##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended October 3, 2010
 Or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number: 000-52380
 MISCOR GROUP, LTD.
  Indiana
(State or other jurisdiction of incorporation or organization)
    
    20-0995245
(I.R.S. Employer Identification No.)
 800 Nave Road SE
Massillon, OH 44646
 (330) 830-3500
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



MISCOR GROUP, LTD.
 INDEX TO FORM 10-Q
 Item
    
    PageNumber
    
    NumberPART I  FINANCIAL INFORMATION1. Financial Statements:Condensed Consolidated Balance Sheets October 3, 2010 (Unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) Three and Nine Months
ended October 3, 2010 and October 4, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months ended October
3, 2010 and October 4, 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    62. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    203. Quantitative and Qualitative Disclosures about Market Risk
    
    
    264. Controls and Procedures
    
    
    26PART II  OTHER INFORMATION2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    276. Exhibits
    
    
    27Signatures
    
    
    28EX-31.1EX-31.2EX-32
  i




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share data)
 October 3
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, net of allowance for doubtful accounts
of $186 and $766, respectively
    
    
    5,349
    
    
    
    4,083Inventories, net
    
    
    4,667
    
    
    
    5,349Assets held-for-sale
    
    
    4,044
    
    
    
    15,914Other current assets
    
    
    833
    
    
    
    261Total current assets
    
    
    14,893
    
    
    
    25,607PROPERTY AND EQUIPMENT, net
    
    
    5,777
    
    
    
    7,050OTHER ASSETSGoodwill
    
    
    7,831
    
    
    
    7,831Customer relationships, net
    
    
    6,633
    
    
    
    6,922Other intangible assets, net
    
    
    610
    
    
    
    643Deposits and other assets
    
    
    363
    
    
    
    117Total other assets
    
    
    15,437
    
    
    
    15,513Total Assets
    
    $
    36,107
    
    
    $
    48,170LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESRevolving credit line, net of discount of $28 and $100, respectively
    
    $
    3,566
    
    
    $
    3,207Current portion of long-term debt
    
    
    525
    
    
    
    430Current portion of long-term debt, officers and affiliates
    
    
    4,090
    
    
    
    4,600Accounts payable
    
    
    3,770
    
    
    
    2,549Liabilities of held-for-sale operations
    
    
    1,183
    
    
    
    9,581Accrued expenses and other current liabilities
    
    
    1,015
    
    
    
    1,636Total current liabilities
    
    
    14,149
    
    
    
    22,003LONG-TERM LIABILITIESLong-term debt
    
    
    1,082
    
    
    
    2,003Long-term debt, officers and affiliates
    
    
    1,989
    
    
    
    2,418Total long-term liabilities
    
    
    3,071
    
    
    
    4,421Total liabilities
    
    
    17,220
    
    
    
    26,424Commitments and ContingenciesSTOCKHOLDERS EQUITYPreferred stock, no par value; 800,000 shares authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, no par value; 30,000,000 shares authorized;
11,785,826 and 11,801,326 shares issued and outstanding, respectively
    
    
    50,920
    
    
    
    50,920Additional paid in capital
    
    
    8,423
    
    
    
    8,452Accumulated deficit
    
    
    (40,456
    )
    
    
    (37,626
    )Total stockholders equity
    
    
    18,887
    
    
    
    21,746Total Liabilities and Stockholders Equity
    
    $
    36,107
    
    
    $
    48,170
  3




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##### Table of Contents



MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands, except share and per share data)
 For the three months ended
    
    
    For the Nine Months EndedOctober 3, 2010
    
    
    October 4, 2009
    
    
    October 3, 2010
    
    
    October 4, 2009(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Restated)
    
    
    
    
    
    
    (Restated)REVENUESProduct sales
    
    $
    1,514
    
    
    $
    963
    
    
    $
    3,964
    
    
    $
    3,211Service revenue
    
    
    6,449
    
    
    
    6,589
    
    
    
    21,134
    
    
    
    21,550Total Revenues
    
    
    7,963
    
    
    
    7,552
    
    
    
    25,098
    
    
    
    24,761COST OF REVENUESCost of product sales
    
    
    1,157
    
    
    
    905
    
    
    
    2,941
    
    
    
    2,562Cost of service revenue
    
    
    5,553
    
    
    
    6,016
    
    
    
    18,004
    
    
    
    20,227Total Cost of Revenues
    
    
    6,710
    
    
    
    6,921
    
    
    
    20,945
    
    
    
    22,789GROSS PROFIT
    
    
    1,253
    
    
    
    631
    
    
    
    4,153
    
    
    
    1,972SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    2,104
    
    
    
    2,185
    
    
    
    6,601
    
    
    
    8,533LOSS FROM OPERATIONS
    
    
    (851
    )
    
    
    (1,554
    )
    
    
    (2,448
    )
    
    
    (6,561
    )OTHER (INCOME) EXPENSEInterest expense
    
    
    233
    
    
    
    369
    
    
    
    646
    
    
    
    775Other (income) expense
    
    
    (48
    )
    
    
    130
    
    
    
    (38
    )
    
    
    (475
    )185
    
    
    
    499
    
    
    
    608
    
    
    
    300LOSS FROM CONTINUING OPERATIONS BEFORE TAXES
    
    
    (1,036
    )
    
    
    (2,053
    )
    
    
    (3,056
    )
    
    
    (6,861
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    LOSS FROM CONTINUING OPERATIONS
    
    
    (1,036
    )
    
    
    (2,053
    )
    
    
    (3,056
    )
    
    
    (6,861
    )INCOME LOSS FROM DISCOUNTINUED OPERATIONS
    
    
    34
    
    
    
    (2,424
    )
    
    
    227
    
    
    
    (3,585
    )(See Note C, Discontinued and Held-for-Sale Operations)NET LOSS
    
    $
    (1,002
    )
    
    $
    (4,477
    )
    
    $
    (2,829
    )
    
    $
    (10,446
    )BASIC AND DILUTED LOSS PER COMMON SHAREFrom continuing operations
    
    $
    (0.09
    )
    
    $
    (0.18
    )
    
    $
    (0.26
    )
    
    $
    (0.59
    )From discontinued operations
    
    
    0.00
    
    
    
    (0.20
    )
    
    
    0.02
    
    
    
    (0.30
    )BASIC AND DILUTED LOSS PER COMMON SHARE
    
    $
    (0.09
    )
    
    $
    (0.38
    )
    
    $
    (0.24
    )
    
    $
    (0.89
    )WIEGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    11,785,826
    
    
    
    11,784,490
    
    
    
    11,788,945
    
    
    
    11,764,823
  4




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MISCOR GROUP, LTD. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands, except share and per share data)
 For the Nine Months EndedOctober 3, 2010
    
    
    October 4, 2009(Unaudited)
    
    
    (Unaudited)(Restated)OPERATING ACTIVITIESNet loss
    
    $
    (2,829
    )
    
    $
    (10,446
    )Adjustments to reconcile net loss to net cash provided (utilized) by operating activities:Depreciation and amortization
    
    
    1,430
    
    
    
    2,315Goodwill impairment
    
    
    
    
    
    
    2,500Bad Debts
    
    
    87
    
    
    
    169Inventory reserves
    
    
    27
    
    
    
    111Loss on sale of equipment
    
    
    12
    
    
    
    Gain on disposal of discontinued operations
    
    
    (314
    )
    
    
    Amortization of stock-based compensation plans
    
    
    (29
    )
    
    
    56Amortization of debt issuance costs and debt discount
    
    
    107
    
    
    
    3Unrealized gain on conversion option
    
    
    (18
    )
    
    
    (484
    )Changes in:Accounts receivable
    
    
    (564
    )
    
    
    8,992Inventories
    
    
    961
    
    
    
    4,076Prepaid expenses and other current assets
    
    
    (274
    )
    
    
    7Deposits and other non-current assets
    
    
    28
    
    
    
    193Accounts payable
    
    
    1,592
    
    
    
    (3,443
    )Accrued expenses and other current liabilities
    
    
    (589
    )
    
    
    (1,178
    )Net cash provided (utilized) by operating activities
    
    
    (373
    )
    
    
    2,871INVESTING ACTIVITIESProceeds from disposal of discontinued operations
    
    
    746
    
    
    
    Acquisition of property and equipment
    
    
    
    
    
    
    (609
    )Proceeds from disposal of property and equipment
    
    
    173
    
    
    
    117Net cash provided (utilized) by investing activities
    
    
    919
    
    
    
    (492
    )FINANCING ACTIVITIESPayments on capital lease obligations
    
    
    (46
    )
    
    
    (71
    )Short-term borrowings (repayments), net
    
    
    293
    
    
    
    (2,165
    )Borrowings of long-term debt
    
    
    19
    
    
    
    142Repayments of long-term debt
    
    
    (810
    )
    
    
    (397
    )Proceeds from the issuance of shares
    
    
    
    
    
    
    65Cash repurchase of restricted stock
    
    
    (2
    )
    
    
    (5
    )Debt issuance costs
    
    
    
    
    
    
    (24
    )Net cash utilized by financing activities
    
    
    (546
    )
    
    
    (2,455
    )DECREASE IN CASH
    
    
    
    
    
    
    (76
    )Cash, beginning of period
    
    
    
    
    
    
    76Cash, end of period
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    591
    
    
    $
    596
  5




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##### Table of Contents



MISCOR GROUP, LTD.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts in thousands, except share and per share data)
 NOTE A  BASIS OF PRESENTATION
    NOTE B  RECENT ACCOUNTING PRONOUNCEMENTS
    6




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##### Table of Contents



NOTE C  DISCONTINUED AND HELD-FOR-SALE OPERATIONS
 AMP Rail Services Canada, ULC
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 4, 2010
    
    
    October 4, 2010Revenue from discontinued operations
    
    $
    901
    
    
    $
    3,104Pretax loss from discontinued operations
    
    
    (122
    )
    
    
    (534
    )
 Construction and Engineering Services Business
    7




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 3, 2010
    
    
    October 4, 2009
    
    
    October 3, 2010
    
    
    October 4, 2009Revenue from discontinued operations
    
    $
    
    
    
    $
    8,987
    
    
    $
    1,721
    
    
    $
    24,377Pretax income (loss) from discontinued operations
    
    
    
    
    
    
    651
    
    
    
    (171
    )
    
    
    495Pretax gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    
  February 3, 2010
    
    
    December 31, 2009ASSETSAccounts receivable, net of allowance for doubtful accounts
of $210 and $209, respectively
    
    $
    5,116
    
    
    $
    6,317Inventories, net
    
    
    171
    
    
    
    172Other current assets
    
    
    2,208
    
    
    
    2,325Total current assets
    
    
    7,495
    
    
    
    8,814PROPERTY AND EQUIPMENT, net
    
    
    500
    
    
    
    500Total Assets
    
    $
    7,995
    
    
    $
    9,314LIABLITIESAccounts payable
    
    $
    5,252
    
    
    $
    5,174Accrued expense and other liabilities
    
    
    1,033
    
    
    
    1,279Total Liabilities
    
    
    6,285
    
    
    
    6,453Net Assets
    
    $
    1,710
    
    
    $
    2,861
 American Motive Power
   Three Months Ended
    
    
    Nine Months EndedOctober 3, 2010
    
    
    October 4, 2009
    
    
    October 3, 2010
    
    
    October 4, 2009Revenue from discontinued operations
    
    $
    
    
    
    $
    619
    
    
    $
    709
    
    
    $
    3,203Pretax loss from discontinued operations
    
    
    
    
    
    
    (2,955
    )
    
    
    (241
    )
    
    
    (4,429
    )Pretax gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    
 The assets and liabilities of AMP classified as held-for-sale operations at March 8, 2010
(date of sale) and December 31, 2009 are summarized as follows:
 March 8, 2010
    
    
    December 31, 2009ASSETSAccounts receivable, net of allowance for doubtful accounts
of $56 and $55, respectively
    
    $
    564
    
    
    $
    490Inventories, net
    
    
    1,153
    
    
    
    1,152Other current assets
    
    
    479
    
    
    
    723Total current assets
    
    
    2,196
    
    
    
    2,365Other assets
    
    
    
    
    
    
    262Total Assets
    
    $
    2,196
    
    
    $
    2,627LIABLITIESAccounts payable
    
    $
    683
    
    
    $
    643Accrued expense and other liabilities
    
    
    1,691
    
    
    
    1,576Total Liabilities
    
    
    2,374
    
    
    
    2,219Net Assets
    
    $
    (178
    )
    
    $
    408
 8




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##### Table of Contents



HK Engine Components
   Three Months Ended
    
    
    Nine Months EndedOctober 3, 2010
    
    
    October 4, 2009
    
    
    October 3, 2010
    
    
    October 4, 2009Revenue from discontinued operations
    
    $
    1,941
    
    
    $
    1,836
    
    
    $
    5,985
    
    
    $
    7,326Pretax income from discontinued operations
    
    
    34
    
    
    
    2
    
    
    
    294
    
    
    
    888
  October 3, 2010
    
    
    December 31, 2009ASSETSAccounts receivable, net of allowance for doubtful accounts
of $81 and $142, respectively
    
    $
    931
    
    
    $
    592Inventories, net
    
    
    1,786
    
    
    
    2,094Other current assets
    
    
    92
    
    
    
    30Total current assets
    
    
    2,809
    
    
    
    2,716PROPERTY AND EQUIPMENT, net
    
    
    1,235
    
    
    
    1,233Other Assets
    
    
    
    
    
    
    24Total Assets
    
    $
    4,044
    
    
    $
    3,973LIABLITIESAccounts payable
    
    $
    901
    
    
    $
    601Accrued expense and other liabilities
    
    
    282
    
    
    
    308Total Liabilities
    
    
    1,183
    
    
    
    909Net Assets
    
    $
    2,861
    
    
    $
    3,064
 NOTE D  INVENTORY
  October 3, 2010
    
    
    December 31, 2009Raw materials
    
    $
    2,451
    
    
    $
    2,705Work-in-process
    
    
    2,339
    
    
    
    2,486Finished goods
    
    
    622
    
    
    
    8555,412
    
    
    
    6,046Less: allowance for slow moving
and obsolete inventories
    
    
    (745
    )
    
    
    (697
    )$
    4,667
    
    
    $
    5,349
 9




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##### Table of Contents



At October 3, 2010 and December 31, 2009, inventory, net of allowance for slow moving,
totaling $1,786 and $3,418 respectively, was classified as held-for-sale and included in Assets
Held for Sale on the Condensed Consolidated Balance Sheets.
 NOTE E  DERIVATIVE INSTRUMENTS
 Effective January 1, 2009, the Company adopted new accounting guidance which clarified the
determination of whether equity-linked instruments (or embedded features), such as our
convertible securities and warrants to purchase our common stock, are considered indexed to our
own stock, which would require certain treatment under the guidance for accounting for
derivative instruments. As a result of adopting the new guidance, a conversion option on a note
payable to our Chairman, which was previously treated as equity, has been considered a
derivative liability since the beginning of 2009. The Companys condensed consolidated
financial statements for the three and nine months ended October 4, 2009 have been restated to
reflect the adoption of this new guidance, which was not incorporated in the condensed
consolidated financial statements originally filed for the three and nine months ended October
4, 2009. We do not use derivative instruments for hedging of market risks or for trading or
speculative purposes.
 The impact of the January 1, 2009 adoption of the new accounting guidance is summarized in the
following table:
 Impact of NewAccounting GuidanceDecember 31, 2008
    
    
    Adoption
    
    
    January 1, 2009Long-term debt, officers and affiliates
    
    $
    5,000
    
    
    $
    638
    
    
    $
    5,638Total long-term liabilities
    
    
    9,635
    
    
    
    638
    
    
    
    10,273Total liabilities
    
    $
    36,033
    
    
    $
    638
    
    
    $
    36,671Additional paid in capital
    
    
    9,056
    
    
    
    (638
    )
    
    
    8,418Total stockholders equity
    
    $
    42,757
    
    
    $
    (638
    )
    
    $
    42,119
 The estimated fair values of the derivative liabilities are recorded as Long-term debt,
officers and affiliates on the Companys Condensed Consolidated Balance Sheets. Changes in the
estimated fair values of the derivative liabilities are recorded in the Companys Condensed
Consolidated Statement of Operations. In February 2010, the note payable to the Companys
Chairman underlying this derivative instrument was exchanged by the Chairman for a new note, and
as a result, the conversion option expired. The expiration of the conversion option resulted in
the Company recording a gain of $18 in the first quarter of 2010, which was equal to the
estimated fair value of the conversion option on January 1, 2010. The effect of marking the
derivative liability to its estimated fair value resulted in non-cash income at the end of the
Companys third quarter of 2009 as shown in the table below (in thousands except for per share
amounts):
 Three Months Ended
    
    
    Nine Months EndedOctober 4, 2009
    
    
    
    
    
    
    October 4, 2009October 4, 2009
    
    
    (As previously
    
    
    October 4, 2009
    
    
    (As previously(As restated)
    
    
    reported)
    
    
    (As restated)
    
    
    reported)Estimated fair value of derivative liability
    
    $
    154
    
    
    $
    
    
    
    $
    154
    
    
    $
    Income (expense) resulting from change in
value of derivative liability
    
    
    (71
    )
    
    
    
    
    
    
    484
    
    
    
    Other income (expense)
    
    
    (117
    )
    
    
    (46
    )
    
    
    588
    
    
    
    104Net Loss
    
    
    (4,477
    )
    
    
    (4,406
    )
    
    
    (10,446
    )
    
    
    (10,930
    )Basic and Diluted Loss per Common Share
    
    $
    (0.38
    )
    
    $
    (0.37
    )
    
    $
    (0.89
    )
    
    $
    (0.93
    )
 The Company used a Black-Scholes option pricing model to estimate the fair value of the
derivative liability at January 1, 2009 and October 4, 2009, using a weighted average of 713,750
optionable shares along with the following assumptions:
 October 4,
    
    
    July 5,
    
    
    April 5,
    
    
    January 1,2009
    
    
    2009
    
    
    2009
    
    
    2009Expected volatility
    
    
    47.24
    %
    
    
    47.57
    %
    
    
    47.59
    %
    
    
    47.48
    %Risk-free interest rate
    
    
    2.22
    %
    
    
    2.43
    %
    
    
    1.87
    %
    
    
    1.72
    %Expected term
    
    5.25 years
    
    5.5 years
    
    5.75 years
    
    6.0 yearsDividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 10




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##### Table of Contents



NOTE F  GOODWILL AND OTHER INTANGIBLE ASSETS
 Goodwill
 We account for goodwill in accordance with ASC 350, Intangibles  Goodwill and Other. 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 third quarter. Goodwill impairment exists when a reporting
units carrying value of goodwill exceeds its fair value, which is determined through a two-step
impairment test. Step 1 includes the determination of the carrying value of our single
reporting unit, including the existing goodwill and intangible assets, and estimating the fair
value of the reporting unit. We determined the fair value of our reporting unit and compared it
to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, we
are required to perform a second step to the impairment test. Step 2 of the goodwill
impairment test is performed to measure the impairment loss. Step 2 requires that the implied
fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill.
If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss shall be recognized in an amount equal to that excess.
 The Company continues to incur losses from operation and continues to work towards extending or
replacing current financing arrangements with both its senior lender and subordinated debt
holders. In addition, due to its current liquidity situation, certain of the Companys
suppliers have reduced credit limits, which has had some negative impact on our current
revenues. Given these factors, it is possible that the Company may incur impairment charges
for goodwill and other intangible assets when it completes its goodwill impairment analysis in
the fourth quarter of 2010.
 For our annual impairment testing, the Company estimated the fair value of its Magnetech
Industrial Services (MIS) reporting unit using a discounted cash flow model. Significant
estimates and assumptions involving future cash flows, growth rates, and weighted average cost
of capital were used in preparing the discounted cash flow model for the MIS reporting unit.
For the goodwill testing completed during the fourth quarter of 2009 for its MIS reporting unit,
the Company used a cost of capital of 25%, and determined that the calculated fair value
exceeded the carrying value by approximately 12%. Accordingly, there was no impairment for this
reporting unit. An increase in the discount rate used in the analysis of more than 315 basis
points, or a decrease in projected 2010 through 2016 revenue of more than 10%, would have
resulted in a determination of impairment for MIS; however, management believes that the
discount rate of 25% and the revenue projections used in its cash flow model are
reasonable.
 Other Intangible Assets
 Intangible assets consist of the following:
 October 3 2010
    
    
    December 31, 2009EstimatedUseful
    
    
    GrossLives
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    Accumulated(in Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Impairment
    
    
    NetPatents and Trademarks
    
    
    10
    
    
    $
    4
    
    
    $
    (4
    )
    
    $
    
    
    
    $
    4
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    1Mutual Services Agreement
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    (100
    )
    
    
    
    
    
    
    Technical Library
    
    
    20
    
    
    
    700
    
    
    
    (99
    )
    
    
    601
    
    
    
    700
    
    
    
    (73
    )
    
    
    
    
    
    
    627Customer Relationships
    
    
    15-20
    
    
    
    7,722
    
    
    
    (1,088
    )
    
    
    6,634
    
    
    
    9,592
    
    
    
    (1,044
    )
    
    
    (1,626
    )
    
    
    6,922Non-Compete Agreements
    
    
    3
    
    
    
    17
    
    
    
    (9
    )
    
    
    8
    
    
    
    807
    
    
    
    (518
    )
    
    
    (274
    )
    
    
    15Total
    
    
    
    
    
    $
    8,443
    
    
    $
    (1,200
    )
    
    $
    7,243
    
    
    $
    11,203
    
    
    $
    (1,738
    )
    
    $
    (1,900
    )
    
    $
    7,565
 The estimated future amortization expense related to intangible assets for the periods
subsequent to October 3, 2010 on a calendar year basis is as follows:
 Year EndingDecember 312010
    
    $
    1072011
    
    
    4282012
    
    
    4212013
    
    
    4212014
    
    
    421Thereafter
    
    
    5,445Total
    
    $
    7,243
 11




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NOTE G  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. 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 $3,594 and
$3,307 at October 3, 2010 and December 31, 2009. As of October 3, 2010 and December 31, 2009
there was $369 and $1,270 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 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 plus 5.25%, as a result of
the Fourth Amendment to the Credit Facility as described below. Effective June 1, 2009, the
interest rate on the revolving credit line was reset to the Daily Three Month LIBOR
(approximately 0.29% at October 3, 2010) plus 8.25%, as a result of the second Fourth Amendment
to the Credit Facility as described below.
 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. 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 alter 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 originally 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
originally required monthly principal payments of $10, plus interest, beginning on June 1, 2008,
the first day of the month following receipt of the advance. As a result of the Sixth Amendment
to the Credit Facility, as described below, the Company is required to make additional weekly
principal payments of $10 on the real estate term note. The outstanding balance under the real
estate term note as of October 3, 2010 and December 31, 2009 was $221 and $809. 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 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 plus 5.25%, as a
result of the first Fourth Amendment to the Credit Facility as described below. Effective June
1, 2009 the interest rate on the real estate term note was increased to the Daily Three Month
LIBOR (approximately 0.29% at October 3, 2010) plus 8.25% as a result of the second Fourth
Amendment to the Credit Facility 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) 85% of certain eligible trade accounts receivable less
anyreserves established by Wells Fargo from time to time and (2) $5,800 less any reserves
established by Wells Fargo.
 In April 2008, the Company and Wells Fargo amended the Credit Facility entered into in January
2008. This first amendment, among other things, 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 original maturity date of the note was June 1, 2012 and is payable in monthly installments
of $21 plus interest at the banks prime rate beginning June 1, 2008. The outstanding balance
under the equipment term note as of October 3, 2010 and December 31, 2009 was $371 and $580.
Effective January 1, 2009, the interest rate on the machinery and equipment term note was
increased to the banks prime rate 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 plus 5.25%, as a result of the waiver agreement as
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##### Table of Contents



described below. Effective June 1, 2009 the interest rate on the machinery and equipment term
note was increased to the Daily Three Month LIBOR (approximately 0.29% at October 3, 2010) plus
8.25% as a result of the second Fourth Amendment to the Credit Facility as described below.
 As part of the financing and the related amendments, the Company paid debt issue costs of $69
and is amortizing these costs to interest expense over the remaining term of the financing.
Debt issue costs amortized to interest expense was $4 and $11 for the three and nine months
ended October 3, 2010 and $29 and $37 for the three and nine months ended October 4, 2009. Net
debt issue costs at October 3, 2010 and December 31, 2009 was $4 and $14. The Company also paid
fees to Wells Fargo as part of the financing and the related amendments in the amount of $346.
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 $28 and $73 for the three and nine months ended October 3, 2010 and $143 and $171
for the three and nine months ended October 4, 2009. Net debt discount at October 3, 2010 and
December 31, 2009 was $28 and $100.
 Interest expense under the Wells Fargo Credit facility, excluding amortization of debt issue
costs and accretion of debt discount, was $94 and $290 for the three and nine months ended
October 3, 2010 and $153 and $392 for the three and nine months ended October 4, 2009.
 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 $2,079, 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. The notes with BDeWees, Inc. and
XGen III, Ltd are due on November 30, 2010. The Company is currently renegotiating terms with
these two note holders.
 Default and Waiver Agreements
 The Wells Fargo notes contain certain financial covenants, including limits on capital
expenditures, requirements for minimum book net worth, and minimum EBITDA.
 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%. In addition, due to
the covenant violation, Wells Fargo 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 first Fourth Amendment to the Credit
Facility and waiver of the default notification received on March 5, 2009 (the first Fourth
Amendment). 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 ended 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
Chairman and former CEO, John A. Martell.
 In connection with the first Fourth Amendment, the Company agreed to pay Wells Fargo an
accommodation fee equal to $100, payable in installments of $50 on the date of execution of the
first Fourth Amendment and $50 in June 2009.
 On July 22, 2009, the Company and Wells Fargo executed a second Fourth Amendment to the Credit
Agreement (the second Fourth Amendment). The second Fourth Amendment amended the Credit
Agreement in the following respects:
 
    
    Revised the definition of Borrowing Base, resulting in lower available borrowings
    
    Adjusted the interest rate on the revolving credit line and term notes (defined in
the Credit Agreement as the LIBOR Advance Rate) to the Daily Three Month LIBOR (0.56%
at July 5, 2009) plus 8.25%, effective June 1, 2009
    
    Lowered the amount of the minimum EBITDA that the Company is required to achieve in
future periods
    
    Requires the Company to raise $2,000 in additional capital by August 31, 2009 through
subordinated debt, asset sales or additional cash equity
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##### Table of Contents




    
    Lowered eligible progress accounts advance rates by $50 per week commencing August 3,
2009.
    
    Lowered the special accounts advanced rate to 35% effective July 22, 2009 further
reducing it to 30% effective August 31, 2009 or such lesser rate the lender may
determine
    
    Added conditions regarding marketing assets, the validation of the Companys cash
flow forecast and future financial projections.
 In connection with the second Fourth Amendment, the Company agreed to pay Wells Fargo an
accommodation fee equal to $50, payable on the date of execution of the second Fourth Amendment.
 On September 16, 2009 the Company and Wells Fargo executed a Fifth Amendment to the Credit
Agreement (the Fifth Amendment). The Fifth Amendment amended the Credit Agreement in the
following respects:
 
    
    Revised the definition of Borrowing Base, resulting in lower available borrowings
    
    Extended until October 31, 2009 the previously agreed upon requirement for the
Company to raise $2,000 in additional capital through subordinated debt, asset sales, or
additional cash equity.
 In connection with the Fifth Amendment, the Company agreed to pay Wells Fargo an accommodation
fee equal to $25, payable on the date of the execution of the Fifth Amendment.
 On January 14, 2010 the Company and Wells Fargo executed a Sixth Amendment to the Credit
Agreement (the Sixth Amendment). The Sixth Amendment amended the Credit Agreement in the
following respects:
 
    
    Consented to the Companys planned sale of its CES Business;
    
    Revised the definition of Borrowing Base, resulting in lower available borrowings;
    
    Required additional weekly principal payments of $10 on the real estate term note;
and
    
    Extended until January 27, 2010, and reduced to $1,000 the previously agreed upon
requirement for the Company to raise $2,000 additional capital through subordinated
debt, asset sales, or additional cash equity.
 On February 9, 2010 the Company received a letter agreement from Wells Fargo which amended the
Credit Agreement as follows:
 
    
    Revised the terms of Wells Fargos consent to the sale of the Companys CES Business;
and
    
    Extended until February 19, 2010 the previously agreed upon requirement for the
Company to raise $1,000 additional capital through subordinated debt, asset sales, or
additional cash equity.
 On April 15, 2010 the Company and Wells Fargo executed a Seventh Amendment to the Credit
Agreement (the Seventh Amendment). The Seventh Amendment amended the Credit Agreement in the
following respects:
 
    
    Waived the Companys noncompliance with the minimum book net worth and maximum
capital expenditures from working capital covenants for the year ending December 31,
2009;
    
    Adjusted the minimum book net worth covenant to $21,500 as of December 31, 2009;
    
    Eliminated the automatic renewal of our revolving credit line in January, 2011;
    
    Adjusted the allowable capital expenditures for the year ending December 31, 2010 to
a maximum of $500;
    
    Incorporated a monthly minimum EBITDA covenant commencing in April, 2010; and
    
    Eliminated the previously agreed upon requirement for the Company to raise $1,000
additional capital through subordinated debt, asset sales, or additional cash equity.
 In connection with the Seventh Amendment, the Company agreed to pay Wells Fargo an accommodation
fee equal to $75, $25 of which is payable on the date of the execution of the Seventh Amendment
with $25 due within 30 days and $25 due within 60 days.
 NOTE H  DEBT
 Long-term debt
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##### Table of Contents



Long-term debt consists of the following:
 October 3,
    
    
    December 31,2010
    
    
    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 October 3, 2010 and
December 31, 2009) 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 October 3, 2010 and
December 31, 2009) 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 $5 beginning
April 1, 2010, with outstanding balance
payable at maturity date of February 28,
2012, plus interest at the greater of 5%
or the prime rate (3.25% at October 3,
2010 and December 31, 2009) plus 2%,
secured by a subordinated interest in
substantially all assets owned by the
Company
    
    
    2,079
    
    
    
    Convertible Note payable to Officer,
payable in monthly installments of $50
beginning February 1, 2010, plus interest
at prime rate (3.25% at December 31,
2009) 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
    
    
    
    
    
    
    3,000Liability for conversion option on note
payable to Officer (See Note E,
Derivative Instruments)
    
    
    
    
    
    
    18Note payable to bank in monthly
installments of $10 through May 2018,
plus interest at prime rate (3.25% at
December 31, 2008) through December 31,
2008, increased to prime rate plus 3%
through April 13, 2009, reset to Daily
Three Month LIBOR plus 5.25% beginning
April 14, 2009, increased to Daily Three
Month LIBOR (0.29% at October 3, 2010)
plus 8.25% beginning June 1, 2009,
secured by certain real estate (see Note
G, Senior Credit Facility)
    
    
    221
    
    
    
    809Note payable to bank in monthly
installments of $21 through May 2012,
plus interest at prime rate through
December 31, 2008, increased to prime
plus 3% through April 13, 2009, reset to
Daily Three Month LIBOR plus 5.25%
beginning April 14, 2009, increased to
Daily Three Month LIBOR (0.29% at October
3, 2010) plus 8.25% beginning June 1,
2009, secured by inventory and
substantially all machinery and equipment
(see Note G, Senior Credit Facility)
    
    
    371
    
    
    
    580Note payable to bank in monthly
installments of $3 through November 16,
2014, plus interest at 8% secured by a
security interest in certain equipment
    
    
    129
    
    
    
    147Notes payable in monthly installments of
$1 through April 2014, without interest,
secured by certain equipment.
    
    
    
    
    
    
    136Capital lease obligations
    
    
    1,015
    
    
    
    1,0447,815
    
    
    
    9,734Less: current portion
    
    
    4,643
    
    
    
    5,097$
    3,172
    
    
    $
    4,637
 At October 3, 2010 and December 31, 2009, debt totaling $129 and $283, respectively, was
classified as held-for-sale, including $28 and $67, respectively, classified as current and $101
and $216, respectively, classified as long term.
 Aggregate maturities of long-term debt for the periods subsequent to October 3, 2010 on a
calendar year basis are as follows:
 Years Ending December 31,
    
    Amount2010
    
    $
    4,3492011
    
    
    4602012
    
    
    2,0732013
    
    
    9062014
    
    
    27Thereafter
    
    
    $
    7,815
 15




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##### Table of Contents



Following is a summary of interest expense for the three and nine months ended October 3,
2010 and October 4, 2009:
 Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    October 4,
    
    
    October 3,
    
    
    October 4,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest expense on principal
    
    $
    204
    
    
    $
    250
    
    
    $
    570
    
    
    $
    704Amortization of debt issue costs
    
    
    4
    
    
    
    29
    
    
    
    11
    
    
    
    37Amortization of debt discount -
revolving notes payable
    
    
    28
    
    
    
    143
    
    
    
    73
    
    
    
    171$
    236
    
    
    $
    422
    
    
    $
    654
    
    
    $
    912
 For the three and nine months ended October 3, 2010, interest expense of $3 and $7 was
attributable to the Companys discontinued operations and recorded within Income (Loss) from
Discontinued Operations on the Condensed Consolidated Statements of Operations. For the three
and nine months ended October 4, 2009, interest expense of $53 and $137 was attributable to the
Companys discontinued operations and recorded within Income (Loss) from Discontinued Operations
on the Condensed Consolidated Statements of Operations.
 NOTE I  RELATED PARTY TRANSACTIONS
 Long-term debt, officers and affiliates
 On February 3, 2010 a note payable to the Companys Chairman and former President and CEO in the
original principal amount of $3,000, originally issued January 1, 2004, was exchanged for a new
note in the original principal amount of $425 in conjunction with the sale of the Companys CES
business to its Chairman (the Martell Note). The principal amount of the Martell Note was
subsequently increased to $2,079 as a result of the working capital adjustment according to the
terms of the sale agreement for the Companys CES business. The Martell Note bears interest at
the greater of 5% or the prime rate (3.25% at October 3, 2010) plus 2%, and requires monthly
principal payments of $5, subject to the approval of Wells Fargo, beginning April 1, 2010 with
all remaining outstanding principal and any unpaid accrued interest due on February 28, 2012.
As of October 3, 2010, no principal payments had been made on the Martell Note. The Martell
Note is secured by certain personal property of the Company, subject to a subordination
agreement that subordinates the obligations of the Company under this note to the Wells Fargo
credit facility. (See Note C, Discontinued and Held-for-Sale Operations, Note G, Senior Credit
Facility and Note H, Debt).
 The original note payable to the Companys Chairman had a balance of $3,000 at December 31,
2009. Interest was 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
connection with the Wells Fargo senior credit facility waiver and amendment to defer payment of
interest and principal on the note (see Note G, Senior Credit Facility). Interest on the note
continued to accrue monthly. Under the terms of the note, principal payments were due monthly
in the amount of $50 beginning February 1, 2010. However, the subordination agreement prohibits
principal and interest payments as long as there was an outstanding balance on the senior credit
facility. Wells Fargo has permitted the Company to make interest payments.
 The original note also included a conversion option whereby outstanding principal and accrued
interest under the note could be converted to common stock at a price of $2.50 per share at any
time at the election of the Companys Chairman. This conversion option expired when the
original note was exchanged for the Martell Note in conjunction with the sale of the Companys
CES business on February 3, 2010.
 Interest expense on the notes was $41 and $78 for the three and nine months ended October 3,
2010 and $38 and $107 for the three and nine months ended October 4, 2009.
 The Company is indebted to the former members of 3-D, one of whom is the former President
of Magnetech Industrial Services, Inc. (MIS), for a note payable with a balance of $2,000 at
October 3, 2010 and December 31, 2009 (see Note G, Senior Credit Facility and Note H, Debt).
Interest is payable monthly at prime. Interest expense on the note was $17 and $49 for the
three and nine months ended October 3, 2010 and $11 and $44 for the three and nine months ended
October 4, 2009. The note matures on November 30, 2010. The
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##### Table of Contents



Company has initiated negotiations to restructure this note, which is subject to a subordination
agreement prohibiting the exercise of remedies without the consent of Wells Fargo.
 Leases
 The Company leases its South Bend, Indiana; Hammond, Indiana; and Boardman, Ohio facilities from
its Chairman of the Board and stockholder. Total rent expense under these agreements was
approximately $73 and $219 for the three and nine months ended October 3, 2010 and $71 and $222
for the three and nine months ended October 4, 2009. The lease for the Hammond, Indiana
facility expired on August 3, 2010. Currently, the Company is in negotiations to renew this
lease. Until then the lease is month-to-month.
 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 approximately $40 and $119 for the three and nine months ended October 3, 2010 and
approximately $39 and $117 for the three and nine months ended October 4, 2009.
 The Company leased a facility in South Bend for the electrical contracting business from a
limited liability company owned by the adult children of its Chairman of the Board and
stockholder. Rent expense under this agreement was approximately $0 and $7 for the three and
nine months ended October 3, 2010 and approximately $22 and $67 for the three and nine months
ended October 4, 2009. This lease was included in the sale of the Companys CES business on
February 3, 2010, and, as of that date, is no longer an obligation of the Company.
 The Company leases a facility in Massillon, Ohio from a partnership, one partner of which is a
former officer of MIS, under an agreement expiring in November 2017. Rent expense under the
lease was approximately $135 and $405 for the three and nine months ended October 3, 2010 and
October 4, 2009.
 NOTE J  LOSS PER SHARE
 The Company accounts for loss per common share under the provisions of
ASC 260, Earnings Per Share, which requires a dual presentation of basic
and diluted loss per common share. Basic 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 loss per common share is computed assuming the
conversion of common stock equivalents, when dilutive.For the three months ended October 3, 2010, the Companys common stock
equivalents, consisting of warrants to purchase 308,197 shares of common
stock and options to purchase a weighted average of 40,226 shares of
common stock issued to employees under the 2005 Stock Option Plan, were
not included in computing diluted loss per share because the effect of
including the warrants and options would have been anti-dilutive. For
the nine months ended October 3, 2010, the Companys common stock
equivalents, consisting of warrants to purchase a weighted average of
308,364 shares of common stock and options to purchase a weighted average
of 62,463 shares of common stock issued to employees under the 2005 Stock
Option Plan, were not included in computing diluted loss per share
because the effect of including the warrants and options would have been
anti-dilutive.For the three and nine months ended October 4, 2009, the Companys common
stock equivalents, consisting of 1,200,000 potential shares of common
stock related to convertible subordinated debt securities, warrants to
purchase 310,254 shares of common stock and options to purchase 55,700
shares of common stock issued to employees under the 2005 Stock Option
Plan were not included in computing diluted loss per share because the
effect of including the warrants and options would have been
anti-dilutive.
 NOTE K  CONCENTRATIONS OF CREDIT RISK
 The Company grants credit, generally without collateral, to its customers, which are primarily
in the steel, metal working, scrap and rail 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 October 3, 2010 and December 31, 2009, approximately 26% and 12%,
respectively, of gross accounts receivable were due from entities in the steel, metal working
and scrap industries, and approximately 18% and 18%, respectively, of gross receivables were due
from entities in the rail industry. No customers accounted for 10% or more of gross accounts
receivable at October 3, 2010. One customer, of the Construction and Engineering Services
segment, accounted for approximately 10% of gross accounts receivable at December 31, 2009. One
customer accounted for 10% or more of revenue from continuing operations for the three or nine
months ended October 3, 2010 and no customer accounted for 10% or more of revenue from
continuing operations for the three or nine months ended October 4, 2009.
 NOTE L  COMMITMENTS AND CONTINGENCIES
 Collective bargaining agreements
 At October 3, 2010 and December 31, 2009, approximately 13% and 34% respectively, of the
Companys employees were covered by collective bargaining agreements.
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##### Table of Contents



Warranty reserves
 The Company warrants workmanship after the sale of its products and services, generally for a
period of one year. An accrual for warranty costs is recorded based upon the historical level
of warranty claims and managements estimates of future costs.
 Product warranty activity for the three months and nine months ended October 3, 2010 and October
4, 2009 is as follows:
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Monthsended October 3,
    
    
    ended October 4,
    
    
    ended October 3,
    
    
    ended October 4,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    281
    
    
    $
    480
    
    
    $
    394
    
    
    $
    589Warranty claims paid
    
    
    (15
    )
    
    
    
    
    
    
    (51
    )
    
    
    (152
    )Warranty expense
    
    
    39
    
    
    
    21
    
    
    
    112
    
    
    
    64Other1
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    Balance at end of period
    
    $
    305
    
    
    $
    501
    
    
    $
    305
    
    
    $
    501
 
 1
    
    Warranty reserve for AMP subsidiary divested in February, 2010. Employment Agreements
 On September 30, 2005, the Company entered into an employment agreement with its Chairman
and, at that time, President and CEO John A. Martell. The agreement was for an initial
three-year term, subject to earlier termination as provided in the agreement. Effective January
1, 2010, the agreement automatically renewed for a one-year period. At each year-end, the
agreement will again automatically renew for successive one-year periods unless either party, at
least three months before the end of the initial term or any renewal term, requests termination
or renegotiation of the agreement. The employment agreement provides for certain benefits to
the executive if employment is terminated by the Company for cause, by the executive with good
reason, or due to death or disability. The benefits include continuation of a multiple of the
executives base salary for three years, any earned but unpaid profit-sharing or incentive
bonus, and company-paid health insurance for one year. On February 3, 2010 this employment
agreement was modified in relation to the sale of the Companys CES business to remove
non-compete and non-solicitation clauses from the agreement.
 On June 18, 2010, the Company entered into an employment agreement with its newly appointed
President and CEO Michael P. Moore. The agreement was for an initial one-year term, subject to
earlier termination as provided in the agreement. At each year-end, the agreement will
automatically renew for successive one-year periods unless either party, at least three months
before the end of the initial term or any renewal term, requests termination or renegotiation of
the agreement. The employment agreement provides for certain benefits to the executive if
employment is terminated by the Company for cause, by the executive with good reason, or due to
death or disability. The benefits include continuation of the executives base salary for six
months, any earned but unpaid profit-sharing or incentive bonus, and company-paid health
insurance for six months.
 Novatech Note Receivable
 In December 2009, as part of the sale of AMP Canada, the purchaser of AMP Canada issued a
promissory note for $400, with monthly payments of $12, to AMP. Proceeds from this note were
assigned by AMP, with the consent of Novatech, to Wells Fargo Bank, and applied to the MISCOR
credit facility, specifically the real estate term loan. Following the sale of AMP by the
Company, Novatech suspended payments to the Company, claiming payment was due to the purchaser
of AMP. Subsequently, Wells Fargo Bank provided Novatech with notice of default. Wells Fargo
Bank has not yet determined what additional actions will be taken. MISCOR has continued to make
the monthly payments of $12 as required by the note assignment. Management expects to recover
the full amount of the note receivable, and accordingly, no reserve has been recorded against
the note.
 Construction and Engineering Services Working Capital Adjustment
 Subsequent to agreement of the working capital adjustment related to the sale of our
Construction and Engineering Services businesses, the purchasers initiated discussions with the
Companys disinterested directors about restructuring payment of the working capital adjustment.
Specifically, the purchasers are requesting that all or part of the working capital adjustment
be paid in cash, which would require the consent of the Companys senior lender, Wells Fargo
Bank. MISCOR had elected, as provided for under the purchase agreement, to apply the full
amount of the working capital adjustment to the note. The purchaser Wells Fargo and the
Companys interested directors have not yet reached an agreement on restructuring payment of the
working capital adjustment.
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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 M  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.
 Note Receivable and Debt
 As of October 3, 2010 and December 31, 2009, market rates on similar notes for similar terms and
remaining maturities are used to estimate the fair value of existing notes receivable at the
present value of expected cash flows. At October 3, 2010 and December 31, 2009, the fair value
of the note receivable, with a carrying value of $379 and $390, respectively, is estimated at
$379 and $390, respectively, and is based on the estimated future cash flows discounted at terms
at which the Company estimates the note would be issued at utilizing current market rates.
 As of October 3, 2010 and December 31, 2009, rates currently available to us for long term
borrowings with similar terms and remaining maturities are used to estimate the fair value of
existing borrowings at the present value of expected cash flows. As of October 3, 2010 and
December 31, 2009, the fair value of debt differed from the carrying amount due to favorable
interest terms on the notes with the former members of 3-D and the Companys Chairman. At
October 3, 2010 and December 31, 2009 the aggregate fair value of debt, with an aggregate
carrying value of $10,401 and $11,879, respectively, is estimated at $10,533 and $12,597,
respectively, and is based on the estimated future cash flows discounted at terms at which the
Company estimates it could borrow such funds from unrelated parties.
 NOTE N  SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
  Nine Months EndedOctober 3,
    
    
    October 4,2010
    
    
    2009Issuance of restricted stock
    
    $
    
    
    
    $
    5Reduction of note payable in conjunction with
sale of CES business
    
    $
    1,096
    
    
    $
    Expiration of conversion option
    
    $
    18
    
    
    $
    484Equipment acquired through capital lease obligation
    
    $
    
    
    
    $
    146
 NOTE O  MANAGEMENT PLAN
 In 2009 the Companys Board of Directors approved a restructuring plan, publicly announced on
December 23, 2009, which included the Companys sale of its Montreal-based rail subsidiary, its
intent to divest its remaining Rail Services and Construction Services subsidiaries to allow
MISCOR to concentrate on industrial and utility services as the refocused vision for the
Company, and the relocation of its corporate headquarters to Massillon, OH. Despite operating
losses in the three and nine months ended October 3, 2010 gross margins have improved and SG&A
costs have been reduced, directly reflecting cost reduction efforts and restructuring
activities. Continued focus on margin improvement is required to achieve profitability, with
specific actions to be developed by the Companys newly appointed President and CEO, to be
implemented in the second half of 2010. Through October 3, 2010, the Company has completed its
planned relocation of its headquarters to Massillon, OH and the divestitures of its CES
businesses and two of the three operating units of its Rail Services business. These
restructuring activities have resulted in a reduction of the Companys working capital
requirements, and have allowed management to focus on and devote appropriate resources to its
Industrial Services businesses.
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NOTE P  SUBSEQUENT EVENTS
 We are continuing to assess the strategic fit of our various businesses and are exploring a
number of strategic alternatives to address liquidity and market opportunities.
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 We provide electro-mechanical repair and maintenance solutions to industrial customers primarily
in the United States. Our services include repair, maintenance and remanufacturing of electric
motors for the steel, rail, and renewable energy industries from five locations in the Midwest
and California; repair and manufacture of industrial lifting magnets for the steel and scrap
industries from two locations in the Midwest; and manufacturing and remanufacturing of power
assemblies, engine parts and other components related to large diesel engines from two locations
on the East Coast.
 The severity and extended nature of the recent economic decline resulted in a steep decline in
demand for products and services in the industries that we support. In 2009 and 2010 we
undertook a number of actions to reduce our fixed costs and increase operating margins. We
suspended non-essential cash expenditures and severely reduced capital expenditures. These
efforts were an endeavor to align our operating costs to the decline in sales and respond to
debt service and supplier demands.
 In December 2009 we announced a restructuring plan in response to the economic issues and
banking environment. This plan established a focus on our industrial services businesses
providing repair and maintenance services for electric motors and electric magnets, with the
intent to divest our other operations, including our operations that specialize in the
manufacturing and remanufacturing of diesel engine components, our operations specializing in
the repair and remanufacture of locomotives, and our construction and engineering services
business.
 The restructuring plan also included relocating our corporate offices to Massillon, Ohio in
order to more centrally locate our management team within our operational area and reduce
selling, general and administrative expenses. Relocation of our corporate offices to Massillon,
Ohio was completed in the second quarter of 2010. With relocation of our corporate offices, on
June 18, 2010, the Company appointed President and CEO Michael P. Moore. Our previous President
and CEO, John A. Martell, remains as non-executive Chairman of MISCOR. We have divested the
construction and engineering business as well as two of our three subsidiaries specializing in
the repair and remanufacturing of locomotives. We plan to complete the divestiture of our
diesel engine components subsidiary during our 2010 fiscal year.
 Revenues from our continuing operations in the nine months ended October 3, 2010 increased
slightly more than 1% from the nine months ended October 4, 2009, reflecting increased service
demand. Gross profit increased with lower direct costs and overhead reduction efforts. Cost
reduction initiatives were realized in SG&A with a reduction of approximately 23% compared to
the first three quarters of 2009. Consequently, the first nine months of 2010 as compared to
the first nine months of 2009 realized improved operating results. Divestiture of our
construction and engineering services business and American Motive Power subsidiary reduced our
past due accounts payable by more than $3.2 million, providing a much needed reduction in cash
demands and helping our liquidity. While neither divestiture resulted in significant additional
cash, the reduction in debt and other obligations was important, and is expected to help us
enhance and grow our capabilities in our industrial services business. While we continue to
manage our past due accounts payable, certain suppliers continue to place us on credit hold or
cash in advance terms. These restrictions impacted our sales and operating margins in 2009, and
continue to have an impact in 2010, although the impact has been reduced.
 Negotiations with its lender, Wells Fargo, to extend the loan facility through 2011, to provide
management time to complete operational improvements, are underway. The Company has also
initiated negotiations to restructure debt held by the former members of 3-D (BDeWees and XGen
III) to reduce its short-term liabilities. Based on our fiscal 2010 budget, and our operating
results for the nine months ended October 3, 2010, we believe we will be able to meet the
financial covenants required by the senior debt agreement for fiscal 2010. In the event we are
unable to attain the results expected, we may have future covenant violations and the lender
could claim a default and demand repayment. If we are unsuccessful in extending or replacing
our existing senior credit agreement, or if we default and the lender demands immediate
repayment of our outstanding borrowings under the bank credit facilities, we do not currently
have means to repay or refinance the amounts that would be due. If we were unable to repay or
refinance the amounts due under the bank credit facilities, the lender could exercise its
remedies under the bank credit facilities, including foreclosing on substantially all our
assets, which we pledged as collateral to secure our obligations under the bank credit
facilities. Prior operating results and the banking environment offer challenges in modifying
or establishing a new senior credit facility. Consequently, capital may not be available on
acceptable terms, or at all. Nevertheless, the Companys management believes it will be
successful in the extending the existing facility. If the Company is unsuccessful in obtaining
an extension through 2011, there would be substantial doubt about our ability to continue as a
going concern.
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##### Table of Contents



Recent Developments
  Critical Accounting Policies and Estimates
  Principles of consolidation
 Use of estimates.
 Revenue recognition
 Cash Equivalents.
 Concentration of credit risk.
 Discontinued operations and assets and liabilities held-for-sale.
  Earnings per share.
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##### Table of Contents



Segment information
 Goodwill and Intangibles.
   Inventory
 Property, plant and equipment
 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
 Debt issue costs.
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##### Table of Contents



Advertising costs
 Warranty costs
 Stock-based compensation.
 Recent accounting pronouncements
    Results of Operations
 Three Months Ended October 3, 2010 Compared to Three Months Ended October 4, 2009
 Revenues
 Gross Profit.
 Selling, General and Administrative Expenses
 Interest Expense and Other Income
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##### Table of Contents



Provision for Income Taxes
 Loss from Continuing Operations.
 Income (Loss) from Discontinued Operations.
 Net Loss.
 Nine Months Ended October 3, 2010 Compared to Nine Months Ended October 4, 2009
 Revenues
 Gross Profit.
 Selling, General and Administrative Expenses
 Interest Expense and Other Income
 Provision for Income Taxes
 Loss from Continuing Operations.
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##### Table of Contents



Income (Loss) from Discontinued Operations.
 Net Loss.
 Liquidity and Capital Resources
  
    
    Consented to the Companys planned sale of its CES Business;
    
    Revised the definition of Borrowing Base, resulting in lower available
borrowings;
    
    Required additional weekly principal payments of $10,000 on the real estate term
note; and
    
    Extended until January 27, 2010, and reduced to $1 million the previously agreed
upon requirement for the Company to raise $2 million additional capital through
subordinated debt, asset sales, or additional cash equity.
  
    
    Revised the terms of Wells Fargos consent to the sale of the Companys CES
Business; and
    
    Extended until February 19, 2010 the previously agreed upon requirement for the
Company to raise $1 million additional capital through subordinated debt, asset sales,
or additional cash equity.
  
    
    Waived the Companys noncompliance with the minimum book net worth and maximum
capital expenditures from working capital covenants for the year ending December 31,
2009;
    
    Adjusted the minimum book net worth covenant to $21.5 million as of December 31,
2009;
    
    Adjusted the allowable capital expenditures for the year ending December 31, 2010
to a maximum of $500,000;
    
    Eliminated the automatic renewal of our revolving credit line in January, 2011;
    
    Incorporated a monthly minimum EBITDA covenant commencing in April, 2010; and
    
    Eliminated the previously agreed upon requirement for the Company to raise $1
million additional capital through subordinated debt, asset sales, or additional cash
equity.
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##### Table of Contents



Discussion of Forward-Looking Statements
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Effectiveness of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description10.1
    
    Secured Promissory Note dated February 3, 2010, among John A. Martell and the registrant (incorporated by reference to
Exhibit 10.3 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.2
    
    Sixth Amendment to Credit and Security Agreement dated January 14, 2010, among Wells Fargo Bank, the registrant and
certain subsidiaries of the registrant (incorporated by reference to Exhibit 10.1 of the registrants Current Report or
Form 8-K
filed January 21, 2010)10.3
    
    Letter Agreement dated September 8, 2009, among Wells Fargo Bank, the registrant and certain subsidiaries of the
registrant,
acknowledged and agreed to by the registrant and such subsidiaries on September 16, 2009 (incorporated by reference to
Exhibit 10.1 to the registrants Current Report on Form 8-K filed on September 21, 2009)10.4
    
    Consent and release by Wells Fargo Bank, National Association, dated March 15, 2010 (incorporated by reference to Exhibit
10.10 to the registrants Current Report on form 8-K filed on March 15, 2010)10.5
    
    Letter Agreement dated February 9, 2010, among Wells Fargo Bank, the registrant and certain subsidiaries of the registrant
(incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.6
    
    Seventh Amendment to Credit and Security Agreement and Limited Waiver of Defaults dated April 15, 2010,
among Wells Fargo Bank, the registrant and certain subsidiaries of the registrant (incorporated by reference to Exhibit
10.56i
to the registrants Annual Report on Form 10-K filed on April 15, 2010)10.7
    
    Purchase Agreement dated February 3, 2010, among John A. Martell and Bonnie Martell and the registrant (incorporated by
reference to Exhibit 2.1 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.8
    
    Lenders Receipt and Acknowledgement dated February 3, 2010, among John A. Martell and the registrant (incorporated by
reference to Exhibit 10.2 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.9
    
    Security Agreement dated February 3, 2010, among Magnetech Industrial Services, Inc. and the registrant (incorporated by
reference to Exhibit 10.4 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.10
    
    Indemnification Agreement dated February 3, 2010, among John A. Martell and Bonnie Martell and the
registrant (incorporated by reference to Exhibit 10.5 to the registrants Current Report on Form 8-K filed on February 9,
2010)10.11
    
    Amendment No. 1 to Employment Agreement dated February 3, 2010, among John A. Martell and the registrant (incorporated
by reference to Exhibit 10.6 to the registrants Current Report on Form 8-K filed on February 9, 2010)10.12
    
    AMP Stock Purchase Agreement dated March 8, 2010, between LMC Transport, LLC, and the registrant (incorporated by
reference to Exhibit 2.1 to the registrants Current Report on form 8-K filed on March 15, 2010)10.13
    
    Release of Tenant Guaranty made by Dansville Properties, LLC, in favor of the registrant and certain of its affiliates
(incorporated by reference to Exhibit 10.1 to the registrants Current Report on form 8-K filed on March 15, 2010)10.14
    
    Release of Landlord Guaranty made by American Motive Power, Inc. in favor of Lawrence Mehlenbacher (incorporated by
reference to Exhibit 10.2 to the registrants Current Report on form 8-K filed on March 15, 2010)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
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##### Table of Contents



SIGNATURES
  MISCOR GROUP, LTD.November 15, 2010
    By:
    /s/ Michael TopaMichael TopaChief Financial Officer

(Signing on behalf of the registrant as
Principal Financial and Accounting
Officer) 28