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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



(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, 2003
| | ------------------------------------------------



OR



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



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



Commission File Number: 0-23335



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MPW INDUSTRIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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



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, 2004, 10,708,707 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



|              |  |                                                                                                                 |  |     
|------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|PART I.       |  | FINANCIAL INFORMATION                                                                                           |  | PAGE
|              |  |                                                                                                                
|Item 1.       |  | Financial Statements                                                                                            |  |     
|              |  |                                                                                                                
|              |  | Consolidated Balance Sheets as of December 31, 2003 (unaudited) and June 30, 2003                               |  | 3   
|              |  |                                                                                                                
|              |  | Consolidated Statements of Operations for the three and six months ended December 31, 2003 and 2002 (unaudited) |  | 4   
|              |  |                                                                                                                
|              |  | Consolidated Statements of Cash Flows for the six months ended December 31, 2003 and 2002 (unaudited)           |  | 5   
|              |  |                                                                                                                
|              |  | Notes to Consolidated Financial Statements (unaudited)                                                          |  | 6   
|              |  |                                                                                                                
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 12  
|              |  |                                                                                                                
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 15  
|              |  |                                                                                                                
|Item 4.       |  | Controls and Procedures                                                                                         |  | 15  
|              |  |                                                                                                                
|PART II.      |  | OTHER INFORMATION                                                                                               |  |     
|              |  |                                                                                                                
|Item 1.       |  | Legal Proceedings                                                                                               |  | 17  
|              |  |                                                                                                                
|Item 2.       |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                |  | 17  
|              |  |                                                                                                                
|Item 3.       |  | Defaults Upon Senior Securities                                                                                 |  | 17  
|              |  |                                                                                                                
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 17  
|              |  |                                                                                                                
|Item 5.       |  | Other Information                                                                                               |  | 17  
|              |  |                                                                                                                
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                                |  | 17  
|              | 
|SIGNATURES    |  | 19                                                                                                             
|              | 
|EXHIBIT INDEX |  | 20                                                                                                             



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 31,2003 |         |   | June 30,2003 |  
|                                                                                                                                                                       |  | (unaudited)      |         |   |              |  
|ASSETS                                                                                                                                                                 |  |                  |         |   |              |   |        |  
|Cash                                                                                                                                                                   |  | $                | 691     |   |              | $ | 2,726  |  
|Accounts receivable, net                                                                                                                                               |  |                  | 13,566  |   |              |   | 17,201 |  
|Inventories                                                                                                                                                            |  |                  | 2,346   |   |              |   | 2,294  |  
|Deferred income taxes                                                                                                                                                  |  |                  | 1,560   |   |              |   | 1,461  |  
|Prepaid expenses                                                                                                                                                       |  |                  | 839     |   |              |   | 1,197  |  
|Other current assets                                                                                                                                                   |  |                  | 17      |   |              |   | 16     |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total current assets                                                                                                                                                   |  |                  | 19,019  |   |              |   | 24,895 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Property and equipment, net                                                                                                                                            |  |                  | 33,071  |   |              |   | 35,120 |  
|Goodwill                                                                                                                                                               |  |                  | 6,044   |   |              |   | 6,044  |  
|Other intangibles, net                                                                                                                                                 |  |                  | 6,581   |   |              |   | 6,889  |  
|Other assets                                                                                                                                                           |  |                  | 104     |   |              |   | 122    |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total assets                                                                                                                                                           |  | $                | 64,819  |   |              | $ | 73,070 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|                                                                                                                                                                       |  |                 
|LIABILITIES                                                                                                                                                            |  |                  |         |   |              |   |        |  
|Accounts payable                                                                                                                                                       |  | $                | 5,149   |   |              | $ | 8,218  |  
|Accrued compensation and related taxes                                                                                                                                 |  |                  | 1,645   |   |              |   | 2,373  |  
|Current maturities of long-term debt                                                                                                                                   |  |                  | 1,298   |   |              |   | 1,322  |  
|Other accrued liabilities                                                                                                                                              |  |                  | 4,228   |   |              |   | 6,153  |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total current liabilities                                                                                                                                              |  |                  | 12,320  |   |              |   | 18,066 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Long-term debt                                                                                                                                                         |  |                  | 18,254  |   |              |   | 18,892 |  
|Deferred income taxes                                                                                                                                                  |  |                  | 3,603   |   |              |   | 3,400  |  
|Other long-term liabilities                                                                                                                                            |  |                  | 158     |   |              |   | 469    |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total liabilities                                                                                                                                                      |  |                  | 34,335  |   |              |   | 40,827 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|                                                                                                                                                                       |  |                 
|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; 10,958,707 and 10,939,957 shares issued and outstanding at December 31, 2003 and
June 30, 2003, respectively |  |                  | 109     |   |              |   | 109    |  
|Additional paid-in capital                                                                                                                                             |  |                  | 41,544  |   |              |   | 41,507 |  
|Accumulated deficit                                                                                                                                                    |  |                  | (11,030 | ) |              |   | (9,027 | )
|Accumulated other comprehensive loss                                                                                                                                   |  |                  | (139    | ) |              |   | (346   | )
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total shareholders equity                                                                                                                                             |  |                  | 30,484  |   |              |   | 32,243 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  
|Total liabilities and shareholders equity                                                                                                                             |  | $                | 64,819  |   |              | $ | 73,070 |  
|                                                                                                                                                                       |  |                  |         |   |              |   |        |  



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



3



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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 Ended December 31, |        |   | Six Months Ended December 31, |  
|                                                                                                       |  | 2003                            |        |   | 2002                          |   |        | 2003 |  |   | 2002   |  
|                                                                                                       |  | (unaudited)                     |        |   | (unaudited)                   |  
|Revenues                                                                                               |  | $                               | 22,315 |   |                               | $ | 23,982 |      |  | $ | 41,975 |   |  | $ | 48,006 |  
|Cost of services (including depreciation)                                                              |  |                                 | 18,090 |   |                               |   | 18,735 |      |  |   | 35,107 |   |  |   | 37,934 |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                                                           |  |                                 | 4,225  |   |                               |   | 5,247  |      |  |   | 6,868  |   |  |   | 10,072 |  
|Selling, general and administrative expenses                                                           |  |                                 | 4,254  |   |                               |   | 4,065  |      |  |   | 9,128  |   |  |   | 8,699  |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations                                                                          |  |                                 | (29    | ) |                               |   | 1,182  |      |  |   | (2,260 | ) |  |   | 1,373  |  
|Interest expense, net                                                                                  |  |                                 | 278    |   |                               |   | 512    |      |  |   | 561    |   |  |   | 1,013  |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations before income taxes (benefit) and equity in loss of affiliate |  |                                 | (307   | ) |                               |   | 670    |      |  |   | (2,821 | ) |  |   | 360    |  
|Provision (benefit) for income taxes                                                                   |  |                                 | 263    |   |                               |   | 281    |      |  |   | (818   | ) |  |   | 151    |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations before equity in loss of affiliate                            |  |                                 | (570   | ) |                               |   | 389    |      |  |   | (2,003 | ) |  |   | 209    |  
|Equity in loss of affiliate                                                                            |  |                                 |       |   |                               |   | (149   | )    |  |   |       |   |  |   | (184   | )
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations                                                               |  |                                 | (570   | ) |                               |   | 240    |      |  |   | (2,003 | ) |  |   | 25     |  
|Income from discontinued operations, net of tax                                                        |  |                                 |       |   |                               |   | 31     |      |  |   |       |   |  |   | 43     |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) before cumulative effect of change in accounting principle                               |  |                                 | (570   | ) |                               |   | 271    |      |  |   | (2,003 | ) |  |   | 68     |  
|Cumulative effect of change in accounting principle                                                    |  |                                 |       |   |                               |   |       |      |  |   |       |   |  |   | (2,845 | )
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                                                                      |  | $                               | (570   | ) |                               | $ | 271    |      |  | $ | (2,003 | ) |  | $ | (2,777 | )
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                       |  |                                 |        |  
|Net income (loss) per share, basic and diluted:                                                        |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations                                                               |  | $                               | (0.05  | ) |                               | $ | 0.02   |      |  | $ | (0.18  | ) |  | $ |       |  
|Income from discontinued operations, net of tax                                                        |  |                                 |       |   |                               |   |       |      |  |   |       |   |  |   |       |  
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) before cumulative effect of change in accounting principle                               |  |                                 | (0.05  | ) |                               |   | 0.02   |      |  |   | (0.18  | ) |  |   |       |  
|Cumulative effect of change in accounting principle                                                    |  |                                 |       |   |                               |   |       |      |  |   |       |   |  |   | (0.26  | )
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per share                                                                            |  | $                               | (0.05  | ) |                               | $ | 0.02   |      |  | $ | (0.18  | ) |  | $ | (0.26  | )
|                                                                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                       |  |                                 |        |  
|Weighted average shares outstanding                                                                    |  |                                 | 10,951 |   |                               |   | 10,940 |      |  |   | 10,947 |   |  |   | 10,940 |  
|Weighted average shares outstanding, assuming dilution                                                 |  |                                 | 10,951 |   |                               |   | 10,958 |      |  |   | 10,947 |   |  |   | 10,976 |  



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 CASH FLOWS

(in thousands)



|                                                                                |  |                               |        |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                |  | Six Months Ended December 31, |       
|                                                                                |  | 2003                          |        |   | 2002 |  
|                                                                                |  | (unaudited)                   |       
|Cash flows from operating activities:                                           |  |                               |        |   |      |   |         |  
|Net loss                                                                        |  | $                             | (2,003 | ) |      | $ | (2,777  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                               |        |   |      |   |         |  
|Depreciation                                                                    |  |                               | 4,221  |   |      |   | 4,482   |  
|Amortization                                                                    |  |                               | 308    |   |      |   | 340     |  
|Equity in loss of affiliate                                                     |  |                               |       |   |      |   | 184     |  
|Loss on disposal of assets                                                      |  |                               | 44     |   |      |   | 46      |  
|Change in deferred income taxes                                                 |  |                               | (20    | ) |      |   | 225     |  
|Cumulative effect of change in accounting principle                             |  |                               |       |   |      |   | 2,845   |  
|Changes in operating assets and liabilities:                                    |  |                               |        |   |      |   |         |  
|Accounts receivable                                                             |  |                               | 3,635  |   |      |   | (2,909  | )
|Inventories                                                                     |  |                               | (52    | ) |      |   | (335    | )
|Prepaid expenses and other assets                                               |  |                               | 375    |   |      |   | 374     |  
|Accounts payable                                                                |  |                               | (3,049 | ) |      |   | 478     |  
|Other accrued liabilities                                                       |  |                               | (2,562 | ) |      |   | (1,186  | )
|                                                                                |  |                               |        |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                               | 897    |   |      |   | 1,767   |  
|                                                                                |  |                               |        |   |      |   |         |  
|                                                                                |  |                              
|Cash flows from investing activities:                                           |  |                               |        |   |      |   |         |  
|Purchases of property and equipment                                             |  |                               | (2,336 | ) |      |   | (4,092  | )
|Investment in affiliate                                                         |  |                               |       |   |      |   | (365    | )
|Proceeds from the disposal of property and equipment                            |  |                               | 29     |   |      |   | 15      |  
|                                                                                |  |                               |        |   |      |   |         |  
|Net cash used in investing activities                                           |  |                               | (2,307 | ) |      |   | (4,442  | )
|                                                                                |  |                               |        |   |      |   |         |  
|                                                                                |  |                              
|Cash flows from financing activities:                                           |  |                               |        |   |      |   |         |  
|Proceeds from exercise of stock options                                         |  |                               | 37     |   |      |   |        |  
|Proceeds from revolving credit facility                                         |  |                               | 3,850  |   |      |   | 17,349  |  
|Payments on revolving credit facility                                           |  |                               | (4,450 | ) |      |   | (14,497 | )
|Issuance of notes payable                                                       |  |                               |       |   |      |   | 85      |  
|Payments on notes payable                                                       |  |                               | (62    | ) |      |   | (146    | )
|                                                                                |  |                               |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                             |  |                               | (625   | ) |      |   | 2,791   |  
|                                                                                |  |                               |        |   |      |   |         |  
|                                                                                |  |                              
|Increase (decrease) in cash                                                     |  |                               | (2,035 | ) |      |   | 116     |  
|Cash at beginning of year                                                       |  |                               | 2,726  |   |      |   | 164     |  
|                                                                                |  |                               |        |   |      |   |         |  
|Cash at end of period                                                           |  | $                             | 691    |   |      | $ | 280     |  
|                                                                                |  |                               |        |   |      |   |         |  



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



5



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(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 cleaning and facility maintenance, 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, manufacturing, steel, utility, pulp and paper 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, 2003 and 2002, respectively, in accordance with 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 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, 2003 (Annual Report). The results of
operations for the three and six months ended December 31, 2003 and 2002, respectively, are not necessarily indicative of the results for the full year.



Comprehensive Income (Loss)Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires
that an enterprise report the change in its equity during the period from non-owner sources as other comprehensive income (loss). The Company has evaluated the statement and determined that the only items in addition to net income (loss) that would
be included in comprehensive income (loss) are the foreign currency translation adjustment and the mark-to-market adjustment on interest rate swaps. Comprehensive income (loss) for the three months ended December 31, 2003 and 2002 was $(0.5) million
and $0.3 million, respectively. Comprehensive loss for the six months ended December 31, 2003 and 2002 was $(1.8) million and $(2.7) million, respectively.



Stock Options Effective January 1, 2003, the Company adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. As of December 31, 2003, the Company has two stock-based compensation plans, which are described in detail in the annual report on Form 10-K for the year ended June 30, 2003. The Company accounts for
these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation cost is reflected in the
Companys net income (loss), as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and net
income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (in thousands, except per share data):



|                                                                                                                   |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------------------------- | ----- | - | ----------------------------- | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                   |  | Three MonthsEndedDecember 31, |       |   | Six Months Ended December 31, |  
|                                                                                                                   |  | 2003                          |       |   | 2002                          |   |      | 2003 |  |   | 2002   |  
|Net income (loss):                                                                                                 |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|As reported                                                                                                        |  | $                             | (570  | ) |                               | $ | 271  |      |  | $ | (2,003 | ) |  | $ | (2,777 | )
|Less: Stock-based compensation determined under fair value based method for all awards, net of related tax effects |  |                               | (13   | ) |                               |   | (34  | )    |  |   | (39    | ) |  |   | (75    | )
|                                                                                                                   |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                        |  | $                             | (583  | ) |                               | $ | 237  |      |  | $ | (2,042 | ) |  | $ | (2,852 | )
|                                                                                                                   |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|Net income (loss) per share, basic and diluted:                                                                    |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|As reported                                                                                                        |  | $                             | (0.05 | ) |                               | $ | 0.02 |      |  | $ | (0.18  | ) |  | $ | (0.26  | )
|                                                                                                                   |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                          |  | $                             | (0.05 | ) |                               | $ | 0.02 |      |  | $ | (0.19  | ) |  | $ | (0.26  | )
|                                                                                                                   |  |                               |       |   |                               |   |      |      |  |   |        |   |  |   |        |  



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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)



Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America 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, 2002 have been reclassified to conform to the December 31, 2003 presentation.



Note 2. Goodwill and Other Intangibles



Effective July 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, and recorded an impairment charge of $2.8 million, net of tax of $1.9 million, as a cumulative effect of change in
accounting principle in connection with the transitional impairment test under SFAS No. 142. The Company used discounted cash flow and market comparison methodologies to determine the fair value of the Companys reporting units. The impairment
charge related to the Industrial Container Cleaning reporting unit and the medical and laboratory water purification reporting unit of the Industrial Water Process Purification segment (WTW) and primarily reflected a decline in operating
results largely due to the economic downturn that has affected many of the customers that these reporting units serve.



Unless otherwise deemed necessary, the Company will perform its annual impairment test during the fourth quarter of each year. No further impairment
charges have been necessary since the transitional impairment charge recorded upon the adoption of SFAS No. 142.



Other intangibles are summarized as follows (in thousands):



|                                 |  |                         |        |                          |                     |        |                       |  |                          |        |  |   |        |  
|-------------------------------- |  | ----------------------- | ------ | ------------------------ | ------------------- | ------ | --------------------- |  | ------------------------ | ------ |  | - | ------ | -
|                                 |  | As of December 31, 2003 |        |                          | As of June 30, 2003 |       
|                                 |  | Gross Carrying Amount   |        | Accumulated Amortization |                     |        | Gross Carrying Amount |  | Accumulated Amortization |       
|Amortized intangible assets:     |  |                         |        |                          |                     |        |                       |  |                          |        |  |   |        |  
|Customer relationships and lists |  | $                       | 8,295  |                          | $                   | (2,376 | )                     |  | $                        | 8,295  |  | $ | (2,171 | )
|Patents                          |  |                         | 1,393  |                          |                     | (754   | )                     |  |                          | 1,393  |  |   | (685   | )
|Non-compete agreements           |  |                         | 485    |                          |                     | (462   | )                     |  |                          | 485    |  |   | (428   | )
|                                 |  |                         |        |                          |                     |        |                       |  |                          |        |  |   |        |  
|                                 |  | $                       | 10,173 |                          | $                   | (3,592 | )                     |  | $                        | 10,173 |  | $ | (3,284 | )
|                                 |  |                         |        |                          |                     |        |                       |  |                          |        |  |   |        |  



Amortization expense
related to other intangibles was $0.2 million for the three months ended December 31, 2003 and $0.3 million for the six months ended December 31, 2003. Estimated amortization expense for the current and next five fiscal years is as follows (in
thousands):



|                                 |  |                                |    
|-------------------------------- |  | ------------------------------ | ---
|                                 |  | Estimated Amortization Expense
|For the year ended June 30, 2004 |  | $                              | 605
|For the year ended June 30, 2005 |  |                                | 542
|For the year ended June 30, 2006 |  |                                | 534
|For the year ended June 30, 2007 |  |                                | 534
|For the year ended June 30, 2008 |  |                                | 534
|For the year ended June 30, 2009 |  |                                | 406



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)



Note 3. Investment in Affiliate



During the fourth quarter of fiscal 2003, the Company recorded a $3.8 million other than temporary impairment charge to fully write off the Companys
remaining investment in Pentagon Technologies Group, Inc. (Pentagon) due to continued declines in operating results as well as the slowdown and uncertainty in the semi-conductor industry. As a result of the full write-off of the
Companys investment in Pentagon at June 30, 2003, the Company has not continued to recognize its equity investment in the losses of Pentagon in fiscal 2004. At December 31, 2003 and June 30, 2003, the Companys underlying equity in the
net assets of Pentagon was $3.1 million and $3.8 million, respectively.



Summarized operating data of Pentagon for the three and six months ended December 31, 2002 is presented in the following table (in thousands):



|                     |  |                                     |       |   |                                   |   |        |  
|-------------------- |  | ----------------------------------- | ----- | - | --------------------------------- | - | ------ | -
|                     |  | Three Months EndedDecember 31, 2002 |       |   | Six Months EndedDecember 31, 2002 |  
|Revenues             |  | $                                   | 8,053 |   |                                   | $ | 17,785 |  
|                     |  |                                     |       |   |                                   |   |        |  
|Loss from operations |  | $                                   | (916  | ) |                                   | $ | (842   | )
|                     |  |                                     |       |   |                                   |   |        |  
|Net loss             |  | $                                   | (868  | ) |                                   | $ | (1,028 | )
|                     |  |                                     |       |   |                                   |   |        |  



Summarized balance
sheet data of Pentagon at June 30, 2003 is presented in the following table (in thousands):



|                           |  |               |         |  
|-------------------------- |  | ------------- | ------- | -
|                           |  | June 30, 2003 |        
|Current assets             |  | $             | 8,289   |  
|Noncurrent assets          |  |               | 33,056  |  
|Current liabilities        |  |               | (7,181  | )
|Noncurrent liabilities     |  |               | (15,690 | )
|Redeemable preferred stock |  |               | (3,624  | )
|                           |  |               |         |  
|Equity                     |  | $             | 14,850  |  
|                           |  |               |         |  



Note 4. Income Taxes



The income tax expense for the three months ended
December 31, 2003 reflects a reduction in the effective annual income tax rate from 43% to 29% due to changes in expected income levels. The change in the tax rate increased the net loss for the three months ended December 31, 2003 by approximately
$0.4 million, or $0.03 per share. The lower effective tax rate is due to the relative effect of permanent items resulting from a change in estimated fiscal 2004 annual pretax earnings from pretax income to a pretax loss.



8



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)



Note 5. Earnings per Share



The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):



|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ----------------------------- | ---- | - | ------ |  | - | ------ | - |  | - | ------ | -
|                                                                                                                    |  | Three Months EndedDecember 31, |        | Six Months Ended December 31, |     
|                                                                                                                    |  | 2003                           |        |                               | 2002 |   | 2003   |  |   | 2002   |  
|Numerator for basic and diluted net income (loss) per share:                                                        |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations                                                                            |  | $                              | (570   | )                             |      | $ | 240    |  | $ | (2,003 | ) |  | $ | 25     |  
|Income from discontinued operations, net of tax                                                                     |  |                                |       |                               |      |   | 31     |  |   |       |   |  |   | 43     |  
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Income (loss) before cumulative effect of change in accounting principle                                            |  |                                | (570   | )                             |      |   | 271    |  |   | (2,003 | ) |  |   | 68     |  
|Cumulative effect of change in accounting principle                                                                 |  |                                |       |                               |      |   |       |  |   |       |   |  |   | (2,845 | )
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Net income (loss)                                                                                                   |  | $                              | (570   | )                             |      | $ | 271    |  | $ | (2,003 | ) |  | $ | (2,777 | )
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|                                                                                                                    |  |                                |        |                              
|Denominator for basic net income (loss) per share:                                                                  |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Weighted average common shares                                                                                      |  |                                | 10,951 |                               |      |   | 10,940 |  |   | 10,947 |   |  |   | 10,940 |  
|Effect of dilutive securities:                                                                                      |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Dilutive employee stock options                                                                                     |  |                                |       |                               |      |   | 18     |  |   |       |   |  |   | 36     |  
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Denominator for diluted net income (loss) per shareadjusted weighted average common shares and assumed conversions |  |                                | 10,951 |                               |      |   | 10,958 |  |   | 10,947 |   |  |   | 10,976 |  
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|                                                                                                                    |  |                                |        |                              
|Net income (loss) per share, basic and diluted:                                                                     |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Income (loss) from continuing operations                                                                            |  | $                              | (0.05  | )                             |      | $ | 0.02   |  | $ | (0.18  | ) |  | $ |       |  
|Income from discontinued operations, net of tax                                                                     |  |                                |       |                               |      |   |       |  |   |       |   |  |   |       |  
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Income (loss) before cumulative effect of change in accounting principle                                            |  |                                | (0.05  | )                             |      |   | 0.02   |  |   | (0.18  | ) |  |   |       |  
|Cumulative effect of change in accounting principle                                                                 |  |                                |       |                               |      |   |       |  |   |       |   |  |   | (0.26  | )
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  
|Net income (loss) per share                                                                                         |  | $                              | (0.05  | )                             |      | $ | 0.02   |  | $ | (0.18  | ) |  | $ | (0.26  | )
|                                                                                                                    |  |                                |        |                               |      |   |        |  |   |        |   |  |   |        |  



Options to purchase
444,650 and 1,279,550 shares of common stock at a weighted average price of $8.98 and $5.72 per share, were outstanding during the three months ended December 31, 2003 and 2002, 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 945,000 shares of common stock at a weighted average price of
$2.02 per share were outstanding during the three months ended December 31, 2003, but were not included in the computation of diluted earnings per share because the Company reported a net loss for the three months ended December 31, 2003 and,
therefore, the effect would be antidilutive.



Options to
purchase 466,650 and 1,278,800 shares of common stock at a weighted average price of $8.67 and $5.75 per share, were outstanding during the six months ended December 31, 2003 and 2002, 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 923,000 shares of common stock at a weighted average
price of $2.01 per share were outstanding during the six months ended December 31, 2003, but were not included in the computation of diluted earnings per share because the Company reported a net loss for the six months ended December 31, 2003 and,
therefore, the effect would be antidilutive.



9



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)



Note 6. 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 entertainment and overnight lodging of customers and other business associates. Total expenses
related to these leases and to the ranch were $0.6 million for the three months ended December 31, 2003 and 2002 and $1.1 million for the six months ended December 31, 2003 and 2002.



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 $21,000 and $1,000 for the three months ended December 31, 2003 and 2002, respectively, and $27,000 and $6,000 for the six months ended December 31, 2003 and 2002, 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.



Note 7. Segment Reporting



Summarized financial information for the Companys reportable segments
is set forth below (in thousands). 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 are allocated to each segment equally.



Commencing in the second quarter of fiscal 2004, the Company changed its internal reporting structure to better align the operations with customer needs.
As a result of this change, the Chemical Cleaning business unit, previously reported under the Industrial Cleaning and Facility Maintenance segment, is now reported under the Industrial Water Process Purification segment. The amounts presented for
prior periods have been restated to reflect this change in segments.



|                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|-------------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                             |  | Three Months EndedDecember 31, |        | Six Months EndedDecember 31,
|                                             |  | 2003                           |        |                              | 2002 |   | 2003   |  |   | 2002  
|Revenue                                      |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Industrial Cleaning and Facility Maintenance |  | $                              | 17,103 |                              |      | $ | 18,633 |  | $ | 31,503 |   |  | $ | 37,214
|Industrial Container Cleaning                |  |                                | 2,813  |                              |      |   | 2,749  |  |   | 5,566  |   |  |   | 5,510 
|Industrial Water Process Purification        |  |                                | 2,399  |                              |      |   | 2,600  |  |   | 4,906  |   |  |   | 5,282 
|                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Total                                        |  | $                              | 22,315 |                              |      | $ | 23,982 |  | $ | 41,975 |   |  | $ | 48,006
|                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|                                             |  |                                |        |                             
|Income (Loss) from Operations                |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Industrial Cleaning and Facility Maintenance |  | $                              | (264   | )                            |      | $ | 823    |  | $ | (2,948 | ) |  | $ | 680   
|Industrial Container Cleaning                |  |                                | 430    |                              |      |   | 50     |  |   | 855    |   |  |   | 27    
|Industrial Water Process Purification        |  |                                | (195   | )                            |      |   | 309    |  |   | (167   | ) |  |   | 666   
|                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Total                                        |  | $                              | (29    | )                            |      | $ | 1,182  |  | $ | (2,260 | ) |  | $ | 1,373 
|                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       



10



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)



|                                             |  |                  |        |              |   |       
|-------------------------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                                             |  | December 31,2003 |        | June 30,2003
|Total Assets                                 |  |                  |        |              |   |       
|Industrial Cleaning and Facility Maintenance |  | $                | 33,211 |              | $ | 37,711
|Industrial Container Cleaning                |  |                  | 13,014 |              |   | 13,739
|Industrial Water Process Purification        |  |                  | 11,075 |              |   | 11,577
|Other (1)                                    |  |                  | 7,519  |              |   | 10,043
|                                             |  |                  |        |              |   |       
|Total                                        |  | $                | 64,819 |              | $ | 73,070
|                                             |  |                  |        |              |   |       



|(1) | Other consists of assets related to corporate.
|--- | ----------------------------------------------



Note 8. Discontinued Operations



On June 30, 2003, the Company closed on the sale of the medical and laboratory water purification reporting unit of the Industrial Water Process
Purification segment (WTW). Income from discontinued operations, net of tax, for the three and six months ended December 31, 2002 was approximately $31,000 and $43,000, respectively.



Note 9. Subsequent Event



Subsequent to December 31, 2003, an accident involving an employee of the
Company occurred on a job site. While the potential liability cannot currently be estimated, it is reasonably possible that the accident could have a material impact on the Companys operating results for the third quarter of fiscal 2004.



11



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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 Unaudited Consolidated Financial Statements and related notes included elsewhere in
this Form 10-Q. The following information should also be read in conjunction with the Audited Consolidated Financial Statements and related notes and MD&A for the year ended June 30, 2003 as contained in the Companys Annual Report on Form
10-K.



Results of Operations



The following table sets forth revenue and income (loss) from operations by
segment for the three and six months ended December 31, 2003 and 2002. 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 are allocated to each segment equally.



Commencing in the second quarter of fiscal 2004, the Company changed its internal reporting structure to better align the operations with customer needs.
As a result of this change, the Chemical Cleaning business unit, previously reported under the Industrial Cleaning and Facility Maintenance segment, is now reported under the Industrial Water Process Purification segment. The amounts presented for
prior periods have been restated to reflect this change in segments.



|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|-------------------------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | ----- | -- | ------ | - | ----------- | ---- | ----- | ------ |  | - | ----------- | - |  | ------ | -- | ----------- | - | ------ |  | ----- | -
|                                             |  | Three Months Ended December 31, |        |   | Six Months Ended December 31, |      
|                                             |  | 2003                            |        |   | 2002                          |       |    | 2003   |   |             | 2002 |      
|                                             |  | Actual                          |        |   | % ofRevenue                   |       |    | Actual |   | % ofRevenue |      |       | Actual |  |   | % ofRevenue |   |  | Actual |    | % ofRevenue |  
|                                             |  | (unaudited; in thousands)       |       
|Revenue                                      |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|Industrial Cleaning and Facility Maintenance |  | $                               | 17,103 |   |                               | 76.6  | %  |        | $ | 18,633      |      | 77.7  | %      |  | $ | 31,503      |   |  | 75.0   | %  |             | $ | 37,214 |  | 77.5  | %
|Industrial Container Cleaning                |  |                                 | 2,813  |   |                               | 12.6  |    |        |   | 2,749       |      | 11.5  |        |  |   | 5,566       |   |  | 13.3   |    |             |   | 5,510  |  | 11.5  |  
|Industrial Water Process Purification        |  |                                 | 2,399  |   |                               | 10.8  |    |        |   | 2,600       |      | 10.8  |        |  |   | 4,906       |   |  | 11.7   |    |             |   | 5,282  |  | 11.0  |  
|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|Total revenue                                |  |                                 | 22,315 |   |                               | 100.0 |    |        |   | 23,982      |      | 100.0 |        |  |   | 41,975      |   |  | 100.0  |    |             |   | 48,006 |  | 100.0 |  
|                                             |  |                                 |        |   |                               |       |    |       
|Cost of services (including depreciation)    |  |                                 | 18,090 |   |                               | 81.1  |    |        |   | 18,735      |      | 78.1  |        |  |   | 35,107      |   |  | 83.6   |    |             |   | 37,934 |  | 79.0  |  
|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|                                             |  |                                 |        |   |                               |       |    |       
|Gross profit                                 |  |                                 | 4,225  |   |                               | 18.9  |    |        |   | 5,247       |      | 21.9  |        |  |   | 6,868       |   |  | 16.4   |    |             |   | 10,072 |  | 21.0  |  
|                                             |  |                                 |        |   |                               |       |    |       
|Selling, general and administrative expenses |  |                                 | 4,254  |   |                               | 19.0  |    |        |   | 4,065       |      | 17.0  |        |  |   | 9,128       |   |  | 21.8   |    |             |   | 8,699  |  | 18.1  |  
|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|                                             |  |                                 |        |   |                               |       |    |       
|Income (loss) from operations                |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|Industrial Cleaning and Facility Maintenance |  |                                 | (264   | ) |                               | (1.5  | )  |        |   | 823         |      | 4.4   |        |  |   | (2,948      | ) |  | (9.4   | )  |             |   | 680    |  | 1.8   |  
|Industrial Container Cleaning                |  |                                 | 430    |   |                               | 15.3  |    |        |   | 50          |      | 1.8   |        |  |   | 855         |   |  | 15.4   |    |             |   | 27     |  | 0.5   |  
|Industrial Water Process Purification        |  |                                 | (195   | ) |                               | (8.1  | )  |        |   | 309         |      | 11.9  |        |  |   | (167        | ) |  | (3.4   | )  |             |   | 666    |  | 12.6  |  
|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  
|Total income (loss) from operations          |  | $                               | (29    | ) |                               | (0.1  | )% |        | $ | 1,182       |      | 4.9   | %      |  | $ | (2,260      | ) |  | (5.4   | )% |             | $ | 1,373  |  | 2.9   | %
|                                             |  |                                 |        |   |                               |       |    |        |   |             |      |       |        |  |   |             |   |  |        |    |             |   |        |  |       |  



12



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##### Table of Contents

Three Months Ended December 31, 2003 Compared to Three Months Ended December 31, 2002



Basis of Presentation. Certain amounts presented for the three months
ended December 31, 2002 have been reclassified to conform to the December 31, 2003 presentation.



Revenues. Revenues decreased 7.0% to $22.3 million in the second quarter of fiscal 2004 from $24.0 million in the prior year period. The decrease
in the Industrial Cleaning and Facility Maintenance (Industrial Cleaning) segment was primarily the result of the loss of several customers due to a combination of factors, including aggressive pricing by competitors, and a decrease in
demand for project work at existing customers. The decrease in the Industrial Water Process Purification (Industrial Water) segment was primarily the result of fewer industrial water purification trailers supplied to customers on an
emergency basis as a result of mild weather conditions.



Cost of Services. Total cost of services was $18.1 million for the three months ended December 31, 2003 compared to $18.7 million for the three months ended December 31, 2002. Cost of services as a percentage of revenue increased to
81.1% in the second quarter of fiscal 2004 from 78.1% in the prior year period. This increase was primarily driven by high fixed labor costs, increased workers compensation, insurance and supply costs primarily in the Industrial Cleaning and
Industrial Water segments, slightly offset by decreased use of subcontractors primarily in the Industrial Cleaning segment.



Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of revenue increased to 19.0% in the
second quarter of fiscal 2004 from 17.0% in the prior year period. Selling, general and administrative expenses were $4.3 million and $4.1 million for the three months ended December 31, 2003 and 2002, respectively. The increase was primarily due to
increased selling expenses as a result of an increased focus on business development in the Industrial Cleaning segment and increased legal costs, slightly offset by a reduction in administrative personnel costs.



Income (Loss) from Operations.Loss from operations was $(29) thousand
for the three months ended December 31, 2003 compared to income from operations of $1.2 million for the three months ended December 31, 2002. As a percentage of revenue, income (loss) from operations decreased to (0.1)% in the second quarter of
fiscal 2004 from 4.9% in the prior year period primarily related to the factors discussed above.



Interest Expense. Interest expense decreased to $0.3 million in the second quarter of fiscal 2004 from $0.5 million in the prior year period. The
decrease was primarily due to lower average outstanding borrowings and lower interest rates.



Provision for Income Taxes. The income tax expense for the three months ended December 31, 2003 reflects a reduction in the effective annual income tax rate from 43% to 29% due to changes in expected income
levels. The change in the tax rate increased the net loss for the three months ended December 31, 2003 by approximately $0.4 million, or $0.03 per share. The lower effective tax rate is due to the relative effect of permanent items resulting from a
change in estimated fiscal 2004 annual pretax earnings from pretax income to a pretax loss. The provision for income taxes for the three months ended December 31, 2002 reflects an effective rate of 42%.



Discontinued Operations.On June 30, 2003, the Company closed on the
sale of the medical and laboratory water purification reporting unit of the Industrial Water segment (WTW). Income from discontinued operations, net of tax, for the three months ended December 31, 2002 was approximately $31,000.



Six Months Ended December 31, 2003 Compared to Six Months Ended December
31, 2002



Basis of Presentation. Certain
amounts presented for the six months ended December 31, 2002 have been reclassified to conform to the December 31, 2003 presentation.



Revenues. Revenues decreased 12.6% to $42.0 million in the first six months of fiscal 2004 from $48.0 million in the prior year period. The
decrease was primarily related to the factors discussed above.



Cost of Services. Total cost of services was $35.1 million for the six months ended December 31, 2003 compared to $37.9 million for the six months ended December 31, 2002. Cost of services as a percentage of revenue increased to
83.6% in the first six months of fiscal 2004 from 79.0% in the prior year period. The increase was primarily related to the factors discussed above.



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Selling, General and Administrative Expenses.Total selling, general and administrative expenses
were $9.1 million and $8.7 million for the six months ended December 31, 2003 and 2002, respectively. The increase was primarily due to additional bad debt expense of $1.1 million related to a bankruptcy filing by a customer of the Industrial
Cleaning segment and increased selling expenses as a result of an increased focus on business development in the Industrial Cleaning and Industrial Water segments, slightly offset by a reduction in administrative personnel costs, decreased incentive
compensation expense and decreases in various other costs due to an increased focus on cost control.



Income from Operations.Loss from operations was $(2.3) million for the six months ended December 31, 2003 compared to income from operations of
$1.4 million for the six months ended December 31, 2002. As a percentage of revenue, income (loss) from operations decreased to (5.4)% in the first six months of fiscal 2004 from 2.9% in the prior year period primarily related to the factors
discussed above.



Interest Expense. Interest expense
decreased to $0.6 million in the first six months of fiscal 2004 from $1.0 million in the prior year period. The decrease was primarily related to the factors discussed above.



Provision for Income Taxes. The income tax benefit for the six months ended December 31, 2003 reflects an effective
annual income tax rate of 29%. The provision for income taxes for the six months ended December 31, 2002 reflects an effective rate of 42%. The lower effective annual income tax rate in fiscal 2004 reflects the relative effect of permanent items to
an estimated annual pretax loss in fiscal 2004 versus pretax income in fiscal 2003.



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 entertainment and overnight lodging of customers and other business associates. Total expenses related to these leases and to the ranch were $0.6 million for the three months ended December 31, 2003 and 2002 and
$1.1 million for the six months ended December 31, 2003 and 2002.



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 $21,000 and $1,000 for the three months ended December 31, 2003 and 2002, respectively, and
$27,000 and $6,000 for the six months ended December 31, 2003 and 2002, 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, repair and maintenance or labor expense.



Subsequent Event



Subsequent to December 31, 2003, an accident involving an employee of the Company occurred on a job site. While the potential liability cannot currently be estimated, it is reasonably possible that the accident could have a material impact
on the Companys operating results for the third quarter of fiscal 2004.



Liquidity and Capital Resources



As of
December 31, 2003, the Company had cash of $0.7 million and working capital of $6.7 million. Cash provided by operating activities was $0.9 million for the six months ended December 31, 2003 and cash used for investing activities was $2.3 million.



In June 2002, the Company entered into a new credit agreement
with its principal banks (the Credit Facility). The Credit Facility provides the Company 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. As of December 31, 2003, including outstanding borrowings, there was $38.3 million available under the Credit Facility. The Credit Facility is subject to two one-year extensions by the banks at the request of the
Company.



The Credit Facility is secured by substantially all
of the Companys assets. Under the terms of the Credit Facility, the entire $38.3 million 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 2.00%. The Company also pays a commitment fee of 0.40% for unused portions of the Credit Facility. The



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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, 2003, outstanding borrowings under the Credit Facility were $19.4
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 $20.0 million
of variable rate debt. The swap agreements have a notional amount of $10.0 million each 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 are accounted for as cash flow hedges, as defined under SFAS No. 133, Accounting for Derivative and Hedging Activities. The Company adjusts the pay-fixed interest rate swaps to current
market values through other comprehensive income (loss). The Company anticipates that these contracts will continue to be effective. The gain/(loss) deferred in accumulated comprehensive income (loss) will be recognized immediately in earnings if
the contracts are no longer effective or the forecasted transactions are not expected to occur.



Critical Accounting Policies



In December 2001, the SEC issued Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies (FR 60), suggesting 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, 2003. 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, 2003. No changes were made to the Companys critical accounting policies during the three months ended December 31, 2003.



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, 2003, the balance on the Credit Facility was $19.4 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 $20.0 million of its variable rate credit facility through two interest rate swap agreements. Assuming
outstanding borrowings at December 31, 2003, 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.



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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.
| | --- | -----------------------------



There were no significant changes in the Companys internal controls or in other factors that could significantly affect those controls subsequent to
the end of the period covered by this quarterly report on Form 10-Q.



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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.



|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------



None requiring disclosure.



|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 3, 2003.
| | --- | ----------------------------------------------------------------------------



| | (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 10,659,250 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 Electionof Director |  | Authority to Vote Withheld
|Monte R. Black   |  | 9,878,661                     |  | 780,589                   
|Alfred Friedman  |  | 9,888,761                     |  | 770,489                   
|Pete A. Klisares |  | 9,915,983                     |  | 743,267                   
|Timothy A. Walsh |  | 9,907,682                     |  | 751,568                   
|Luke Feck        |  | 9,916,383                     |  | 742,867                   



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



|Item 5. | Other Information
|------- | -----------------



None.



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



| | (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
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Report on Form 8-K furnished on October 3, 2003 reporting a press release announcing the Companys results for fiscal 2003.
| | --- | ---------------------------------------------------------------------------------------------------------------------------



Report on Form 8-K furnished on November 14, 2003 reporting a press release
announcing the Companys results for the first quarter ended September 30, 2003.



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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 13, 2004 |  |  |  | By:                                                      |  | /s/    Robert Valentine
|                         |  |  |  |                                                          |  |                         | 
|                         |  |  |  |                                                          |  |                         |  | Robert Valentine Vice President, Chief Financial Officer, Secretary and Treasurer



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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                                                                        



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