                                                                                  |  | (unaudited)                  |       
|Cash flows from operating activities:                                             |  |                              |        |   |      |   |        |  
|Net income                                                                        |  | $                            | 867    |   |      | $ | 74     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |        |   |      |   |        |  
|Depreciation                                                                      |  |                              | 3,365  |   |      |   | 3,746  |  
|Amortization                                                                      |  |                              | 372    |   |      |   | 286    |  
|Loss from mark-to-market on interest rate swap                                    |  |                              | 29     |   |      |   |       |  
|Employee stock option compensation                                                |  |                              | 111    |   |      |   |       |  
|Net (gain) loss on disposal of property and equipment                             |  |                              | (422   | ) |      |   | 38     |  
|Change in deferred income taxes                                                   |  |                              | (683   | ) |      |   | (718   | )
|Changes in operating assets and liabilities:                                      |  |                              |        |   |      |   |        |  
|Accounts receivable                                                               |  |                              | (2,400 | ) |      |   | (905   | )
|Inventories                                                                       |  |                              | 158    |   |      |   | (158   | )
|Prepaid expenses and other assets                                                 |  |                              | 277    |   |      |   | (111   | )
|Accounts payable                                                                  |  |                              | 1,669  |   |      |   | 510    |  
|Other accrued liabilities                                                         |  |                              | 1,019  |   |      |   | (177   | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                              | 4,362  |   |      |   | 2,585  |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Cash flows from investing activities:                                             |  |                              |        |   |      |   |        |  
|Purchases of property and equipment                                               |  |                              | (4,565 | ) |      |   | (2,496 | )
|Purchases of businesses                                                           |  |                              |       |   |      |   | (990   | )
|Proceeds from the disposal of property and equipment                              |  |                              | 602    |   |      |   | 27     |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                              | (3,963 | ) |      |   | (3,459 | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Cash flows from financing activities:                                             |  |                              |        |   |      |   |        |  
|Proceeds from revolving credit facility                                           |  |                              | 4,800  |   |      |   |       |  
|Payments on revolving credit facility                                             |  |                              | (4,800 | ) |      |   | (600   | )
|Payments on notes payable                                                         |  |                              | (14    | ) |      |   | (38    | )
|Payments on capital lease obligations                                             |  |                              | (15    | ) |      |   |       |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash used in financing activities                                             |  |                              | (29    | ) |      |   | (638   | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Increase (decrease) in cash                                                       |  |                              | 370    |   |      |   | (1,512 | )
|Cash at beginning of year                                                         |  |                              | 744    |   |      |   | 2,237  |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Cash at end of period                                                             |  | $                            | 1,114  |   |      | $ | 725    |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Supplemental schedule of noncash investing and financing activities:              |  |                              |        |   |      |   |        |  
|Capital lease of property and equipment                                           |  | $                            | 18     |   |      | $ |       |  
|                                                                                  |  |                              |        |   |      |   |        |  



The accompanying
notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



Note 1. Summary of Significant Accounting Policies



Basis of Presentation and Description of Business MPW Industrial
Services Group, Inc. and its subsidiaries (the Company) provide technically-based services, including industrial and chemical cleaning, facility maintenance and support, industrial container cleaning and industrial process water
purification. Such services are primarily provided at customer facilities. The Company serves customers in numerous industries including automotive, utility, manufacturing, pulp and paper, steel and chemical primarily throughout the United States
and Canada.



The accompanying unaudited consolidated financial
statements presented herein have been prepared by the Company and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of financial results for the three and six months ended
December 31, 2005 and 2004, respectively, in accordance with U.S. generally accepted accounting principles for interim financial reporting and pursuant to Article 10 of Regulation S-X. Certain footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended June 30, 2005 (Annual Report). The results of operations for the three and six months ended December 31, 2005 and 2004, respectively, are not necessarily indicative
of the results for the full year.



Property and EquipmentProperty and equipment is net of accumulated depreciation of $69.9 million and $68.7 million at December 31, 2005 and June 30, 2005, respectively.



Comprehensive IncomeThe components of other comprehensive income, net of tax, were as follows:



|                                        |  |                                |     |      |                              |     |      |  |      |     |  |   |    
|--------------------------------------- |  | ------------------------------ | --- | ---- | ---------------------------- | --- | ---- |  | ---- | --- |  | - | ---
|                                        |  | Three Months EndedDecember 31, |     |      | Six Months EndedDecember 31,
|                                        |  | 2005                           |     | 2004 |                              |     | 2005 |  | 2004
|                                        |  | (in thousands)                
|Net income (loss)                       |  | $                              | 330 |      | $                            | (23 | )    |  | $    | 867 |  | $ | 74 
|Mark-to-market on interest rate swaps   |  |                                |    |      |                              | 71  |      |  |      |    |  |   | 13 
|Foreign currency translation adjustment |  |                                | 6   |      |                              | 55  |      |  |      | 72  |  |   | 96 
|                                        |  |                                |     |      |                              |     |      |  |      |     |  |   |    
|Total comprehensive income              |  | $                              | 336 |      | $                            | 103 |      |  | $    | 939 |  | $ | 183
|                                        |  |                                |     |      |                              |     |      |  |      |     |  |   |    



Stock Options
As of December 31, 2005, the Company has two stock-based compensation plans, which are described in detail in Note 2. On July 1, 2005, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123 (revised
2004) Share-Based Payment(SFAS No. 123(R)),which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.



Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is not an alternative. The Company has elected to adopt SFAS No. 123(R) using the modified prospective method, in which compensation cost
is recognized beginning with the effective date based on (i) the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (ii) based on the requirements of SFAS No. 123 for all awards
granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.



6



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



The following table shows the impact of adopting SFAS No. 123(R) for the three and six months ended December 31, 2005:



|                                                              |  |                                       |      |   |                                    |   |       |  
|------------------------------------------------------------- |  | ------------------------------------- | ---- | - | ---------------------------------- | - | ----- | -
|                                                              |  | Three Months EndedDecember 31, 2005   |      |   | Six Months Ended December 31, 2005 |  
|                                                              |  | (in thousands, except per share data) |     
|Income from operations:                                       |  |                                       |      |   |                                    |   |       |  
|Before stock-based compensation                               |  | $                                     | 936  |   |                                    | $ | 2,074 |  
|Less: Stock-based compensation recorded under SFAS No. 123(R) |  |                                       | (52  | ) |                                    |   | (111  | )
|                                                              |  |                                       |      |   |                                    |   |       |  
|As reported                                                   |  | $                                     | 884  |   |                                    | $ | 1,963 |  
|                                                              |  |                                       |      |   |                                    |   |       |  
|Income before income taxes:                                   |  |                                       |      |   |                                    |   |       |  
|Before stock-based compensation                               |  | $                                     | 639  |   |                                    | $ | 1,528 |  
|Less: Stock-based compensation recorded under SFAS No. 123(R) |  |                                       | (52  | ) |                                    |   | (111  | )
|                                                              |  |                                       |      |   |                                    |   |       |  
|As reported                                                   |  | $                                     | 587  |   |                                    | $ | 1,417 |  
|                                                              |  |                                       |      |   |                                    |   |       |  
|Net income:                                                   |  |                                       |      |   |                                    |   |       |  
|Before stock-based compensation                               |  | $                                     | 360  |   |                                    | $ | 935   |  
|Less: Stock-based compensation recorded under SFAS No. 123(R) |  |                                       | (30  | ) |                                    |   | (68   | )
|                                                              |  |                                       |      |   |                                    |   |       |  
|As reported                                                   |  | $                                     | 330  |   |                                    | $ | 867   |  
|                                                              |  |                                       |      |   |                                    |   |       |  
|Net income per share, basic and diluted:                      |  |                                       |      |   |                                    |   |       |  
|Before stock-based compensation                               |  | $                                     | 0.03 |   |                                    | $ | 0.09  |  
|Less: Stock-based compensation recorded under SFAS No. 123(R) |  |                                       |     |   |                                    |   | (0.01 | )
|                                                              |  |                                       |      |   |                                    |   |       |  
|As reported                                                   |  | $                                     | 0.03 |   |                                    | $ | 0.08  |  
|                                                              |  |                                       |      |   |                                    |   |       |  



There were 12,000
stock options granted in December 2005 and 167,000 stock options granted in December 2004. The following table shows results for the three and six months ended December 31, 2005, including such expense, and illustrates the effect on net income
(loss) and net income (loss) per share for the three and six months ended December 31, 2004, if the Company had applied the fair value recognition provisions of SFAS No. 123:



|                                                                                                                   |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ---- | --------- | ---------------------------- | --- | ------ |  | --------- | ---- |  | - | ---- | -
|                                                                                                                   |  | Three Months EndedDecember 31,        |      |           | Six Months EndedDecember 31, |    
|                                                                                                                   |  | 2005                                  |      | 2004      |                              |     | 2005   |  | 2004      |     
|                                                                                                                   |  | Actual                                |      | Pro Forma |                              |     | Actual |  | Pro Forma |     
|                                                                                                                   |  | (in thousands, except per share data) |     
|Net income (loss):                                                                                                 |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|As reported                                                                                                        |  | $                                     | 330  |           | $                            | (23 | )      |  | $         | 867  |  | $ | 74   |  
|Less: Stock-based compensation determined under fair value based method for all awards, net of related tax effects |  |                                       |     |           |                              | (18 | )      |  |           |     |  |   | (31  | )
|                                                                                                                   |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|Pro forma net income (loss)                                                                                        |  | $                                     | 330  |           | $                            | (41 | )      |  | $         | 867  |  | $ | 43   |  
|                                                                                                                   |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|Net income (loss) per share, basic and diluted:                                                                    |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|As reported                                                                                                        |  | $                                     | 0.03 |           | $                            |    |        |  | $         | 0.08 |  | $ | 0.01 |  
|                                                                                                                   |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  
|Pro forma                                                                                                          |  | $                                     | 0.03 |           | $                            |    |        |  | $         | 0.08 |  | $ | 0.01 |  
|                                                                                                                   |  |                                       |      |           |                              |     |        |  |           |      |  |   |      |  



7



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



For purposes of determining the stock-based compensation recorded under SFAS No. 123(R) for the stock options granted in December 2005 and the
required pro forma information for fiscal 2005, the following assumptions were used:



|                                                                                                              |  |                                |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---- | - | ----- | -
|                                                                                                              |  | Three Months EndedDecember 31, |      
|                                                                                                              |  | 2006                           |       |   | 2005 |  
|Weighted-average fair value of options granted during the period using a Black-Scholes option valuation model |  | $                              | 1.24  |   |      | $ | 1.52  |  
|Weighted-average assumptions used for grants:                                                                 |  |                                |       |   |      |   |       |  
|Risk-free interest rate                                                                                       |  |                                | 4.48  | % |      |   | 4.08  | %
|Expected dividend yield                                                                                       |  |                                | 0.00  | % |      |   | 0.00  | %
|Expected volatility                                                                                           |  |                                | 55.70 | % |      |   | 57.10 | %
|Expected life of option (in years)                                                                            |  |                                | 7     |   |      |   | 7     |  



The Black-Scholes
option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions
including the expected stock price volatility.



Use of
Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial
statements. Actual results could differ from those estimates.



Reclassifications Certain amounts presented for the three and six months ended December 31, 2004 have been reclassified to conform to the December 31, 2005 presentation.



Recently Adopted Accounting Standards In November 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs. SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling cost and wasted material (spoilage). In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The Company adopted this Statement on July 1, 2005. The adoption of this Statement had no impact on the Companys financial position or results of operations.



In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29. APB Opinion No. 29 is based on the principle that exchanges of nonmonetary assets should be measured on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. The Company adopted this Statement on July 1, 2005. The adoption of this Statement had no impact on the Companys financial position or results of operations.



Effect of Recent Accounting Pronouncements In May 2005, the FASB
issued SFAS No. 154, Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 153 is effective for accounting changes and corrections of errors made in
fiscal periods beginning after December 15, 2005. The Company does not expect the adoption of this Statement to have a material impact on its financial position or results of operations.



8



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



Note 2. Stock Option Plans



1994 Stock Option Plan The Companys 1994 Stock Option Plan (the 1994 Plan) provided for the granting of up to 1,000,000 stock
options to key management personnel. Effective with the Companys initial public offering in fiscal 1998, no additional options will be granted under the 1994 Plan and the Companys repurchase obligation upon exercise of stock options was
terminated. As of December 31, 2005, 72,000 options were outstanding at a weighted average exercise price of $3.23 per share.



1997 Stock Option PlanOn November 15, 1997, the Company adopted the 1997 Stock Option Plan (the 1997 Plan), which provides for
the granting of up to 1,200,000 stock options to officers, key employees, consultants and directors of the Company. Any options granted that lapse or are cancelled are available for re-grant under the terms of the 1997 Plan. Stock option grants may
be in the form of incentive stock options, non-qualified options, or a combination thereof. The exercise price of the stock options granted will be determined by the Compensation Committee of the Board of Directors of the Company which, in the case
of incentive stock options, shall be equal to or greater than the market value per share on the date of grant and, in the case of non-qualified options shall not be less than 85% of the market value per share at the date of grant. The stock options
vest over a period of time determined by the Compensation Committee and expire after ten years from the date of grant; however, the Compensation Committee may declare the options immediately exercisable in full upon any change in control of the
Company. Non-employee directors shall be granted 2,000 non-qualified options at the first annual shareholders meeting subsequent to the adoption of the 1997 Plan at which he or she is elected a director, and 1,000 options shall be granted at each
subsequent annual shareholders meeting at which he or she is re-elected as a director. Additional options may be granted to the non-employee directors at the discretion of the Compensation Committee. The non-employee director option grants vest
after one full year from the date of grant and expire ten years from the date of grant. Options covering 1,520,750 shares of common stock have been granted, of which 670,150 options have been cancelled. At December 31, 2005 there were 822,750
options outstanding at a weighted average exercise price of $4.49 per share.



The following table summarizes stock option activity for the six months ended December 31, 2005:



|                                 |  |                                       |   |  |                                             
|-------------------------------- |  | ------------------------------------- | - |  | --------------------------------------------
|                                 |  | Number of Options (#)                 |   |  | Weighted AverageExercise Price Per Share ($)
|                                 |  | (in thousands, except per share data)
|Outstanding at June 30, 2005     |  | 912                                   |   |  | 4.50                                        
|Granted                          |  | 12                                    |   |  | 2.04                                        
|Expired or cancelled             |  | (30                                   | ) |  | 6.85                                        
|                                 |  |                                       |   |  |                                             
|Outstanding at December 31, 2005 |  | 894                                   |   |  | 4.39                                        
|                                 |  |                                       |   |  |                                             



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



The following table summarizes information about stock options outstanding at December 31, 2005:



|                                               |  |             |  |                                                 |  |                                  |  |             |  |                                 
|---------------------------------------------- |  | ----------- |  | ----------------------------------------------- |  | -------------------------------- |  | ----------- |  | --------------------------------
|                                               |  |             |  | Options Outstanding                             |  | Options Exercisable             
|Range of Exercise Price ($)                    |  | Options (#) |  | WeightedAverageRemainingContractualLife (years) |  | WeightedAverageExercisePrice ($) |  | Options (#) |  | WeightedAverageExercisePrice ($)
|(in thousands, except per share and year data)
|1.25-2.50                                      |  | 563         |  | 7.2                                             |  | 2.06                             |  | 418         |  | 1.94                            
|2.51-3.23                                      |  | 72          |  | 1.5                                             |  | 3.23                             |  | 72          |  | 3.23                            
|8.63-13.13                                     |  | 259         |  | 2.3                                             |  | 9.80                             |  | 259         |  | 9.80                            
|                                               |  |             |  |                                                 |  |                                  |  |             |  |                                 
|                                               |  | 894         |  | 4.5                                             |  | 4.39                             |  | 749         |  | 4.78                            
|                                               |  |             |  |                                                 |  |                                  |  |             |  |                                 



As of
December 31, 2005, the total compensation cost related to nonvested stock options is $0.2 million, which is expected to be recognized over the weighted-average period of 2.7 years.



Note 3. Earnings per Share



The following table sets forth the computation of basic and diluted net income (loss) per share:



|                                                                                                           |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | ---------------------------- | ------ | ---- |  | ---- | ------ |  | - | ------
|                                                                                                           |  | Three Months EndedDecember 31,        |        |      | Six Months EndedDecember 31,
|                                                                                                           |  | 2005                                  |        | 2004 |                              |        | 2005 |  | 2004
|                                                                                                           |  | (in thousands, except per share data)
|Numerator for basic and diluted earnings per share:                                                        |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|Net income (loss)                                                                                          |  | $                                     | 330    |      | $                            | (23    | )    |  | $    | 867    |  | $ | 74    
|                                                                                                           |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|Denominator for basic earnings per share-weighted average common shares                                    |  |                                       | 10,716 |      |                              | 10,709 |      |  |      | 10,716 |  |   | 10,709
|Effect of dilutive securities:                                                                             |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|Dilutive employee stock options                                                                            |  |                                       | 16     |      |                              |       |      |  |      | 22     |  |   | 77    
|                                                                                                           |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|Denominator for diluted earnings per share-adjusted weighted average common shares and assumed conversions |  |                                       | 10,732 |      |                              | 10,709 |      |  |      | 10,738 |  |   | 10,786
|                                                                                                           |  |                                       |        |      |                              |        |      |  |      |        |  |   |       
|Net income (loss) per share, basic and dilutive:                                                           |  | $                                     | 0.03   |      | $                            |       |      |  | $    | 0.08   |  | $ | 0.01  
|                                                                                                           |  |                                       |        |      |                              |        |      |  |      |        |  |   |       



Options to purchase
541,750 and 532,250 shares of common stock at a weighted average price of $6.05 and $6.62 per share were outstanding during the three and six months ended December 31, 2005 and 2004, respectively, but were not included in the computation of
diluted earnings per share because the options exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 415,000 shares of commons stock at a weighted average
price of $2.28 per share were outstanding during the three months ended December 31, 2004, but were not included in the computation of diluted earnings per share because the Company reported a net loss for the quarter and, therefore, the effect
would be antidilutive.



10



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



Note 4. Related Party Transactions



The Company rents certain land, property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer
(CEO) under long-term lease agreements. The Company also periodically uses a ranch, which is owned by an entity controlled by the CEO, for business meetings, entertainment and overnight lodging of customers and other business associates.
Total expenses related to these leases and to the ranch were $0.6 million and $0.5 million for the three months ended December 31, 2005 and 2004, respectively. Total expenses related to these leases and to the ranch were $1.0 million for the
six months ended December 31, 2005 and 2004.



The Company
provides, from time to time, certain fabrication-type services to Pro-Kleen Industrial Services, Inc. (Pro-Kleen), a portable sanitation services company wholly-owned by the Companys principal shareholder and Chief Executive
Officer. The Company charges Pro-Kleen for the cost of services it renders plus a markup. The amount of such charges were approximately $38,000 and $17,000 for the three months ended December 31, 2005 and 2004, respectively. The amount of such
charges were approximately $76,000 and $112,000 for the six months ended December 31, 2005 and 2004, respectively. These charges are for the use of parts and supplies and the use of certain of the Companys employees on certain projects as
requested by Pro-Kleen. These charges are generally treated as an offset to supplies, repairs and maintenance or labor expense. Accounts receivable related to these transactions was $0.2 million at December 31, 2005 and June 30, 2005.



These transactions are approved and reviewed quarterly by the
Companys Audit Committee. Based on such review, the Company believes that these transactions are on terms at least as favorable as those that could be obtained from an independent third party.



Note 5. Commitments and Contingencies



In fiscal 1999, the Company entered into a guaranty of a lease agreement
related to a facility operated by its former subsidiary, Pentagon Technologies Group, Inc. (Pentagon). The lease, on which rent is approximately $30,000 per month, expires in October 2009. As of December 31, 2005, the Company
believes its maximum potential liability is $1.4 million, payable only if Pentagon fails to comply with the lease terms, and subject to many factors, including the landlords duty to mitigate, the validity of the guarantee and the like. The
Company does not believe its liability under the guarantee meets the probability criteria under SFAS No. 5, Accounting for Contingencies.



11



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

(unaudited)



Note 6. Segment Reporting



Summarized financial information for the Companys reportable segments is set forth below. Expenses associated with the Companys corporate
headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments are allocated based on each segments percentage of total revenues. General corporate expenses not specifically
attributable to the operating segments are allocated to each reportable segment equally.



|                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                          |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                          |  | 2005                           |        |   | 2004                         |   |        | 2005 |  |   | 2004   |  
|                                          |  | (in thousands)                 |       
|Revenue                                   |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Industrial Cleaning                       |  | $                              | 15,326 |   |                              | $ | 13,877 |      |  | $ | 29,870 |   |  | $ | 27,755 |  
|Facility Maintenance and Support Services |  |                                | 5,281  |   |                              |   | 4,594  |      |  |   | 10,033 |   |  |   | 8,902  |  
|Industrial Container Cleaning             |  |                                | 2,963  |   |                              |   | 2,280  |      |  |   | 5,667  |   |  |   | 4,857  |  
|Industrial Water Process Purification     |  |                                | 2,781  |   |                              |   | 1,852  |      |  |   | 5,907  |   |  |   | 3,591  |  
|Other                                     |  |                                | 117    |   |                              |   | 432    |      |  |   | 277    |   |  |   | 755    |  
|                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Total                                     |  | $                              | 26,468 |   |                              | $ | 23,035 |      |  | $ | 51,754 |   |  | $ | 45,860 |  
|                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income (Loss) from Operations             |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Industrial Cleaning                       |  | $                              | (154   | ) |                              | $ | (560   | )    |  | $ | 18     |   |  | $ | (1,062 | )
|Facility Maintenance and Support Services |  |                                | 531    |   |                              |   | 653    |      |  |   | 754    |   |  |   | 1,332  |  
|Industrial Container Cleaning             |  |                                | 496    |   |                              |   | 251    |      |  |   | 887    |   |  |   | 652    |  
|Industrial Water Process Purification     |  |                                | 241    |   |                              |   | (151   | )    |  |   | 783    |   |  |   | (259   | )
|Other                                     |  |                                | (230   | ) |                              |   | 18     |      |  |   | (479   | ) |  |   | (6     | )
|                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Total                                     |  | $                              | 884    |   |                              | $ | 211    |      |  | $ | 1,963  |   |  | $ | 657    |  
|                                          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



12



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##### Table of Contents

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



Except for historical information, certain statements in this Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) are forward-looking. These forward-looking statements are based on current expectations that are subject to a number of uncertainties and risks and actual results may differ materially. The uncertainties and risks
include, but are not limited to, competitive and other market factors, customer purchasing behavior, general economic conditions and other facets of business operations as well as other risk factors identified in Investment
Considerations in the Companys Annual Report. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release the result of any revisions to these forward-looking statements that may be made to
reflect future events or circumstances.



The following
information should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Form 10-Q. The following information should also be read in conjunction with the Consolidated Financial Statements and
related notes and MD&A for the year ended June 30, 2005 as contained in the Companys Annual Report on Form 10-K.



Overview



MPW is a leading provider of integrated, technically-based industrial cleaning and related facilities support services to a broad array of industries in North America on a daily recurring basis, a project-by-project
basis, as well as pursuant to longer-term arrangements. The Company has over 35 branch locations in 14 states and Canada and operates under four separate segments: Industrial Cleaning, Facility Maintenance and Support Services, Industrial Container
Cleaning and Industrial Water Process Purification.



The
results of our operations are mainly driven by two external factors, customer demand and pricing. Many of our significant customers operate in industries, such as the automotive, steel, manufacturing, pulp and paper and utility industries, which are
subject to work stoppages and slowdowns and have historically shown sensitivity to recessions and other adverse conditions in the general economy. During the second quarter of fiscal 2006, the Company saw improvement in customer demand with higher
volumes of both base and outage work from new and existing customers, primarily in the Industrial Cleaning and Facility Maintenance and Support Services segments. In addition, we saw increased volumes in our Industrial Water Process Purification
segment as a result of increased emergency work as a result of colder temperatures in the second quarter of fiscal 2006.



Our focus in the prior year and going forward is to minimize the peaks and valleys associated with the variability in customer demand by increasing our
cross-marketing efforts to offer our diversified services to all existing and new customers, seeking additional long-term contractual arrangements and creating new service lines to complement our current offerings while continuing our focus on
providing emergency response services to our customers.



13



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##### Table of Contents

Results of Operations



The following table sets forth revenue and income from operations by segment for the three and six months ended December 31, 2005 and 2004. Expenses
associated with the Companys corporate headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments are allocated based on each segments percentage of total revenues.
General corporate expenses not specifically attributable to the operating segments are allocated to each reportable segment equally.



|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | ------ | - | ------ | - | ------ | ----------- |  | ----- | ------ |  | - | ----------- | - |  | ------ | - |  | ----------- | ------ | - |  | ----- | -
|                                                                          |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |       
|                                                                          |  | 2005                            |        |   | 2004                          |        |   | 2005   |   |        | 2004        | 
|                                                                          |  | Actual                          |        |   | % ofRevenue                   |        |   | Actual |   |        | % ofRevenue |  |       | Actual |  |   | % ofRevenue |   |  | Actual |   |  | % ofRevenue |       
|                                                                          |  | (unaudited; in thousands)       |       
|Revenue:                                                                  |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Industrial Cleaning                                                       |  | $                               | 15,326 |   |                               | 57.9   | % |        | $ | 13,877 |             |  | 60.3  | %      |  | $ | 29,870      |   |  | 57.8   | % |  | $           | 27,755 |   |  | 60.6  | %
|Facility Maintenance and Support Services                                 |  |                                 | 5,281  |   |                               | 20.0   |   |        |   | 4,594  |             |  | 19.9  |        |  |   | 10,033      |   |  | 19.4   |   |  |             | 8,902  |   |  | 19.4  |  
|Industrial Container Cleaning                                             |  |                                 | 2,963  |   |                               | 11.2   |   |        |   | 2,280  |             |  | 9.9   |        |  |   | 5,667       |   |  | 10.9   |   |  |             | 4,857  |   |  | 10.6  |  
|Industrial Water Process Purification                                     |  |                                 | 2,781  |   |                               | 10.5   |   |        |   | 1,852  |             |  | 8.0   |        |  |   | 5,907       |   |  | 11.4   |   |  |             | 3,591  |   |  | 7.8   |  
|Other                                                                     |  |                                 | 117    |   |                               | 0.4    |   |        |   | 432    |             |  | 1.9   |        |  |   | 277         |   |  | 0.5    |   |  |             | 755    |   |  | 1.6   |  
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Total revenue                                                             |  |                                 | 26,468 |   |                               | 100.0  |   |        |   | 23,035 |             |  | 100.0 |        |  |   | 51,754      |   |  | 100.0  |   |  |             | 45,860 |   |  | 100.0 |  
|Cost of services (including depreciation)                                 |  |                                 | 21,057 |   |                               | 79.6   |   |        |   | 18,366 |             |  | 79.7  |        |  |   | 41,048      |   |  | 79.3   |   |  |             | 36,404 |   |  | 79.4  |  
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Gross profit                                                              |  |                                 | 5,411  |   |                               | 20.4   |   |        |   | 4,669  |             |  | 20.3  |        |  |   | 10,706      |   |  | 20.7   |   |  |             | 9,456  |   |  | 20.6  |  
|Selling, general and administrative expenses                              |  |                                 | 4,494  |   |                               | 17.0   |   |        |   | 4,412  |             |  | 19.2  |        |  |   | 9,165       |   |  | 17.7   |   |  |             | 8,761  |   |  | 19.1  |  
|Other general (income) expense                                            |  |                                 | 33     |   |                               | 0.1    |   |        |   | 46     |             |  | 0.2   |        |  |   | (422        | ) |  | (0.8   | ) |  |             | 38     |   |  | 0.1   |  
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Income (loss) from operations:                                            |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Industrial Cleaning                                                       |  |                                 | (154   | ) |                               | (1.0   | ) |        |   | (560   | )           |  | (4.0  | )      |  |   | 18          |   |  | 0.1    |   |  |             | (1,062 | ) |  | (3.8  | )
|Facility Maintenance and Support Services                                 |  |                                 | 531    |   |                               | 10.1   |   |        |   | 653    |             |  | 14.2  |        |  |   | 754         |   |  | 7.5    |   |  |             | 1,332  |   |  | 15.0  |  
|Industrial Container Cleaning                                             |  |                                 | 496    |   |                               | 16.7   |   |        |   | 251    |             |  | 11.0  |        |  |   | 887         |   |  | 15.7   |   |  |             | 652    |   |  | 13.4  |  
|Industrial Water Process Purification                                     |  |                                 | 241    |   |                               | 8.7    |   |        |   | (151   | )           |  | (8.2  | )      |  |   | 783         |   |  | 13.3   |   |  |             | (259   | ) |  | (7.2  | )
|Other                                                                     |  |                                 | (230   | ) |                               | (196.6 | ) |        |   | 18     |             |  | 4.2   |        |  |   | (479        | ) |  | (172.9 | ) |  |             | (6     | ) |  | (0.8  | )
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Total income from operations                                              |  |                                 | 884    |   |                               | 3.3    |   |        |   | 211    |             |  | 0.9   |        |  |   | 1,963       |   |  | 3.8    |   |  |             | 657    |   |  | 1.4   |  
|Other expense:                                                            |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Other expense                                                             |  |                                 | (39    | ) |                               | (0.1   | ) |        |   |       |             |  |      |        |  |   | (29         | ) |  | (0.1   | ) |  |             |       |   |  |      |  
|Interest expense, net                                                     |  |                                 | (258   | ) |                               | (1.0   | ) |        |   | (263   | )           |  | (1.1  | )      |  |   | (517        | ) |  | (1.0   | ) |  |             | (547   | ) |  | (1.2  | )
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Income (loss) from operations before provision (benefit) for income taxes |  |                                 | 587    |   |                               | 2.2    |   |        |   | (52    | )           |  | (0.2  | )      |  |   | 1,417       |   |  | 2.7    |   |  |             | 110    |   |  | 0.2   |  
|Provision (benefit) for income taxes                                      |  |                                 | 257    |   |                               | 1.0    |   |        |   | (29    | )           |  | (0.1  | )      |  |   | 550         |   |  | 1.1    |   |  |             | 36     |   |  | 0.1   |  
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  
|Net income (loss)                                                         |  | $                               | 330    |   |                               | 1.2    | % |        | $ | (23    | )           |  | (0.1  | )%     |  | $ | 867         |   |  | 1.6    | % |  | $           | 74     |   |  | 0.1   | %
|                                                                          |  |                                 |        |   |                               |        |   |        |   |        |             |  |       |        |  |   |             |   |  |        |   |  |             |        |   |  |       |  



Three Months Ended
December 31, 2005 Compared to Three Months Ended December 31, 2004



Revenues. Revenues increased 14.9% to $26.5 million in the second quarter of fiscal 2006 from $23.0 million in the same prior year period. The increase in revenues within the Industrial Cleaning segment was
primarily the result of additional base and outage work for several new customers, while the Facility Maintenance and Support Services segment revenues increased as a result of increased work for both new and existing customers. The increase in
revenues within the Industrial Container Cleaning segment was primarily the result of increased volume primarily driven by higher production in the automotive industry. The increase in revenues within the Industrial Water Process Purification
segment was primarily the result of increased work for both new and existing customers, combined with an increased volume of industrial water purification trailers supplied to customers on an emergency basis as a result of colder temperatures in the
second quarter of fiscal 2006.



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Cost of Services. Cost of services as a percentage of revenue decreased to 79.6% in the second
quarter of fiscal 2006 from 79.7% in the prior year period. Total cost of services was $21.1 million for the three months ended December 31, 2005 compared to $18.4 million for the three months ended December 31, 2004. This increase was
primarily driven by higher fuel, chemical and workers compensation costs primarily in the Industrial Cleaning and Industrial Water Process Purification segments, slightly offset by decreased reliance on subcontract and temporary services and lower
depreciation expense.



Selling, General and Administrative
Expenses. Selling, general and administrative expenses decreased to 17.0% as a percentage of revenue in the second quarter of fiscal 2006 from 19.2% as a percentage of revenue in the same prior year period. However, selling, general and
administrative expenses increased to $4.5 million for the three months ended December 31, 2005 from $4.4 million for the three months ended December 31, 2004. The increase was primarily due to increased professional fees.



Income from Operations.Income from operations was $0.9 million for
the three months ended December 31, 2005 compared to $0.2 million for the three months ended December 31, 2004. As a percentage of revenue, income from operations increased to 3.3% in the second quarter of fiscal 2006 from 0.9% in the
prior year period, primarily related to the factors discussed above.



Provision (Benefit) for Income Taxes. The provision for income taxes for the three months ended December 31, 2005 and 2004 reflects an effective income tax rate of 44% and (56)%, respectively. The income tax expense for the
three months ended December 31, 2005 reflects an increase in the effective annual income tax rate from 35% to 39% due to changes in expected income levels and the addition of a permanent tax difference. The income tax expense for the three
months ended December 31, 2004 reflects a reduction in the effective annual income tax rate from 40% to 33% due to changes in expected income levels. The change in the tax rate did not significantly impact the net income (loss) for the three
months ended December 31, 2005 and 2004, respectively.



Six Months
Ended December 31, 2005 Compared to Six Months Ended December 31, 2004



Revenues. Revenues increased 12.9% to $51.8 million in the first six months of fiscal 2005 from $45.9 million in the same prior year period. The increase in revenues in the Industrial Cleaning segment was
primarily the result of several non-recurring projects, additional base and outage work for several new customers and new business from acquisitions. The increase in revenues in the Facility Maintenance and Support Services segment was primarily due
to increased base load work from existing customers. The increase in revenues in the Industrial Water Process Purification segment was primarily the result of increased base load work for both new and existing customers as well as higher volume in
emergency response trailers due to extreme changes in weather conditions.



Cost of Services. Total cost of services was $41.0 million for the six months ended December 31, 2005 compared to $36.4 million for the six months ended December 31, 2004. Cost of services as a
percentage of revenue was 79.3% in the first six months of fiscal 2005 compared to 79.4% in the same period in fiscal 2004. The slight decrease in cost of services as a percentage of revenue relates to decreased reliance on subcontract services and
lower depreciation expense, offset by higher fuel and chemical costs primarily in the Industrial Cleaning and Industrial Water Process Purification segments as well as higher workers compensation expense.



Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.2 million, or 17.7% as a percentage of revenue, in the first six months of fiscal 2006 from $8.8 million, or 19.1% as a percentage of revenue, in the same prior year period. The increase was primarily due to
higher selling costs due to increased focus on business development and higher professional fees.



Other General (Income) Expense. Other general (income) expense was $(0.4) million, or (0.8)% as a percentage of revenue, in the first six months of
fiscal 2006 compared to $38 thousand in the same prior year period. The $(0.4) million of other general income for the six months ended December 31, 2005 was primarily due to the sale of equipment related to the Industrial Cleaning segment,
which resulted in a $0.5 million gain on sale.



Income
(Loss) from Operations.Income (loss) from operations was $2.0 million for the six months ended December 31, 2005 compared to 0.7 million for the six months ended December 31, 2004. As a percentage of revenue, income from
operations increased to 3.8% in the first six months of fiscal 2006 from 1.4% in the prior year period primarily related to the factors discussed above.



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Provision(Benefit) for Income Taxes. The provision (benefit) for income taxes for the six
months ended December 31, 2005 and 2004 reflects an effective annual income tax rate of 39% and 33%, respectively. The increase in the effective annual income tax rate is due primarily to the addition of a permanent tax difference.



Related Party Transactions



The Company rents certain land, property, buildings and an aircraft from
entities controlled by its principal shareholder and Chief Executive Officer (CEO) under long-term lease agreements. The Company also periodically uses a ranch, which is owned by an entity controlled by the CEO, for business meetings,
entertainment and overnight lodging of customers and other business associates. Total expenses related to these leases and to the ranch were $0.6 million and $0.5 million for the three months ended December 31, 2005 and 2004, respectively.
Total expenses related to these leases and to the ranch were $1.0 million for the six months ended December 31, 2005 and 2004.



The Company provides, from time to time, certain fabrication-type services to Pro-Kleen Industrial Services, Inc. (Pro-Kleen), a portable
sanitation services company wholly-owned by the Companys principal shareholder and Chief Executive Officer. The Company charges Pro-Kleen for the cost of services it renders plus a markup. The amount of such charges were approximately $38,000
and $17,000 for the three months ended December 31, 2005 and 2004, respectively. The amount of such charges were approximately $76,000 and $112,000 for the six months ended December 31, 2005 and 2004, respectively. These charges are for
the use of parts and supplies and the use of certain of the Companys employees on certain projects as requested by Pro-Kleen. These charges are generally treated as an offset to supplies, repairs and maintenance or labor expense. Accounts
receivable related to these transactions was $0.2 million at December 31, 2005 and June 30, 2005.



These transactions are approved and reviewed quarterly by the Companys Audit Committee. Based on such review, the Company believes that these
transactions are on terms at least as favorable as those that could be obtained from an independent third party.



Commitments and Contingencies



In fiscal 1999, the Company entered into a guaranty of a lease agreement related to a facility operated by its former subsidiary, Pentagon Technologies
Group, Inc. (Pentagon). The lease, on which rent is approximately $30,000 per month, expires in October 2009. As of December 31, 2005, the Company believes its maximum potential liability is $1.4 million, payable only if Pentagon
fails to comply with the lease terms, and subject to many factors, including the landlords duty to mitigate, the validity of the guarantee and the like. The Company does not believe its liability under the guarantee meets the probability
criteria under Statement of Financial Accounting Standard (SFAS) No. 5, Accounting for Contingencies.



Liquidity and Capital Resources



During the first six months of fiscal 2006, the Company generated $4.4 million in cash from operating activities, representing a $1.8 million increase
from the same prior year period. The increase was primarily the result of higher earnings from operations combined with $0.7 million of cash generated from working capital in the six months ended December 31, 2005 compared to $0.8 million of
cash used for working capital in the same prior year period. Working capital at December 31, 2005 decreased slightly to $9.5 million compared to $9.6 million at June 30, 2005.



The Companys primary investing and financing activity during the first six months of fiscal 2006 included spending
$4.6 million on capital projects. The spending was funded by the cash flows from the Companys operations.



The Companys short-term and long-term liquidity needs are primarily served by a credit agreement with its principal banks (the Credit
Facility). In June 2002, the Company entered into the Credit Facility with $35.0 million of revolving credit availability for a three-year period and a $6.0 million three-year term loan to be repaid in quarterly installments of $0.3 million.
Effective June 30, 2005, the Company amended its Credit Facility and reduced the revolving credit availability to $27.0 million, which is subject to further periodic reduction of $0.3 million per quarter commencing on March 31, 2007. The
amendment also extended the Credit Facilitys term loan expiration from April 1, 2006 to December 31, 2006 and the revolving credit facilitys expiration from April 1, 2006 to January 1, 2008, at which time the
principal balance outstanding, together with all accrued interest will become immediately due and payable. As of December 31, 2005, excluding outstanding borrowings and letters of credit, there was $5.1 million available under the Credit
Facility.



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##### Table of Contents

The Credit Facility is secured by substantially all of the Companys assets and is available for
general corporate purposes, including working capital, capital expenditures and acquisitions. Borrowings under the Credit Facility currently bear interest at the Eurodollar market rate plus the applicable margin rate of 2.25%. The Company also pays
a commitment fee of 0.45% for unused portions of the Credit Facility. The interest rate is subject to change based on interest rate formulas tied to the ratio of consolidated funded debt to earnings before interest, taxes, depreciation and
amortization. Availability of borrowing is subject to the maintenance of a minimum level of tangible net worth, certain levels of debt service coverage and maintenance of a specific ratio of funded debt to earnings before interest, taxes,
depreciation and amortization. The Credit Facility also contains covenants that prohibit the payment of cash dividends. As of December 31, 2005, outstanding borrowings under the Credit Facility were $17.6 million.



The Company has two pay-fixed interest rate swap agreements as a hedge
against the interest rate risk associated with borrowing at a variable rate, which mature in June 2006. The objective of the hedge is to eliminate the variability of cash flows related to interest rate payments on the Companys variable rate
debt. As of December 31, 2005, the swap agreements have a notional amount of $8.0 million and $10.0 million and effectively lock in a portion of the Companys variable rate revolving credit liability at fixed rates of 2.61% and 2.80%,
respectively, plus the Companys applicable margin. These swap agreements were accounted for as cash flow hedges, as defined under SFAS No. 133, Accounting for Derivative and Hedging Activities. During the six months ended
December 31, 2004, the Company adjusted the pay-fixed interest rate swaps to current market values through other comprehensive income. In the fourth quarter fiscal 2005, the Company determined that it failed to qualify for hedge accounting
treatment at inception of the interest rate swaps and therefore recognized the $0.2 million gain deferred in accumulated comprehensive income in earnings. The loss recognized during the six months ended December 31, 2005 was reported in other
expense.



Critical Accounting Policies



Financial Reporting Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies (FR 60), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FR 60 considers an accounting policy to be critical if it
is important to the Companys financial condition and results, and requires significant judgment and estimates on the part of management in its application. The Companys critical accounting policies are described in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations within the Annual Report on Form 10-K for the year ended June 30, 2005. In addition, a summary of all of the Companys significant
accounting policies, including critical accounting policies, is included in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended June 30, 2005. No changes were made to the Companys
critical accounting policies during the six months ended December 31, 2005 except as indicated in the following section.



Recently Adopted Accounting Standards



In December 2004, the FASB issued SFAS No. 123 (revised), Share-Based Payment. SFAS No. 123 (revised) is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the
fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based
payment transactions. The Company adopted this Statement prospectively on July 1, 2005. The impact to the Company related to the adoption of this Statement is quantified in the Stock Options section of Note 1 in the Companys
Consolidated Financial Statements.



Recently Issued Accounting Standards



In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 153 is effective for accounting changes and corrections of errors made in fiscal periods beginning
after December 15, 2005. The Company does not expect the adoption of this Statement to have a material impact on its financial position or results of operations.



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Inflation



The effects of inflation on the Companys operations were not significant during the periods presented in the Consolidated Financial Statements.



Item 3.Quantitative and Qualitative Disclosures About Market Risk



The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Companys primary market risk exposure relates to interest rate risk. At December 31, 2005, the balance on the Credit Facility was $17.6 million, which is subject to a
variable rate of interest based on the Eurodollar rate. The Company has hedged its exposure to changes in interest rates by fixing its rate of interest on $18.0 million of its variable rate Credit Facility through two interest rate swap agreements,
which expire on June 15, 2006. Assuming borrowings at December 31, 2005, any change in interest rates would not impact net interest expense.



Item 4.Controls and Procedures



| | (a) | Evaluation of disclosure controls and procedures.
| | --- | -------------------------------------------------



The Companys chief executive officer and chief financial officer, after evaluating the effectiveness of the Companys disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q, have concluded that as of that date, the Companys disclosure
controls and procedures were effective and designed to ensure that material information relating to the Company and the Companys consolidated subsidiaries would be made known to them by others within those entities.



It should be noted that the design of any system of controls is based in
part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless how remote. In addition, a control system,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurances that the objectives of the control system are met. Therefore, the Company does not expect these disclosure controls to prevent all error and fraud.



| | (b) | Changes in internal controls.
| | --- | -----------------------------



No change in the Companys internal controls over financial reporting occurred during the Companys last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II.  OTHER INFORMATION



Item 1.Legal Proceedings



Various legal actions arising in the ordinary course of business are pending against the Company. None of the litigation pending against the Company, individually or collectively, is expected to have a material
adverse effect on the Companys financial position or results of operations.



Item 2.Unregistered Sales of Equity Securities and Use of Proceeds



The following table provides information about purchases made by, or on behalf of, MPW Industrial Services Group, Inc. or any affiliated
purchaser (as defined in Rule 10b  18(a) (3) under the Securities Exchange Act of 1934) of common shares of MPW Industrial Services Group, Inc. during each month of the fiscal quarter ended December 31, 2005:



|                    |  |                                     |  |                                 |  |                                                                                   |  |                                                                                                                    
|------------------- |  | ----------------------------------- |  | ------------------------------- |  | --------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|Period              |  | TotalNumber ofCommonSharesPurchased |  | AveragePricePaid perCommonShare |  | Total Number ofCommon SharesPurchased aspart of PubliclyAnnouncedPlans orPrograms |  | Maximum Number (or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs
|October 1-31, 2005  |  |                                    |  |                                |  |                                                                                  |  |                                                                                                                   
|November 1-30, 2005 |  |                                    |  |                                |  |                                                                                  |  |                                                                                                                   
|December 1-31, 2005 |  |                                    |  |                                |  |                                                                                  |  |                                                                                                                   



Item 3.Defaults Upon Senior Securities



Not Applicable.



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



| | (a) | The Company held its annual meeting of the shareholders on December 1, 2005.
| | --- | ----------------------------------------------------------------------------



| | (b) | Each of the following nominees for election to the Board of Directors of the Company were elected by the shareholders who were present or represented by proxy: Monte R. Black,
Alfred Friedman, Pete A. Klisares, Timothy A. Walsh and Luke Feck.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Of the 9,794,904 shares present in person or represented by proxy at the meeting, the number of shares voted for and the number of shares as to which the authority to vote in the
election was withheld, were as follows with respect to each director nominee:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                 |  |                                |  |                           
|---------------- |  | ------------------------------ |  | --------------------------
|Name             |  | Votes for Election of Director |  | Authority to Vote Withheld
|Monte R. Black   |  | 9,743,388                      |  | 51,516                    
|Alfred Friedman  |  | 9,743,388                      |  | 51,516                    
|Pete A. Klisares |  | 9,745,488                      |  | 49,416                    
|Timothy A. Walsh |  | 9,557,774                      |  | 237,130                   
|Luke Feck        |  | 9,745,488                      |  | 49,416                    



| | (d) | Not Applicable.
| | --- | ---------------



Item 5.Other Information



None.



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##### Table of Contents

Item 6.Exhibits



| | (e) | Exhibits.
| | --- | ---------



|     |  |                                                                                                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a) |  | Amended and Restated Articles of Incorporation of the Company effective November 4, 1999 (filed as Exhibit 3(a) to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
|     | 
|3(b) |  | Amended and Restated Code of Regulations of the Company effective November 4, 1999 (filed as Exhibit 3(b) to the Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, and incorporated herein by reference)       
|     | 
|31.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                        
|     | 
|31.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                        
|     | 
|32.1 |  | Certification of Principal Executive Officer, Monte R. Black, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                          
|     | 
|32.2 |  | Certification of Principal Financial Officer, Robert Valentine, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                        



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##### Table of Contents

SIGNATURES



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



|                         |  |                                      |  |                                                                                          
|------------------------ |  | ------------------------------------ |  | -----------------------------------------------------------------------------------------
|                         |  | MPW INDUSTRIAL SERVICES GROUP, INC.,
|                         |  | an Ohio corporation                 
|                         |  |                                     
|Dated: February 14, 2006 |  | By:                                  |  | /s/ Robert Valentine                                                                     
|                         |  |                                      |  | Robert Valentine                                                                         
|                         |  |                                      |  | Vice President, Chief Operating Officer, Chief Financial Officer, Secretary and Treasurer



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                         
|3(a)           |  | Amended and Restated Articles of Incorporation of the Company effective November 4, 1999 (filed as Exhibit 3(a) to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference).
|               | 
|3(b)           |  | Amended and Restated Code of Regulations of the Company effective November 4, 1999 (filed as Exhibit 3(b) to the Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, and incorporated herein by reference).      
|               | 
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                        
|               | 
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                        
|               | 
|32.1           |  | Certification of Principal Executive Officer, Monte R. Black, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                          
|               | 
|32.2           |  | Certification of Principal Financial Officer, Robert Valentine, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                        



22