##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended April 3, 2011
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number: 000-52380
 MISCOR GROUP, LTD.
  Indiana
    
    20-0995245(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 800 Nave Road, SE
Massillon, OH 44646
 (330) 830-3500
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
 As of May 9, 2011, there were 11,785,826 shares outstanding of the
issuers Common Stock, without par value




---



##### 



MISCOR GROUP, LTD.
 INDEX TO FORM 10-Q
 Item
    
    PageNumber
    
    NumberPART I  FINANCIAL INFORMATION1. Financial Statements:Unaudited Condensed Consolidated Balance Sheets as of April 3, 2011 (Unaudited) and
December 31, 2010
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three Months ended April
3, 2011 and April 4, 2010
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended April
3, 2011 and April 4, 2010
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    42. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    173. Quantitative and Qualitative Disclosures about Market Risk
    
    
    214. Controls and Procedures
    
    
    22PART II  OTHER INFORMATION6. Exhibits
    
    
    20Signatures
    
    
    22EX-31.1EX-31.2EX-32
  i




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share data)
 April 3,
    
    
    December 31,2011
    
    
    2010(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, net of allowance for doubtful accounts
of $176 and $226, respectively
    
    $
    4,803
    
    
    $
    6,006Inventories
    
    
    4,490
    
    
    
    4,359Assets held-for-sale
    
    
    4,363
    
    
    
    3,493Other current assets
    
    
    660
    
    
    
    603Total current assets
    
    
    14,316
    
    
    
    14,461PROPERTY AND EQUIPMENT, net
    
    
    5,251
    
    
    
    5,521OTHER ASSETSGoodwill
    
    
    
    
    
    
    Customer relationships, net
    
    
    6,440
    
    
    
    6,537Other intangible assets, net
    
    
    588
    
    
    
    598Deposits and other assets
    
    
    59
    
    
    
    59Total other assets
    
    
    7,087
    
    
    
    7,194Total assets
    
    $
    26,654
    
    
    $
    27,176LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESRevolving credit line
    
    $
    3,689
    
    
    $
    3,263Current portion of long-term debt
    
    
    208
    
    
    
    385Current portion of long-term debt, officers and affiliates
    
    
    4,120
    
    
    
    4,105Accounts payable
    
    
    2,693
    
    
    
    3,742Liabilities of held-for-sale operations
    
    
    1,347
    
    
    
    1,076Accrued expenses and other current liabilities
    
    
    1,651
    
    
    
    1,855Total current liabilities
    
    
    13,708
    
    
    
    14,426LONG-TERM LIABILITIESLong-term debt
    
    
    938
    
    
    
    947Long-term debt, officers and affiliates
    
    
    1,959
    
    
    
    1,974Total long-term liabilities
    
    
    2,897
    
    
    
    2,921Total liabilities
    
    
    16,605
    
    
    
    17,347Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, no par value; 800,000 shares authorized; no shares issued and
outstanding
    
    
    
    
    
    
    Common stock, no par value; 30,000,000 shares authorized; 11,785,826 shares issued
and outstanding
    
    
    59,344
    
    
    
    59,344Additional paid in capitalAccumulated deficit
    
    
    (49,295
    )
    
    
    (49,515
    )Total stockholders equity
    
    
    10,049
    
    
    
    9,829Total liabilities and stockholders equity
    
    $
    26,654
    
    
    $
    27,176
  1




---



##### Table of Contents



MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands, except share and per share data)
 Three months endedApril 3, 2011
    
    
    April 4, 2010(Unaudited)
    
    
    (Unaudited)REVENUESProduct sales
    
    $
    1,028
    
    
    $
    1,301Service revenue
    
    
    7,228
    
    
    
    6,730Total Revenues
    
    
    8,256
    
    
    
    8,031COST OF REVENUESCost of product sales
    
    
    705
    
    
    
    1,002Cost of service revenue
    
    
    5,859
    
    
    
    5,824Total Cost of Revenues
    
    
    6,564
    
    
    
    6,826GROSS PROFIT
    
    
    1,692
    
    
    
    1,205SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    1,600
    
    
    
    2,351INCOME (LOSS) FROM OPERATIONS
    
    
    92
    
    
    
    (1,146
    )OTHER (INCOME) EXPENSEInterest expense
    
    
    252
    
    
    
    205Other (income) expense
    
    
    
    
    
    
    (23
    )252
    
    
    
    182LOSS FROM CONTINUING OPERATIONS
    
    
    (160
    )
    
    
    (1,328
    )Income Tax Expense
    
    
    
    
    
    
    LOSS FROM CONTINUING OPERATIONS
    
    
    (160
    )
    
    
    (1,328
    )INCOME FROM DISCONTINUED OPERATIONS
    
    
    380
    
    
    
    283(See Note C, Discontinued and Held-for-Sale Operations)NET INCOME (LOSS)
    
    $
    220
    
    
    $
    (1,045
    )BASIC AND DILUTED INCOME (LOSS) PER COMMON SHAREFrom Continuing Operations
    
    $
    (0.01
    )
    
    $
    (0.11
    )From Discontinued Operations
    
    
    0.03
    
    
    
    0.02BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
    
    $
    0.02
    
    
    $
    (0.09
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    11,785,826
    
    
    
    11,794,112
  2




---



##### Table of Contents



MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands, except share and per share data)
 For Three Months EndedApril 3, 2011
    
    
    April 4, 2010(Unaudited)
    
    
    (Unaudited)OPERATING ACTIVITIESNet income (loss)
    
    $
    220
    
    
    $
    (1,045
    )Adjustments to reconcile net income (loss) to net cash utilized by operating activities:Depreciation and amortization
    
    
    409
    
    
    
    523Goodwill impairment
    
    
    
    
    
    
    Long lived assets impairment
    
    
    
    
    
    
    Write off of note related to sale of business
    
    
    
    
    
    
    Bad debt provision
    
    
    (27
    )
    
    
    Inventory cost adjustments
    
    
    (91
    )
    
    
    33Loss on sale of equipment
    
    
    
    
    
    
    Loss on disposal of discontinued operations
    
    
    
    
    
    
    (394
    )Stock-based compensation, net of forfietures
    
    
    
    
    
    
    (32
    )Amortization of debt issuance costs and debt discount
    
    
    
    
    
    
    26Unrealized gain on conversion option
    
    
    
    
    
    
    (18
    )Changes in:Accounts receivable
    
    
    495
    
    
    
    (306
    )Inventories
    
    
    (141
    )
    
    
    (413
    )Other current assets
    
    
    (88
    )
    
    
    (110
    )Deposits and other non-current assets
    
    
    
    
    
    
    (25
    )Accounts payable
    
    
    (794
    )
    
    
    1,498Accrued expenses and other current liabilities
    
    
    (179
    )
    
    
    (456
    )Net cash utilized by operating activities
    
    
    (196
    )
    
    
    (719
    )INVESTING ACTIVITIESAcquisition of business assets
    
    
    
    
    
    
    Proceeds from disposal of discontinued operations
    
    
    
    
    
    
    746Acquisition of property and equipment
    
    
    (37
    )
    
    
    Proceeds from disposal of property and equipment
    
    
    
    
    
    
    7Net cash provided (utilized) by investing activities
    
    
    (37
    )
    
    
    753FINANCING ACTIVITIESPayments on capital lease obligations
    
    
    
    
    
    
    (14
    )Short-term debt borrowings, net
    
    
    425
    
    
    
    213Borrowings of long-term debt
    
    
    10
    
    
    
    6Repayments of long-term debt
    
    
    (202
    )
    
    
    (237
    )Proceeds from the issuance of shares
    
    
    
    
    
    
    Cash repurchase of restricted stock
    
    
    
    
    
    
    (2
    )Debt issuance costs paid
    
    
    
    
    
    
    Net cash provided (utilized) by financing activities
    
    
    233
    
    
    
    (34
    )DECREASE IN CASH
    
    
    
    
    
    
    Cash, beginning of period
    
    
    
    
    
    
    Cash, end of period
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    254
    
    
    $
    165
  3




---



##### Table of Contents



MISCOR GROUP, LTD.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Amounts in thousands, except share and per share data)
 NOTE A  BASIS OF PRESENTATION
    NOTE B  RECENT ACCOUNTING PRONOUNCEMENTS
  NOTE C  DISCONTINUED AND HELD-FOR-SALE OPERATIONS
 Construction and Engineering Services Business
   4




---



##### Table of Contents



Three Months EndedApril 4, 2010Revenue from discontinued operations
    
    $
    1,721Pretax loss from discontinued operations
    
    
    (141
    )Pretax gain on disposal of discontinued operations
    
    
    136
  February 3, 2010ASSETSAccounts receivable, net of allowance for doubtful accounts
of $210 and $209, respectively
    
    $
    5,116Inventories
    
    
    171Other current assets
    
    
    2,208Total current assets
    
    
    7,495PROPERTY AND EQUIPMENT, net
    
    
    500Total assets
    
    $
    7,995LIABLITIESAccounts payable
    
    $
    5,252Accrued expense and other liabilities
    
    
    1,033Total liabilities
    
    
    6,285Net assets
    
    $
    1,710
 American Motive Power
   5




---



##### Table of Contents



Three Months EndedApril 4, 2010Revenue from discontinued operations
    
    $
    709Pretax loss from discontinued operations
    
    
    (241
    )Pretax gain on disposal of discontinued operations
    
    
    178
  March 8, 2010ASSETSAccounts receivable, net of allowance for doubtful accounts
of $56 and $55, respectively
    
    $
    564Inventories
    
    
    1,153Other current assets
    
    
    479Total current assets
    
    
    2,196Other assets
    
    
    Total assets
    
    $
    2,196LIABLITIESAccounts payable
    
    $
    683Accrued expense and other liabilities
    
    
    1,691Total liabilities
    
    
    2,374Net assets
    
    $
    (178
    )
 HK Engine Components
   Three Months EndedApril 3, 2011
    
    
    April 4, 2010Revenue from discontinued operations
    
    $
    2,781
    
    
    $
    2,195Pretax income from discontinued operations
    
    
    501
    
    
    
    271
  6




---



##### Table of Contents



April 4, 2011
    
    
    December 31, 2010ASSETSAccounts receivable, net of allowance for doubtful accounts
of $39 and $81, respectively
    
    $
    1,337
    
    
    $
    602Inventories
    
    
    1,672
    
    
    
    1,571Other current assets
    
    
    94
    
    
    
    66Total current assets
    
    
    3,103
    
    
    
    2,239PROPERTY AND EQUIPMENT, net
    
    
    1,260
    
    
    
    1,254Total assets
    
    $
    4,363
    
    
    $
    3,493LIABLITIESAccounts payable
    
    $
    1,073
    
    
    $
    819Accrued expense and other liabilities
    
    
    274
    
    
    
    257Total liabilities
    
    
    1,347
    
    
    
    1,076Net assets
    
    $
    3,016
    
    
    $
    2,417
 NOTE D  INVENTORY
  April 3, 2011
    
    
    December 31, 2010Raw materials
    
    $
    2,215
    
    
    $
    2,196Work-in-progress
    
    
    1,746
    
    
    
    1,633Finished goods
    
    
    529
    
    
    
    530$
    4,490
    
    
    $
    4,359
 At April 3, 2011 and December 31, 2010, inventory, net of allowance for slow moving, totaling
$1,672 and $1,571 respectively, was classified as held-for-sale (See Note C, Discontinued and
Held-for-Sale Operations).
 NOTE E OTHER INTANGIBLE ASSETS
 Intangible assets consist of the following:
 April 3, 2011
    
    
    December 31, 2010Estimated Useful
    
    
    Gross Carrying
    
    
    Accululated
    
    
    
    
    
    
    Gross Carrying
    
    
    AccululatedLives    (in Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetPatents and
Trademarks
    
    
    10
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Technical Library
    
    
    20
    
    
    
    700
    
    
    
    (116
    )
    
    
    584
    
    
    
    700
    
    
    
    (108
    )
    
    
    592Customer
Relationships
    
    
    15-20
    
    
    
    7,722
    
    
    
    (1,282
    )
    
    
    6,440
    
    
    
    7,722
    
    
    
    (1,185
    )
    
    
    6,537Non-Compete
Agreements
    
    
    3
    
    
    
    17
    
    
    
    (13
    )
    
    
    4
    
    
    
    17
    
    
    
    (11
    )
    
    
    6Total
    
    
    
    
    
    $
    8,439
    
    
    $
    (1,411
    )
    
    $
    7,028
    
    
    $
    8,439
    
    
    $
    (1,304
    )
    
    $
    7,135
  7




---



##### Table of Contents



Year Ending December 31 2011
    
    $
    3212012
    
    
    4212013
    
    
    4212014
    
    
    4212015
    
    
    421Thereafter
    
    
    5,023Total
    
    $
    7,028
 NOTE F  SENIOR CREDIT FACILITY
     Default and Waiver Agreements
  
    
    Consented to the planned sale of the CES business;
    
    Revised the definition of Borrowing Base, resulting in lower available borrowings;
    
    Required additional weekly principal payments of $10,000 on the real estate term note;
and
    
    Extended until January 27, 2010, and reduced to $1,000 the previously agreed upon
requirement for the Company to raise $2,000 additional capital through subordinated debt,
asset sales, or additional cash equity.
  
    
    Revised the terms of Wells Fargos consent to the sale of our CES business; and
    
    Extended until February 19, 2010 the requirement for the Company to raise $1,000
additional capital through subordinated debt, asset sales, or additional cash equity.
 8




---



##### Table of Contents




    
    Waived the Companys noncompliance with the minimum book net worth and maximum capital
expenditures from working capital covenants for the year ended December 31, 2009;
    
    Adjusted the minimum book net worth covenant to $21,500 as of December 31, 2009
    
    Adjusted the allowable capital expenditures for the year ended December 31, 2010 to a
maximum of $500;
    
    Incorporated a monthly minimum EBITDA covenant commencing in April, 2010; and
    
    Eliminated the previously agreed upon requirement for the Company to raise $1,000
additional capital through subordinated debt, asset sales, or additional cash equity.
   
    
    amortization of the term loan remained at $21 per month through January 31, 2011, when
it increased to $52 per month;
    
    the term loan is to be paid in full upon the earlier of the sale of the Companys HKEC
business or upon maturity;
    
    the real estate loan was to be paid in full by December 31, 2011, using revolver
availability;
    
    accounts receivable between 91  120 days cease to be eligible collateral on the
earlier of a sale of the Companys HKEC business or May 31, 2011, having been subjected to
a cap gradually decreasing from $275 in monthly increments of $50 through May 31, 2011;
    
    the percentage of ineligibility test for accounts owed by an account debtor was to
reduce from 35% of
the total due from an account debtor to 25%, no later than January 31, 2011;
    
    a stop loss covenant of ($400) measured monthly on a year-to-date basis commenced
January 1, 2011; and
    
    Capital expenditures during 2011 are limited to $200.
    NOTE G  DEBT
 Long-term debt
  9




---



##### Table of Contents



April 3,
    
    
    December 31,2011
    
    
    2010Note payable to
Chairman, payable in
monthly installments of
$5 beginning April 1,
2010, with outstanding
balance payable at
maturity date of
February 28, 2012, plus
interest at the greater
of 5% or the prime rate
(3.25% at April 3, 2011
and December 31, 2010)
plus 2%, secured by a
subordinated interest in
substantially all assets
owned by the Company
    
    $
    2,079
    
    
    $
    2 ,079Note payable to former
members of 3-D Service,
Ltd. (BDeWees, Inc.) due
November 30, 2011, plus
interest at 12% at April
3, 2011 and at December
31, 2010, secured by a
subordinated interest in
machinery and equipment
of 3-D Services, Ltd.
    
    
    2,000
    
    
    
    2,000Note payable to former
members of 3-D Service,
Ltd. (XGen III, Ltd.)
due November 30, 2011,
plus interest at 12% at
April 3, 2011 and at
December 31, 2010,
secured by a
subordinated interest in
machinery and equipment
and inventory of 3-D
Services, Ltd.
    
    
    2,000
    
    
    
    2,000Note payable to bank in
monthly installments of
$52 through June 30,
2011 beginning February
1, 2011, plus interest
currently at Daily Three
Month LIBOR (0.30% and
0.31% at April 3, 2011
and December 31, 2010,
respectively) plus
8.25%, secured by
inventory and
substantially all
machinery and equipment
(see Note G, Senior
Credit Facility)
    
    
    145
    
    
    
    322Note payable to bank in
monthly installments of
$3 through November 16,
2014, plus interest at
8% secured by a security
interest in certain
equipment
    
    
    116
    
    
    
    123Capital lease obligations
    
    
    1,003
    
    
    
    1,0097,343
    
    
    
    7,533Less: current portion
    
    
    4,328
    
    
    
    4,490$
    3,015
    
    
    $
    3,043
   Years Ending December 31,
    
    Amount2011
    
    $
    4,3282012
    
    
    2,0742013
    
    
    9142014
    
    
    27$
    7,343
  Three Months EndedApril 3, 2011
    
    
    April 4, 2010Interest expense on principal
    
    $
    254
    
    
    $
    182Amortization of debt issue costs
    
    
    
    
    
    
    3Amortization of debt discount 
revolving notes payable
    
    
    
    
    
    
    23$
    254
    
    
    $
    208
 10




---



##### Table of Contents



NOTE H  RELATED PARTY TRANSACTIONS
 Trade accounts receivable and accounts payable
   Long-term debt, officers
     Leases
  11




---



##### Table of Contents



NOTE I  INCOME (LOSS) PER SHARE
 Earnings Per Share
   NOTE J  CONCENTRATIONS OF CREDIT RISK
  NOTE K  COMMITMENTS AND CONTINGENCIES
 Collective bargaining agreements
  Warranty reserves
  12




---



##### Table of Contents



Three Months Ended
    
    
    Three Months EndedApril 3, 2011
    
    
    April 4, 2010Balance at beginning of period
    
    $
    (217
    )
    
    $
    (244
    )Warranty claims paid
    
    
    
    
    
    
    9Warranty expense
    
    
    40
    
    
    
    (19
    )Balance at end of period
    
    $
    (177
    )
    
    $
    (254
    )
 Employment Agreement
  Construction and Engineering Services Working Capital Adjustment
  NOTE L  FAIR VALUE OF FINANCIAL INSTRUMENTS
  Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
  Debt
  NOTE M  SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 13




---



##### Table of Contents



Three Months EndedApril 3, 2011
    
    
    April 4, 2010Reduction of note payable in conjunction with
sale of CES business
    
    $
    
    
    
    $
    1,176
 NOTE N  MANAGEMENT PLAN
 In 2011, the Companys management plan is to continue cost cutting efforts, by improving gross
margins via strategic sourcing and improved efficiencies. Additionally, during the last part of
2010, the Company added salesmen in key strategic areas, in order to grow core revenues and will
consider adding additional salesmen if warranted. The Company continues pursuing the
divestiture of HKEC, as this business does not fit with the Companys core business
competencies. The Company will also consider strategic alternatives, include but not limited
to, obtaining an equity infusion, being acquired and/or going private. Lastly, the Company will
pursue alternative lending sources for the credit facility. By doing such, management believes
the Company can significantly reduce its interest expense, increase its base borrowing and
eliminate lending restrictions currently in place.
 Pursuant to a non-binding credit proposal accepted by the Company on March 10, 2011, Crestmark
Commercial Capital Lending LLC (Crestmark) proposed an accounts receivable financing using a
$5 million revolving credit facility. The facility, which has been approved by Crestmark, would
be used to pay off Wells Fargos line of credit with an outstanding balance of $3,689 as of
April 3, 2011, and for working capital. This facility is contingent upon obtaining
subordination agreements. Crestmark requires a senior
security interest in accounts receivable and inventory, and a subordinated interest in
substantially all of the Companys other assets.
 NOTE O  SUBSEQUENT EVENTS
 None
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Overview
 We provide electro-mechanical repair and maintenance solutions to industrial customers primarily
in the United States. Our services include repair, maintenance and remanufacturing of electric
motors for the steel, rail, and renewable energy industries from five locations in the Midwest
and California; repair and manufacture of industrial lifting magnets for the steel and scrap
industries from two locations in the Midwest; and manufacturing and remanufacturing of power
assemblies, engine parts and other components related to large diesel engines from two locations
on the East Coast.
 The severity and extended nature of the recent economic decline resulted in a steep decline in
demand for products and services in the industries that we support. In 2009 and throughout
2010, we undertook a number of actions to reduce our fixed costs, improve operational
efficiencies and increase operating margins. The Company suspended non-essential cash
expenditures and severely reduced capital expenditures. These were efforts to align our
operating costs with the decline in sales and respond to debt service and supplier demands. By
the end of 2010, the Company had achieved substantially all components of the Plan.
 In December 2009, we announced a restructuring plan in response to the economic issues and
banking environment. This plan established a focus on our industrial services businesses
providing repair and maintenance services for electric motors and electric magnets, with the
intent to divest our other operations, including our operations that specialize in the
manufacturing and remanufacturing of diesel engine components, our operations specializing in
the repair and remanufacture of locomotives, and our construction and engineering services
businesses.
 In 2010, part of the Companys restructuring plan also included relocating the Companys
corporate offices to Massillon, Ohio in order to more centrally locate our management team
within our operational area and reduce selling, general and administrative expenses. This
relocation was completed during the second quarter of
 14




---



##### Table of Contents



2010. Also, as part of this plan, the
Company had announced that it would divest the construction and engineering businesses as well
as two of our subsidiaries in the rail services industry. As of April 3, 2011, the Company
still owns HK Engine Components, LLC (HKEC), which services the rail services industry. The
financial results for HKEC are recorded as discontinued operations.
 In 2011, the Companys management plan is to continue cost cutting efforts, by improving gross
margins via strategic sourcing and improved efficiencies. Additionally, during the last part of
2010, the Company added salesmen in key strategic areas, in order to grow core revenues, and
will consider adding additionally salesmen if warranted. The Company continues pursuing the
divestiture of HKEC, as this business does not fit the Companys core business competencies. We
also consider strategic alternatives, including, but not limited to, obtaining an equity
infusion, being acquired and/or going private. Lastly, the Company will pursue alternative
lending sources for the credit facility. By doing such, management believes the Company can
significantly reduce its interest expense, increase its base borrowing and eliminate lending
restrictions currently in place.
 Revenues from continuing operations in the three months ended April 3, 2011 increased
approximately 3.6% from the three months ended December 31, 2010, reflecting increased service
demand. Gross profit increased with lower direct costs and overhead reduction efforts. Cost
reduction initiatives were realized in SG&A with a reduction of approximately 45% compared to
the three months ended December 31, 2010. Consequently, the first quarter of 2011 as compared
to the fourth quarter of 2010 realized improved operating results. While the Company has
experienced improvement in the volume of past due accounts payable, certain suppliers continue
to place us on credit hold or cash in advance terms. These restrictions have impacted our sales
and operating margins in 2010, and continued to have an impact in the first quarter of 2011.
 The Company has not yet finalized the new credit facility it needs to be able to retire the
Wells Fargo line of credit by its June 30, 2011 termination date and to operate throughout 2011.
Additionally, $4,000 of other debt is currently scheduled to mature in 2011. These conditions,
coupled with its recurring losses from operations, raise substantial doubt as to the Companys
ability to continue as a going concern. As the Company expects to finalize a refinancing of the
Wells Fargo credit facility by June 30, 2011 and to repay or extend its other debt obligations
by their currently scheduled maturity dates, no adjustments to the reported financial statement
have been made that may result from this uncertainty.
 Recent DevelopmentsNot applicableSignificant Accounting Policies
 The significant accounting polices used in preparation of the Companys consolidated financial
statements are disclosed in Note B of the Notes to the Consolidated Financial Statements within
the Form 10-K. No additional significant accounting policies have been adopted during Fiscal
2011.Recent Accounting Pronouncements
 In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements,
(amendments to ASC Topic 605, Revenue Recognition) (ASU 2009-13). ASU 2009-13 requires
entities to allocate revenue in an arrangement using estimated selling prices of the delivered
goods and services based on a selling price hierarchy. The amendments eliminate the residual
method of revenue allocation and require revenue to be allocated using the relative selling
price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The adoption of ASU 2009-13 did not have a material impact on its
consolidated financial statements.
 Results of Operations
 Three Months Ended April 3, 2011 Compared to Three Months Ended April 4, 2010
 Revenues. Revenues from continuing operations increased by $0.2 million or 2.8% to $8.2
million for the three months ended April 3, 2011 from $8.0 million for the three months ended
April 4, 2010. For 2010 and 2011, the Construction and Engineering and Rail Services segments
have been classified as discontinued operations. For 2011, the Rail Service segment has been
classified as discontinued operations. The increase in revenue is
 15




---



##### Table of Contents



related to increased service
revenue and a concentrated effort to re-establish the Company in the market place.
Additionally, the Company is beginning to experience some economic recovery in the markets we
serve.
 Gross Profit.Total gross profit from continuing operations for the three months ended April 3,
2011 was $1.7 million or 20.5% of revenues from continuing operations compared to $1.2 million
or 15.0% of revenues from continuing operations for the three months ended April 4, 2010. For
2010 prior to its sale,, the Construction and Engineering and Rail Services segments have been
classified as discontinued operations. For 2010 and 2011, the Rail Service segment has been
classified as discontinued operations. The Industrial Services gross profit increased due to our
ability to continue eliminating costs and improve efficiencies.
 Selling, General and Administrative Expenses. Selling, general and administrative expenses from
continuing operations were $1.6 million for the three months ended April 3, 2011 compared to
$2.4 million for the three months ended April 4, 2010, reflecting cost reduction efforts, mainly
staff reductions, enacted as part of our management plan during the early part of 2010.
 Interest Expense and Other Income. Interest expense for continuing operations increased
slightly from the three months ended April 4, 2010 to the three months ended April 3, 2011
mainly due to an increase in borrowing against our revolving line of credit and interest expense
associated with a portion of our subordinated debt.
 Provision for Income Taxes. We have experienced net operating losses in each year since we
commenced operations. We are uncertain as to whether we will be able to utilize these tax losses
before they expire. Accordingly, we provided a valuation allowance for the income tax benefits
associated with these net future tax assets that primarily relate to cumulative net operating
losses, until such time as profitability is reasonably assured and it becomes more likely than
not that we will be able to utilize such tax benefits.
 Loss from Continuing Operations.Loss from continuing operations decreased by $1.1 million or
88% to $(0.2) million for the three months ended April 3, 2011 from $(1.3) million for the three
months ended April 4, 2010. The decrease in loss from continuing operations is primarily
attributed to a $0.5 million improvement in gross profit margin and $0.7 million decrease in
selling, general and administrative expenses, as discussed in the gross profit and selling,
general and administrative expenses sections above. Offsetting these items was a $0.1 million
increase in interest expense.
 Income from Discontinued Operations.Income from discontinued operations of $0.4 million for the
three months ended April 3, 2011 increased compared to income of $0.3 million for the three
months ended April 4, 2010. For the three months ended April 3, 2010, the income from
discontinued operations includes $0.4 million in pretax gain on disposal of discontinued
operations. Excluding this pretax gain on disposal of discontinued operations, this segment
generated a loss of ($0.1) million. Additionally, the results for the three months ended April
4, 2010 include pretax loss from discontinued operations of ($0.4) million related to the
Construction and Engineering Services and AMP businesses, which were both divested during the
first quarter 2010. Accordingly, the income from discontinued operations as of April 3, 2011
relates directly to our HK Engine Components, LLC subsidiary. For this subsidiary, we recorded
income from discontinued operations of $0.4 million for the three months ended April 3, 2011
compared to $0.3 million for the three months ended April 4, 2010. The increase is due to
increased sales in rail services.
 Net Income (Loss).Net income for the three months ended April 3, 2011 was $0.2 million
compared to a net loss of $1.0 million for the three months ended April 3, 2010. The $1.3
million increase was mainly due to improved operating results, including improved margins,
improved operational efficiencies and reduced selling, general and administrative expenses
within our Industrial Services segment, as well as increased income from discontinued operations
related to our HK Engine Components, LLC subsidiary.
 Liquidity and Capital ResourcesAt April 3, 2011, we had approximately $0.6 million of working capital, an improvement of
$0.6 million as compared to December 31, 2010. The increase is primarily due to a decrease in
accounts payable owed at April 3, 2011.
 Net cash utilized by operating activities was ($0.2) million for the three months ended April 3,
2011 compared to ($0.7) million for the three months ended April 4, 2010. This increase is
primarily due to the Company generating income and reducing its levels of accounts receivable.
 16




---



##### Table of Contents



For the three months ended April 3, 2011, net cash flows provided (utilized) by investing
activities declined by $0.7 million to ($0.03) million compared to $0.8 million for the three
months ended April 4, 2010. This decrease is a direct result of proceeds from the disposal of
discontinued operation for the three months ended April 4, 2010.
 Net cash provided (utilized) by financing activities increased by $0.2 million to $0.2 million
as of April 3, 2011 as compared to ($0.03) million as of April 4, 2010. This increase is
directly attributed to increased borrowings against our revolving line of credit.
 The Company will focus efforts to refinance the existing senior credit facility to provide
increased availability and long-term debt and subordinated notes due in 2011 and early 2012 to
provide working capital. Prior operating results and the banking environment offer challenges
in modifying or establishing a new senior credit facility. Consequently, capital may not be
available on acceptable terms, or at all.
 Certain of our trade accounts payable are extended beyond the terms acceptable to the vendor.
As a result, certain vendors have placed us on credit hold or require cash in advance which has
resulted in delays in the receipt of necessary materials and parts. Disruptions of this nature
have resulted in the loss of sales orders, and future delays may have an adverse affect on our
business.
 We continue our efforts to enhance our future cash flows. These improvements include efforts to
collect accounts receivable at a faster rate, decrease inventory levels, improve operating
margins, review alternative financing sources, and negotiate extended terms with our vendors.
 Based on the current facility with Wells Fargo, accounts receivable between 91  120 days cease
to be eligible collateral on the earlier of a sale of the Companys HKEC business or May 31,
2011, having been subjected to a cap gradually decreasing from $275 in monthly increments of $50
through May 31, 2011.
 While the current agreement with Wells Fargo expires on June 30, 2011, we expect to either renew
the current revolving line of credit or find alternative funding solution for the revolving line
of credit. Pursuant to a non-binding credit proposal accepted by the Company on March 10, 2011,
Crestmark Commercial Capital Lending LLC (Crestmark) proposed an accounts receivable financing
using a $5 million revolving credit facility. The facility, which has been approved by
Crestmark, remains subject to loan subordination with our subordinated debt holders, would be
used to pay off Wells Fargos line of credit and for working capital. Crestmark requires a senior
security interest in accounts receivable and inventory, and
a subordinated interest in substantially all of our other assets.
 The Company has not yet finalized the new credit facility it needs to be able to retire the
Wells Fargo line of credit by its June 30, 2011 termination date and to operate throughout
2011. Additionally, $4,000 of other debt is currently scheduled to mature in 2011. These
conditions, coupled with its recurring losses from operations, raise substantial doubt as to
the Companys ability to continue as a going concern. As the Company expects to finalize a
refinancing of the Wells Fargo credit facility by June 30, 2011 and to repay or extend its
other debt obligations by their currently scheduled maturity dates, no adjustments to the
reported financial statement have been made that might result from this uncertainty.
 We have promissory notes outstanding to BDeWees, Inc. and XGen III, Ltd. (together, the Seller
Notes) and John A. Martell, in the original principal amounts of $2.0 million, $2.0 million and
$2.1 million, respectively (collectively, the Subordinated Indebtedness). (See Note I,
Related Party Transactions). Subordination agreements have been executed that subordinate our
obligations under the Subordinated Indebtedness to the Wells Fargo credit facility.
 Effective as of December 1, 2010, the Seller Notes were extended through November 30, 2011.
Under the loan modification agreements, the time for the payment of principal upon maturity has
been extended for one year in consideration of a higher interest rate, monthly installment
payments of principal and interest,
additional collateral and certain other changes. Prior to a default, the amended and restated
Seller Notes bear interest at prime plus 1%, subject to a minimum of 12% until Wells Fargos
term debt is fully repaid, and thereafter subject to a minimum of 7% per annum. Monthly
interest payments may be made, and beginning when we repaid the term loan to Wells Fargo in late
December, 2010, repayments of $10 principal per month
 17




---



##### Table of Contents



to each holder of a Seller Note commenced.
Upon any sale or combination of sales of assets exceeding $1.0 million gross, or upon a Change
in Control as defined in the loan modification agreements, after repayment of transaction costs
not to exceed 8%, and that portion of the revolver attributable to the assets sold, each Seller
Noteholder will receive a principal payment of 12.5% of the net proceeds from such sale or
sales. For an HKEC sale, each Seller Noteholder will receive a $0.07 million principal payment.
The loan modification agreements also restrict both Magnetech and MISCOR from incurring
additional indebtedness without the consent of the lenders, excepting $0.1 million per year for
indebtedness for certain capital expenditures. The Seller Noteholders have a shared third lien
on 3-D Services accounts receivable and inventory in addition to their existing shared second
lien on 3-D Services fixed assets.
 Management is in the process of commencing negotiations with the Sellers to renegotiate the
terms of the Sellers Notes. The Sellers appear to be willing to work with the Company, as long
as they do not increase their risk as note holders.
 As of April 3, 2011, we did not have any material commitments for capital expenditures.
 Discussion of Forward-Looking Statements
 Certain matters described in the foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations, as well as other statements contained in this Quarterly
Report on Form 10-Q are forward-looking statements, which include any statement that is not an
historical fact, such as statements regarding our future operations, future financial position,
business strategy, plans and objectives. Without limiting the generality of the foregoing, words
such as may, intend, expect, believe, anticipate, could, estimate or plan or the
negative variations of those words or comparable terminology are intended to identify
forward-looking statements. A safe harbor for forward-looking statements is provided by the
Private Securities Litigation Reform Act of 1995 (Reform Act of 1995). The Reform Act of 1995
was adopted to encourage such forward-looking statements without the threat of litigation,
provided those statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause the actual results to
differ materially from those projected in the statement.
 Management based the forward-looking statements largely on its current expectations and
perspectives about future events and financial trends that management believes may affect our
financial condition, results of operations, business strategies, short-term and long-term
business objectives, and financial needs. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, that may cause actual results to differ
materially from those indicated in the forward-looking statements, due to, among other things,
factors identified in this report, and those identified in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2010.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Not Applicable.
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Effectiveness of Disclosure Controls and ProceduresOur disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)) are designed to ensure that information we
are required to disclose in our reports filed under the Exchange Act, such as this Quarterly
Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods
specified in the rules of the Securities and Exchange Commission. Our disclosure controls and
procedures also are designed to ensure that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Accounting Officer, as
appropriate to allow timely decisions regarding required disclosures.
 Our management, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures in effect as of April 3, 2011. Based on this evaluation, our Chief Executive Officer
and Chief Accounting Officer concluded that, as of April 3, 2011, our disclosure controls and
procedures were effective to provide reasonable assurance that material information relating to
the Company and its consolidated subsidiaries required to be included in our
 18




---



##### Table of Contents



Exchange Act
reports, including this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and
reported as required, and is made known to management, including the Chief Executive Officer and
Chief Accounting Officer, on a timely basis.Changes in Internal Control Over Financial Reporting
 There were no changes in our internal control over financial reporting that occurred during the
quarter ended April 3, 2011, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
 19




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description10.1
    
    
    Secured Promissory Note dated February 3, 2010, among John A. Martell and the registrant
(incorporated by reference to
Exhibit 10.3 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.2
    
    
    Sixth Amendment to Credit and Security Agreement dated January 14, 2010, among Wells Fargo Bank, the
registrant and
certain subsidiaries of the registrant (incorporated by reference to Exhibit 10.1 of the registrants
Current Report or Form 8-K
filed January 21, 2010)10.3
    
    
    Letter Agreement dated September 8, 2009, among Wells Fargo Bank, the registrant and certain
subsidiaries of the registrant,
acknowledged and agreed to by the registrant and such subsidiaries on September 16, 2009
(incorporated by reference to
Exhibit 10.1 to the registrants Current Report on Form 8-K filed on September 21, 2009)10.4
    
    
    Consent and release by Wells Fargo Bank, National Association, dated March 15, 2010 (incorporated by
reference to Exhibit
10.10 to the registrants Current Report on form 8-K filed on March 15, 2010)10.5
    
    
    Letter Agreement dated February 9, 2010, among Wells Fargo Bank, the registrant and certain
subsidiaries of the registrant
(incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed on
February 9, 2010)10.6
    
    
    Seventh Amendment to Credit and Security Agreement and Limited Waiver of Defaults dated April 15,
2010,
among Wells Fargo Bank, the registrant and certain subsidiaries of the registrant (incorporated by
reference to Exhibit 10.56
to the registrants Annual Report on Form 10-K filed on April 15, 2010)10.7
    
    
    Purchase Agreement dated February 3, 2010, among John A. Martell and Bonnie Martell and the
registrant (incorporated by
reference to Exhibit 2.1 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.8
    
    
    Lenders Receipt and Acknowledgement dated February 3, 2010, among John A. Martell and the registrant
(incorporated by
reference to Exhibit 10.2 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.9
    
    
    Security Agreement dated February 3, 2010, among Magnetech Industrial Services, Inc. and the
registrant (incorporated by reference to Exhibit 10.4 to the registrants Current Report on Form 8-K
filed on February 9, 2010)10.10
    
    
    Indemnification Agreement dated February 3, 2010, among John A. Martell and Bonnie Martell and the
registrant(incorporated by reference to Exhibit 10.5 to the registrants Current Report on Form 8-K
filed on February 9, 2010)10.11
    
    
    Amendment No. 1 to Employment Agreement dated February 3, 2010, among John A. Martell and the
registrant (incorporated
by reference to Exhibit 10.6 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.12
    
    
    AMP Stock Purchase Agreement dated March 8, 2010, between LMC Transport, LLC, and the registrant
(incorporated by
reference to Exhibit 2.1 to the registrants Current Report on form 8-K filed on March 15, 2010)10.13
    
    
    Release of Tenant Guaranty made by Dansville Properties, LLC, in favor of the registrant and certain
of its affiliates
(incorporated by reference to Exhibit 10.1 to the registrants Current Report on form 8-K filed on
March 15, 2010)
 20




---



##### Table of Contents



Exhibit No.
    
    Description10.14
    
    
    Release of Landlord Guaranty made by American Motive Power, Inc. in favor of Lawrence Mehlenbacher
(incorporated by
reference to Exhibit 10.2 to the registrants Current Report on form 8-K filed on March 15, 2010)10.15
    
    
    Eighth Amendment to Credit and Security Agreement, dated December 13, 2010, by and among MISCOR
Group, Ltd., Magnetech Industrial Services, Inc., and HK Engine Components, LLC as Borrowers and
Wells Fargo Bank, National Association as Lender (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K filed on December 22, 2010)10.16
    
    
    Form of Loan Extension and Modification Agreement dated as of December 1, 2010 by and between
Magnetech Industrial Services, Inc., MISCOR Group, Ltd. and BDeWees, Inc. (incorporated by reference
to Exhibit 10.2 to the registrants Current Report on Form 8-K filed on December 22, 2010)10.17
    
    
    Form of Amended and Restated Promissory Note dated November 30, 2010 by Magnetech Industrial
Services, Inc. and MISCOR Group, Ltd. in favor of BDeWees, Inc. (incorporated by reference to Exhibit
10.3 to the registrants Current Report on Form 8-K filed on December 22, 2010)10.18
    
    
    Form of Amendment to Commercial Security Agreement dated as of December 1, 2010 by and between
Magnetech Industrial Services, Inc. and BDeWees, Inc. (incorporated by reference to Exhibit 10.4 to
the registrants Current Report on Form 8-K filed on December 22, 2010)31.1
    
    
    Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act31.2
    
    
    Certification by Chief Accounting Officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act32
    
    
    Section 1350 Certifications
 21




---



##### Table of Contents



SIGNATURES
  MISCOR GROUP, LTD.May 13, 2011
    By:
    /s/ Marc Valentin, CPAMarc Valentin, CPAChief Accounting Officer
(Signing on behalf of the registrant as
Principal Financial and Accounting Officer) 22