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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 September 30, 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 ofincorporation or organization) |  | (I.R.S. employeridentification 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 October 31, 2003, 10,949,957 shares of the issuers common stock, without par value, were outstanding.



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##### Table of Contents

MPW INDUSTRIAL SERVICES GROUP, INC.



INDEX



|              |  |                                                                                                          |  | PAGE
|------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----
|PART I.       |  | FINANCIAL INFORMATION                                                                                    |  |     
|              |  |                                                                                                         
|Item 1.       |  | Financial Statements                                                                                     |  |     
|              |  |                                                                                                         
|              |  | Consolidated Balance Sheets as of September 30, 2003 (unaudited) and June 30, 2003                       |  | 3   
|              |  |                                                                                                         
|              |  | Consolidated Statements of Operations for the three months ended September 30, 2003 and 2002 (unaudited) |  | 4   
|              |  |                                                                                                         
|              |  | Consolidated Statements of Cash Flows for the three months ended September 30, 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                                                                                        |  | 16  
|              |  |                                                                                                         
|Item 2.       |  | Changes in Securities and Use of Proceeds                                                                |  | 16  
|              |  |                                                                                                         
|Item 3.       |  | Defaults Upon Senior Securities                                                                          |  | 16  
|              |  |                                                                                                         
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                      |  | 16  
|              |  |                                                                                                         
|Item 5.       |  | Other Information                                                                                        |  | 16  
|              |  |                                                                                                         
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                         |  | 16  
|              | 
|SIGNATURES    |  | 17                                                                                                      
|              | 
|EXHIBIT INDEX |  | 18                                                                                                      



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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)



|                                                                                                                                                                        |  | September 30,2003 |         |   | June 30,2003 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------ | -
|                                                                                                                                                                        |  | (unaudited)       |         |   |              |  
|ASSETS                                                                                                                                                                  |  |                   |         |   |              |  
|Cash                                                                                                                                                                    |  | $                 | 194     |   |              | $
|Accounts receivable, net                                                                                                                                                |  |                   | 11,461  |   |              |  
|Inventories                                                                                                                                                             |  |                   | 2,285   |   |              |  
|Deferred income taxes                                                                                                                                                   |  |                   | 1,576   |   |              |  
|Prepaid expenses                                                                                                                                                        |  |                   | 973     |   |              |  
|Other current assets                                                                                                                                                    |  |                   | 15      |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total current assets                                                                                                                                                    |  |                   | 16,504  |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Property and equipment, net                                                                                                                                             |  |                   | 34,355  |   |              |  
|Goodwill                                                                                                                                                                |  |                   | 6,044   |   |              |  
|Other intangibles, net                                                                                                                                                  |  |                   | 6,735   |   |              |  
|Other assets                                                                                                                                                            |  |                   | 113     |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total assets                                                                                                                                                            |  | $                 | 63,751  |   |              | $
|                                                                                                                                                                        |  |                   |         |   |              |  
|LIABILITIES                                                                                                                                                             |  |                   |         |   |              |  
|Accounts payable                                                                                                                                                        |  | $                 | 3,296   |   |              | $
|Accrued compensation and related taxes                                                                                                                                  |  |                   | 1,389   |   |              |  
|Current maturities of long-term debt                                                                                                                                    |  |                   | 1,313   |   |              |  
|Other accrued liabilities                                                                                                                                               |  |                   | 4,474   |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total current liabilities                                                                                                                                               |  |                   | 10,472  |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Long-term debt                                                                                                                                                          |  |                   | 18,570  |   |              |  
|Deferred income taxes                                                                                                                                                   |  |                   | 3,477   |   |              |  
|Other long-term liabilities                                                                                                                                             |  |                   | 306     |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total liabilities                                                                                                                                                       |  |                   | 32,825  |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|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; 10,949,957 and 10,939,957 shares issued and outstanding at September 30,
2003 and June 30, 2003, respectively |  |                   | 109     |   |              |  
|Additional paid-in capital                                                                                                                                              |  |                   | 41,527  |   |              |  
|Accumulated deficit                                                                                                                                                     |  |                   | (10,460 | ) |              |  
|Accumulated other comprehensive loss                                                                                                                                    |  |                   | (250    | ) |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total shareholders equity                                                                                                                                              |  |                   | 30,926  |   |              |  
|                                                                                                                                                                        |  |                   |         |   |              |  
|Total liabilities and shareholders equity                                                                                                                              |  | $                 | 63,751  |   |              | $
|                                                                                                                                                                        |  |                   |         |   |              |  



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



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MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)



|                                                                                          |  | Three Months EndedSeptember 30, |       
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                          |  | 2003                            |       
|                                                                                          |  | (unaudited)                     |       
|Revenues                                                                                  |  | $                               | 19,660
|Cost of services (including depreciation)                                                 |  |                                 | 17,017
|                                                                                          |  |                                 |       
|Gross profit                                                                              |  |                                 | 2,643 
|Selling, general and administrative expenses                                              |  |                                 | 4,874 
|                                                                                          |  |                                 |       
|Income (loss) from operations                                                             |  |                                 | (2,231
|Interest expense, net                                                                     |  |                                 | 283   
|                                                                                          |  |                                 |       
|Loss from continuing operations before income tax benefit and equity in loss of affiliate |  |                                 | (2,514
|Income tax benefit                                                                        |  |                                 | (1,081
|                                                                                          |  |                                 |       
|Loss from continuing operations before equity in loss of affiliate                        |  |                                 | (1,433
|Equity in loss of affiliate                                                               |  |                                 |      
|                                                                                          |  |                                 |       
|Loss from continuing operations                                                           |  |                                 | (1,433
|Income from discontinued operations, net of tax                                           |  |                                 |      
|                                                                                          |  |                                 |       
|Loss before cumulative effect of change in accounting principle                           |  |                                 | (1,433
|Cumulative effect of change in accounting principle                                       |  |                                 |      
|                                                                                          |  |                                 |       
|Net loss                                                                                  |  | $                               | (1,433
|                                                                                          |  |                                 |       
|Net loss per share, basic and diluted:                                                    |  |                                 |       
|Loss from continuing operations                                                           |  | $                               | (0.13 
|Income from discontinued operations, net of tax                                           |  |                                 |      
|                                                                                          |  |                                 |       
|Loss before cumulative effect of change in accounting principle                           |  |                                 | (0.13 
|Cumulative effect of change in accounting principle                                       |  |                                 |      
|                                                                                          |  |                                 |       
|Net loss per share                                                                        |  | $                               | (0.13 
|                                                                                          |  |                                 |       
|Weighted average shares outstanding                                                       |  |                                 | 10,944
|Weighted average shares outstanding, assuming dilution                                    |  |                                 | 10,944



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



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MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                          |  | Three Months EndedSeptember 30, |       
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                          |  | 2003                            |       
|                                                                                          |  | (unaudited)                     |       
|Cash flows from operating activities:                                                     |  |                                 |       
|Net loss                                                                                  |  | $                               | (1,433
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                 |       
|Depreciation                                                                              |  |                                 | 2,160 
|Amortization                                                                              |  |                                 | 154   
|Equity in loss of affiliate                                                               |  |                                 |      
|Loss on disposal of assets                                                                |  |                                 | 8     
|Change in deferred income taxes                                                           |  |                                 | (103  
|Cumulative effect of change in accounting principle                                       |  |                                 |      
|Changes in operating assets and liabilities:                                              |  |                                 |       
|Accounts receivable                                                                       |  |                                 | 5,740 
|Inventories                                                                               |  |                                 | 9     
|Prepaid expenses and other assets                                                         |  |                                 | 234   
|Accounts payable                                                                          |  |                                 | (4,924
|Other accrued liabilities                                                                 |  |                                 | (2,663
|                                                                                          |  |                                 |       
|Net cash provided by (used in) operating activities                                       |  |                                 | (818  
|                                                                                          |  |                                 |       
|Cash flows from investing activities:                                                     |  |                                 |       
|Purchases of property and equipment                                                       |  |                                 | (1,403
|Investment in affiliate                                                                   |  |                                 |      
|Proceeds from the disposal of property and equipment                                      |  |                                 |      
|                                                                                          |  |                                 |       
|Net cash used in investing activities                                                     |  |                                 | (1,403
|                                                                                          |  |                                 |       
|Cash flows from financing activities:                                                     |  |                                 |       
|Proceeds from exercise of stock options                                                   |  |                                 | 20    
|Proceeds from revolving credit facility                                                   |  |                                 |      
|Payments on revolving credit facility                                                     |  |                                 | (300  
|Issuance of notes payable                                                                 |  |                                 |      
|Payments on notes payable                                                                 |  |                                 | (31   
|                                                                                          |  |                                 |       
|Net cash provided by (used in) financing activities                                       |  |                                 | (311  
|                                                                                          |  |                                 |       
|Increase (decrease) in cash                                                               |  |                                 | (2,532
|Cash at beginning of year                                                                 |  |                                 | 2,726 
|                                                                                          |  |                                 |       
|Cash at end of period                                                                     |  | $                               | 194   
|                                                                                          |  |                                 |       



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



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 months ended September 30, 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 months ended September 30, 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 loss that would be included in comprehensive loss are the foreign currency translation adjustment and the mark-to-market adjustment on interest rate swaps. Comprehensive loss for the
three months ended September 30, 2003 and 2002 was $(1.3) million and $(3.0) 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 September 30, 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 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 loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123.



|                                                                                                                           |  | Three Months EndedSeptember 30, |       
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                                                           |  | 2003                            |       
|Net loss:                                                                                                                  |  |                                 |       
|As reported                                                                                                                |  | $                               | (1,433
|Less: Stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (16   
|                                                                                                                           |  |                                 |       
|Pro forma net loss                                                                                                         |  | $                               | (1,449
|                                                                                                                           |  |                                 |       
|Net loss per share, basic and diluted:                                                                                     |  |                                 |       
|As reported                                                                                                                |  | $                               | (0.13 
|                                                                                                                           |  |                                 |       
|Pro forma                                                                                                                  |  | $                               | (0.13 
|                                                                                                                           |  |                                 |       



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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.



Recently Adopted Accounting Standards Effective July 1, 2003, the
Company adopted the provisions of SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement clarifies under what circumstances a contract with an initial net investment meets the
characteristic of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 also amends certain other existing
pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. The adoption had no impact on the Companys
consolidated financial statements.



Effective July 1,
2003, the Company adopted the provisions of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The adoption had no impact on the Companys consolidated financial statements.



Reclassifications Certain amounts presented for the quarter ended September 30, 2002 have been reclassified to conform to the September 30, 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 September 30, 2003 |        |                         | As of June 30, 2003 |       
|-------------------------------- |  | ------------------------ | ------ | ----------------------- | ------------------- | ------
|                                 |  | GrossCarryingAmount      |        | AccumulatedAmortization |                     |       
|Amortized intangible assets:     |  |                          |        |                         |                     |       
|Customer relationships and lists |  | $                        | 8,295  |                         | $                   | (2,273
|Patents                          |  |                          | 1,393  |                         |                     | (720  
|Non-compete agreements           |  |                          | 485    |                         |                     | (445  
|                                 |  |                          |        |                         |                     |       
|                                 |  | $                        | 10,173 |                         | $                   | (3,438
|                                 |  |                          |        |                         |                     |       



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(unaudited)



Amortization expense related to other intangibles was $0.2 million for the three months ended September 30, 2003 and 2002, respectively. Estimated
amortization expense for the current and next five fiscal years is as follows (in thousands):



|                                 |  | EstimatedAmortizationExpense
|-------------------------------- |  | ----------------------------
|For the year ended June 30, 2004 |  | $                           
|For the year ended June 30, 2005 |  |                             
|For the year ended June 30, 2006 |  |                             
|For the year ended June 30, 2007 |  |                             
|For the year ended June 30, 2008 |  |                             
|For the year ended June 30, 2009 |  |                             



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 September 30, 2003 and June 30, 2003, the Companys underlying equity in the net assets of Pentagon was $3.3 million and $3.8 million, respectively.



Summarized operating data of Pentagon for the three months ended September 30, 2002 is presented in the following table (in
thousands):



|                       |  | Three MonthsEndedSeptember 30,2002 |      
|---------------------- |  | ---------------------------------- | -----
|Revenues               |  | $                                  | 9,732
|                       |  |                                    |      
|Income from operations |  | $                                  | 74   
|                       |  |                                    |      
|Net loss               |  | $                                  | (160 
|                       |  |                                    |      



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 
|                           |  |              |        



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(unaudited)



Note 4. Earnings per Share



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



|                                                                                                           |  | Three Months EndedSeptember 30, |       
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                                           |  | 2003                            |       
|Numerator for basic and diluted net loss per share:                                                        |  |                                 |       
|Loss from continuing operations                                                                            |  | $                               | (1,433
|Income from discontinued operations, net of tax                                                            |  |                                 |      
|                                                                                                           |  |                                 |       
|Loss before cumulative effect of change in accounting principle                                            |  |                                 | (1,433
|Cumulative effect of change in accounting principle                                                        |  |                                 |      
|                                                                                                           |  |                                 |       
|Net loss                                                                                                   |  | $                               | (1,433
|                                                                                                           |  |                                 |       
|Denominator for basic net loss per share:                                                                  |  |                                 |       
|Weighted average common shares                                                                             |  |                                 | 10,944
|Effect of dilutive securities:                                                                             |  |                                 |       
|Dilutive employee stock options                                                                            |  |                                 |      
|                                                                                                           |  |                                 |       
|Denominator for diluted net loss per share-adjusted weighted average common shares and assumed conversions |  |                                 | 10,944
|                                                                                                           |  |                                 |       
|Net loss per share, basic and diluted:                                                                     |  |                                 |       
|Loss from continuing operations                                                                            |  | $                               | (0.13 
|Income from discontinued operations, net of tax                                                            |  |                                 |      
|                                                                                                           |  |                                 |       
|Loss before cumulative effect of change in accounting principle                                            |  |                                 | (0.13 
|Cumulative effect of change in accounting principle                                                        |  |                                 |      
|                                                                                                           |  |                                 |       
|Net loss per share                                                                                         |  | $                               | (0.13 
|                                                                                                           |  |                                 |       



Options to purchase
962,750 and 1,278,050 shares of common stock at a weighted average price of $5.30 and $5.77 per share, were outstanding during the first quarter of fiscal 2004 and 2003, 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 447,500 and 473,000 shares of common stock at a weighted average price of
$1.85 per share were outstanding during the first quarter of fiscal 2004 and 2003, respectively, but were not included in the computation of diluted earnings per share because the Company reported a net loss for the quarters ended September 30, 2003
and 2002 and, therefore, the effect would be antidilutive.



Note 5. Related
Party Transactions



The Company rents certain land,
property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer under long-term lease agreements and other arrangements. Total expenses related to these leases and other arrangements were $0.5
million for the three months ended September 30, 2003 and 2002.



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(unaudited)



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 $6,000
and $5,000 for the three months ended September 30, 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 6. Segment Reporting



Summarized financial information for the Companys reportable segments is set forth below (in thousands). Corporate expenses are fully allocated to the segments. Corporate 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.



|                                             |  | Three Months EndedSeptember 30, |       
|-------------------------------------------- |  | ------------------------------- | ------
|                                             |  | 2003                            |       
|Revenue                                      |  |                                 |       
|Industrial Cleaning and Facility Maintenance |  | $                               | 15,169
|Industrial Container Cleaning                |  |                                 | 2,753 
|Industrial Water Process Purification        |  |                                 | 1,738 
|                                             |  |                                 |       
|Total                                        |  | $                               | 19,660
|                                             |  |                                 |       
|Income (Loss) from Operations                |  |                                 |       
|Industrial Cleaning and Facility Maintenance |  | $                               | (2,603
|Industrial Container Cleaning                |  |                                 | 425   
|Industrial Water Process Purification        |  |                                 | (53   
|                                             |  |                                 |       
|Total                                        |  | $                               | (2,231
|                                             |  |                                 |       
|                                             |  |                                
|                                             |  | September 30,2003               |       
|Total Assets                                 |  |                                 |       
|Industrial Cleaning and Facility Maintenance |  | $                               | 30,813
|Industrial Container Cleaning                |  |                                 | 13,438
|Industrial Water Process Purification        |  |                                 | 10,769
|Other (1)                                    |  |                                 | 8,731 
|                                             |  |                                 |       
|Total                                        |  | $                               | 63,751
|                                             |  |                                 |       

---

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



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MPW INDUSTRIAL SERVICES GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(unaudited)



Note 7. 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 months ended September 30, 2002 was approximately $12,000.



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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 months ended September 30, 2003 and 2002. Corporate
expenses are fully allocated to the segments. Corporate 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.



|                                             |  | Three Months Ended September 30, |       
|-------------------------------------------- |  | -------------------------------- | ------
|                                             |  | 2003                             |       
|                                             |  | Actual                           |       
|                                             |  | (unaudited; in thousands)        |       
|Revenue                                      |  |                                  |       
|Industrial Cleaning and Facility Maintenance |  | $                                | 15,169
|Industrial Container Cleaning                |  |                                  | 2,753 
|Industrial Water Process Purification        |  |                                  | 1,738 
|                                             |  |                                  |       
|Total revenue                                |  |                                  | 19,660
|                                             |  |                                  |       
|Cost of services (including depreciation)    |  |                                  | 17,017
|                                             |  |                                  |       
|Gross profit                                 |  |                                  | 2,643 
|                                             |  |                                  |       
|Selling, general and administrative expenses |  |                                  | 4,874 
|                                             |  |                                  |       
|Income (loss) from operations                |  |                                  |       
|Industrial Cleaning and Facility Maintenance |  |                                  | (2,603
|Industrial Container Cleaning                |  |                                  | 425   
|Industrial Water Process Purification        |  |                                  | (53   
|                                             |  |                                  |       
|Total income (loss) from operations          |  | $                                | (2,231
|                                             |  |                                  |       



Three Months Ended September 30,
2003 Compared to Three Months Ended September 30, 2002



Basis of Presentation. Certain amounts presented for the quarter ended September 30, 2002 have been reclassified to conform to the September 30, 2003 presentation.



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Revenues. Revenues decreased 18.2% to $19.7 million in the first quarter of fiscal 2004 from $24.0
million in the prior year period. The decrease in the Industrial Cleaning and Facility Maintenance segment was primarily the result of the loss of several customers due to a combination of factors, including aggressive pricing by competitors, and
decreased project work at existing customers. The decrease in the Industrial Water Process Purification 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 $17.0 million for the three months ended September 30, 2003 compared to $19.2 million for the three months ended September 30, 2002. Cost of services as a percentage of revenue increased to 86.6% in the first quarter of fiscal 2004 from
79.9% in the prior year period. This increase was primarily driven by high fixed labor costs and adverse developments in several workers compensation insurance claims.



Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of revenue
increased to 24.7% in the first quarter of fiscal 2004 from 19.3% in the prior year period. Selling, general and administrative expenses were $4.9 million for the three months ended September 30, 2003 compared to $4.6 million for the three months
ended September 30, 2002. While selling, general and administrative expenses increased due to additional bad debt expense of $1.1 million related to a bankruptcy filing by a customer of the Industrial Cleaning and Facility Maintenance segment, the
increased expense was offset by decreased incentive compensation expense, repair and maintenance costs, professional service fees and a sales tax refund.



Income (Loss) from Operations.Income (loss) from operations was $(2.2) million for the three months ended September 30, 2003 compared to $0.2
million for the three months ended September 30, 2002. As a percentage of revenue, income (loss) from operations decreased to (11.3)% in the first quarter of fiscal 2004 from 0.8% in the prior year period primarily related to the factors discussed
above.



Interest Expense. Interest expense decreased to
$0.3 million in the first 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 provision for income taxes for the
three months ended September 30, 2003 and 2002 reflects an effective rate of 43% and 42%, respectively.



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 months ended September 30, 2002 was approximately $12,000.



Cumulative Effect of Change in Accounting Principle.Effective July 1, 2002, the Company adopted Statement of
Financial Accounting Standards (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.



Related Party Transactions



The Company rents
certain land, property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer under long-term lease agreements and other arrangements. Total expenses related to these leases and other
arrangements were $0.5 million for the three months ended September 30, 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 $6,000 and $5,000 for the three months ended September 30, 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.



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Liquidity and Capital Resources



As of September 30, 2003, the Company had cash of $0.2 million and working capital of $6.0 million. Cash used for
operating activities was $0.8 million for the three months ended September 30, 2003 and cash used for investing activities was $1.4 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 September 30, 2003, including outstanding borrowings, there was
$38.6 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 $38.6 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 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 September 30, 2003, outstanding borrowings under the Credit Facility were $19.7 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 September 30, 2003 except as indicated in the following section.



Recently Adopted Accounting Standards



Effective July 1, 2003, the Company adopted the provisions of SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in
SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 also amends certain other existing pronouncements. Those changes will result in
more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. The adoption had no impact on the Companys consolidated financial statements.



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##### Table of Contents

Effective July 1, 2003, the Company adopted the provisions of SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
The adoption had no impact on the Companys consolidated financial statements.



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 September 30, 2003, the balance on the Credit Facility was $19.7 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
borrowings at September 30, 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-14(c) and 15d-14(c)) as of the end of the period covered by this quarterly report on Form 10-Q, have concluded that as of that date, the Companys disclosure
controls and procedures were effective and designed to ensure that material information relating to the Company and the Companys consolidated subsidiaries would be made known to them by others within those entities.



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



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



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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##### Table of Contents

PART II.  OTHER INFORMATION



Item 1.Legal Proceedings



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



Item 2.Changes in Securities and Use of Proceeds



Not Applicable.



Item 3.Defaults Upon Senior Securities



Not Applicable.



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



Not Applicable.



Item 5.Other Information



None.



Item 6.Exhibits and Reports on Form 8-K



| | (a) | Exhibits.
| | --- | ---------



| | 3(a) | Amended and Restated Articles of Incorporation of the Company effective November 4, 1999 (filed as Exhibit 3(a) to the Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and incorporated herein by reference).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3(b) | Amended and Restated Code of Regulations of the Company effective November 4, 1999 (filed as Exhibit 3(b) to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference)
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------



| | 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------



| | 32.1 | Certification of Principal Executive Officer, Monte R. Black, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification of Principal Financial Officer, Robert Valentine, Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Report on Form 8-K filed on July 3, 2003 related to Robert Valentine joining the Company as Vice President, Chief Financial Officer, Secretary and Treasurer.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) 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, on the 14thday of November, 2003.



|       |  |                   |  | MPW INDUSTRIAL SERVICES GROUP, INC., an Ohio corporation
|------ |  | ----------------- |  | --------------------------------------------------------
|       |  |                   | 
|Dated: |  | November 14, 2003 |  |                                                         
|       |  |                   |  |                                                         



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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                                                                        



18