UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q





x
                            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended April 5, 2009oro
                            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




Commission
file number: 000-52380





MISCOR
GROUP, LTD.


(Exact
name of registrant as specified in its charter)





Indiana
            20-0995245(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)




1125
South Walnut Street


South
Bend, Indiana 46619


(Address
of principal executive offices/zip code)





Registrant’s
telephone number, including area code:  (574) 234-8131






Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x Yes   
o No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


o  Yes   
x No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.


Large
      accelerated filer o
                
                Accelerated
      filer oNon-accelerated
      filer    o (Do not check if
      a smaller reporting company)
                
                Smaller
      reporting company x





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




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of May 11, 2009, there were
11,762,978 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:
                    1Condensed
      Consolidated Balance Sheets April 5, 2009 (Unaudited) and
      December 31, 2008
                    1Condensed
      Consolidated Statements of Operations (Unaudited) Three Months ended April
      5, 2009 and March 30, 2008
                    2Condensed
      Consolidated Statements of Cash Flows (Unaudited) Three Months ended April
      5, 2009 and March 30, 2008
                    3Notes
      to Condensed Consolidated Financial Statements
                    42.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    203.
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    304T.
                    Controls
      and Procedures
                    30PART
      II - OTHER INFORMATION2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    316.
                    Exhibits
                    31Signatures
                    32











PART I - FINANCIAL INFORMATION





ITEM
1.   FINANCIAL STATEMENTS





MISCOR
GROUP, LTD. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands, except share and per share data)





April
      5, 2009
                                                
                                                
                                                December
      31, 2008ASSETS
                                                
                                                (Unaudited)CURRENT
      ASSETSCash
                                                
                                                $
                                                41
                                                
                                                
                                                $
                                                76Accounts
      receivable, net of allowance for doubtful accounts of $1,163 and $864,
      respectively
                                                
                                                
                                                16,687
                                                
                                                
                                                
                                                23,549Inventories,
      net
                                                
                                                
                                                12,204
                                                
                                                
                                                
                                                13,807Prepaid
      expenses
                                                
                                                
                                                891
                                                
                                                
                                                
                                                738Other
      current assets
                                                
                                                
                                                3,082
                                                
                                                
                                                
                                                3,173Total
      current assets
                                                
                                                
                                                32,905
                                                
                                                
                                                
                                                41,343PROPERTY
      AND EQUIPMENT, net
                                                
                                                
                                                13,481
                                                
                                                
                                                
                                                13,812OTHER
      ASSETSDeposits
      and other assets
                                                
                                                
                                                437
                                                
                                                
                                                
                                                392Goodwill
                                                
                                                
                                                12,966
                                                
                                                
                                                
                                                12,966Customer
      relationships, net
                                                
                                                
                                                8,931
                                                
                                                
                                                
                                                9,059Other
      intangible assets, net
                                                
                                                
                                                1,144
                                                
                                                
                                                
                                                1,218Total
      other assets
                                                
                                                
                                                23,478
                                                
                                                
                                                
                                                23,635Total
      Assets
                                                
                                                $
                                                69,864
                                                
                                                
                                                $
                                                78,790LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESRevolving
      credit line, net of discount of $103 and $117,
respectively
                                                
                                                $
                                                4,141
                                                
                                                
                                                $
                                                7,343Current
      portion of long-term debt
                                                
                                                
                                                647
                                                
                                                
                                                
                                                487Accounts
      payable
                                                
                                                
                                                11,552
                                                
                                                
                                                
                                                12,218Accrued
      expenses and other current liabilities
                                                
                                                
                                                4,872
                                                
                                                
                                                
                                                6,180Total
      current liabilities
                                                
                                                
                                                21,212
                                                
                                                
                                                
                                                26,228LONG
      TERM LIABILITIESLong-term
      debt
                                                
                                                
                                                4,729
                                                
                                                
                                                
                                                4,805Long-term
      debt, Officers
                                                
                                                
                                                4,850
                                                
                                                
                                                
                                                5,000Total
      long-term liabilities
                                                
                                                
                                                9,579
                                                
                                                
                                                
                                                9,805Total
      liabilities
                                                
                                                
                                                30,791
                                                
                                                
                                                
                                                36,033Commitments
      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; 11,769,043 and
      11,748,448 shares issued and outstanding, respectively
                                                
                                                
                                                50,861
                                                
                                                
                                                
                                                50,859Additional
      paid in capital
                                                
                                                
                                                9,077
                                                
                                                
                                                
                                                9,056Accumulated
      deficit
                                                
                                                
                                                (20,865
                                                )
                                                
                                                
                                                (17,158
                                                )Total
      Stockholders' equity
                                                
                                                
                                                39,073
                                                
                                                
                                                
                                                42,757Total
      Liabilities and Stockholders' Equity
                                                
                                                $
                                                69,864
                                                
                                                
                                                $
                                                78,790







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








1





MISCOR GROUP, LTD. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
in thousands, except share and per share data)




For
      the 3 months ended April 5, 2009
                                  
                                  
                                  For
      the 3 months ended March 30, 2008(Unaudited)
                                  
                                  
                                  (Unaudited)RevenuesProduct
      Sales
                                  
                                  $
                                  5,215
                                  
                                  
                                  $
                                  6,221Service
      Revenue
                                  
                                  
                                  18,190
                                  
                                  
                                  
                                  23,499Total
      Revenues
                                  
                                  
                                  23,405
                                  
                                  
                                  
                                  29,720Cost
      of RevenuesCost
      of Product Sales
                                  
                                  
                                  3,860
                                  
                                  
                                  
                                  4,686Cost
      of Service Revenue
                                  
                                  
                                  17,876
                                  
                                  
                                  
                                  20,291Total
      Cost of Revenues
                                  
                                  
                                  21,736
                                  
                                  
                                  
                                  24,977Gross
      Profit
                                  
                                  
                                  1,669
                                  
                                  
                                  
                                  4,743Selling,
      General and Administrative Expenses
                                  
                                  
                                  5,132
                                  
                                  
                                  
                                  3,998Income
      (Loss) From Operations
                                  
                                  
                                  (3,463
                                  )
                                  
                                  
                                  745Other
      (Income) ExpenseInterest
      Expense
                                  
                                  
                                  263
                                  
                                  
                                  
                                  308Other
      (Income) Expense
                                  
                                  
                                  (20
                                  )
                                  
                                  
                                  (20
                                  )243
                                  
                                  
                                  
                                  288NET
      INCOME (LOSS)
                                  
                                  $
                                  (3,706
                                  )
                                  
                                  $
                                  457Basic
      and Diluted Earnings (Loss) per Common Share
                                  
                                  $
                                  (0.32
                                  )
                                  
                                  $
                                  0.04Weighted
      Average Number of Common Shares OutstandingBasic
                                  
                                  
                                  11,758,280
                                  
                                  
                                  
                                  11,397,411Diluted
                                  
                                  
                                  11,758,280
                                  
                                  
                                  
                                  12,719,065





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


2


MISCOR GROUP, LTD. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands, except share and per share data)





For
      the 3 months endedApril 5, 2009
                                
                                
                                March 30, 2008(Unaudited)
                                
                                
                                (Unaudited)OPERATING
      ACTIVITIESNet
      cash provided by operating activities
                                
                                $
                                3,431
                                
                                
                                $
                                1,197INVESTING
      ACTIVITIESAcquisition
      of business assets, net of cash acquired
                                
                                
                                -
                                
                                
                                
                                (7,078
                                )Acquisition
      of property and equipment
                                
                                
                                (180
                                )
                                
                                
                                (318
                                )Proceeds
      from disposal of property and equipment
                                
                                
                                -
                                
                                
                                
                                24Net
      cash utilized by investing activities
                                
                                
                                (180
                                )
                                
                                
                                (7,372
                                )FINANCING
      ACTIVITIESPayments
      on capital lease obligations
                                
                                
                                (22
                                )
                                
                                
                                (17
                                )Short
      term borrowings, net
                                
                                
                                (3,220
                                )
                                
                                
                                4,626Borrowings
      of long-term debt
                                
                                
                                63
                                
                                
                                
                                -Repayments
      of long-term debt
                                
                                
                                (108
                                )
                                
                                
                                (261
                                )Proceeds
      from the issuance of shares and exercise of warrants
                                
                                
                                6
                                
                                
                                
                                3Cash
      repurchase of restricted stock
                                
                                
                                (5
                                )
                                
                                
                                -Debt
      issuance costs
                                
                                
                                -
                                
                                
                                
                                (45
                                )Net
      cash provided by (utilized in) financing activities
                                
                                
                                (3,286
                                )
                                
                                
                                4,306DECREASE
      IN CASH
                                
                                
                                (35
                                )
                                
                                
                                (1,869
                                )Cash,
      beginning of period
                                
                                
                                76
                                
                                
                                
                                2,807Cash,
      end of period
                                
                                $
                                41
                                
                                
                                $
                                938SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
                                
                                $
                                165
                                
                                
                                $
                                238








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


3


MISCOR
GROUP, LTD.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except share and per share data)





NOTE
A - BASIS OF PRESENTATION




The
unaudited interim consolidated financial statements of MISCOR Group, Ltd. (the
“Company”) as of and for the three months ended April 5, 2009 and March 30,
2008, have been prepared in accordance with generally accepted accounting
principles for interim information and the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, in the opinion of the Company’s management, all adjustments, consisting
of normal, recurring adjustments, considered necessary for a fair statement have
been included. The results for the three months ended April 5, 2009 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2009. Refer to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 for the most recent disclosure of the Company’s
accounting policies.





Certain
amounts from the prior year financial statements have been reclassified to
conform to the current year presentation. Deferred compensation was reclassified
to Additional paid in capital on the condensed consolidated balance
sheets.  This reclassification had no effect on the Company’s
consolidated statements of operations or cash flows.








NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS





SFAS No.
141(R)





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS
No. 141(R)”). In SFAS No. 141(R), the FASB retained the fundamental requirements
of SFAS No. 141 to account for all business combinations using the acquisition
method (formerly the purchase method) and for an acquiring entity to be
identified in all business combinations. However, the new standard requires the
acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; requires transaction costs to be expensed as incurred;
and requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS No. 141(R) is effective for annual periods
beginning on or after December 15, 2008.  The adoption of SFAS No.
141(R) did not have a material impact on the Company’s consolidated financial
statements, although the adoption of SFAS No. 141(R) will impact the recognition
and measurement of future business combinations.





SFAS 157





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements.  SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. In February 2008, the FASB issued FASB
Staff Position No. 157-2, which deferred the effective date of SFAS No. 157
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) until January 1, 2009.  The
adoption of SFAS No. 157 for financial assets and liabilities on January 1, 2008
and non-financial assets and liabilities on January 1, 2009 did not have a
material impact on the Company’s consolidated financial statements.





4




NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)


SFAS 159





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115(“SFAS 159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Entities that elect
the fair value option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes
presentation and disclosure requirements to facilitate comparisons between
companies that choose different measurement attributes for similar assets and
liabilities. The adoption of SFAS 159 did not have an effect on the Company’s
financial condition or results of operations as the Company did not elect this
fair value option, nor is it expected to have a material impact on future
periods as the election of this option for the Company’s financial instruments
is expected to be limited.




SFAS No.
160





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51  (“SFAS No. 160”). SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for fiscal years beginning after December 15, 2008. The
adoption of SFAS No. 160 on January 1, 2009 did not have a material impact on
the Company’s consolidated financial statements.





SFAS No.
161





In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. The Company will be required to provide enhanced disclosures about
(a) how and why derivative instruments are used, (b) how derivative
instruments and related hedged items are accounted for under Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Certain Hedging Activities (“SFAS No. 133”), and its related
interpretations, and (c) how derivative instruments and related hedged
items affects our financial position, financial performance, and cash flows.
This statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.  The adoption
of SFAS No. 161 on January 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.





FSP FAS
142-3





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”,  (“FSP 142-3”). FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other
Intangible Assets”.  FSP 142-3 is effective for fiscal years
beginning after December 15, 2008. The adoption of FSP FAS 142-3 on January 1,
2009 did not have a material impact on the Company’s consolidated financial
statements.  The Company does not expect the adoption of FSP FAS 142-3
to have a material impact on its accounting for future acquisitions of
intangible assets.





5




NOTE
B - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)




SFAS
No. 162




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS No. 162”).  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (“GAAP”) in the United States. SFAS No. 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.  The
Company does not expect the adoption of SFAS No. 162 to have a material impact
on the Company’s financial position or results of operations.


FSP FAS
141(R)-1
  In
February 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“FSP 141R-1”), which amends the provisions related to the
initial recognition and measurement, subsequent measurement, and disclosure of
assets and liabilities arising from contingencies in a business combination
under SFAS 141R.  FSP 141R-1 applies to all assets acquired and
liabilities assumed in a business combination that arise from contingencies that
would be within the scope of SFAS No. 5, “Accounting for
Contingencies”, if not acquired or assumed in a business combination,
except for assets or liabilities arising from contingencies that are subject to
specific guidance in FASB Statement No. 141R.  FSP 141R-1 applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The adoption of FSP 141R-1, effective January
1, 2009, did not have an impact on the Company’s consolidated financial
statements.
  FSP FAS
157-4
  In
April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly”  (“FSP 157-4”), which provides guidance on determining
fair value when there is no active market or where the price inputs being used
represent distressed sales.  FSP 157-4 is effective for interim and
annual periods ending after June 15, 2009 and will be adopted by the
Company beginning in the second quarter of 2009.  The adoption of FSP
157-4 is not expected to have a material impact on the Company’s consolidated
financial statements.
  FSP FAS 107-1 and APB
28-1
  In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value
of Financial Instruments”.(“FSP FAS 107-1 and APB
28-1”).  FSP FAS 107-1 and APB 28-1 requires fair value disclosures of
financial instruments for interim reporting periods for publicly traded
companies as well as in annual financial statements.  This FSP also
amends APB Opinion no. 28-1, “Interim Financial Reporting”, to require those
disclosures in summarized financial information at interim reporting periods and
is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009.  The
Company will adopt FSP FAS 107-1 and APB 28-1 in the second quarter of 2009, and
its adoption is not expected to have a material impact on the Company’s
consolidated financial statements.







6





NOTE
C - EARNINGS PER SHARE





The
Company accounts for earnings/loss per common share under the provisions of SFAS
No. 128, Earnings Per
Share, which requires a dual presentation of basic and diluted
earnings/loss per common share. Basic earnings/loss per common share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the year. Diluted
earnings per common share is computed assuming the conversion of common stock
equivalents, when dilutive.





For the
three months ended April 5, 2009, 1,200,000 potential shares of common stock
related to convertible subordinated debt securities were excluded from the
computation of diluted loss per share because the impact would have been
anti-dilutive.  In addition, the Company’s common stock equivalents,
consisting of warrants to purchase 310,254 shares of common stock and options to
purchase 70,200 shares of common stock issued to employees under the 2005 Stock
Option Plan, were excluded from the computation of diluted loss per share
because the warrants’ and options’ exercise prices were greater than the average
market price of the common shares during the three months ended April 5, 2009,
or the effect of including the warrants and options would have been
anti-dilutive.




Basic and
dilutive loss per share were the same for the three months ended April 5, 2009,
as there were no potentially dilutive securities outstanding.





Components
of basic and diluted earnings per share for the three months ended March 30,
2008 were as follows:





Three
      Months Ended March 30, 2008Net
      income available for common stockholders used in basic earnings per
      share
                                                                      
                                                                      $
                                                                      457Interest
      on convertible debt
                                                                      
                                                                      
                                                                      122Net
      income available for common stockholders after assumed conversion of
      diluted securities
                                                                      
                                                                      $
                                                                      579Weighted
      average outstanding shares of common stock
                                                                      
                                                                      
                                                                      11,397,411Dilutive
      effect of  stock options and warrants
                                                                      
                                                                      
                                                                      121,654Dilutive
      effect of convertible debt
                                                                      
                                                                      
                                                                      1,200,000Weighted
      average outstanding shares of common stock and common stock
      equivalents
                                                                      
                                                                      
                                                                      12,719,065Earnings
      per share:Basic
                                                                      
                                                                      $
                                                                      0.04Diluted
                                                                      
                                                                      $
                                                                      0.04






7




NOTE
C - EARNINGS PER SHARE (CONTINUED)




For the
three months ended March 30, 2008, the Company’s common stock equivalents,
consisting of subordinated debt convertible into 5,874 common shares, were not
included in computing diluted loss per share because their effects were
anti-dilutive.








NOTE
D - INVENTORY




Inventory
consists of the following:





April 5, 2009
                                                      
                                                      
                                                      December 31, 2008Raw
      materials
                                                      
                                                      $
                                                      6,188
                                                      
                                                      
                                                      $
                                                      6,738Work-in-process
                                                      
                                                      
                                                      6,011
                                                      
                                                      
                                                      
                                                      5,221Finished
      goods
                                                      
                                                      
                                                      1,199
                                                      
                                                      
                                                      
                                                      2,964$
                                                      13,398
                                                      
                                                      
                                                      $
                                                      14,923Less:
      allowance for slow movingand obsolete
      inventories
                                                      
                                                      
                                                      (1,194
                                                      )
                                                      
                                                      
                                                      (1,116
                                                      )$
                                                      12,204
                                                      
                                                      
                                                      $
                                                      13,807











NOTE
E – GOODWILL AND OTHER INTANGIBLE ASSETS




Goodwill





For the
year ended December 31, 2008, the Company completed step one of its fiscal
2008 annual analysis and test for impairment of goodwill and it was determined
that certain goodwill related to the Rail Services segment was
impaired.  The second step of the goodwill impairment test was not
completed prior to the issuance of the fiscal 2008 financial
statements.  Therefore, the Company recognized a charge of $887 as a
reasonable estimate of the impairment loss in its fiscal 2008 financial
statements.  The impairment charge was recorded in goodwill impairment
on the consolidated statement of operations.  The impairment charge
was attributed to a decline in the estimated forecasted discounted cash flows
for the American Motive Power reporting unit expected by the
Company.





As
disclosed in the Company’s annual report filing on Form 10-K for the year ended
December 31, 2008, the Company expects to complete the second step of its fiscal
2008 annual analysis and test for impairment of goodwill as required under SFAS
142 during the second quarter of 2009, at which time any required adjustments to
the Company’s estimates will be recorded.  The amount of the
impairment charge recognized may change as a result of the Company’s completion
of step two.





Pursuant
to SFAS 142 “Goodwill and Other Intangible Assets”, we perform an assessment of
goodwill by comparing each individual reporting unit’s carrying amount of net
assets, including goodwill, to their fair value at least annually during the
fourth quarter of each fiscal year and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Future
assessments could result in impairment charges, which would be accounted for as
an operating expense.





8




NOTE
E – GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)


Other
Intangible Assets





Intangible
assets consist of the following:





April
      5, 2009
                                            
                                            
                                            December
      31, 2008Estimated
      Useful Lives
                                              (in
      Years)
                                            
                                            
                                            Gross
      Carrying Amount
                                            
                                            
                                            Accumulated
      Amortization
                                            
                                            
                                            Net
                                            
                                            
                                            Gross
      Carrying Amount
                                            
                                            
                                            Accumulated
      Amortization
                                            
                                            
                                            NetPatents
      and Trademarks
                                            
                                            10
                                            
                                            
                                            $
                                            4
                                            
                                            
                                            $
                                            (3
                                            )
                                            
                                            $
                                            1
                                            
                                            
                                            $
                                            4
                                            
                                            
                                            $
                                            (3
                                            )
                                            
                                            $
                                            1Mutual
      Services Agreement
                                            
                                            1
                                            
                                            
                                            
                                            100
                                            
                                            
                                            
                                            (100
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            100
                                            
                                            
                                            
                                            (100
                                            )
                                            
                                            
                                            -Technical
      Library
                                            
                                            20
                                            
                                            
                                            
                                            700
                                            
                                            
                                            
                                            (47
                                            )
                                            
                                            
                                            653
                                            
                                            
                                            
                                            700
                                            
                                            
                                            
                                            (38
                                            )
                                            
                                            
                                            662Customer
      Relationships
                                            
                                            15-20
                                            
                                            
                                            
                                            9,592
                                            
                                            
                                            
                                            (661
                                            )
                                            
                                            
                                            8,931
                                            
                                            
                                            
                                            9,592
                                            
                                            
                                            
                                            (533
                                            )
                                            
                                            
                                            9,059Non-Compete
      Agreements
                                            
                                            3
                                            
                                            
                                            
                                            807
                                            
                                            
                                            
                                            (317
                                            )
                                            
                                            
                                            490
                                            
                                            
                                            
                                            807
                                            
                                            
                                            
                                            (252
                                            )
                                            
                                            
                                            555Total
                                            
                                            
                                            
                                            
                                            $
                                            11,203
                                            
                                            
                                            $
                                            (1,128
                                            )
                                            
                                            $
                                            10,075
                                            
                                            
                                            $
                                            11,203
                                            
                                            
                                            $
                                            (926
                                            )
                                            
                                            $
                                            10,277








The
estimated future amortization expense related to intangible assets for the
periods subsequent to April 5, 2009 on a calendar year basis is as
follows:





Years
      Ending December 31,2009
                                            
                                            $
                                            6092010
                                            
                                            
                                            8182011
                                            
                                            
                                            5632012
                                            
                                            
                                            5462013
                                            
                                            
                                            546Thereafter
                                            
                                            
                                            6,993Total
                                            
                                            $
                                            10,075











NOTE
F – SENIOR CREDIT FACILITY





On
January 14, 2008, the Company entered into a credit facility with Wells Fargo
Bank, National Association (“Wells Fargo”).  The credit facility was
originally comprised of a 10 year $1,250 real estate term note and a $13,750
revolving note.





On
January 16, 2008, MISCOR borrowed $7,500 under the revolving note and used the
net proceeds of the loan for working capital and to acquire all of the
outstanding shares of common stock of American Motive Power, Inc.  The
original maturity date of the note is January 1, 2011, at which time the note
will automatically renew for one-year periods until terminated.  The
note is secured by (1) a first priority lien on the assets of the Company; (2) a
mortgage on certain real property; and (3) the pledge of the equity interests in
MISCOR’s subsidiaries.  From its inception through December 31, 2008,
the revolving note bore interest at an annual rate of either (i) the Prime Rate,
or (ii) Wells Fargo’s LIBOR rate plus 2.8%, depending on the nature of the
advance.  Interest is payable monthly, in arrears, under the revolving
note beginning on February 1, 2008.  The outstanding balance on the
revolving note was $4,244 and $7,460 at April 5, 2009 and December 31,
2008.  As of April 5, 2009 and December 31, 2008 there was $1,224 and
$1,707 available under the revolving credit line. Effective January 1, 2009, the
interest rate on the revolving credit line was increased to the bank’s prime
rate (3.25% at January 1, and April 5, 2009) plus 3% as a result of the default
notice as described below.  Effective April 14, 2009, the interest
rate on the revolving credit line was reset to the Daily Three Month LIBOR
(approximately 1.161% at April 5, 2009) plus 5.25%, as a result of the waiver
agreement as described below.





9




NOTE
F – SENIOR CREDIT FACILITY (CONTINUED)


The
provisions of the revolving note include a lock-box agreement and also allow
Wells Fargo, in its reasonable credit judgment, to assess additional reserves
against, or reduce the advance rate against accounts receivable used in the
borrowing base calculation. These provisions satisfy the requirements for
consideration of EITF Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that include both a
Subjective Acceleration Clause and a Lock-Box Arrangement(“EITF 95-22”).
Based on further analysis of the terms of the revolving note, there are certain
provisions that could potentially be interpreted as a subjective acceleration
clause. More specifically, Wells Fargo, in its reasonable credit judgment, can
assess additional reserves to the borrowing base calculation or reduce the
advance rate against accounts receivable to account for changes in the nature of
the Company’s business that alters the underlying value of the collateral. The
reserve requirements may result in an overadvance borrowing position that could
require an accelerated repayment of the overadvance portion.  The
Company does not anticipate any changes in its business practices that would
result in any material adjustments to the borrowing base calculation. However,
management cannot be certain that additional reserves will not be assessed by
Wells Fargo to the borrowing base calculation. As a result, the Company
classifies borrowings under the revolving note as a short-term
obligation.





The real
estate term note bore interest at an annual rate equal to the rate of interest
most recently announced by Wells Fargo at its principal office as its prime rate
(the “Prime Rate”), subject to certain minimum annual interest
payments.  The real estate term note requires monthly principal
payments of $10, plus interest, beginning on June 1, 2008, the first day of the
month following receipt of the advance. The outstanding balance under the real
estate term note as of April 5, 2009 and December 31, 2008  was $1,146 and
$1,177.  From its inception through December 31, 2008, the real estate
term note bore interest at an annual rate equal to the banks prime rate (3.25%
at December 31, 2008).  Effective January 1, 2009, the interest rate
on the real estate term note was increased to the bank’s prime rate (3.25% at
January 1, and April 5, 2009) plus 3% as a result of the default notification as
described below.  Effective April 14, 2009, the interest rate on the
real estate term note was increased to the Daily Three Month LIBOR
(approximately 1.161% at April 5, 2009) plus 5.25%, as a result of the waiver
agreement as described below.





The
Company may prepay the term notes at any time, subject to certain prepayment
penalties.  With respect to the revolving note, the Borrowers may
borrow, pay down and re-borrow under the note until the maturity
date.  The maximum aggregate principal amount that may be borrowed
under the revolving note is the lesser of (1) the sum of 40% of the Company’s
eligible construction related trade receivables up to $2,000 and 85% of certain
remaining eligible trade accounts receivable less any reserves established by
Wells Fargo from time to time and (2) $13,750 less any reserves established by
Wells Fargo.





In April
2008, the Company and Wells Fargo amended the credited facility entered into in
January 2008. This first amendment revised the formula for the maximum aggregate
principal amount that may be borrowed under the revolving note. Specifically,
the percentage of a portion of the Company’s eligible construction related trade
receivables resulting from time and material services and completed contracts
was increased from 40% to 85% and the related borrowings were removed from the
$2,000 limitation.





The April
2008 amendment also provided a four year equipment term note in the amount of
$1,000, secured by substantially all of the machinery and equipment of the
Company. The note matures June 1, 2012 and is payable in monthly installments of
$21 plus interest at the bank’s prime rate (3.25% at December 31, 2008)
beginning June 1, 2008. The outstanding balance under the equipment term note as
of April 5, 2009 and December 31, 2008 was $792 and $854.  Effective
January 1, 2009, the interest rate on the machinery and equipment term note was
increased to the bank’s prime rate (3.25% at January 1, and April 5, 2009) plus
3% as a result of the default notification as described
below.  Effective April 14, 2009, the interest rate on the machinery
and equipment term note was increased to the Daily Three Month LIBOR
(approximately 1.161% at April 5, 2009) plus 5.25%, as a result of the waiver
agreement as described below.





10




NOTE
F – SENIOR CREDIT FACILITY (CONTINUED)


As part
of the financing, the Company paid debt issue costs of $45 and is amortizing
these costs to interest expense over the three year term of the
financing.   Debt issue costs amortized to interest expense was $4 and
$3 for the three months ended April 5, 2009 and March 30, 2008.  Net
debt issue costs at April 5, 2009 and December 31, 2008 was $27 and
$31.  The Company also paid fees to Wells Fargo as part of the
financing in the amount of $171. These fees were recorded as a debt discount.
The Company is accreting this debt discount to interest expense over the term of
the credit facility.  Debt discount accreted to interest expense was
$14 and $10 for the three months ended April 5, 2009 and March 30,
2008.  Net debt discount at April 5, 2009 and December 31, 2008 was
$103 and $117.





Interest
expense under the Wells Fargo Credit facility, excluding amortization of debt
issue costs and debt discount, for the three months ended April 5, 2009 and
March 30, 2008 was $137 and $79.





The
Company has promissory notes outstanding to BDeWees, Inc., XGen III, Ltd., and
John A. Martell, in the original principal amounts of $2,000, $2,000 and $3,000,
respectively (together, the “Subordinated Indebtedness”) (See Note I, Related
Party Transactions).  Subordination agreements have been executed that
subordinate the obligations of the Company under the Subordinated Indebtedness
to the Wells Fargo credit facility.








Default
and Waiver Agreements





The Wells
Fargo notes contains certain financial covenants, including limits on capital
expenditures, requirements for minimum book net worth, minimum net income, and
minimum debt service coverage ratios.





During
the second and third quarters of 2008, the company exceeded the limits on
capital expenditures but received waivers from Wells Fargo for these covenant
defaults.  In September 2008, the Company amended the credit facility
with Wells Fargo. This second amendment revised the financial covenant limiting
capital expenditures, increasing the maximum amount of capital expenditures for
2008 to $2,000, no more than $1,250 of which could be paid for from working
capital. The amendment also limited the investment and loans from AMP to AMP
Canada to $1,000.





During
the fourth quarter of 2008, the Company signed a waiver agreement with Wells
Fargo in regards to the Company’s maximum allowable capital spending for
2008.  The agreement increased the amount of allowable capital
expenditures during 2008 to $2,750, of which no more than $2,250 could be from
working capital.  This amendment also removed the limit on investment
and loans from AMP to AMP Canada included in the second amendment signed in
September, 2008.





On March
5, 2009, the Company received a default notification from Wells Fargo, due to
the violation of a financial covenant regarding minimum net income for the year
ended December 31, 2008.  Additionally, the Company was in default of
the debt service coverage ratio.  The defaults resulted in an increase
in the interest rate on the revolving note, the real estate term note and the
machinery and equipment note at the Prime rate plus 3% (6.25% at December 31,
2008).  In addition, due to the covenant violation, Wells Fargo has
reduced the loan availability on the revolving note related to certain
receivable accounts held by Martell Electric and Ideal.  The interest
rate increase was made effective retroactively to January 1, 2009 and remained
in effect until the default was subsequently waived on April 14,
2009.





On April
14, 2009, the Company and Wells Fargo signed a Fourth Amendment to the Credit
Facility and waiver of the default notification received on March 5,
2009.  The amendment and waiver amended the credit facility as
follows:





·
            Waived
      the Company’s noncompliance with the minimum net income and debt service
      coverage ratio covenants for the year ending December 31,
    2008


·
            Eliminated
      the minimum net income and debt service coverage ratio covenants for the
      year ending December 31, 2009


11




NOTE
F – SENIOR CREDIT FACILITY (CONTINUED)


·
            Adjusted
      the minimum book net worth covenant to $38,750 million as of December
      31, 2009


·
            Incorporated
      a monthly minimum EBITDA covenant commencing in April,
  2009


·
            Reduced
      the revolving credit line limit to $11,000 (from
  $13,750)


·
            Reset
      the interest rate on the revolving credit line and term notes to the Daily
      Three Month LIBOR plus 5.25% effective April 14,
  2009


·
            Suspended
      interest payments on the Company’s subordinated debt to the Company’s CEO,
      John A. Martell.








NOTE
G - DEBT





Long-term
debt





Long-term
debt consists of the following:





April
      5, 2009
                                          
                                          
                                          December
      31, 2009Note
      payable to former members of 3-D Service, Ltd. (XGen III, Ltd.) due
      November 30, 2010, plus interest at prime rate (3.25% at April 5, 2009 and
      December 31, 2008) 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. (BDeWees, Inc.) due
      November 30, 2010, plus interest at prime rate (3.25% at April 5, 2009 and
      December 31, 2008) secured by a subordinated interest in machinery and
      equipment of 3-D Services, Ltd.
                                          
                                          
                                          2,000
                                          
                                          
                                          
                                          2,000Note
      payable to Officer, payable in monthly installments of $50 beginning
      February 1, 2010, plus interest at prime rate (3.25% at April 5, 2009 and
      December 31, 2008) less 1% through December 31, 2008, interest rate
      increased to prime plus 1% beginning on January 1, 2009 and was reset to
      the greater of 5% or prime plus 1% beginning April 14, 2009, secured by a
      subordinated interest in substantially all assets owned by the
      Company
                                          
                                          
                                          3,000
                                          
                                          
                                          
                                          3,000Note
      payable to bank in monthly installments of $10 through May 2018, plus
      interest at prime rate (3.25% at April 5, 2009 and December 31, 2008)
      through December 31, 2009, increased to prime rate plus 3% through April
      13, 2009, reset to Three Month Daily LIBOR (1.161% at April 5, 2009) plus
      5.25%beginning April 14, 2009, secured by certain real estate (see Note F,
      Senior Credit Facility)
                                          
                                          
                                          1,146
                                          
                                          
                                          
                                          1,177Note
      payable to bank in monthly installments of $21 through May 2012, plus
      interest at prime rate (3.25% at April 5, 2009 and December 31, 2008)
      through December 31, 2008, increased to prime plus 3% through April 13,
      2009, reset to Three Month Daily LIBOR (1.161% at April 5, 2009) plus
      5.25% beginning April 14, 2009, secured by inventory and substantially all
      machinery and equipment (see Note F, Senior Credit
    Facility)
                                          
                                          
                                          792
                                          
                                          
                                          
                                          854Note
      payable to bank in monthly installments of $3 through November 16, 2014,
      plus interest at 8% secured by a security interest in certain
      equipment
                                          
                                          
                                          166
                                          
                                          
                                          
                                          173Notes
      payable to bank in monthly principal payments of $1 through June 2009,
      without interest secured by certain vehicles
                                          
                                          
                                          3
                                          
                                          
                                          
                                          6Capital
      lease obligations
                                          
                                          
                                          1,119
                                          
                                          
                                          
                                          1,08210,226
                                          
                                          
                                          
                                          10,292Less:
      current portion
                                          
                                          
                                          647
                                          
                                          
                                          
                                          487$
                                          9,579
                                          
                                          
                                          $
                                          9,805





12




NOTE
G - DEBT (CONTINUED)


Capital Lease
Obligations





The
Company leases certain equipment under agreements that are classified as capital
leases. The following is a summary of capital leases.





April
      5, 2009
                                  
                                  
                                  December
      31, 2008Machinery
      & equipment
                                  
                                  $
                                  805
                                  
                                  
                                  $
                                  774Vehicles
      & trailers
                                  
                                  
                                  84
                                  
                                  
                                  
                                  84Computer
      equipment & software
                                  
                                  
                                  240
                                  
                                  
                                  
                                  240Furniture
      & office equipment
                                  
                                  
                                  91
                                  
                                  
                                  
                                  84Less
      accumulated depreciation
                                  
                                  
                                  (138
                                  )
                                  
                                  
                                  (108
                                  )$
                                  1,082
                                  
                                  
                                  $
                                  1,074








Minimum
future lease payments required under capital leases for the periods subsequent
to April 5, 2009 on a calendar year basis are as follows:





Years
      ending December 31,2009
                                                    
                                                    $
                                                    1632010
                                                    
                                                    
                                                    1992011
                                                    
                                                    
                                                    1782012
                                                    
                                                    
                                                    1782013
      and thereafter
                                                    
                                                    
                                                    1,056$
                                                    1,774Less
      Imputed Interest
                                                    
                                                    
                                                    (655
                                                    )Present
      Value of Net Minimum Lease Payments
                                                    
                                                    $
                                                    1,119







Aggregate
maturities of long-term debt for the periods subsequent to April 5, 2009 on a
calendar year basis are as follows:





Years
      Ending December 31,
                                                  
                                                  Amount2009
                                                  
                                                  $
                                                  3692010
                                                  
                                                  
                                                  5,0302011
                                                  
                                                  
                                                  1,0672012
                                                  
                                                  
                                                  9292013
                                                  
                                                  
                                                  1,6002014
                                                  
                                                  
                                                  754Thereafter
                                                  
                                                  
                                                  477$
                                                  10,226







13




NOTE
G - DEBT (CONTINUED)




Following
is a summary of interest expense for the three months ended April 5, 2009 and
March 30, 2008:





April
      5, 2009
                                        
                                        
                                        March
      30, 2008Interest
      expense on principal
                                        
                                        $
                                        245
                                        
                                        
                                        $
                                        239Amortization
      of debt issue costs
                                        
                                        
                                        4
                                        
                                        
                                        
                                        46Amortization
      of debt discount - debentures and revolving notes payable
                                        
                                        
                                        14
                                        
                                        
                                        
                                        23$
                                        263
                                        
                                        
                                        $
                                        308








NOTE
H - STOCK BASED COMPENSATION





Equity Incentive
Plans





The stock
based compensation expense recognized in the Condensed Consolidated Statements
of Operations were as follows:





Three
      Months EndedApril
      5, 2009
                                
                                
                                March
      30, 2008Stock
      options expense
                                
                                $
                                17
                                
                                
                                $
                                7Restricted
      stock expense
                                
                                
                                5
                                
                                
                                
                                10Employee
      purchase plan expense
                                
                                
                                6
                                
                                
                                
                                -Total
      stock-based compensation expense
                                
                                $
                                28
                                
                                
                                $
                                17








At April
5, 2009, the total unrecognized stock options expense and unrecognized
restricted stock expense was $103 and $97, respectively, and is expected to be
recognized over a weighted average period of 18 months and 14 months,
respectively.





The
Company grants stock options to certain executives and key employees to acquire
shares of the Company’s common stock under the 2005 Stock Option
Plan.  These options, which expire in five years, are exercisable in
25% cumulative increments on and after the first four anniversaries of their
grant date. At the time of issuance of the stock options, the exercise price was
the estimated fair value of the Company’s common stock. The fair value of the
Company’s common stock was determined based upon the closing price of the
Company’s common stock on the date of grant.





The
Company also issues offers to purchase shares of common stock to certain
executives and key employees.  The issuance of the restricted stock
was intended to lock-up key employees for a three year period.  As a
result, the Company is recording compensation expense over the three year
restriction period by amortizing deferred compensation on a straight-line basis
over the three year period commencing with the date of each offer.





14




NOTE
H - STOCK BASED COMPENSATION (CONTINUED)


In
accordance with our equity incentive plans, we granted the
following:





Three
      Months EndedApril
      5, 2009
                                      
                                      
                                      March
      30, 2008Stock
      options awarded
                                      
                                      
                                      8,000
                                      
                                      
                                      
                                      -Weighted
      average fair value per option
                                      
                                      $
                                      1.23
                                      
                                      
                                      $
                                      -Weighted
      average exercise price per option
                                      
                                      $
                                      3.30
                                      
                                      
                                      $
                                      -Restricted
      stock awarded
                                      
                                      
                                      1,500
                                      
                                      
                                      
                                      -Weighted
      average fair value per share of restricted stock
                                      
                                      $
                                      3.30
                                      
                                      
                                      $
                                      -








The fair
value of the options was estimated using the Black-Scholes valuation
model.  The Company recorded compensation cost based on the grant date
fair value of each award of shares. The total cost of each grant will be
recognized over the four year period during which the employees are required to
provide services in exchange for the award - the requisite service
period.  Key information and assumptions for the awards made during
the three months ended April 5, 2009 are as follows:





Three
      Months Ended April 5, 2009Expected
      volatility
                                      
                                      47.41%Risk
      free interest rate
                                      
                                      1.55%Expected
      term
                                      
                                      3.75
      YearsVesting
      period
                                      
                                      4
      YearsTerm
                                      
                                      5
      YearsDividend
      yield
                                      
                                      0%Weighted
      average fair value
                                      
                                      $1.23





The
Company did not award any stock options during the three months ended March 30,
2008.





Employee Stock Purchase
Plan





In
December 2006, the Corporation's Board of Directors and stockholders approved
the MISCOR Group, Ltd. Employee Stock Purchase Plan (the “ESPP”) under which
eligible employees may purchase the Company's common stock at a price per share
equal to 90% of the lower of the fair market value of the common stock at the
beginning or end of each offering period. Each offering period of the ESPP lasts
three months. Participation in the offering may range from 2% to 8% of an
employee's base salary (not to exceed $5,000 annually or amounts otherwise
allowed under Section 423 of the Internal Revenue Code). Participation may be
terminated at any time by the employee, and automatically ends on termination of
employment with the Company. A total of 640,000 shares of common stock have been
reserved for issuance under the ESPP. The common stock to satisfy the stock
purchases under the ESPP will be newly issued shares of common stock. During the
quarter ended April 5, 2009, 11,060 shares were purchased under the ESPP. As of
April 5, 2009 there were 601,615 shares available for future offerings. The
Company recorded compensation expense of $6 for the three months ended April 5,
2009.  No shares were issued under the ESPP and no expense was
recorded for the ESPP during the three months ended March 30,
2008.


15


NOTE
I - RELATED PARTY TRANSACTIONS




Long-term debt,
officers





The
Company is indebted to its CEO for a note payable with a balance of $3,000 at
April 5, 2009 and March 30, 2008 (See Note F, Senior Credit Facility and Note G,
Debt). Interest is payable monthly at prime plus 1%, through April 13, 2009 and
5% or prime plus 1%, whichever is greater, beginning April 14,
2009.  On April 14, 2009, the note was amended in relation to the
Wells Fargo senior credit facility waiver and amendment to defer payment of
interest and principal on the note.  Interest on the note continues to
accrue monthly (see Note F, Senior Credit Facility and Note O, Subsequent
Events).  Under the terms of the note, principal payments are due
monthly in the amount of $50 beginning February 1, 2010.  However, the
Company’s CEO signed a subordination agreement in relation to the senior credit
facility with Wells Fargo that prohibits principal and interest payments on this
note as long as there is an outstanding balance on the senior credit
facility.  Interest expense on the note was $32 and $42 for the three
months ended April 5, 2009 and March 30, 2008.  This note also
includes a conversion option whereby outstanding principal and accrued interest
under the note may be converted to common stock at a price of $2.50 per share at
any time at the election of the Company’s CEO.




The
Company is indebted to the former members of 3-D, one of whom is President of
Magnetech Industrial Services, Inc. (“MIS”), for a note payable with a balance
of $2,000 at April 5, 2009 and March 30, 2008 (see Note F, Senior Credit
Facility and Note G, Debt). Interest is payable monthly at prime. Interest
expense on the note was $16 and $38 for the three months ended April 5, 2009 and
March 30, 2008. The note matures on November 30, 2010.





Leases





The
Company leases its South Bend, Indiana; Hammond, Indiana; Mobile, Alabama; and
Boardman, Ohio facilities from its Chief Executive Officer and stockholder.
Total rent expense under these agreements was approximately $80 and $83 for the
three months ended April 5, 2009 and March 30, 2008.





The
Company leases its Hagerstown, Maryland facility from a partnership of which an
officer of the Company’s subsidiary, HK Engine Components, LLC, is a partner.
Rent expense under this agreement was $39 for the three months ended April 5,
2009 and March 30, 2008.





The
Company leases a facility in South Bend for the electrical contracting business
from a limited liability company owned by the adult children of its Chief
Executive Officer and stockholder. Rent expense under this agreement was $22 for
the three months ended April 5, 2009 and March 30, 2008.





The
Company leases a facility in Massillon, Ohio from a partnership, one partner of
which is an officer of MIS, under an agreement expiring in November 2017. Rent
expense under the lease was $135 for the three months ended April 5, 2009 and
March 31, 2008.








NOTE
J - CONCENTRATIONS OF CREDIT RISK




The
Company grants credit, generally without collateral, to its customers, which are
primarily in the steel, metal working, scrap, rail and construction industries.
Consequently, the Company is subject to potential credit risk related to changes
in economic conditions within those industries. However, management believes
that its billing and collection policies are adequate to minimize the potential
credit risk. At April 5, 2009 and December 31, 2008, approximately 12% and 9% of
gross accounts receivable were due from entities in the steel, metal working and
scrap industries, 32% and 17%, respectively, of gross receivables were due from
entities in the railroad industry, and 36% and 43%, respectively, of gross
receivables were due from entities in the construction industry. No single
customer accounted for more than 10% of gross accounts receivable at April 5,
2009.  One customer, of the Construction and Engineering Services
segment, accounted for approximately 13% of gross accounts receivable at
December 31, 2008.  Additionally, no single customer accounted for
more than 10% of sales for the three months ended April 5, 2009 and March 30,
2008.


16


NOTE
K - COMMITMENTS AND CONTINGENCIES





Collective bargaining
agreements





At April
5, 2009 and December 31, 2008, approximately 27% and 26%, respectively, of the
Company’s employees were covered by collective bargaining
agreements.








Potential
lawsuits





The
Company is involved in disputes or legal actions arising in the ordinary course
of business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company’s financial position or results of
operations.








NOTE
L - FAIR VALUE OF FINANCIAL INSTRUMENTS




The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument:





Cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses





The
carrying amounts of these items are a reasonable estimate of their fair values
because of the current maturities of these instruments.








Debt





The fair
value of debt is based on the estimated future cash flows discounted at terms at
which the Company estimated it could borrow such funds from unrelated
parties.  The fair value of debt differs from the carrying amount at
April 5, 2009 due to favorable interest terms on debt with its Chief Executive
Officer and stockholders.  At April 5, 2009, the aggregate fair value
of debt with an aggregate carrying value of $13,601, is estimated at
$14,058.  At December 31, 2008, the aggregate fair value of debt, with
an aggregate carrying value of $16,670, is estimated at $16,670.








NOTE
M - SEGMENT INFORMATION




The
Company reports segment information in accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise. The Company operates in three segments: Industrial Services,
Construction and Engineering Services, and Rail Services.





The
Industrial Services segment is primarily engaged in providing maintenance and
repair services to the electric motor industry and repairing, remanufacturing
and manufacturing industrial lifting magnets for the steel and scrap industries.
The Construction and Engineering Services segment provides a wide range of
electrical and mechanical contracting services, mainly to industrial, commercial
and institutional customers.  The Rail Services Segment rebuilds and
repairs locomotives and locomotive engines for the rail industry, and rebuilds
and manufactures power assemblies, engine parts, and other components related to
large diesel engines for the rail, utilities and offshore drilling
industries.







17




NOTE
M - SEGMENT INFORMATION (CONTINUED)


The
Company evaluates the performance of its business segments based on net income
or loss. Corporate administrative and support services for the Company are not
allocated to the segments but are presented separately.





Summarized
financial information concerning the Company’s reportable segments as of and for
the three months ended April 5, 2009 and March 30, 2008 is shown in the
following tables:








2009
                                  
                                  Industrial
      Services
                                  
                                  
                                  Construction
      & Engineering Services
                                  
                                  
                                  Rail
      Services
                                  
                                  
                                  Corporate
                                  
                                  
                                  Intersegment
      Eliminations
                                  
                                  
                                  April
      5, 2009 ConsolidatedExternal
      revenue:Product
      sales
                                  
                                  $
                                  1,598
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  3,617
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  5,215Service
      revenue
                                  
                                  
                                  8,661
                                  
                                  
                                  
                                  6,779
                                  
                                  
                                  
                                  2,750
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  18,190Intersegment
      revenue:Product
      sales
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Service
      revenue
                                  
                                  
                                  21
                                  
                                  
                                  
                                  36
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (57
                                  )
                                  
                                  
                                  -Depreciation
      Included in Cost of Revenues
                                  
                                  
                                  310
                                  
                                  
                                  
                                  18
                                  
                                  
                                  
                                  136
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  464Gross
      profit
                                  
                                  
                                  676
                                  
                                  
                                  
                                  421
                                  
                                  
                                  
                                  572
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,669Other
      depreciation & amortization
                                  
                                  
                                  121
                                  
                                  
                                  
                                  4
                                  
                                  
                                  
                                  113
                                  
                                  
                                  
                                  11
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  249Interest
      expense
                                  
                                  
                                  70
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6
                                  
                                  
                                  
                                  187
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  263Net
      income (loss)
                                  
                                  
                                  (1,581
                                  )
                                  
                                  
                                  (185
                                  )
                                  
                                  
                                  (320
                                  )
                                  
                                  
                                  (1,620
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,706
                                  )Total
      assets
                                  
                                  
                                  36,261
                                  
                                  
                                  
                                  8,657
                                  
                                  
                                  
                                  23,845
                                  
                                  
                                  
                                  1,101
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  69,864Capital
      expenditures
                                  
                                  
                                  66
                                  
                                  
                                  
                                  91
                                  
                                  
                                  
                                  10
                                  
                                  
                                  
                                  13
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  180





2008
                                    
                                    Industrial
      Services
                                    
                                    
                                    Construction
      & Engineering Services
                                    
                                    
                                    Rail
      Services
                                    
                                    
                                    Corporate
                                    
                                    
                                    Intersegment
      Eliminations
                                    
                                    
                                    March
      30, 2008 ConsolidatedExternal
      revenue:Product
      sales
                                    
                                    $
                                    2,340
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    3,881
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    6,221Service
      revenue
                                    
                                    
                                    13,056
                                    
                                    
                                    
                                    7,515
                                    
                                    
                                    
                                    2,928
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    23,499Intersegment
      revenue:Product
      sales
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Service
      revenue
                                    
                                    
                                    -
                                    
                                    
                                    
                                    13
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (13
                                    )
                                    
                                    
                                    -Depreciation
      Included in Cost of Revenues
                                    
                                    
                                    289
                                    
                                    
                                    
                                    21
                                    
                                    
                                    
                                    150
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    460Gross
      profit
                                    
                                    
                                    3,384
                                    
                                    
                                    
                                    753
                                    
                                    
                                    
                                    606
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,743Other
      depreciation & amortization
                                    
                                    
                                    145
                                    
                                    
                                    
                                    5
                                    
                                    
                                    
                                    16
                                    
                                    
                                    
                                    8
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    174Interest
      expense
                                    
                                    
                                    115
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    21
                                    
                                    
                                    
                                    172
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    308Net
      income (loss)
                                    
                                    
                                    1,472
                                    
                                    
                                    
                                    383
                                    
                                    
                                    
                                    (41
                                    )
                                    
                                    
                                    (1,357
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    457Total
      assets
                                    
                                    
                                    40,943
                                    
                                    
                                    
                                    10,384
                                    
                                    
                                    
                                    19,696
                                    
                                    
                                    
                                    1,954
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    72,977Capital
      expenditures
                                    
                                    
                                    105
                                    
                                    
                                    
                                    1
                                    
                                    
                                    
                                    162
                                    
                                    
                                    
                                    50
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    318





18


NOTE
N - SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES





Three
      Months EndedApril
      5, 2009
                                            
                                            
                                            March
      30, 2008Conversion
      of subordinated debentures
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            3,234Issuance
      of restricted stock
                                            
                                            $
                                            5
                                            
                                            
                                            $
                                            -Assumption
      of accounts payable and accrued liabilities in conjunction with asset
      acquisition
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            2,549Issuance
      of common stock in conjunction with acquisition
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            3,500Cashless
      exercise of warrants
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            16Equipment
      acquired through capital lease obligation
                                            
                                            $
                                            63
                                            
                                            
                                            $
                                            -








NOTE
O – SUBSEQUENT EVENTS





Amendment
to senior credit facility





On March
5, 2009, the Company received a default notification from Wells Fargo, due to
the violation of a financial covenant regarding minimum net income for the year
ended December 31, 2008.  Additionally, the Company was in default of
the debt service coverage ratio covenant.  The defaults resulted in an
increase in the interest rate on the revolving note, the real estate term note
and the machinery and equipment note to the Prime rate (3.25% at April 5, 2009
and December 31, 2008) plus 3%.  In addition, due to the covenant
violation, Wells Fargo has reduced the loan availability on the revolving note
related to certain receivable accounts held by Martell Electric and
Ideal.  The interest rate increase was made effective retroactively to
January 1, 2009 and remained in effect until the default was subsequently waived
on April 14, 2009.





On April
14, 2009, the Company and Wells Fargo signed a Fourth Amendment to the Credit
Facility and waiver of the default notification received on March 5,
2009.  The amendment and waiver amended the credit facility as
follows:




·
            Waived
      the Company’s noncompliance with the minimum net income and debt service
      coverage ratio covenants for the year ending December 31,
    2008


·
            Eliminated
      the minimum net income and debt service coverage ratio covenants for the
      year ending December 31, 2009


·
            Adjusted
      the minimum book net worth covenant to $38,750 as of December 31,
      2009


·
            Incorporated
      a monthly minimum EBITDA covenant commencing in April,
  2009


·
            Reduced
      the revolving credit line limit to $11,000 (from
  $13,750)


·
            Reset
      the interest rate on the revolving credit line and term notes to the Daily
      Three Month LIBOR plus 5.25% effective April 14,
  2009


·
            Suspended
      interest payments on the Company’s subordinated debt to the Company’s CEO,
      John A. Martell.







19




NOTE
O – SUBSEQUENT EVENTS (CONTINUED)


Amendment of note payable,
officer





On April
14, 2009, the Company’s $3,000 note payable to the CEO was amended whereby
monthly principal and interest payments under the note were suspended until
February 1, 2010.  Interest will continue to accrue at the new rate of
the greater of 5% or the prime rate plus 1%.  All accrued interest on
the note will be paid on February 1, 2010, and interest will be paid monthly
thereafter.  Monthly principal payments in the amount of $50 will
commence on February 1, 2010.







ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


Overview





We
provide electrical and mechanical solutions to industrial, commercial and
institutional customers primarily in the United States. We currently operate in
three business segments:




·
            Industrial
      Services – We provide maintenance and repair services to several
      industries including electric motor and wind power; repairing,
      manufacturing, and remanufacturing industrial lifting magnets for the
      steel and scrap industries.




·
            Construction
      and Engineering Services – We provide a wide range of electrical and
      mechanical contracting services, mainly to industrial, commercial, and
      institutional customers.




·
            Rail
      Services – We manufacture and rebuild power assemblies, engine parts, and
      other components related to large diesel engines and provide locomotive
      maintenance, remanufacturing, and repair services for the rail
      industry.







We
evaluate the performance of our business segments based on net income or loss.
Corporate administrative and support services for MISCOR are not allocated to
the segments but are presented separately.








Recent
Developments





On February 6, 2009, Chief Financial Officer Richard J. Mullin,
resigned his positions with MISCOR effective February 15, 2009.  In
conjunction with Mr. Mullin’s resignation, the Employment Agreement dated
September 30, 2005 between MISCOR and Mr. Mullin terminated, other than those
provisions of the agreement that by their terms survive termination of
employment.




On March
5, 2009, we received a default notification from Wells Fargo, due to the
violation of a financial covenant regarding minimum net income for the year
ended December 31, 2008.  Additionally, we were in default of the debt
service coverage ratio covenant.  The defaults resulted in an increase
in the interest rate on the revolving note, the real estate term note and the
machinery and equipment note to the Prime rate (3.25% at April 5, 2009 and
December 31, 2008) plus 3%.  In addition, due to the covenant
violation, Wells Fargo has reduced the loan availability on the revolving note
related to certain receivable accounts held by Martell Electric and
Ideal.  The interest rate increase was made effective retroactively to
January 1, 2009 and remained in effect until the default was subsequently waived
on April 14, 2009.





On April
14, 2009, The Company and Wells Fargo signed a Fourth Amendment to the Credit
Facility and waiver of the default notification received on March 5,
2009.  The amendment and waiver amended the credit facility as
follows:


20


·
            Waived
      our noncompliance with the minimum net income and debt service coverage
      ratio covenants for the year ending December 31,
  2008


·
            Eliminated
      the minimum net income and debt service coverage ratio covenants for the
      year ending December 31, 2009


·
            Adjusted
      the minimum book net worth covenant to $38.75 million as of December
      31, 2009


·
            Incorporated
      a monthly minimum EBITDA covenant commencing in April,
  2009


·
            Reduced
      the revolving credit line limit to $11 million (from $13.75
      million)


·
            Reset
      the interest rate on the revolving credit line and term notes to the Daily
      Three Month LIBOR plus 5.25% effective April 14,
  2009


·
            Suspended
      interest payments on our subordinated debt to our CEO, John A.
      Martell.





On April
14, 2009, our $3.0 million note payable to the CEO was amended whereby
monthly principal and interest payments under the note were suspended until
February 1, 2010.  Interest will continue to accrue at the new rate of
the greater of 5% or the prime rate plus 1%.  All accrued interest on
the note will be paid on February 1, 2010, and interest will be paid monthly
thereafter.  Monthly principal payments in the amount of $50,000 will
commence on February 1, 2010.




Beginning
in October 2008 and continuing throughout the first quarter of 2009, the
Industrial Services and Rail Services segments have experienced a decline in
backlog and revenues driven by the downturn in the current US
economy.  As a result, we are experiencing cash flow constraints
resulting in an impairment of our ability to meet our short-term cash
needs.




We
initiated a number of actions beginning in the fourth quarter of 2008 to
mitigate the impact on the company of the unprecedented deterioration of market
conditions.  These actions included:




·
            Downsized
      by the elimination of  approximately 200 positions or
      approximately 27% of our work force




·
            Consolidated
      operations in certain groups where customer service would not be
      affected




·
            Centralized
      human resource and certain other administrative
  functions




·
            Initiated
      efforts to obtain additional equity investment and/or refinance part or
      all of our credit facilities




·
            Aligned
      core assets with strategic 2009 growth opportunities in wind power,
      transformer, traffic and telecommunication investments expected to result
      from governmental stimulus and energy independence
    initiatives




·
            Implemented
      4 day work weeks and temporary plant shut downs in select
      facilities.










Critical
Accounting Policies and Estimates





We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.





Principles of consolidation.
The consolidated financial statements for the three months ended April 5, 2009
and March 30, 2008 include our accounts and those of our wholly-owned
subsidiaries, Magnetech Industrial Services, Inc., Martell Electric, LLC, Ideal
Consolidated, Inc.,  HK Engine Components, LLC, American Motive Power,
Inc. (“AMP”) and Magnetech Power Services LLC.  All significant
intercompany balances and transactions have been eliminated.





21


Use of
estimates.The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Significant
estimates are required in accounting for inventory costing, asset valuations,
costs to complete and depreciation. Actual results could differ from those
estimates.




Revenue recognition. Revenue
in our Industrial Services segment consists primarily of product sales and
service of industrial magnets, and electric motors. Product sales revenue is
recognized when products are shipped and both title and risk of loss transfer to
the customer. Service revenue is recognized when all work is completed and the
customer’s property is returned. For services to a customer’s property provided
at our site, property is considered returned when the customer’s property is
shipped back to the customer and risk of loss transfers to the customer. For
services to a customer’s property provided at the customer’s site, property is
considered returned upon completion of work. We provide for an estimate of
doubtful accounts based on specific identification of customer accounts deemed
to be uncollectible and historical experience. Our revenue recognition policies
are in accordance with Staff Accounting Bulletin No. 101 and No.
104.




Revenues
from the Rail Services and Construction and Engineering Services segments are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date to estimated total costs to complete for each contract.
Costs incurred on contracts in excess of customer billings are recorded as part
of other current assets. Amounts billed to customers in excess of costs incurred
on contracts are recorded as part of other current liabilities.




Cash
Equivalents.The Company considers all highly liquid
investments with maturities of three months or less from the purchase date to be
cash equivalents.




Concentration of credit
risk.The Company maintains its cash and cash equivalents
primarily in bank deposit accounts.  The Federal Deposit Insurance
Corporation insures these balances up to $250,000 per bank. The Company has not
experienced any losses on its bank deposits and management believes these
deposits do not expose the Company to any significant credit risk.




Earnings per
share.We account for earnings (loss) per common share under
the provisions of SFAS No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings (loss) per common
share.  Basic earnings (loss) per common share excludes dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the year.  Diluted
earnings (loss) per common share is computed assuming the conversion of common
stock equivalents, when dilutive.




Foreign Currency
Translation.The assets and liabilities of the Company’s
Canadian operations are translated into U.S. dollars at the rate of exchange in
effect at the balance sheet date, except for non-monetary assets and
liabilities, which are translated using the historical exchange rate. Income and
expense accounts are translated into U.S. dollars at the year-to-date average
rate of exchange, except for expenses related to those balance sheet accounts
that are translated using historical exchange rates




Segment
information.  We report segment information in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an
Enterprise and Related Information.




22


Goodwill and
Intangibles.We account for goodwill and other intangible
assets in accordance with FASB Statement No. 142 (“SFAS 142”), “Goodwill and Other Intangible
Assets.” Goodwill represents the excess of the cost of acquired
businesses over the fair market value of their net assets at the dates of
acquisition. Goodwill, which is not subject to amortization, is tested for
impairment annually during the fourth quarter.  We test goodwill and
other intangible assets for impairment on an interim basis if an event occurs
that might reduce the fair value of a reporting unit below its carrying value.
Recoverability of goodwill is evaluated using a two-step process.  The
first step involves a comparison of the fair value of a reporting unit with its
carrying value. If the carrying amount of the reporting unit exceeds its fair
value, then the second step of the process involves a comparison of the implied
fair value and carrying value of the goodwill of that reporting unit. If the
carrying value of the goodwill of a reporting unit exceeds the fair value of
that goodwill, an impairment loss is recognized in an amount equal to the
excess.  Reporting units are determined based on our operating
segments.  The AMP, MIS, Ideal and 3-D operating segments, which were
also determined to be reporting units under SFAS 142, contain goodwill and are
thus tested for impairment.  We re-evaluate our reporting units and
the goodwill and intangible assets assigned to the reporting units annually,
prior to the completion of the impairment testing.  The fair value of
our reporting units is determined based upon management’s estimate of future
discounted cash flows and other factors. Management’s estimates of future cash
flows include assumptions concerning future operating performance and economic
conditions and may differ from actual future cash flows.




Other
intangible assets consisting mainly of customer relationships, a technical
library, and non-compete agreements were all determined to have a definite life
and are amortized over the shorter of the estimated useful life or contractual
life of the these assets, which range from 1 to 20 years.  Intangible
assets with definite useful lives are periodically reviewed to determine if
facts and circumstances indicate that the useful life is shorter than originally
estimated or that the carrying amount of assets may not be recoverable. If such
facts and circumstances do exist, the recoverability of intangible assets is
assessed by comparing the projected undiscounted net cash flows associated with
the related asset or group of assets over their remaining lives against their
respective carrying amounts. Impairments, if any, are based on the excess of the
carrying amount over the fair value of those assets (See Note E, Intangible
Assets).





Inventory.  We
value inventory at the lower of cost or market. Cost is determined by the
first-in, first-out method. We periodically review our inventories and make
adjustments as necessary for estimated obsolescence and excess goods. The amount
of any markdown is equal to the difference between cost of inventory and the
estimated market value based upon assumptions about future demands, selling
prices and market conditions.




Property, plant and
equipment.  Property, plant and equipment are stated at cost
less accumulated depreciation. Depreciation is computed over the estimated
useful lives of the related assets using the straight-line method. Useful lives
of property, plant and equipment are as follows:




Buildings
                                  
                                  30
      yearsLeasehold
      improvements
                                  
                                  Shorter
      of lease term or useful lifeMachinery
      and
      equipment
                                  
                                  5
      to 10 yearsVehicles
                                  
                                  3
      to 5 yearsOffice
      and computer equipment
                                  
                                  3
      to 10
years







Long-lived assets. We assess
long-lived assets for impairment whenever events or changes in circumstances
indicate that an asset’s carrying amount may not be recoverable.




Debt issue costs.We
capitalize and amortize costs incurred to secure senior debt financing and
revolving notes over the term of the financing, which is three
years.




23


Advertising
costs.  Advertising costs consist mainly of product
advertisements and announcements published in trade publications, and are
expensed when incurred.




Warranty costs. We warrant
workmanship after the sale of our products. We record an accrual for warranty
costs based upon the historical level of warranty claims and our management’s
estimates of future costs.




Income taxes. We account for
income taxes in accordance with SFAS No. 109, Accounting for Income Taxes
and FASB Interpretation No. 48.




Stock-based
compensation.Effective January 1, 2006, we adopted SFAS No.
123R, Share-Based
Payments (revised 2004), using the Modified Prospective Approach. SFAS
No. 123R revises SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Opinion (“APB”) No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123R requires the cost of all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based upon their fair values at grant date, or the date of
later modification, over the requisite service period. In addition, SFAS No.
123R requires unrecognized cost (based on the amounts previously disclosed in
our pro forma footnote disclosure) related to options vesting after the initial
adoption to be recognized in the financial statements over the remaining
requisite service period.




Under the
Modified Prospective Approach, the amount of compensation cost recognized
includes (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123, and (b)
compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123R. Prior to the adoption of SFAS No. 123R, we
accounted for our stock-based compensation plans under the recognition and
measurement provisions of APB No. 25.




New Accounting
Standards.




SFAS
141(R)





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS No. 141(R)”). In SFAS No.
141(R), the FASB retained the fundamental requirements of SFAS No. 141 to
account for all business combinations using the acquisition method (formerly the
purchase method) and for an acquiring entity to be identified in all business
combinations. However, the new standard requires the acquiring entity in a
business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; requires transaction costs to be expensed as incurred; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for annual periods beginning on or
after December 15, 2008.  The adoption of SFAS No. 141(R) did not have
a material impact on the Company’s consolidated financial statements, although
the adoption of SFAS No. 141(R) will impact the recognition and measurement of
future business combinations.




SFAS 157





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements.  SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. In February 2008, the FASB issued FASB
Staff Position No. 157-2, which deferred the effective date of SFAS No. 157
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) until January 1, 2009.  The
adoption of SFAS No. 157 for financial assets and liabilities on January 1, 2008
and non-financial assets and liabilities on January 1, 2009 did not have a
material impact on the Company’s consolidated financial statements.





24




SFAS 159




In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115(“SFAS 159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Entities that elect
the fair value option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes
presentation and disclosure requirements to facilitate comparisons between
companies that choose different measurement attributes for similar assets and
liabilities. The adoption of SFAS 159 did not have an effect on the Company’s
financial condition or results of operations as the Company did not elect this
fair value option, nor is it expected to have a material impact on future
periods as the election of this option for the Company’s financial instruments
is expected to be limited.




SFAS No.
160




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51  (“SFAS No. 160”). SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for fiscal years beginning after December 15, 2008. The
adoption of SFAS No. 160 on January 1, 2009 did not have a material impact on
the Company’s consolidated financial statements.




SFAS No.
161




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. The Company will be required to provide enhanced disclosures about
(a) how and why derivative instruments are used, (b) how derivative
instruments and related hedged items are accounted for under Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Certain Hedging Activities (“SFAS No. 133”), and its related
interpretations, and (c) how derivative instruments and related hedged
items affects our financial position, financial performance, and cash flows.
This statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.  The adoption
of SFAS No. 161 on January 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.




FSP FAS
142-3




In April
2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of
Intangible Assets”,  (“FSP 142-3”). FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other
Intangible Assets”.  FSP 142-3 is effective for fiscal years
beginning after December 15, 2008. The adoption of FSP FAS 142-3 on January 1,
2009 did not have a material impact on the Company’s consolidated financial
statements.  The Company does not expect the adoption of FSP FAS 142-3
to have a material impact on its accounting for future acquisitions of
intangible assets.








25


SFAS
No. 162




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS No. 162”).  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (“GAAP”) in the United States. SFAS No. 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.  The
Company does not expect the adoption of SFAS No. 162 to have a material impact
on the Company’s consolidated financial statements.




FSP FAS
141(R)-1





In
February 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“FSP 141R-1”), which amends the provisions related to the
initial recognition and measurement, subsequent measurement, and disclosure of
assets and liabilities arising from contingencies in a business combination
under SFAS 141R.  FSP 141R-1 applies to all assets acquired and
liabilities assumed in a business combination that arise from contingencies that
would be within the scope of SFAS No. 5, “Accounting for
Contingencies”, if not acquired or assumed in a business combination,
except for assets or liabilities arising from contingencies that are subject to
specific guidance in FASB Statement No. 141R.  FSP 141R-1 applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The adoption of FSP 141R-1, effective January
1, 2009, did not have an impact on the Company’s consolidated financial
statements.





FSP FAS
157-4





In
April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly”  (“FSP 157-4”), which provides guidance on determining
fair value when there is no active market or where the price inputs being used
represent distressed sales.  FSP 157-4 is effective for interim and
annual periods ending after June 15, 2009 and will be adopted by the
Company beginning in the second quarter of 2009.  The adoption of FSP
157-4 is not expected to have a material impact on the Company’s consolidated
financial statements.





FSP FAS 107-1 and APB
28-1





In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value
of Financial Instruments”.(“FSP FAS 107-1 and APB
28-1”).  FSP FAS 107-1 and APB 28-1 requires fair value disclosures of
financial instruments for interim reporting periods for publicly traded
companies as well as in annual financial statements.  This FSP also
amends APB Opinion no. 28-1, “Interim Financial Reporting”, to require those
disclosures in summarized financial information at interim reporting periods and
is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009.  The
Company will adopt FSP FAS 107-1 and APB 28-1 in the second quarter of 2009, and
its adoption is not expected to have a material impact on the Company’s
consolidated financial statements.







Results
of Operations





Three
Months Ended April 5, 2009 Compared to Three Months Ended March 30,
2008





Revenues. Total revenues
decreased by $6.3 million or 21% to $23.4 million in 2009 from $29.7 million in
2008. The decrease in revenues resulted from decreases in the Industrial
Services (“IS”) segment revenue of $5.1 million or 33%, the Construction and
Engineering Services (“CES”) segment revenues of $.7 million or 10%, and the
Rail Services (RS) segment revenue of $.4 million or 6%.





26


The
decline in revenue is generally related to the ongoing challenging global
economic conditions as well as our continuing liquidity pressures (see liquidity
section below).   Specifically, the decrease in IS segment
revenue of $5.1 million in 2009 resulted from the falloff in demand from
the steel industry.





Gross Profit. Total gross
profit in 2009 was $1.7 million or 7% of total revenues compared to $4.7 million
or 16% of total revenues in 2008.  The decrease of $3.0 million or 65%
was due to decreased consolidated revenues and increased cost
levels.  Gross profit on IS segment revenue declined 80%, due mainly
to unabsorbed overhead costs.   Gross profit on CES revenue
declined 44%, due to cost overruns on certain larger electrical
contracts.  Gross profit on RS segment revenue declined 6% due to
unabsorbed overhead costs.





Selling, General and Administrative
Expenses.  Selling, general and administrative expenses were
$5.1 million in 2009 compared to $4.0 million in 2008. The increase of $1.1
million was due mainly to the following:  cost increases related to
facilities that were opened after the first quarter of 2008 (RS Montreal and IS
California); the creation of the Traffic division of Martell Electric, LLC; a
higher level of administrative staffing designed to enable future growth and
meet the regulatory requirements of a publicly traded company.





Interest Expense and Other
Income.  Interest expense and other income did not
significantly change from 2008 to 2009.





Provision for Income
Taxes.  We experienced net operating losses in each year since
we commenced operations. In January 2007, an ownership change occurred that will
limit the amount of net operating loss that we will be able to use in future
periods in accordance with Section 382 of the Internal Revenue Code, as amended.
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 profitability is
reasonably assured and it becomes more likely than not that we will be able to
utilize such tax benefits.





Net Income. Net loss in 2009
was $3.7 million compared to net income of $0.5 million in 2008. The $4.2
million decrease was due to the decline in revenues and increased cost levels as
discussed in the revenue, gross profit and selling, general, and administrative
sections above.











Liquidity
and Capital Resources





At April
5, 2009, we had approximately $11.7 million of working
capital.  Working capital decreased approximately $3.4 million from
approximately $15.1 million at December 31, 2008. The decrease in working
capital was due mainly to the decrease in accounts receivable, which also
resulted in a reduction in the availability of our revolving credit
line.  The revolving credit line is an asset-based lending agreement
with the availability driven by our accounts receivable balance.  The
decrease in accounts receivable resulted mainly from the decline in
revenue.





Net cash
provided by operating activities was $3.4 million and $1.2 million for the three
months ended April 5, 2009 and March 30, 2008, respectively. For the three
months ended April 5, 2009, net cash provided by operations resulted from a net
loss of $3.7 million, increase in bad debt and inventory reserves of $0.4
million and depreciation and amortization of $.7 million, offset by net
decreases in accounts receivable ($6.5 million), inventory ($1.5 million), and
accounts payable and accrued expenses ($2.0 million).





Cash used
for investing activities for the three months ended April 5, 2009 consisted of
acquisitions of fixed assets.  During the three months ended March 30,
2008 we used approximately $7.4 million for investing activities, which
consisted mainly of our investment in AMP.





27


We used
approximately $3.3 million for financing activities during the three months
ended April 5, 2009, consisting primarily of repayments related to the Wells
Fargo credit facility. We generated approximately $4.3 million from financing
activities during the three months ended March 30, 2008, primarily from advances
on the Wells Fargo credit facility.





We are
undertaking various activities to improve our future cash flows. These
activities include efforts to collect accounts receivable at a faster rate,
decrease inventory levels, review alternative financing sources, and extend
terms with our vendors.  Certain of our trade accounts payable are
extended beyond the terms allowed by the applicable vendors. 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 on occasion resulted in
delayed shipments and service to our customers and may continue to result in
such delays in the future. These delays may have resulted in the loss of
sales orders, and future delays may have an adverse affect on our
business.





On
January 14, 2008, we entered into a credit facility with Wells Fargo. The
credit facility was originally comprised of a $1.25 million real estate
term note and a $13.75 million revolving note. On January 16, 2008, we
borrowed $7.5 million under the revolving note and used the net proceeds of the
loans for working capital and to acquire all of the outstanding shares of common
stock of AMP.





The
original maturity date of the Wells Fargo notes is January 1, 2011, at which
time the notes will automatically renew for one-year periods until
terminated.  The notes are secured by (1) a first priority lien on our
assets; (2) a mortgage on certain real property; and (3) the pledge of the
equity interests in our subsidiaries. The term note bears interest at an
annual rate equal to the rate of interest most recently announced by Wells Fargo
at its principal office as the Prime Rate, subject to certain minimum annual
interest payments. The revolving note bears interest at an annual rate of
either (i) the Prime Rate, or (ii) Wells Fargo’s LIBOR rate plus 2.8%, depending
on the nature of the advance.  Interest is payable monthly, in
arrears, under the revolving note beginning on February 1, 2008.  The
term note requires monthly principal payments of $10,000, plus interest,
beginning on the first day of the month following receipt of the advance. The
$1.25 million real estate term note was funded in April 2008.





We have
promissory notes outstanding to BDeWees, Inc., XGen III, Ltd., and John A.
Martell, our CEO in the original principal amounts of $2.0 million, $2.0 million
and $3.0 million, respectively (together, the “Subordinated
Indebtedness”).  Subordination agreements have been executed that
subordinate our obligations under the Subordinated Indebtedness to the Wells
Fargo credit facility.





If we
default under our obligations to Wells Fargo, the interest on the outstanding
principal balance of each note will increase by 3% until the default is cured or
waived.  Other remedies available to Wells Fargo upon an event of
default include the right to accelerate the maturity of all obligations, the
right to foreclose on the assets securing the obligations, all rights of a
secured creditor under applicable law, and other rights set forth in the loan
documents.





We may
prepay the Wells Fargo term note at any time, subject to certain prepayment
penalties.  With respect to the Wells Fargo revolving note, we may
borrow, pay down and re-borrow under the note until the maturity
date.  The maximum aggregate principal amount that may be borrowed
under the revolving note is the lesser of (1) the sum of 40% of our eligible
construction related trade receivables up to $2 million and 85% of certain
remaining eligible trade accounts receivable less any reserves established by
Wells Fargo from time to time, and (2) $13.75 million less any reserves
established by Wells Fargo.





In April
2008, we amended the Wells Fargo credit facility entered into in January 2008.
This first amendment revised the formula for the maximum aggregate principal
amount that may be borrowed under the revolving note. Specifically, the
percentage of a portion of the Company’s eligible construction related trade
receivables resulting from time and material services and completed contracts
was increased from 40% to 85% and the related borrowings were removed from the
$2 million limitation. The amendment also provided a four year term note in the
amount of $1 million, secured by substantially all of the machinery and
equipment of the Company. The note matures June 1, 2012 and is payable in
monthly installments of $21,000, plus interest at the bank’s prime rate
beginning June 1, 2008.





28


In
September 2008, we further amended our credit facility with Wells Fargo. The
second amendment revised a financial covenant which increased the maximum amount
of capital expenditures for 2008 to $2 million, no more than $1.25 million of
which could be paid from our working capital. The amendment also limited the
investment and loans from AMP to AMP Canada to $1 million.





During
the fourth quarter of 2008, the Company signed a waiver agreement with Wells
Fargo in regards to the Company’s maximum allowable capital spending for
2008.  The agreement increased the amount of allowable capital
expenditures during 2008 to $2.75 million of which no more than $2.25
million could be from working capital.  This amendment also removed
the limit on investment and loans from AMP to AMP Canada included in the second
amendment signed in September, 2008.





On March
5, 2009, we received a default notification from Wells Fargo, due to the
violation of a financial covenant regarding minimum net income for the year
ended December 31, 2008.  Additionally, we were in default of the debt
service coverage ratio covenant.  The defaults resulted in an increase
in the interest rate on the revolving note, the real estate term note and the
machinery and equipment note to the Prime rate plus 3%.  In addition,
due to the covenant violation, Wells Fargo has reduced the loan availability on
the revolving note related to certain receivable accounts held by Martell
Electric and Ideal.  The interest rate increase was made effective
retroactively to January 1, 2009 and remained in effect until the default was
subsequently waived on April 14, 2009.





On April
14, 2009, The Company and Wells Fargo signed a Fourth Amendment to the Credit
Facility and waiver of the default notification received on March 5,
2009.  The amendment and waiver amended the credit facility as
follows:




·
            Waived
      our noncompliance with the minimum net income and debt service coverage
      ratio covenants for the year ending December 31,
  2008


·
            Eliminated
      the minimum net income and debt service coverage ratio covenants for the
      year ending December 31, 2009


·
            Adjusted
      the minimum book net worth covenant to $38.75 million as of December 31,
      2009


·
            Incorporated
      a monthly minimum EBITDA covenant commencing in April,
  2009


·
            Reduced
      the revolving credit line limit to $11 million  (from $13.75
      million)


·
            Reset
      the interest rate on the revolving credit line and term notes to the Daily
      Three Month LIBOR plus 5.25% effective April 14,
  2009


·
            Suspended
      interest and principal payments on our subordinated debt to our CEO, John
      A. Martell.





On April
14, 2009, our $3.0 million note payable to the CEO was amended whereby
monthly principal and interest payments under the note were suspended until
February 1, 2010.  Interest will continue to accrue at the new rate of
the greater of 5% or the prime rate plus 1%.  All accrued interest on
the note will be paid on February 1, 2010, and interest will be paid monthly
thereafter.  Monthly principal payments in the amount of $50,000 will
commence on February 1, 2010.




As of
April 5, 2009, we did not have any material commitments for capital
expenditures.





We
believe that in order to continue our operations under our current business
model we will need to raise additional operating capital as well as adjust our
operating unit and corporate cost structure to better align with activity levels
expected for the foreseeable future.  The amount of our future
working capital needs and capital-expenditure requirements will depend on many
factors, including our rate of revenue change, the change in our marketing and
sales activities, and the rate of development of new products and services. To
the extent that funds from the sources described above are not sufficient to
finance our future activities, we will need to improve future cash flows and/or
raise additional capital through debt or equity offerings, or through other
financing arrangements. Any effort to improve cash flows, whether by increasing
sales, reducing operating costs, collecting accounts receivable at a faster
rate, reducing inventory and other means, may or may not be successful. Further,
any additional capital we seek to raise might not be available on terms
acceptable to us, or at all.





29


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, including those identified in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008.







ITEM
3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
Applicable.







ITEM
4T.   CONTROLS AND PROCEDURES




Evaluation
of Effectiveness of Disclosure Controls and Procedures




Our
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.





In order
to monitor compliance with this system of controls, our Board of Directors,
which performs the audit committee function for the Company, oversees
management’s discharge of its financial reporting responsibilities. The Board of
Directors meets regularly with the Company’s independent registered public
accounting firm, Asher & Company, Ltd., and representatives of management to
review accounting, auditing, internal control, and financial reporting matters.
The Board of Directors is responsible for the engagement of our independent
registered public accounting firm.





Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Accounting Officer, evaluated the effectiveness of
our disclosure controls and procedures in effect as of April 5, 2009. Based on
this evaluation, our Chief Executive Officer and Chief Accounting Officer
concluded that, as of April 5, 2009, 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
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.





30


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 5, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.








PART
II - OTHER INFORMATION





ITEM
2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Our
Registration Statement on Form S-1 (Reg. No. 333-129354) was declared effective
by the Securities and Exchange Commission on May 12, 2006. The registration
statement relates to shares of our common stock that may be offered and sold
from time to time by the selling shareholders named in the related prospectus
and to certain shares issuable upon exercise of warrants and conversion of debt
securities. We will not receive any of the proceeds from the sale of the common
stock, but we have agreed to bear all expenses (other than direct expenses
incurred by the selling shareholders, such as selling commissions, brokerage
fees and expenses and transfer taxes) associated with registering such shares
under federal and state securities laws. We will receive the exercise price upon
exercise of the warrants held by selling shareholders. As of April 5, 2009, we
have issued 616,408 shares upon the exercise of warrants, and we have received
proceeds of $131,567 that were used for general working capital purposes. Based
on information provided by our transfer agent, we believe that some selling
shareholders have sold shares pursuant to the offering. However, because many
shares are held in “street” name, we are unable to determine the number of
shares sold or the identity of the selling shareholders. We have incurred total
expenses in connection with the offering of approximately $0.8 million and have
received no offering proceeds other than the proceeds received upon the exercise
of warrants.








ITEM 6.   EXHIBITS




The
following documents are included or incorporated by reference in this Quarterly
Report on Form 10-Q:





Exhibit
      No.
                      
                      Description10.1
                      
                      Fourth
      Amendment to Credit and Security Agreement and Limited Waiver of Defaults
      dated April 14, 2009, among Wells Fargo Bank, the registrant and certain
      subsidiaries of the registrant (incorporated by reference to Exhibit
      10.56b of the registrant’s Annual Report on Form 10-K filed on April 15,
      2009)10.2
                      
                      Amendment
      to Promissory Note dated April 14, 2009 issued by the registrant (assignee
      of Magnetech Industrial Services, Inc.) to John A. Martell (incorporated
      by reference to Exhibit 4.11a of the registrant’s Annual Report on Form
      10-K filed on April 15, 2009)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 Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act32
                      
                      Section
      1350
Certifications





31


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





MISCOR
      GROUP, LTD.May
      15, 2009
              By:
              /s/
      Mary M. HuntMary
      M. HuntVice
      President of Finance(Signing
      on behalf of the registrant as Principal Financial and Accounting
      Officer)











32








EXHIBIT
INDEX





Exhibit
      No.
                
                Description10.1
                
                Fourth
      Amendment to Credit and Security Agreement and Limited Waiver of Defaults
      dated April 14, 2009, among Wells Fargo Bank, the registrant and
      certain subsidiaries of the registrant (incorporated by reference to
      Exhibit 10.56b of the registrant’s Annual Report on Form 10-K filed on
      April 15, 2009)10.2
                
                Amendment
      to Promissory Note dated April 14, 2009 issued by the registrant (assignee
      of Magnetech Industrial Services, Inc.) to John A. Martell (incorporated
      by reference to Exhibit 4.11a of the registrant’s Annual Report on Form
      10-K filed on April 15, 2009)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 Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act32
                
                Section
      1350 Certifications










33