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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)

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



For the quarterly period ended September 30, 2004



OR



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



For the transition period from  to



Commission File Number: 0-23335



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MPW INDUSTRIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)



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



(740) 927-8790

(Registrants telephone number, including area code)



Not Applicable

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



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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes ̈No  x



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 29, 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



|              |  |                                                                                                          |  |     
|------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                          |  | PAGE
|PART I.       |  | FINANCIAL INFORMATION                                                                                    |  |     
|              |  |                                                                                                         
|Item 1.       |  | Financial Statements                                                                                     |  |     
|              |  |                                                                                                         
|              |  | Consolidated Balance Sheets as of September 30, 2004 (unaudited) and June 30, 2004                       |  | 3   
|              |  |                                                                                                         
|              |  | Consolidated Statements of Operations for the three months ended September 30, 2004 and 2003 (unaudited) |  | 4   
|              |  |                                                                                                         
|              |  | Consolidated Statements of Cash Flows for the three months ended September 30, 2004 and 2003 (unaudited) |  | 5   
|              |  |                                                                                                         
|              |  | Notes to Consolidated Financial Statements (unaudited)                                                   |  | 6   
|              |  |                                                                                                         
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                    |  | 9   
|              |  |                                                                                                         
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                               |  | 13  
|              |  |                                                                                                         
|Item 4.       |  | Controls and Procedures                                                                                  |  | 13  
|              |  |                                                                                                         
|PART II.      |  | OTHER INFORMATION                                                                                        |  |     
|              |  |                                                                                                         
|Item 1.       |  | Legal Proceedings                                                                                        |  | 14  
|              |  |                                                                                                         
|Item 2.       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                              |  | 14  
|              |  |                                                                                                         
|Item 3.       |  | Defaults Upon Senior Securities                                                                          |  | 14  
|              |  |                                                                                                         
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                      |  | 14  
|              |  |                                                                                                         
|Item 5.       |  | Other Information                                                                                        |  | 14  
|              |  |                                                                                                         
|Item 6.       |  | Exhibits                                                                                                 |  | 14  
|              | 
|SIGNATURES    |  | 15                                                                                                      
|              | 
|EXHIBIT INDEX |  | 16                                                                                                      



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)



|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ------------ | - | ------ | -
|                                                                                                                                                         |  | September 30, 2004 |        |   | June 30,2004 |  
|                                                                                                                                                         |  | (unaudited)        |        |   |              |  
|ASSETS                                                                                                                                                   |  |                    |        |   |              |   |        |  
|Cash                                                                                                                                                     |  | $                  | 1,295  |   |              | $ | 2,237  |  
|Accounts receivable, net                                                                                                                                 |  |                    | 15,847 |   |              |   | 14,866 |  
|Inventories                                                                                                                                              |  |                    | 2,181  |   |              |   | 2,119  |  
|Deferred income taxes                                                                                                                                    |  |                    | 1,784  |   |              |   | 1,679  |  
|Prepaid expenses                                                                                                                                         |  |                    | 738    |   |              |   | 1,070  |  
|Other current assets                                                                                                                                     |  |                    | 34     |   |              |   | 2      |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total current assets                                                                                                                                     |  |                    | 21,879 |   |              |   | 21,973 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Property and equipment, net                                                                                                                              |  |                    | 29,685 |   |              |   | 30,198 |  
|Goodwill                                                                                                                                                 |  |                    | 6,044  |   |              |   | 6,044  |  
|Other intangibles, net                                                                                                                                   |  |                    | 6,146  |   |              |   | 6,284  |  
|Other assets                                                                                                                                             |  |                    | 86     |   |              |   | 192    |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total assets                                                                                                                                             |  | $                  | 63,840 |   |              | $ | 64,691 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|LIABILITIES                                                                                                                                              |  |                    |        |   |              |   |        |  
|Accounts payable                                                                                                                                         |  | $                  | 3,013  |   |              | $ | 3,513  |  
|Accrued compensation and related taxes                                                                                                                   |  |                    | 2,091  |   |              |   | 1,902  |  
|Current maturities of long-term debt                                                                                                                     |  |                    | 1,247  |   |              |   | 1,261  |  
|Other accrued liabilities                                                                                                                                |  |                    | 5,621  |   |              |   | 5,608  |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total current liabilities                                                                                                                                |  |                    | 11,972 |   |              |   | 12,284 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Long-term debt                                                                                                                                           |  |                    | 17,323 |   |              |   | 17,631 |  
|Deferred income taxes                                                                                                                                    |  |                    | 3,136  |   |              |   | 3,447  |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total liabilities                                                                                                                                        |  |                    | 32,431 |   |              |   | 33,362 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|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; 10,708,707 shares issued and outstanding at September 30, 2004 and June 30, 2004,
respectively |  |                    | 107    |   |              |   | 107    |  
|Additional paid-in capital                                                                                                                               |  |                    | 40,921 |   |              |   | 40,921 |  
|Accumulated deficit                                                                                                                                      |  |                    | (9,593 | ) |              |   | (9,690 | )
|Accumulated other comprehensive loss                                                                                                                     |  |                    | (26    | ) |              |   | (9     | )
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total shareholders equity                                                                                                                               |  |                    | 31,409 |   |              |   | 31,329 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  
|Total liabilities and shareholders equity                                                                                                               |  | $                  | 63,840 |   |              | $ | 64,691 |  
|                                                                                                                                                         |  |                    |        |   |              |   |        |  



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, |       
|                                                            |  | 2004                            |        | 2003 |  
|                                                            |  | (unaudited)                     |       
|Revenues                                                    |  | $                               | 22,825 |      | $ | 19,660 |  
|Cost of services (including depreciation)                   |  |                                 | 18,038 |      |   | 17,017 |  
|                                                            |  |                                 |        |      |   |        |  
|Gross profit                                                |  |                                 | 4,787  |      |   | 2,643  |  
|Selling, general and administrative expenses                |  |                                 | 4,341  |      |   | 4,874  |  
|                                                            |  |                                 |        |      |   |        |  
|Income (loss) from operations                               |  |                                 | 446    |      |   | (2,231 | )
|Interest expense, net                                       |  |                                 | 284    |      |   | 283    |  
|                                                            |  |                                 |        |      |   |        |  
|Income (loss) from operations before income taxes (benefit) |  |                                 | 162    |      |   | (2,514 | )
|Provision (benefit) for income taxes                        |  |                                 | 65     |      |   | (1,081 | )
|                                                            |  |                                 |        |      |   |        |  
|Net income (loss)                                           |  | $                               | 97     |      | $ | (1,433 | )
|                                                            |  |                                 |        |      |   |        |  
|Net income (loss) per share, basic and diluted              |  | $                               | 0.01   |      | $ | (0.13  | )
|                                                            |  |                                 |        |      |   |        |  
|Weighted average shares outstanding                         |  |                                 | 10,709 |      |   | 10,944 |  
|Weighted average shares outstanding, assuming dilution      |  |                                 | 10,768 |      |   | 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 Ended September 30, |       
|                                                                                                   |  | 2004                             |        |   | 2003 |  
|                                                                                                   |  | (unaudited)                      |       
|Cash flows from operating activities:                                                              |  |                                  |        |   |      |   |        |  
|Net income (loss)                                                                                  |  | $                                | 97     |   |      | $ | (1,433 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                                  |        |   |      |   |        |  
|Depreciation                                                                                       |  |                                  | 1,889  |   |      |   | 2,160  |  
|Amortization                                                                                       |  |                                  | 138    |   |      |   | 154    |  
|(Gain) loss on disposal of assets                                                                  |  |                                  | (8     | ) |      |   | 8      |  
|Change in deferred income taxes                                                                    |  |                                  | (377   | ) |      |   | (103   | )
|Changes in operating assets and liabilities:                                                       |  |                                  |        |   |      |   |        |  
|Accounts receivable                                                                                |  |                                  | (981   | ) |      |   | 5,740  |  
|Inventories                                                                                        |  |                                  | (62    | ) |      |   | 9      |  
|Prepaid expenses and other assets                                                                  |  |                                  | 309    |   |      |   | 234    |  
|Accounts payable                                                                                   |  |                                  | (459   | ) |      |   | (4,924 | )
|Other accrued liabilities                                                                          |  |                                  | 202    |   |      |   | (2,663 | )
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Net cash provided by (used in) operating activities                                                |  |                                  | 748    |   |      |   | (818   | )
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Cash flows from investing activities:                                                              |  |                                  |        |   |      |   |        |  
|Purchases of property and equipment                                                                |  |                                  | (1,390 | ) |      |   | (1,403 | )
|Proceeds from the disposal of property and equipment                                               |  |                                  | 22     |   |      |   |       |  
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Net cash used in investing activities                                                              |  |                                  | (1,368 | ) |      |   | (1,403 | )
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Cash flows from financing activities:                                                              |  |                                  |        |   |      |   |        |  
|Proceeds from exercise of stock options                                                            |  |                                  |       |   |      |   | 20     |  
|Payments on revolving credit facility                                                              |  |                                  | (300   | ) |      |   | (300   | )
|Payments on notes payable                                                                          |  |                                  | (22    | ) |      |   | (31    | )
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Net cash used in financing activities                                                              |  |                                  | (322   | ) |      |   | (311   | )
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Decrease in cash                                                                                   |  |                                  | (942   | ) |      |   | (2,532 | )
|Cash at beginning of year                                                                          |  |                                  | 2,237  |   |      |   | 2,726  |  
|                                                                                                   |  |                                  |        |   |      |   |        |  
|Cash at end of period                                                                              |  | $                                | 1,295  |   |      | $ | 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, 2004

(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, utility, manufacturing, pulp and paper, steel and chemical primarily throughout the United States and Canada.



The accompanying unaudited consolidated financial statements presented herein
have been prepared by the Company and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of financial results for the three months ended September 30, 2004 and 2003,
respectively, in accordance with U.S. generally accepted accounting principles for interim financial reporting and pursuant to Article 10 of Regulation S-X. Certain footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Companys Annual Report
on Form 10-K for the year ended June 30, 2004 (Annual Report). The results of operations for the three months ended September 30, 2004 and 2003, respectively, are not necessarily indicative of the results for the full year.



Property and EquipmentProperty and equipment is net of accumulated
depreciation of $66.4 million and $64.8 million at September 30, 2004 and June 30, 2004, respectively.



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 September 30, 2004 and 2003 was $0.1 million
and $(1.3) million, respectively.



Stock Options As of
September 30, 2004, 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, 2004. 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, Accounting for Stock-Based Compensation, in accordance with the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure:



|                                                                                                                   |  |                                       |      |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                                                   |  | Three Months EndedSeptember 30,       |     
|                                                                                                                   |  | 2004                                  |      |   | 2003 |  
|                                                                                                                   |  | (in thousands, except per share data) |     
|Net income (loss):                                                                                                 |  |                                       |      |   |      |   |        |  
|As reported                                                                                                        |  | $                                     | 97   |   |      | $ | (1,433 | )
|Less: Stock-based compensation determined under fair value based method for all awards, net of related tax effects |  |                                       | (13  | ) |      |   | (26    | )
|                                                                                                                   |  |                                       |      |   |      |   |        |  
|Pro forma net income (loss)                                                                                        |  | $                                     | 84   |   |      | $ | (1,459 | )
|                                                                                                                   |  |                                       |      |   |      |   |        |  
|Net income (loss) per share, basic and diluted:                                                                    |  |                                       |      |   |      |   |        |  
|As reported                                                                                                        |  | $                                     | 0.01 |   |      | $ | (0.13  | )
|                                                                                                                   |  |                                       |      |   |      |   |        |  
|Pro forma                                                                                                          |  | $                                     | 0.01 |   |      | $ | (0.13  | )
|                                                                                                                   |  |                                       |      |   |      |   |        |  



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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(unaudited)



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



Note 2. Earnings per Share



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



|                                                                                                                    |  |                                       |        |      |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------ | -
|                                                                                                                    |  | Three Months EndedSeptember 30,       |       
|                                                                                                                    |  | 2004                                  |        | 2003 |  
|                                                                                                                    |  | (in thousands, except per share data) |       
|Numerator for basic and diluted net income (loss) per share:                                                        |  |                                       |        |      |   |        |  
|Net income (loss)                                                                                                   |  | $                                     | 97     |      | $ | (1,433 | )
|                                                                                                                    |  |                                       |        |      |   |        |  
|Denominator for basic net income (loss) per share:                                                                  |  |                                       |        |      |   |        |  
|Weighted average common shares                                                                                      |  |                                       | 10,709 |      |   | 10,944 |  
|Effect of dilutive securities:                                                                                      |  |                                       |        |      |   |        |  
|Dilutive employee stock options                                                                                     |  |                                       | 59     |      |   |       |  
|                                                                                                                    |  |                                       |        |      |   |        |  
|Denominator for diluted net income (loss) per share-adjusted weighted average common shares and assumed conversions |  |                                       | 10,768 |      |   | 10,944 |  
|                                                                                                                    |  |                                       |        |      |   |        |  
|Net income (loss) per share, basic and diluted                                                                      |  | $                                     | 0.01   |      | $ | (0.13  | )
|                                                                                                                    |  |                                       |        |      |   |        |  



Options to purchase
387,750 and 962,750 shares of common stock at a weighted average price of $8.16 and $5.30 per share were outstanding during the three months ended September 30, 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 shares of common stock at a weighted average price of
$1.85 per share were outstanding during the three months ended September 30, 2003, respectively, but were not included in the computation of diluted earnings per share because the Company reported a net loss for the three months ended September 30,
2003 and, therefore, the effect would be antidilutive.



Note 3. Long Term
Debt



In June 2002, the Company entered into a 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, 2004, excluding outstanding borrowings and letters of credit, there was $13.1 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. Subsequent to September 30, 2004, the Credit Facilitys expiration was extended to October 1, 2005.



Note 4. Related Party Transactions



The Company rents certain land, property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer
(CEO) under long-term lease agreements. The Company also periodically uses a ranch, which is owned by an entity controlled by the CEO, for business meetings, entertainment and overnight lodging of customers and other business associates.
Total expenses related to these leases and to the ranch were $0.5 million for the three months ended September 30, 2004 and 2003. These transactions are approved and reviewed quarterly by the Companys Audit Committee. Based on such review, the
Company believes that these transactions are on terms at least as favorable as those that could be obtained from an independent third party.



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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(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 $95,000
and $6,000 for the three months ended September 30, 2004 and 2003, 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 5. Commitments and Contingencies



In fiscal 1999, the Company entered into a guaranty of a lease agreement related to a facility operated by its former subsidiary, Pentagon Technologies Group, Inc. (Pentagon). The lease, on which rent is
approximately $30,000 per month, expires in October 2009. As of September 30, 2004, the Company believes its maximum potential liability is $1.8 million, payable only if Pentagon fails to comply with the lease terms, and subject to many factors,
including the landlords duty to mitigate, the validity of the guarantee and the like.



Note 6. Segment Reporting



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



Commencing in the first quarter of fiscal 2005, 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 Water Process Purification segment, is being
reported in the Industrial Cleaning and Facility Maintenance segment. In addition, the Recovery Technologies business unit, previously reported under the Industrial Cleaning and Facility Maintenance segment, is being reported in the Other category.
The amounts presented for prior periods have been reclassified to reflect this change in segments.



|                                             |  |                                 |        |   |      |   |        |  
|-------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                             |  | Three Months EndedSeptember 30, |       
|                                             |  | 2004                            |        |   | 2003 |  
|                                             |  | (in thousands)                  |       
|Revenue                                      |  |                                 |        |   |      |   |        |  
|Industrial Cleaning and Facility Maintenance |  | $                               | 18,186 |   |      | $ | 15,159 |  
|Industrial Container Cleaning                |  |                                 | 2,577  |   |      |   | 2,753  |  
|Industrial Water Process Purification        |  |                                 | 1,739  |   |      |   | 1,738  |  
|Other                                        |  |                                 | 323    |   |      |   | 10     |  
|                                             |  |                                 |        |   |      |   |        |  
|Total                                        |  | $                               | 22,825 |   |      | $ | 19,660 |  
|                                             |  |                                 |        |   |      |   |        |  
|Income (Loss) from Operations                |  |                                 |        |   |      |   |        |  
|Industrial Cleaning and Facility Maintenance |  | $                               | 351    |   |      | $ | (2,468 | )
|Industrial Container Cleaning                |  |                                 | 314    |   |      |   | 425    |  
|Industrial Water Process Purification        |  |                                 | (195   | ) |      |   | (55    | )
|Other                                        |  |                                 | (24    | ) |      |   | (133   | )
|                                             |  |                                 |        |   |      |   |        |  
|Total                                        |  | $                               | 446    |   |      | $ | (2,231 | )
|                                             |  |                                 |        |   |      |   |        |  



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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, 2004 as contained in the Companys Annual Report on Form 10-K.



Overview



MPW is a leading provider of integrated, technically-based industrial cleaning and related facilities support services to a broad array of industries in
North America on a daily recurring basis, a project-by-project basis, as well as pursuant to longer-term arrangements. The Company has over 35 branch locations in 13 states and Canada and operates principally under three reportable segments:
Industrial Cleaning and Facility Maintenance, Industrial Container Cleaning and Industrial Process Water Purification.



The results of our operations are mainly driven by two factors, customer demand and pricing. Many of our significant customers operate in industries, such
as the automotive, steel, manufacturing, pulp and paper and utility industries, which are subject to work stoppages and slowdowns and have historically shown sensitivity to recessions and other adverse conditions in the general economy. During the
first quarter of fiscal 2005, the Company saw improvement in customer demand with higher volumes of both base and outage work, primarily in the Industrial Cleaning and Facility Maintenance segment. In addition, the industrial services industry is
highly competitive and fragmented, resulting in continuous pressure to reduce prices. In some cases, this pressure has caused us to either reduce pricing or lose business.



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



Results of Operations



The following table sets forth revenue and income (loss) from operations by
segment for the three months ended September 30, 2004 and 2003. Expenses associated with the Companys corporate headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments
are allocated based on each segments percentage of total revenues. General corporate expenses not specifically attributable to the operating segments are allocated to each reportable segment equally.



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Commencing in the first quarter of fiscal 2005, 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 Water Process Purification segment, is being reported in the Industrial Cleaning and Facility
Maintenance segment. In addition, the Recovery Technologies business unit, previously reported under the Industrial Cleaning and Facility Maintenance segment, is being reported in the Other category. The amounts presented for prior periods have been
reclassified to reflect this change in segments.



|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|----------------------------------------------------------- |  | -------------------------------- | ------ | - | ----------- | ----- | - | ------ | - | ------ | ----------- |  | -------- | --
|                                                            |  | Three Months Ended September 30, |       
|                                                            |  | 2004                             |        |   | 2003        |      
|                                                            |  | Actual                           |        |   | % ofRevenue |       |   | Actual |   |        | % ofRevenue | 
|                                                            |  | (unaudited; in thousands)        |       
|Revenue                                                     |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Industrial Cleaning and Facility Maintenance                |  | $                                | 18,186 |   |             | 79.7  | % |        | $ | 15,159 |             |  | 77.1     | % 
|Industrial Container Cleaning                               |  |                                  | 2,577  |   |             | 11.3  |   |        |   | 2,753  |             |  | 14.0     |   
|Industrial Water Process Purification                       |  |                                  | 1,739  |   |             | 7.6   |   |        |   | 1,738  |             |  | 8.8      |   
|Other                                                       |  |                                  | 323    |   |             | 1.4   |   |        |   | 10     |             |  | 0.1      |   
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Total revenue                                               |  |                                  | 22,825 |   |             | 100.0 |   |        |   | 19,660 |             |  | 100.0    |   
|                                                            |  |                                  |        |  
|Cost of services (including depreciation)                   |  |                                  | 18,038 |   |             | 79.0  |   |        |   | 17,017 |             |  | 86.5     |   
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Gross profit                                                |  |                                  | 4,787  |   |             | 21.0  |   |        |   | 2,643  |             |  | 13.5     |   
|                                                            |  |                                  |        |  
|Selling, general and administrative expenses                |  |                                  | 4,341  |   |             | 19.0  |   |        |   | 4,874  |             |  | 24.8     |   
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Income (loss) from operations                               |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Industrial Cleaning and Facility Maintenance                |  |                                  | 351    |   |             | 1.9   |   |        |   | (2,468 | )           |  | (16.3    | ) 
|Industrial Container Cleaning                               |  |                                  | 314    |   |             | 12.2  |   |        |   | 425    |             |  | 15.4     |   
|Industrial Water Process Purification                       |  |                                  | (195   | ) |             | (11.2 | ) |        |   | (55    | )           |  | (3.2     | ) 
|Other                                                       |  |                                  | (24    | ) |             | (7.4  | ) |        |   | (133   | )           |  | (1,330.0 | ) 
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Total income (loss) from operations                         |  |                                  | 446    |   |             | 2.0   |   |        |   | (2,231 | )           |  | (11.3    | ) 
|                                                            |  |                                  |        |  
|Interest expense, net                                       |  |                                  | 284    |   |             | 1.2   |   |        |   | 283    |             |  | 1.4      |   
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Income (loss) from operations before income taxes (benefit) |  |                                  | 162    |   |             | 0.8   |   |        |   | (2,514 | )           |  | (12.7    | ) 
|Provision (benefit) for income taxes                        |  |                                  | 65     |   |             | 0.3   |   |        |   | (1,081 | )           |  | (5.5     | ) 
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   
|Net income (loss)                                           |  | $                                | 97     |   |             | 0.5   | % |        | $ | (1,433 | )           |  | (7.2     | )%
|                                                            |  |                                  |        |   |             |       |   |        |   |        |             |  |          |   



Three Months Ended September 30,
2004 Compared to Three Months Ended September 30, 2003



Revenues. Revenues increased 16.1% to $22.8 million in the first quarter of fiscal 2005 from $19.7 million in the same prior year period. The increase in revenues was primarily the result of several non-recurring projects and
additional base and outage work for several new and existing customers within the Industrial Cleaning and Facility Maintenance (Industrial Cleaning) segment.



Cost of Services. Total cost of services was $18.0 million for the three months ended September 30, 2004 compared to
$17.0 million for the three months ended September 30, 2003. Cost of services as a percentage of revenue decreased to 79.0% in the first quarter of fiscal 2005 from 86.5% in the prior year period. This decrease was primarily driven by fixed labor
costs combined with increased revenues in the Industrial Cleaning segment, decreased operating supply costs due to better management of inventory levels, less reliance on subcontract services and lower depreciation expense, slightly offset by
increased travel costs related to several outages and non-recurring projects as previously mentioned.



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Selling, General and Administrative Expenses. Selling, general and administrative expenses
decreased to $4.3 million, or 19.0% as a percentage of revenue, in the first quarter of fiscal 2005 from $4.9 million, or 24.8% as a percentage of revenue, in the same prior year period. The decrease was primarily due to decreased bad debt expense
as the prior year included a $1.1 million charge related to a customer that filed bankruptcy, offset by increased incentive compensation expense, commissions, repair and maintenance costs, charitable contributions, various administrative costs and a
favorable sales tax refund received in the prior year.



Income (Loss) from Operations.Income (loss) from operations was $0.4 million for the three months ended September 30, 2004 compared to $(2.2) million for the three months ended September 30, 2003. As a percentage of revenue, income
from operations increased to 2.0% in the first quarter of fiscal 2005 from (11.3)% in the prior year period primarily related to the factors discussed above.



Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes for the three months ended September 30, 2004 and 2003
reflects an effective annual income tax rate of 40% and 43%, respectively.



Related Party Transactions



The Company rents
certain land, property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer (CEO) under long-term lease agreements. The Company also periodically uses a ranch, which is owned by an
entity controlled by the CEO, for business meetings, entertainment and overnight lodging of customers and other business associates. Total expenses related to these leases and to the ranch were $0.5 million for the three months ended September 30,
2004 and 2003. These transactions are approved and reviewed quarterly by the Companys Audit Committee. Based on such review, the Company believes that these transactions are on terms at least as favorable as those that could be obtained from
an independent third party.



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 $95,000 and $6,000 for the three months ended September 30, 2004 and 2003, 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.



Commitments and Contingencies



In fiscal 1999, the Company entered into a guaranty of a lease agreement
related to a facility operated by its former subsidiary, Pentagon Technologies Group, Inc. (Pentagon). The lease, on which rent is approximately $30,000 per month, expires in October 2009. As of September 30, 2004, the Company believes
its maximum potential liability is $1.8 million, payable only if Pentagon fails to comply with the lease terms, and subject to many factors, including the landlords duty to mitigate, the validity of the guarantee and the like.



Liquidity and Capital Resources



During the first quarter of fiscal 2005, the Company generated $0.7
million in cash from operating activities, representing a $1.6 million increase from the same prior year period. The increase was primarily the result of higher earnings from operations. Working capital of $9.9 million at September 30, 2004
increased slightly from $9.7 million from June 30, 2004.



The
Companys primary investing and financing activities during the first quarter of fiscal 2005 included spending $1.4 million on capital projects and paying $0.3 million on long-term debt. These transactions were funded by the cash flows from the
Companys operations.



The Companys short-term and
long-term liquidity needs are primarily served by a credit agreement with its principal banks (the Credit Facility). 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



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##### Table of Contents

million. As of September 30, 2004, excluding outstanding borrowings and letters of credit, there was $13.1 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. Subsequent to September 30, 2004, the Credit Facilitys expiration was extended to October 1, 2005.



The Credit Facility is secured by substantially all of the
Companys assets and is available for general corporate purposes, including working capital, capital expenditures and acquisitions. Borrowings under the Credit Facility currently bear interest at the Eurodollar market rate plus the applicable
margin rate of 2.25%. The Company also pays a commitment fee of 0.45% for unused portions of the Credit Facility. The interest rate is subject to change based on interest rate formulas tied to the ratio of consolidated funded debt to earnings before
interest, taxes, depreciation and amortization. Availability of borrowing is subject to the maintenance of a minimum level of tangible net worth, certain levels of debt service coverage and maintenance of a specific ratio of funded debt to earnings
before interest, taxes, depreciation and amortization. The Credit Facility also contains covenants that prohibit the payment of cash dividends. As of September 30, 2004, outstanding borrowings under the Credit Facility were $18.5 million.



The Company has two pay-fixed interest rate swap agreements as
a hedge against the interest rate risk associated with borrowing at a variable rate, which mature in June 2006. The objective of the hedge is to eliminate the variability of cash flows related to interest rate payments on the Companys variable
rate debt. As of September 30, 2004, the swap agreements have a notional amount of $9.0 million and $10.0 million and effectively lock in a portion of the Companys variable rate revolving credit liability at fixed rates of 2.61% and 2.80%,
respectively, plus the Companys applicable margin. These swap agreements 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



Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies (FR 60), suggests
companies provide additional disclosure and commentary on those accounting policies considered most critical. FR 60 considers an accounting policy to be critical if it is important to the Companys financial condition and results, and requires
significant judgment and estimates on the part of management in its application. The Companys critical accounting policies are described in Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations within the Annual Report on Form 10-K for the year ended June 30, 2004. 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, 2004. No changes were made to the Companys critical accounting policies during the three months ended September 30, 2004.



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Inflation



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



Item 3.Quantitative and Qualitative Disclosures About Market Risk



The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Companys primary market risk exposure relates to interest rate risk. At September 30, 2004, the balance on the Credit Facility was $18.5 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 $19.0 million of its variable rate credit facility through two interest rate swap agreements. Assuming
borrowings at September 30, 2004, any change in interest rates would not impact net interest expense.



Item 4.Controls and Procedures



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



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



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



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



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.Unregistered Sales of Equity Securities and Use of Proceeds



None.



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



| | (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)
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10(a) | Third Amendment of Credit Agreement, dated November 12, 2004, among the Company and its subsidiaries, Bank One, NA and National City Bank
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------



| | 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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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: November 15, 2004 |  | By:                                  |  | /s/ Robert Valentine                            
|                         |  |                                      |  | Robert Valentine                                
|                         |  |                                      |  | Vice President, Chief Operating Officer,        
|                         |  |                                      |  | 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).      
|               | 
|10(a)          |  | Third Amendment of Credit Agreement, dated November 12, 2004, among the Company and its subsidiaries, Bank One, NA and National City Bank                                                                                                      
|               | 
|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