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MPW Industrial Services Group Inc – ‘10-K’ for 6/30/06

On:  Friday, 10/13/06, at 3:48pm ET   ·   For:  6/30/06   ·   Accession #:  1193125-6-207594   ·   File #:  0-23335

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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2006

For the transition period from              to             

Commission File Number: 0-23335

MPW INDUSTRIAL SERVICES GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (740) 927-8790

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, Without Par Value

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Section 405 of the Securities Exchange Act of 1934).    Yes  ¨    No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based on the closing sale price of such stock as of the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $8,442,342.*

The number of shares of Common Stock outstanding on September 28, 2006, was 6,312.654 shares.

* Calculated by excluding all shares that may be deemed to be beneficially owned by executive officers and directors of the registrant, without conceding that all such persons are “affiliates” of the registrant for purposes of the federal securities law.

Table of Contents

Table of Contents

PART I

All statements, other than statements of historical facts, included in this Form 10-K, including, without limitation, statements made in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, including the amount and nature thereof, potential acquisitions by the Company, trends affecting the Company’s financial condition or results of operations, and the Company’s business and growth strategies are forward-looking statements. Such statements are subject to a number of risks and uncertainties, including risks and uncertainties identified in “Item 1. Business-Investment Considerations” and other general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in laws or regulations affecting the Company’s operations and other factors, many of which are beyond the control of the Company. Also, there is always risk and uncertainty in pursuing and defending litigation and other disputes in the course of the Company’s business. All of these risks and uncertainties could cause actual results to differ materially from those assumed in the forward-looking statements. These forward-looking statements reflect management’s analysis, judgment, belief or expectation only as of the date of this Form 10-K. The Company undertakes no obligation to revise publicly these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review risks and uncertainties contained in other documents the Company files or has filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, that are incorporated by reference herein or are otherwise publicly available at the offices of the Securities and Exchange Commission or at its website (http://www.sec.gov).

Item 1. Business

Business

MPW Industrial Services Group, Inc. and its subsidiaries (the “Company” or “MPW”) is headquartered in Hebron, Ohio. Founded in 1972, 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. The Company operates under four separate segments that are integral to a wide variety of manufacturing processes. These four segments are Industrial Cleaning, Facility Maintenance and Support Services, Industrial Container Cleaning and Industrial Process Water Purification.

Industrial Cleaning. The Company provides industrial cleaning of critical operating equipment for industrial customers primarily at their facilities. The typical industries served by this segment include the automotive, utility, steel, pulp and paper, manufacturing and construction industries. The Company provides its industrial cleaning services on a daily recurring basis, a project-by-project basis, as well as pursuant to longer-term arrangements. The Company’s services principally include: dry vacuuming, wet vacuuming, industrial power washing, water blasting, ultra-high pressure water blasting and cryojetic cleaning. These services have been provided for over 30 years. The Chemical Cleaning business unit of the Industrial Cleaning segment provides chemical cleaning services on heat exchange equipment on a project-by-project basis primarily for customers in the utility, pulp and paper and manufacturing industries.

Facility Maintenance and Support Services. The Company provides support to customers’ ongoing maintenance of their facilities as well as cleaning services that help customers to maximize the performance of their production processes through effective cleaning, leading to increased efficiency and productivity in their facilities.

Industrial Container Cleaning. The Company believes that it is a leading container cleaner for automotive paint manufacturers in North America. The automotive industry uses paint resin containers (“totes”) in the vehicle painting process. Totes are large portable stainless steel or aluminum containers that are filled with paint resin and are refilled after cleaning services are provided. The Company also provides container cleaning services to a small number of other industrial customers. This segment uses patented cleaning systems to perform services from two primary processing facilities located in Detroit, Michigan and Cleveland, Ohio.

Industrial Process Water Purification. The Company provides pure feed water to customers primarily in the utility, manufacturing and automotive industries. The Company can also provide water purification equipment on an emergency response basis when customers’ existing water purification systems are temporarily out of service or cannot meet the existing demand.

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Recent Developments

Privatization of Company. On April 5, 2006, the Company announced that a Special Committee of its Board of Directors had reached an agreement in principle with the Company’s Chairman, Chief Executive Officer and President, Monte R. Black, to acquire the outstanding public shares of MPW not controlled by Mr. Black or his immediate family (the “Black Family”) for $2.55 per share. The Black Family controlled approximately 59% of the outstanding shares of MPW. On April 14, 2006, the Company entered into an Agreement and Plan of Merger between the Company and Noir Acquisition Corporation (“Noir Acquisition”), a newly created corporation controlled by Mr. Black.

On September 14, 2006, the shareholders of MPW approved the Agreement and Plan of Merger between MPW and Noir Acquisition. On September 26, 2006, the “going private” merger of Noir Acquisition with and into MPW was completed. Effective with the completion of the merger, the Black Family owns 100% of MPW. Holders of outstanding common shares of MPW not controlled by the Black Family, and who have not perfected their appraisal rights under Ohio law, will receive in cash, without interest, $2.55 per share.

On September 26, 2006, The NASDAQ Stock Market filed a Form 25 with the Securities and Exchange Commission (the “SEC”) to delist the Company’s Common Stock from the NASDAQ Global Market (“NASDAQ”). On October 10, 2006 the Company filed a Form 15 with the SEC to terminate the registration of the Common Stock and to suspend its SEC reporting obligations.

In addition, on September 27, 2006, the Company entered into a credit agreement with LaSalle Bank NA and The Huntington National Bank to finance the “going private” merger and refinance the Company’s current credit agreement.

Sales and Marketing

The Company’s marketing and sales efforts focus on increasing the volume of current services provided to existing customers, actively cross-marketing additional services to the existing customer base and developing new customer relationships.

Increasing the Volume of Services Provided. The Company has full-time account managers assigned to and stationed in customers’ facilities where the Company performs work on an on-going basis. The Company also has district managers that serve in a similar capacity in geographic areas in which it serves several customers. In each case, these account and district managers are responsible for the maintenance of existing customer relationships and are in a position to actively identify new opportunities within these facilities for additional business. Monte R. Black, the Company’s Chairman, Chief Executive Officer and President, and each of the leaders of the Company’s divisions are actively involved in supporting the efforts of these managers and regularly attend meetings at customer facilities and visit work-sites within these facilities. Account, district and division managers are provided incentives, both short and long-term, to continue to grow their businesses and to seek cross-marketing opportunities within the facilities they serve.

Cross-Marketing. Each of the Company’s divisions has a strong management team that is responsible for ensuring that customer relationships are built on a foundation of high-quality, responsive service. The Company’s senior management team actively develops a thorough understanding of customers’ outsourcing needs and makes every effort to present innovative solutions to meet these needs. Once a cross-marketing opportunity has been identified, the technical and sales leadership of the division being marketed takes the lead in supporting the sales effort to the customer.

Developing New Customer Relationships. The Company attempts to visit and communicate with companies that it does not actively serve on a recurring basis. The Company presently utilizes sales managers that have geographic responsibilities spanning several states to manage the majority of these efforts. Local sales representatives are also used in conjunction with account, district and division managers to provide consistent Company representation on a local basis. The Company also direct markets its reputation and capabilities to plant management within these facilities and to the corporate management of these companies. In many cases, either Monte R. Black or other members of the senior management team participate in these sales presentations.

Customers

During fiscal 2006, the Company had sales to approximately 930 customers with the ten largest customers representing approximately 41% of revenues.

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A substantial portion of the business operations are performed within customers’ facilities utilizing the Company’s personnel and equipment to clean or maintain their critical operating equipment. From these customers, the Company typically receives most orders for services on a job-by-job basis. In some instances, the Company maintains equipment at the locations of customers that have issued to the Company blanket purchase orders for the provision of services over an extended period. These blanket orders do not obligate the customer to purchase a specified dollar amount of services. Blanket orders permit the Company to be contracted to perform services when needed. These blanket orders, in combination with the location of the Company’s personnel and equipment, allow the Company to expedite responses to a particular customer’s needs and may constitute a competitive advantage versus service providers without on-site equipment. The Company provides services primarily at prescribed rates or based upon competitive bidding and in some cases through direct negotiation with the customer. In certain instances, the Company has developed an ongoing daily or weekly presence within customers’ facilities that results in a consistent level of service revenues. However, the Company generally does not have any meaningful backlog of service orders and does not consider backlog to be an important indicator of future performance.

In certain fixed-based facilities of the Company, industrial paint containers used by automotive paint manufacturers are cleaned. These customers typically execute long-term agreements or blanket orders that provide for consistent levels of business. In these circumstances, the Company regularly communicates with such customers to identify and plan for expected turnaround times and delivery schedules.

Employees

As of June 30, 2006, the Company employed approximately 1,500 full-time employees. One of the Company’s subsidiaries based in Detroit, Michigan is unionized and employs approximately 90 of these employees. One customer location in Canada also has a union contract covering approximately 45 employees. The Company’s other employees do not belong to unions. The Company has only experienced one minor work stoppage and believes that relations with its employees are good.

Safety, Training and Quality Assurance

Performance of many of the Company’s services requires the use of equipment and exposure to conditions that can be dangerous. Although the Company is committed to a policy of operating safely and prudently, it has been and is subject to claims by employees, customers and third parties for property damage and personal injuries resulting from the performance of services. To minimize these risks, the Company has adopted broad training and educational programs and comprehensive safety policies and regulations. The Company requires that all operational personnel complete applicable safety courses mandated by the Occupational Safety and Health Administration, Environmental Protection Agency, Department of Transportation and Mine Safety and Health Administration in areas including hazard communication, protective equipment, confined space entry, first aid, decontamination procedures and emergency response. In addition to these mandated training courses, water blast, dry and wet vacuum and power wash operations personnel complete an MPW-designed hands-on skill training program prior to commencing these activities. Management regularly monitors compliance with regulations set forth by the Occupational Safety and Health Administration and the other regulatory authorities and is responsible for directing the overall safety, training, quality assurance and environmental compliance programs. In addition, most of the Company’s service facilities have a designated safety/training manager who has responsibility for overseeing safety policies and procedures at the facility.

Competition

The Company believes that the principal competitive factors are experience, capability, customer responsiveness and price competitiveness. The Company believes that its principal competitive advantages are technically-based services, ongoing customer relationships, customer responsiveness and quality of operational personnel. The Company positions itself competitively as a value leader and not a price leader, though it remains necessary for the Company to price its services at levels where customers will achieve cost savings versus performing the same services themselves.

The market for industrial services is highly fragmented. There are many competitors in each of the Company’s segments, but the Company does not believe that there is any competitor that offers the quality and range of services that the Company can offer. Each segment competes with a number of companies in substantially all of the regions in which it operates.

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The Industrial Cleaning segment competes with large national or regional firms that are typically divisions or subsidiaries of engineering, construction or other service firms and a large number of private firms with relatively few customer relationships. The Facility Maintenance and Support Services segment competes with several national firms on larger accounts and several regional competitors on smaller accounts. The Industrial Water Process Purification segment competes with large national water purification firms in its midwestern market and also with smaller regional competitors. The Company believes it is the leading provider of container cleaning services to the automotive paint manufacturers in North America, but competes with smaller private companies in this market.

Regulation

The Company’s operations are subject to numerous rules and regulations at the federal, state and local levels. All of the Company’s operations are subject to regulations issued by the United States Department of Labor under the Occupational Safety and Health Act. These regulations have strict requirements for protecting employees involved with any materials that are classified as hazardous.

As part of its industrial cleaning services, the Company provides support to customers for the management of their hazardous materials and other contaminants generally in the form of assisting in the movement of these materials within customers’ facilities and, occasionally, assisting customers in the logistics of transporting hazardous materials, including advising customers on the completion of waste manifests and providing customers with information regarding permitted disposal facilities. The Company typically does not transport or dispose of these hazardous materials, and attempts to not take regulatory responsibility for hazardous materials. The Company attempts to avoid any regulatory responsibility by not taking title to any wastes as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 and the Superfund Amendments and Reauthorization Act.

As part of the Industrial Container Cleaning operations, the Company manages some solvents used in the cleaning process. Once they are used, these solvents are sent by licensed transporters to licensed recycling facilities. The Company does not believe that its current activities are subject to the regulations pertaining to hazardous waste treatment, storage or disposal facilities or transporters of these wastes.

The Company’s employees typically work within the customer’s operating facilities. These work environments generally do not expose the customer’s employees or the Company’s employees to hazardous materials beyond levels allowed by applicable regulations. Occasionally, as part of the Company’s support services, employees may, at a customer’s request, move hazardous materials within the customer’s facility. In addition, some of the Company’s more specialized cleaning procedures may require employees to work near hazardous materials. Before any of this type of work is commenced, however, a complete survey of the material is performed and a health and safety plan with respect to the material is developed and implemented. Employees are required to perform this type of work only with the proper protective equipment and training.

The Company maintains a full-time staff of safety specialists to ensure that personnel operate in safe conditions and are properly protected against harmful exposure. The staff of specialists design training materials, develop safety and environmental policies and materials, conduct training classes for employees regarding compliance with governmental regulations and the Company’s procedures, conduct environmental and safety audits at work sites and monitor safety and environmental compliance at onsite customer locations.

The Company believes that it has obtained the permits and licenses required to perform business and believes that it is in compliance with all federal, state and local laws and regulations governing the Company’s business. To date, the Company has not been subject to any significant fines, penalties or other liabilities under these laws and regulations. However, no assurance can be given that future changes in these laws and regulations, or interpretations thereof, will not have an adverse impact on the Company’s operations.

Insurance

Much of the work the Company performs is pursuant to contracts that require the Company to indemnify the customer for injury or damage occurring on the work site. The terms of these indemnity agreements vary, but generally they provide that the Company is required to indemnify the customer for losses resulting from or incurred in connection with the Company’s actions while providing services. Liability for these indemnification claims is covered primarily by the Company’s insurance policies.

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The Company believes that it carries sufficient insurance coverage; however, an uninsured or partially insured claim, if successful and of sufficient magnitude, could have a material adverse effect on the Company or its financial condition.

Segment Financial Data

Financial information for the Company’s segments is provided in “Item 8. – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 16 – Segment Reporting.”

Financial Information About Geographic Areas

The Company has a small subsidiary based in Canada. The revenues of this subsidiary represented approximately 4%, 4% and 2% of the Company’s consolidated revenues for the years ended June 30, 2006, 2005 and 2004, respectively.

Risk Factors

MPW faces the competitive pressures of a highly fragmented industry. The industrial services industry is highly competitive and fragmented. Companies compete on the basis of the quality of services provided, responsiveness to customers, ability to provide services, range of services offered and price. One or more of the larger national or regional industrial services companies, as well as numerous local industrial services companies of varying sizes and resources, serve each of the geographic markets in which we compete or will likely compete. The larger industrial services companies may have significantly greater financial and other resources than MPW. In addition, many smaller industrial services companies exist or are formed to serve only one or relatively few customers. From time to time, these or other competitors may reduce the price of their services in an effort to expand market share or protect existing business. These practices may either require us to reduce the pricing of services or lose business. We expect that competition will remain high or increase in the future, and we cannot be certain that we will continue to compete successfully.

Our business may be adversely affected if customers reduce their outsourcing or use preferred vendors. Our business and growth strategies depend in large part on the continuation of our customers outsourcing industrial services. The decision to outsource depends upon customer perceptions that outsourcing may provide higher quality services at a lower overall cost and permit customers to focus on core business activities. We cannot be certain that this trend will continue or not be reversed or that customers that have outsourced functions will not decide to perform these functions themselves. In addition, labor unions representing employees of some of our current and prospective customers have generally opposed the outsourcing trend and sought to direct to union employees the performance of the types of services we offer. In addition, management has identified a trend among some customers toward the retention of a limited number of preferred vendors to provide all or a large part of their required facility services. We cannot be certain that this trend will continue or not be reversed or, if it does continue, that we will be selected and retained as a preferred vendor to provide these services. Adverse developments with respect to either of these trends would have a material adverse effect on the business, results of operations and financial condition.

Our business would be adversely affected if key customers are lost. In fiscal 2006, our ten largest customers represented approximately 41% of total revenues. Customers may terminate or modify substantially all arrangements to perform services for them at will and without penalty. The loss of, and failure to replace the revenues from, one or more large customers or the loss of a significant number of customers could have a material adverse effect on our business, results of operations and financial condition.

The business cycles of our customers could adversely affect revenues. Many significant customers of MPW 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. A general or regional economic downturn, a work stoppage at one of our significant customers or a decline in the creditworthiness of one of our customers could have a material adverse effect on our business, results of operations and financial condition.

Our business may be adversely affected if it is unable to maintain an adequate workforce. Our business is labor intensive and could be adversely affected if MPW fails to maintain an adequate workforce. A large majority of the workforce is comprised of hourly workers. MPW incurs substantial expenses for recruiting and training new personnel. We have historically experienced a high level of turnover, and there can be no assurance that we will be able to successfully attract and retain employees. As a result of a shortage in the supply of hourly workers, we may not be able to maintain a labor force adequate to operate efficiently, labor expenses may increase or we may have to curtail our growth strategy.

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We may not be able to successfully manage acquisitions. We cannot be sure that we can add new businesses to our existing operations without substantial costs, delays or other operational or financial problems. Acquisitions involve a number of special risks that could materially and adversely affect the business, financial condition and results of operations. For example, these risks include a failure to maintain customer relationships and the diversion of management’s attention from operational matters. MPW also could be affected by the inability to retain key personnel of the acquired businesses and risks associated with unanticipated events or liabilities. Customer dissatisfaction or performance problems at one of the acquired businesses could materially and adversely affect the reputation of the entire company.

A failure to retain senior management could have an adverse effect on our business. Our business is largely dependent upon the efforts of the members of the senior management team, particularly Monte R. Black, Chairman of the Board, Chief Executive Officer and President. If this executive officer or other officers of MPW do not continue in their present positions, or if a material number of other managers fail to continue with us, the business could be adversely affected.

Environmental risks could adversely affect our business. Although we attempt not to take responsibility for, nor transport or dispose of, hazardous materials generated by customers in the normal course of business, MPW does provide support to customers for the management of their hazardous materials. This support includes some on-site movement and packaging of customers’ hazardous materials and logistical support for customers’ transportation and disposal of hazardous materials. In addition, some of our more specialized cleaning procedures may require employees to work near hazardous materials. In performing these services, we could potentially be liable to third parties or their employees for various claims for property damage or personal injury stemming from a release of hazardous substances or otherwise. Personal injury claims could arise contemporaneously with performance of the work or long after completion of the project as a result of alleged exposure to toxic substances. A large number of these claims or one or more claims that results in a significant liability to MPW could have a material adverse effect on our business, results of operations and financial condition.

MPW may be adversely affected if it expands international operations. MPW generates a small portion of revenues from services provided outside of the United States. We may increase our presence outside of the United States. Conducting business outside of the United States is subject to various risks, including longer payment cycles, unexpected changes in regulatory requirements and tariffs, difficulties in staffing and managing foreign operations and greater difficulty in accounts receivable collection.

Item 2. Properties

Facilities

The Company currently services customers through its Hebron, Ohio headquarters and approximately 35 branch locations in 14 states plus Canada. The Company owns a 24,000 square foot building, which serves as its principal executive offices, an 11,000 square foot building, which serves as its main fabrication facility, an 8,250 square foot building, which serves as its paint and body facility, and an 11,000 square foot building, which serves as a hangar for aircraft leased by the Company, in Hebron, Ohio; a 64,000 square foot industrial container cleaning facility in Cleveland, Ohio; a 40,000 square foot industrial water facility in Sedalia, Missouri; a 17,000 square foot industrial parts cleaning facility in Fairborn, Ohio; and an 8,000 square foot light industrial building in Hendersonville, Tennessee. Many of the Company’s locations are leased facilities ranging from 3,000 to 71,000 square feet at which the Company houses equipment and maintains a small sales and administrative staff. Each industrial cleaning branch location is equipped to perform minor equipment maintenance. The Company leases land, office space and its maintenance and training facility in Hebron, Ohio, consisting of approximately 48,000 square feet, its industrial cleaning facility in Rockport, Indiana, consisting of approximately 12,000 square feet, its industrial water facilities located in Newark, Ohio, consisting of approximately 32,000 square feet and its industrial container cleaning facility located in Chesterfield, Michigan, consisting of approximately 71,000 square feet from related parties. See “Item 13. Certain Relationships and Related Transactions.”

Item 3. 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.

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

None.

Supplemental Item. – Executive Officers of the Company

The Company furnishes the following information concerning the executive officers of the Company. Executive officers are elected annually by, and serve at the pleasure of, the Board of Directors.

Monte R. Black (age 56). Mr. Black originally founded the Company in 1972 and has served as Chairman of the Board of Directors and Chief Executive Officer since that time. Mr. Black was appointed President in June 2001 and has served in that capacity since that time. From June 2001 through June 2004, Mr. Black also served as Chief Operating Officer.

Robert Valentine (age 46). Mr. Valentine joined the Company in July 2003 as Vice President, Chief Financial Officer (“CFO”), Secretary and Treasurer. In July 2004, Mr. Valentine was also appointed to serve in the capacity of Chief Operating Officer. Prior to joining the Company, Mr. Valentine served as CFO of Liqui-Box Corporation, a manufacturer and designer of liquid package systems, from 2001 through the acquisition of the company by DuPont Canada in 2002. He also served as Division Chief Executive Officer and CFO for WW Holdings Inc., an industrial products manufacturing company, from 1997 to 2001; International Group Controller (1995-1997) and Director of Internal Audit (1992-1994) for Invacare Corporation, a durable medical products manufacturer; and was employed with Price Waterhouse, a public accounting firm, prior to joining Invacare Corporation.

James P. Mock (age 61). Mr. Mock joined the Company in October 1996 as Vice President and General Manager of the Northern Region, Industrial Cleaning. From July 1997 through June 2004, Mr. Mock served as Vice President and General Manager of Industrial Cleaning and Facility Maintenance. In July 2004, Mr. Mock was appointed Vice President of Corporate Shared Services. From 1984 until joining the Company, Mr. Mock served in various general management and executive positions for a leading environmental services company and its successors.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock was traded on the NASDAQ Global Market (“NASDAQ”) under the symbol “MPWG” through September 26, 2006. The Company’s Common Stock ceased trading on NASDAQ effective September 27, 2006 upon completion of the going-private merger. As of September 28, 2006, the Company had six shareholders of record. The following table sets forth, for the periods indicated, the range of high and low closing prices for the Company’s Common Stock as reported on NASDAQ during fiscal 2006 and 2005:

The Company anticipates that all future earnings will be retained to finance operations and for the growth and development of the business. Accordingly, the Company does not currently anticipate paying cash dividends on its Common Stock. The payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on the results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that the Board of Directors deem relevant. The Company’s current Credit Facility contains covenants that limit the payment of cash dividends to an amount not to exceed the quarterly estimated income tax payments required to be made by each shareholder.

The following table sets forth information concerning the equity compensation plans of the Company as of June 30, 2006.

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The following table provides information about purchases made by, or on behalf of, MPW Industrial Services Group, Inc. or any “affiliated purchaser” (as defined in Rule 10b – 18(a) (3) under the Securities Exchange Act of 1934) of common shares of MPW Industrial Services Group, Inc. during each month of the fiscal quarter ended June 30, 2006:

Item 6. Selected Consolidated Financial Data

The following information should be read in conjunction with the Consolidated Financial Statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with “Item 1. Business-Investment Considerations”, the Consolidated Financial Statements and related notes included elsewhere in this 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 approximately 35 branch locations in 14 states and Canada and operates under four separate segments: Industrial Cleaning, Facility Maintenance and Support Services, Industrial Container Cleaning and Industrial Process Water Purification.

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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 fiscal 2006, we saw improvement in customer demand with higher volumes of both base and outage work from new and existing customers across all segments.

Our focus over the past 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 from operations by segment for continuing operations for the fiscal years ended June 30, 2006, 2005 and 2004. Expenses associated with the Company’s corporate headquarters are fully allocated to the segments. Corporate staff support services that are attributable to the operating segments are allocated based on each segment’s percentage of total revenues. General corporate expenses are allocated to each segment equally.

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Fiscal 2006 Compared to Fiscal 2005

Revenues. Revenues increased to $107.8 million in fiscal 2006 from $93.3 million in fiscal 2005. The increase in the Industrial Cleaning segment was primarily the result of additional outage work for several new and existing customers, combined with additional daily work for a customer that is currently experiencing a work stoppage. The increase in the Facility Maintenance and Support Services segment was primarily due to growth within existing customers. The Industrial Container Cleaning segment experienced higher volumes from existing customers while also providing additional services under a new contract with a key customer. The Industrial Water Process Purification segment saw increased volumes of industrial water purification trailers supplied to customers on an emergency basis as a result of warmer temperatures in the first quarter of fiscal 2006.

Cost of Services. Total cost of services increased to $85.2 million for fiscal 2006 compared to $75.1 million for fiscal 2005; however, cost of services as a percentage of revenue decreased to 79.1% in fiscal 2006 from 80.5% in fiscal 2005. The decrease was primarily the result of lower depreciation, subcontract and temporary services, slightly offset by higher chemical and fuel costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $18.5 million, or 17.2% as a percentage of revenue, in fiscal 2006 from $16.6 million, or 17.8% as a percentage of revenue, in fiscal 2005. The increase was primarily the result of increased selling expenses as a result of an increased focus on business development, combined with increased incentive compensation and administrative costs.

Other General Expenses. Other general expense was $30 thousand in fiscal 2006 compared to $0.2 million in fiscal 2005. The $30 thousand of other general expense in fiscal 2006 was primarily due to a $0.4 million impairment charge related to property and equipment of the Company’s Recovery Technologies reporting unit offset by a $0.4 million gain related primarily to the sale of equipment of the Industrial Cleaning segment. The $0.4 million impairment charge was as a result of Recovery Technology’s continued operating and cash flow losses and was based on a purchase offer and market appraisal. The fiscal 2005 other general expense represented the loss on disposal of assets.

Income from Operations. Income from operations was $3.9 million in fiscal 2006 compared to $1.5 million in fiscal 2005. As a percentage of revenue, income from operations increased to 3.7% in fiscal 2006 from 1.6% in the prior year period primarily related to the factors discussed above.

Other Income (Expense). Other income (expense) was $(0.2) million in fiscal 2006 compared to $0.2 million in fiscal 2005, which represented the recognition of the mark-to-market on interest rate swaps through earnings. The interest rate swaps expired in June 2006.

Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes for fiscal 2006 and 2005 reflects an effective rate of 37.3% and 22.8%, respectively. On June 30, 2005, the State of Ohio enacted various changes to its tax laws. One change is the phase out of the Ohio franchise tax, which is generally based on federal taxable income. This phase out is scheduled to occur at 20% per year for 2006 through 2010. As a result of the various changes to Ohio’s tax laws, the Company reduced the rate at which it records its deferred taxes, resulting in a lower effective annual income tax rate in fiscal 2005.

Fiscal 2005 Compared to Fiscal 2004

Revenues. Revenues increased to $93.3 million in fiscal 2005 from $89.1 million in fiscal 2004. The increase in the Industrial Cleaning segment was primarily the result of new business from the Hubbell’s and Fairbanks acquisition, increased revenues from new customers and increased project work for existing customers, slightly offset by decreased base load work from existing customers. The increase in the Facility Maintenance and Support Services segment was primarily due to growth from both new and existing customers. The decrease in the Industrial Container Cleaning segment was primarily the result of lower volumes due to slower sales in the automotive industry.

Cost of Services. Total cost of services increased to $75.1 million for fiscal 2005 compared to $71.8 million for fiscal 2004; however, cost of services as a percentage of revenue was flat at 80.5% in both fiscal 2005 and 2004. While cost of services was flat as a percentage of revenue, increased labor and fuel costs primarily in the Industrial Cleaning, Facility Maintenance and Support Services and Industrial Water Process Purification segments were offset by lower depreciation, subcontract and temporary services.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $16.6 million, or 17.8% as a percentage of revenue, in fiscal 2005 from $17.0 million, or 19.1% as a percentage of revenue, in fiscal 2004. The decrease was primarily the result of decreased bad debt expense due to a $1.1 million charge in fiscal 2004 for a customer that filed bankruptcy, offset slightly by increased selling expenses as a result of an increased focus on business development and increased administrative personnel costs.

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Income from Operations. Income from operations was $1.5 million in fiscal 2005 compared to $0.2 million in fiscal 2004. As a percentage of revenue, income from operations increased to 1.6% in fiscal 2005 from 0.3% in the prior year period primarily related to the factors discussed above.

Other Income (Expense). Other income was $0.2 million in fiscal 2005, which represented the recognition of the mark-to-market on interest rate swaps through earnings. A portion of the mark-to-market adjustment recognized in earnings relates to a prior period but was not deemed material to the prior periods presented.

Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes for fiscal 2005 and 2004 reflects an effective rate of 22.8% and 26.0%, respectively. On June 30, 2005, the State of Ohio enacted various changes to its tax laws. One change is the phase out of the Ohio franchise tax, which is generally based on federal taxable income. This phase out is scheduled to occur at 20% per year for 2006 through 2010. As a result of the various changes to Ohio’s tax laws, the Company has reduced the rate at which it records its deferred taxes, resulting in a lower effective annual income tax rate in fiscal 2005. In addition, the Company also recorded a $0.1 million charge for an adjustment to deferred income taxes. A portion of the adjustment to deferred income taxes relates to a prior period but was not deemed material to the current or prior periods presented.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of the Company’s significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. The following accounting policies are considered the most critical to the Company, in that they are the primary areas subject to the use of estimates, assumptions and judgments in the preparation of the consolidated financial statements of the Company.

Revenue and Cost Recognition. The Company primarily derives its revenues from services under time and materials, fixed price and unit price contracts. Revenues from these contracts are recorded based on performance and efforts expended. Revenues derived from non-contract activities are recorded as services are performed or goods are sold. Cost of services includes all direct labor, material, travel, subcontract and other direct and indirect project costs related to contract performance. Cost of services also includes all costs associated with operating equipment, including depreciation.

Allowance for Doubtful Accounts. The Company’s allowance for doubtful accounts is estimated to cover the risk of loss related to the Company’s accounts receivable. The allowance for doubtful accounts is maintained at a level that the Company considers appropriate based on historical experience and other factors that affect collectibility. The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, the Company records a specific reserve against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company records reserves for bad debts based on the age of the receivables and historical bad debt percentages. While the Company believes its allowance for doubtful accounts is adequate, changes in major customers’ ability to meet financial obligations or higher than expected defaults could cause the Company to lower its estimates of recoverability by a material amount.

Property and Equipment. Property and equipment is recorded at cost and includes expenditures that substantially increase the useful lives of the asset. Maintenance and repairs that do not improve or extend the useful life of the respective assets are expensed as incurred. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method.

Depreciation on the Company’s property and equipment has been computed based on the following useful lives:

Goodwill. The Company has classified as goodwill the excess of the acquisition cost over the fair values of the net assets of businesses acquired. In accordance with SFAS No. 142, goodwill and indefinite-lived intangible assets are tested for impairment upon adoption of the standard and annually thereafter or upon the occurrence of certain triggering events as defined by SFAS No. 142. SFAS No. 142 requires a two-step process for impairment testing of goodwill. The first step

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identifies indications of impairment, while the second step, if necessary, measures the amount of the impairment, if any. The Company performs its annual impairment test during the fourth quarter of each year using the discounted cash flow methodology.

Impairment of Long-Lived Assets. The recoverability of long-lived assets, including intangible assets, is evaluated whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and if future undiscounted cash flows are believed insufficient to recover the remaining carrying value of the asset, the carrying value is written down to fair value in the period the impairment is identified.

Insurance Risk. The Company is self-insured for workers’ compensation, general and auto liability costs up to certain retention levels and purchases private insurance for claims in excess of those retention levels. The Company records its self-insurance liability based on claims filed and an estimate of claims incurred but not yet reported. These liabilities are based on estimates and, while management believes that the reserve is adequate, the ultimate liability may be in excess of or less than the amounts recorded.

Contractual Obligations

As of June 30, 2006, the Company had the following contractual obligations (in thousands):

The Company is a guarantor of a lease agreement related to a facility operated by its former subsidiary, Pentagon. The lease, on which rent is approximately $30,000 per month, expires in October 2009. As of June 30, 2006, the Company believes its maximum potential liability is $1.2 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.

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 $2.0 million, $2.0 million and $2.1 million for fiscal 2006, 2005 and 2004, respectively.

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 CEO. The Company charges Pro-Kleen for the cost of services it renders plus a markup. The amount of such charges for fiscal years 2006, 2005 and 2004 were approximately $207,000, $298,000, and $212,000, respectively. These charges are for the use of parts and supplies and the use of certain of the Company’s employees on certain projects as requested by Pro-Kleen. These charges are generally treated as an offset to supplies, repairs and maintenance or labor expense. Accounts receivable related to these transactions were $0.1 million and $0.2 million at June 30, 2006 and 2005, respectively. During fiscal 2004, the Company also sold existing equipment to Pro-Kleen for cash proceeds of $204,000. The sale was reviewed and approved by the Company’s Audit Committee.

These transactions are reviewed periodically 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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Liquidity and Capital Resources

In fiscal 2006, the Company generated $8.8 million in cash from operating activities, representing a $3.0 million increase from fiscal 2005. The increase was primarily the result of an increase in income from operations.

Working capital of $9.9 million at June 30, 2006 increased $0.3 million from June 30, 2005. The increase was due to a $2.5 million increase in accounts receivable and $0.9 million decrease in current maturities of long-term debt offset by a $1.5 million increase in accrued compensation and related taxes due to increased incentive compensation accruals combined with a $1.2 million increase in other accrued liabilities primarily as a result of an increased income tax payable and customer rebate obligation.

The Company’s primary investing and financing activities during fiscal 2006 included spending $6.7 million on capital projects and paying $3.2 million on long-term debt. These transactions were funded by the cash flows from the Company’s operations.

Capital spending during fiscal 2006 included the purchases of new vehicles and equipment and spending to rebuild existing equipment in primarily the Industrial Cleaning and Industrial Water Process Purification segments, combined with the buyout of an aircraft lease. For the fiscal year ending June 30, 2007, we expect to spend approximately $5.5 million on capital projects.

The Company’s short-term and long-term liquidity needs are primarily served by a credit agreement with its principal banks (the “Credit Facility”). In June 2002, the Company entered into the Credit Facility with $35.0 million of revolving credit availability for a three-year period and a $6.0 million three-year term loan to be repaid in quarterly installments of $0.3 million. Effective June 30, 2005, the Company amended its Credit Facility and reduced the revolving credit availability to $27.0 million, which was subject to further periodic reduction of $0.3 million per quarter commencing on March 31, 2007. The amendment also extended the Credit Facility’s term loan expiration from April 1, 2006 to December 31, 2006 and the revolving credit facility’s expiration from April 1, 2006 to January 1, 2008, at which time the principal balance outstanding, together with all accrued interest will become immediately due and payable. As of June 30, 2006, outstanding borrowings under the Credit Facility were $14.4 million. Excluding outstanding borrowings and letters of credit, there was $8.0 million available under the Credit Facility at June 30, 2006.

On September 27, 2006, the Company entered into a credit agreement with LaSalle Bank NA and The Huntington National Bank (the “New Credit Facility”) to finance the “going private” merger and refinance the Company’s Credit Facility. The New Credit Facility consists of the following senior secured credit facilities:

The New 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 New Credit Facility

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currently bear interest at the Eurodollar market rate or Prime rate plus the applicable margin rate of 2.75%. The Company also pays a commitment fee of 0.50% for unused portions of the New 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 earnings before interest, taxes, depreciation and amortization, certain levels of fixed charge coverage and maintenance of a specific ratio of funded debt to earnings before interest, taxes, depreciation and amortization. The New Credit Facility also contains covenants that limit the payment of cash dividends to an amount not to exceed the quarterly estimated income tax payments required to be made by each shareholder.

The Company had two pay-fixed interest rate swap agreements as a hedge against the interest rate risk associated with borrowing at a variable rate, which matured in June 2006. The objective of the hedge was to eliminate the variability of cash flows related to interest rate payments on the Company’s variable rate debt. Through their expiration on June 15, 2006, the swap agreements had a notional amount of $8.0 million and $10.0 million and effectively locked in a portion of the Company’s variable rate revolving credit liability at fixed rates of 2.61% and 2.80%, respectively, plus the Company’s applicable margin. These swap agreements were accounted for as cash flow hedges, as defined under SFAS No. 133, Accounting for Derivative and Hedging Activities. In fiscal 2004, the Company adjusted the pay-fixed interest rate swaps to current market values through other comprehensive income (loss). In fiscal 2005, the Company determined that it failed to qualify for hedge accounting treatment at inception of the interest rate swaps and therefore recognized the $0.2 million gain deferred in accumulated comprehensive income in earnings. The gain (loss) recognized in fiscal 2006 and 2005 was reported in other income (expense).

The Company expects to continue to assess acquisition opportunities as they arise. Additional financing may be required if the Company makes an acquisition. There can be no assurance, however, that any such opportunities will arise, that any such acquisitions will be consummated, or that any needed additional financing will be available on satisfactory terms when required. Absent any other acquisitions, we anticipate that cash flows from operations and unused borrowing capacity should be sufficient to fund expected normal operating costs, working capital, and capital expenditures for the Company’s existing businesses.

Recently Adopted Accounting Standards

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

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

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

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Effect of Recent Accounting Pronouncements

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

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140. This Statement amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective at the beginning of the first fiscal year beginning after September 15, 2006. The Company does not expect the adoption of this Statement to have a material impact on its financial position or results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the Company’s financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. Prior to this Statement, there were different definitions of fair value and limited guidance for applying those definitions in GAAP. In developing this Statement, the FASB considered the need for increased consistency and comparability in fair value measurements and for expanded disclosures about fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect the adoption of this Statement to have a material impact on its financial position or results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, which expresses the SEC staff’s views regarding the process of quantifying financial statement misstatements. The SEC staff is aware of diversity in practice. For example, certain registrants do not consider the effects of prior year errors on current year financial statements, thereby allowing improper assets or liabilities to remain unadjusted. While these errors may not be material if considered only in relation to the balance sheet, correcting the errors could be material to the current year income statement. The interpretations in SAB 108 are being issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. Early application of the guidance in this FSP is encouraged in any report for an interim period of the first fiscal year ending after November 15, 2006. The Company does not expect the adoption of this SAB to have a material impact on its financial position or results of operations.

In September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, Accounting for Planned Major Maintenance Activities. This FSP amends certain provisions in the AICPA Industry Audit Guide, Audits of Airlines (“Airline Guide”), and APB Opinion No. 28, Interim Financial Reporting. The Airline Guide is the principal source of guidance on the accounting for planned major maintenance activities and is widely used by other industries. The Airline Guide permits four alternative methods of accounting for planned major maintenance activities: direct expense, built-in overhaul, deferral and accrual (accrue-in-advance). This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of this FSP to have a material impact on its financial position or results of operations.

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Inflation

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

Item 7a. 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 June 30, 2006, the balance on the Credit Facility was $14.4 million, which is subject to a variable rate of interest based on the Eurodollar rate. The Company had hedged its exposure to changes in interest rates by fixing its rate of interest on $18.0 million of its variable rate credit facility through two interest rate swap agreements; however, the interest rate swaps expired June 15, 2006. Assuming borrowings at June 30, 2006, a one hundred basis point change in interest rates would impact net interest expense by approximately $144,000 per year.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

MPW Industrial Services Group, Inc.

We have audited the accompanying consolidated balance sheets of MPW Industrial Services Group, Inc. and subsidiaries (the Company) as of June 30, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MPW Industrial Services Group, Inc. and subsidiaries as of June 30, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard No. 123(R), Share-Based Payments, effective July 1, 2005.

/s/ KPMG LLP

Columbus, Ohio

October 13, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

MPW Industrial Services Group, Inc.

We have audited the accompanying consolidated statements of operations, changes in shareholders’ equity, and cash flows of MPW Industrial Services Group, Inc. and subsidiaries (the Company) for the year ended June 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of MPW Industrial Services Group, Inc. and subsidiaries for the year ended June 30, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Columbus, Ohio

August 12, 2004, except for Note 16,

as to which the date is September 30, 2005

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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 CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands)

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)