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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

OR

Commission File Number: 0-23335

MPW INDUSTRIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

(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)

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of January 31, 2004, 10,708,707 shares of the issuer’s common stock, without par value, were outstanding.

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MPW INDUSTRIAL SERVICES GROUP, INC.

INDEX

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PART I.—FINANCIAL INFORMATION

MPW INDUSTRIAL SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

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)

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)

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

December 31, 2003

(unaudited)

Note 1. Summary of Significant Accounting Policies

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

The accompanying unaudited consolidated financial statements presented herein have been prepared by the Company and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of financial results for the three and six months ended December 31, 2003 and 2002, respectively, in accordance with generally accepted accounting principles for interim financial reporting and pursuant to Article 10 of Regulation S-X. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2003 (“Annual Report”). The results of operations for the three and six months ended December 31, 2003 and 2002, respectively, are not necessarily indicative of the results for the full year.

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

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

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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)

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

Reclassifications Certain amounts presented for the three and six months ended December 31, 2002 have been reclassified to conform to the December 31, 2003 presentation.

Note 2. Goodwill and Other Intangibles

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

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

Other intangibles are summarized as follows (in thousands):

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

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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)

Note 3. Investment in Affiliate

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

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

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

Note 4. Income Taxes

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

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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)

Note 5. Earnings per Share

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

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

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

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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)

Note 6. Related Party Transactions

The Company rents certain land, property, buildings and an aircraft from entities controlled by its principal shareholder and Chief Executive Officer (“CEO”) under long-term lease agreements. The Company also periodically uses a ranch, which is owned by an entity controlled by the CEO, for entertainment and overnight lodging of customers and other business associates. Total expenses related to these leases and to the ranch were $0.6 million for the three months ended December 31, 2003 and 2002 and $1.1 million for the six months ended December 31, 2003 and 2002.

The Company provides, from time to time, certain fabrication-type services to Pro-Kleen Industrial Services, Inc. (“Pro-Kleen”), a portable sanitation services company wholly-owned by the Company’s principal shareholder and Chief Executive Officer. The Company charges Pro-Kleen for the cost of services it renders plus a markup. The amount of such charges were approximately $21,000 and $1,000 for the three months ended December 31, 2003 and 2002, respectively, and $27,000 and $6,000 for the six months ended December 31, 2003 and 2002, respectively. These charges are for the use of parts and supplies and the use of certain of the Company’s employees on certain projects as requested by Pro-Kleen. These charges are generally treated as an offset to supplies, repairs and maintenance or labor expense.

Note 7. Segment Reporting

Summarized financial information for the Company’s reportable segments is set forth below (in thousands). Expenses associated with the Company’s corporate headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments are allocated based on each segment’s percentage of total revenues. General corporate expenses are allocated to each segment equally.

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

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MPW INDUSTRIAL SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(unaudited)

Note 8. Discontinued Operations

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

Note 9. Subsequent Event

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

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

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

Results of Operations

The following table sets forth revenue and income (loss) from operations by segment for the three and six months ended December 31, 2003 and 2002. Expenses associated with the Company’s corporate headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments are allocated based on each segment’s percentage of total revenues. General corporate expenses are allocated to each segment equally.

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